<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 March 31, 1999
Commission File Number 1-10515
JMAR TECHNOLOGIES, 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 7, 1999).
Common Stock, $.01 par value: 18,033,293 shares
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE #
---------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1998 and
March 31, 1999 2
Consolidated Statements of Operations - Three months ended
March 31, 1999 and 1998 3
Consolidated Statements of Cash Flows - Three months ended
March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. N/A
Item 2. Changes in Securities 13
Item 3. N/A
Item 4. N/A
Item 5. N/A
Item 6. Reports on Form 8-K 13
</TABLE>
1
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PART I - FINANCIAL INFORMATION
JMAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
=================================================================================================================
ASSETS March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................ $ 3,695,978 $ 3,848,183
Accounts receivable, net ............................................. 4,906,218 7,766,961
Notes and other receivable ........................................... 62,681 66,682
Inventories .......................................................... 5,511,280 5,848,936
Prepaid expenses and other ........................................... 907,176 828,664
------------ ------------
Total current assets ............................................. 15,083,333 18,359,426
Receivable from officer .................................................. 84,449 83,212
Property and equipment, net .............................................. 2,618,105 2,710,699
Other assets, net ........................................................ 1,267,376 1,245,987
Goodwill, net ............................................................ 450,470 475,509
------------ ------------
TOTAL ASSETS ..................................................... $ 19,503,733 $ 22,874,833
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ..................................................... $ 2,498,726 $ 4,728,068
Accrued liabilities .................................................. 827,264 570,945
Accrued payroll and related costs .................................... 1,176,331 1,153,304
Line of credit ....................................................... 1,500,000 2,100,000
Notes payable and capital lease obligations .......................... 498,555 593,975
------------ ------------
Total current liabilities ........................................ 6,500,876 9,146,292
------------ ------------
Notes payable and capital lease obligations, net of current portion ...... 453,859 475,362
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued and outstanding
as of March 31, 1999 and December 31, 1998 ..................... -- --
Common stock, $.01 par value; 40,000,000 shares authorized; Issued and
outstanding 18,030,853 as of March 31, 1999 and 18,080,853 shares as
of December 31, 1998 ............................................... 180,309 180,809
Additional-paid in capital ........................................... 36,483,625 36,593,901
Accumulated deficit .................................................. (24,114,936) (23,521,531)
------------ ------------
Total stockholders' equity ...................................... 12,548,998 13,253,179
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $ 19,503,733 $ 22,874,833
============ ============
=================================================================================================================
</TABLE>
2
<PAGE> 4
JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
==================================================================================
Three Months Ended
------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Sales .......................................... $ 6,695,465 $ 4,300,079
Costs of sales ................................. 5,032,576 2,637,263
------------ ------------
Gross profit ............................... 1,662,889 1,662,816
------------ ------------
Operating expenses:
Selling, general and
administrative ............................. 1,823,276 1,309,738
Research, development and
engineering ................................ 407,961 332,801
------------ ------------
Total operating expenses ..................... 2,231,237 1,642,539
------------ ------------
Income (loss) from operations .................. (568,348) 20,277
Interest and other income (expense), net ....... 15,594 38,091
Interest expense ............................... (40,651) (40,285)
------------ ------------
Net income (loss) .............................. $ (593,405) $ 18,083
============ ============
Basic and diluted net income (loss) per share .. $ (.03) $ .00
============ ============
Shares used in computation of net income
(loss) per share:
Basic ........................................ 18,055,191 17,952,279
============ ============
Diluted ...................................... 18,055,191 19,337,011
============ ============
==================================================================================
</TABLE>
3
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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
=====================================================================================================
Three Months Ended
--------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... $ (593,405) $ 18,083
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .............................. 229,595 183,615
Services received in exchange for common stock or warrants.. -- 18,412
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable, net ................................. 2,860,743 (352,195)
Inventories .............................................. 337,656 (609,341)
Prepaid expenses and other ............................... (78,512) (160,411)
Other assets ............................................. (60,486) (153,009)
Decrease in:
Accounts payable and accrued liabilities ................. (1,949,996) (148,418)
----------- -----------
Net cash provided by (used in) operating activities ........ 745,595 (1,203,264)
----------- -----------
Cash flows from investing activities:
Capital expenditures ....................................... (50,658) (267,052)
Payments received on notes and other receivable ............ 4,001 1,185
Increase in notes receivable ............................... (1,237) (1,165)
Patent costs ............................................... (22,207) (3,643)
----------- -----------
Net cash used in investing activities .................. (70,101) (270,675)
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under short-term debt agreements.. (600,000) 1,450,000
Net payments of notes payable .............................. (116,923) (90,424)
Repurchases of stock ....................................... (110,776) --
Net proceeds from the exercise of options and warrants .... -- 26,035
----------- -----------
Net cash provided by (used in) financing activities .... (827,699) 1,385,611
----------- -----------
Net decrease in cash and cash equivalents ...................... (152,205) (88,328)
Cash and cash equivalents, beginning of period ................. 3,848,183 3,644,117
----------- -----------
Cash and cash equivalents, end of period ....................... $ 3,695,978 $ 3,555,789
=========== ===========
=====================================================================================================
</TABLE>
4
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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of JMAR Technologies, 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,
1998. 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, 1998. The results of operations for the three months
ended March 31, 1999 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. At March 31, 1999 and December 31, 1998, inventories
consisted of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials, components and sub-assemblies ..... $3,002,319 $3,127,225
Work-in-process .................................. 1,796,410 2,068,309
Finished goods ................................... 712,551 653,402
---------- ----------
$5,511,280 $5,848,936
========== ==========
</TABLE>
5
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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) PROPERTY AND EQUIPMENT
At March 31, 1999 and December 31, 1998, property and equipment
consisted of the following:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Equipment and machinery .................... $ 5,036,771 $ 5,003,891
Furniture and fixtures ..................... 618,903 609,659
Leasehold improvements ..................... 114,996 106,462
----------- -----------
5,770,670 5,720,012
Less-accumulated depreciation .............. (3,152,565) (3,009,313)
----------- -----------
$ 2,618,105 $ 2,710,699
=========== ===========
</TABLE>
(4) ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In March, 1998, the Accounting Standards Executive Committee (AcSEC)
issued AICPA Statement of Position (SOP) 98-1, "Accounting for costs of computer
software developed or obtained for internal use". This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics of internal-use software and
provides assistance in determining when computer software is for internal use.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998, with
earlier application permitted. The adoption of SOP 98-1 did not have a
significant impact on the Company's consolidated financial statements, results
of operations, or related disclosures thereto.
In April, 1998, AcSEC issued SOP 98-5, "Reporting on the costs of
start-up activities". This statement provides guidance on financial reporting of
start-up costs and organization costs and requires that such costs of start-up
activities be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998, with earlier application permitted. The
adoption of SOP 98-5 did not have a significant impact on the Company's
consolidated financial statements, results of operations, or related disclosures
thereto.
(5) SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information, which required the Company to report
operating information by segment. In the Company's Form 10-K for the year ended
December 31, 1998, three segments were reported. These three segments were the
Precision Systems Segment, the Contract Research and Development Segment, and
the Semiconductor Products and Processes Segment.
During the quarter ended March 31, 1999, the Company combined the Precision
Systems and Contract Research and Development Segments to form the
Microelectronics Equipment Segment. The Company's two Segments offer varying
products and services which are affected by different economic conditions.
Further, the Segments reflect the manner in which the Company now views the
operating segments.
6
<PAGE> 8
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Microelectronics Equipment Segment: This segment includes the manufacture,
marketing and sale of the Company's measurement and inspection systems,
positioning and motion control systems and laser processing systems. This
segment also includes the development of the Company's micro-technology emerging
products, including: next-generation x-ray lithography sources and other
non-lithography X-ray systems for manufacturing and inspecting tomorrow's
high-performance semiconductors; ultra-precision laser machining systems; and
other leading-edge products based on its patented laser technology.
Semiconductor Products and Processes Segment: Using advanced tools and
established foundry relationships with semiconductor producers, this "fab-less"
supplier of semiconductors focuses on the development and delivery of
high-performance customer microcircuits for a wide range of commercial, medical
and military electronics uses. This segment also provides high value services
related to the upgrade and enhancement of a CMOS integrated circuit fabrication
facility and related wafer processing technology for the low-volume and
prototype manufacture of electronic circuits used in operational military
systems.
Segment information for the three months ended March 31, 1999 and 1998 was as
follows:
<TABLE>
<CAPTION>
SEMICONDUCTOR
MICROELECTRONICS PRODUCTS AND
EQUIPMENT PROCESSES
SEGMENT SEGMENT CORPORATE TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1999:
Revenues $ 3,676,730 $ 3,018,735 $ -- $ 6,695,465
Operating income (loss) (710,727) 142,379 -- (568,348)
Total assets 11,996,597 4,143,510 3,363,626 19,503,733
1998:
Revenues $ 4,127,217 $ 172,862 $ -- $ 4,300,079
Operating income (loss) 109,559 (89,282) -- 20,277
Total assets 13,514,906 2,158,226 2,869,436 18,542,568
</TABLE>
In the table above, Corporate assets are principally cash, deferred income taxes
and other assets.
(6) SHAREHOLDER RIGHTS PLAN
In February 1999, the Company adopted a Shareholder Rights Plan, and
subsequently declared a dividend of one Preferred Share Purchase Right for each
outstanding share of JMAR common stock held by shareholders of record at the
close of business on March 5, 1999. The Rights and Rights Plan expire on
February 12, 2009.
Each Right will entitle shareholders to buy one one-thousandth (1/1000th) of
a share of JMAR's Series A Junior Participating Preferred Stock at an exercise
price of $25.00. Initially, the Rights will not be exercisable and will be
attached to and trade together with shares of JMAR common stock. Subject to
limited exceptions, the Rights will become exercisable 10 days after a person or
group announces that it has acquired 15 percent or more of JMAR's common stock
or announces commencement of a tender or exchange offer for 15 percent or more
of JMAR's common stock.
7
<PAGE> 9
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Once exercisable, each Right not owned by the acquiring person or group
will entitle its holder to purchase that number of shares of JMAR's common stock
having a market value of twice the Right's current exercise price. In addition,
if JMAR is acquired in a merger or other business combination transaction, the
acquiring entity must assume the obligations under the Rights and the Rights
will become exercisable to acquire common stock of the acquiring entity at a 50
percent discount.
JMAR's Board may redeem the Rights for $.0001 per Right at any time on
or before the tenth day following acquisition by a person or group of 15 percent
or more of JMAR's common stock. In addition, at any time after an event
triggering exercisability of the Rights and prior to the acquisition by the
acquiring person of 50 percent or more of JMAR's common stock, the Board of
Directors of JMAR may also exchange each Right for one share of common stock of
JMAR.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
The Company operates in two segments as follows: Microelectronics
Equipment Segment and Semiconductor Products and Processes Segment. Note 5 to
the Consolidated Financial Statements discusses the changes in the way the
Company reports its operating segments.
RESULTS OF CONSOLIDATED OPERATIONS
Net income (loss) for the three months ended March 31, 1999 and 1998 were
$(593,405) and $18,083, respectively. However, revenues increased 56% to
$6,695,465 for the three months ended March 31, 1999 from $4,300,079 for the
three months ended March 31, 1998.
The significant improvement in revenues to the highest level for any first
quarter in the Company's history was chiefly attributable to sustained growth in
the Semiconductor Products and Processes Segment and expanded contract activity
in the Company's X-ray lithography development program. Offsetting these
increases was a decline in 1999 shipments of the Company's precision instrument
products related to decreased demand from Asian markets and requests from
certain customers to reschedule shipments until later in 1999. As a result of
an increase in orders in the precision instrument products which started in the
first quarter of 1999, the Company anticipates that revenues and profits will
increase in the remainder of the year.
The Company's profits were also impacted by JMAR's continuing investments
to accelerate the time-to-market for several new high-performance products for
the microelectronics marketplace. As discussed below, the Company's product
development expenditures, including that portion of customer-funded efforts
directly attributable to the commercialization of JMAR's proprietary
technologies, were 28 percent of revenues in the first quarter of 1999.
Additionally, payroll costs increased with the addition of several senior
technical specialists and managers to direct and help speed the Company's new
precision instrument, laser and X-ray products to market.
Gross margins for the three months ended March 31, 1999 and 1998 were 24.8%
and 38.7%, respectively. To the extent that the Company's rapidly expanding
semiconductor-related business continues to represent a higher percentage of the
Company's revenues, the Company's gross margins could be lower compared to 1998.
Selling, general and administrative ("SG&A") expenses for the three months
ended March 31, 1999 and 1998 were $1,823,276 and $1,309,738, respectively. The
increase in SG&A expenses in 1999 is primarily due to higher payroll costs
related to the addition of senior technical and management staff.
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 "Contract Costs of Sales",
totaled $1,437,986 and $417,348 for the three months ended March 31, 1999 and
1998, respectively. The increase in Customer-Funded RD&E expenditures for 1999
is related to an increase of $718,786 in the X-ray lithography program funding
provided by DARPA, most of which is directed toward commercialization of JMAR's
X-ray lithography source technology and $301,852 related to the Company's
contract for the development of a unique microcircuit architecture and devices
for the replacement of obsolete integrated circuits. Company-Funded RD&E costs
are shown in "Operating Expenses" and totaled $407,961 and $332,801,
respectively. Hence, total RD&E expenses for the three month periods were
$1,845,947 and $750,149, respectively. Capitalized software costs of $30,753 and
$135,247 for the three months ended March 31, 1999 and 1998, respectively, are
not included in the above amounts. Including capitalized software costs, RD&E
expenditures as a percentage of sales were 28% and 20.6% for the three months
ended March 31, 1999 and 1998, respectively. The increase in RD&E expenditures
is primarily related to the continued development of PXS point X-ray sources for
lithography for the semiconductor industry and other metrology applications, the
continued development of commercial laser systems, the development of new
software for the Company's test and measurement
9
<PAGE> 11
systems and the engineering development of higher performance test and
measurement inspection systems for the disk drive and semiconductor industries.
RESULTS OF SEGMENT OPERATIONS
Microelectronics Equipment Segment
Revenue for the Microelectronics Equipment Segment decreased $450,487 from
$4,127,217 to $3,676,730, or 10.9 percent. This decrease reflects lower
shipments of precision instruments to the computer industry primarily related to
decreased demand from Asian markets. Additionally, the Company had customer
requested shipping delays related to precision instrument products. As a result,
the Microelectronics Equipment Segment operating income was adversely affected
as well, decreasing $820,286 from income of $109,559 to a loss of $710,727. This
decrease reflects the decrease in revenues of the higher margin precision
instruments as well as an increase in product development expenditures.
Semiconductor Products and Processes
The Semiconductor Products and Processes Segment experienced significant
growth in revenues of $2,845,873 from $172,862 to $3,018,735. This growth
reflects the receipt in the last half of 1998 of two significant contracts from
General Dynamics Information Systems and TRW funded by the Defense
Microelectronics Activity. Because of the increase in revenues, operating income
increased $231,661 from a loss of $89,282 to income of $142,379.
CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
Cash and cash equivalents at March 31, 1999 and December 31, 1998 were
$3,695,978 and $3,848,183, respectively. The decrease in cash and cash
equivalents for the three months ended March 31, 1999 and 1998 was $152,205 and
$88,328, respectively. The decrease in cash for the three months ended March 31,
1999 resulted primarily from payments of the Company's working capital bank line
of $600,000, net payments of notes payable of $116,923, repurchases of stock of
$110,776, capital expenditures of $50,658 and patent costs of $22,207 offset in
part by cash provided by operations of $745,595.
JMAR's operations will continue to require the use of working capital.
The working capital of the Company is generally funded through its $5,000,000
working capital line (the "Line") with Comerica Bank (the "Bank") and through
third party contracts. The Line provides for the accrual of interest at the
Bank's "prime rate". As of May 7, 1999, JMAR's availability pursuant to the Line
was $4,500,000. 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 through
the end of 1999 based on the current level of operations and business
conditions.
In September, 1998, the Board of Directors authorized the repurchase,
from time-to-time, of up to $2,000,000 of its own shares of common stock in the
open market, or in negotiated transactions, when they are available at prices
the Company considers attractive. As of May 7, 1999, the Company had repurchased
234,300 shares pursuant to this repurchase program at a total cost of $446,833.
At December 31, 1998, the Company had in excess of $25 million of
Federal net operating loss carryforwards, subject to certain annual limitations,
which expire from 2004 through 2011. To the extent the Company has taxable
income in the future, these carryforwards may be used by the Company to reduce
its cash outlay for taxes.
10
<PAGE> 12
YEAR 2000 ISSUES
The "Year 2000 Issue" is the result of computer systems, embedded
semiconductors and related items not being able to distinguish the year 2000
from the year 1900. This issue affects virtually every business, including the
Company's, and can affect both the Company's internal information systems, the
equipment and components it buys from others and the products it sells.
In early 1998, the Company formed a task force to assess the nature,
extent and cost of remediation of any Year 2000 compliance issues confronting
the Company and its suppliers. This project encompasses a review of the
Company's internal systems and products as well as its suppliers' compliance.
This assessment has been substantially completed with regard to the Company's
internal information systems and at all of the Company's three divisions. As a
result of its assessment process, the Company has identified certain corrective
actions which may be required. The Company has completed the corrective actions
required to be taken with regard to its internal information systems and
believes such systems are compliant. With regard to its products, the Company
has taken several corrective actions and others remain to be completed. Based
upon its understanding of the corrective actions which may be required, the
Company expects to complete all required actions by mid-1999. The Company is
continuing to assess and reassess its Year 2000 issues as it obtains additional
information and test procedures from Sematech and other industry groups.
In connection with its assessment of the Year 2000 issues, the Company
has sent out letters to its customers advising them of the Year 2000 issue and
providing them with a testing procedure to diagnose any potential problems in
equipment supplied to them by the Company. The Company has also sent
questionnaires to its key suppliers requesting information regarding their own
Year 2000 compliance efforts, as well as requesting confirmation that the
components and services provided by those suppliers are Year 2000 compliant. To
date, the Company has not received any responses which indicate that the
Company's products have Year 2000 problems or that its suppliers have any Year
2000 problems. The Company is continuing to follow-up with those suppliers who
have not responded to its surveys.
Based upon its ongoing assessment process, the Company believes that
Year 2000 issues related to its internal systems and its products should not
have a material impact on the Company's financial or operating performance.
Although the Company believes that it is justified in relying upon the
information and confirmations it has obtained from its key suppliers, the
Company does not intend to obtain independent confirmation of its suppliers'
Year 2000 compliance and, therefore, no assurances can be given that the
companies upon which the Company relies will timely resolve their own Year 2000
compliance issues.
The costs to implement the Company's Year 2000 plan are primarily the
time devoted by personnel to assess the Year 2000 issues, to communicate with
suppliers and customers and to formulate and implement any necessary changes. It
is the Company's policy to expense such costs as incurred. The Company estimates
that its total cumulative labor costs incurred in connection with its Year 2000
assessment and remediation efforts over more than one year is approximately
$50,000 and its other expenses over the same period are less than $10,000. Based
upon the Company's current assessment, the Company does not expect the Year 2000
issue to have a material impact on its business, operations, financial
condition, liquidity and capital resources in the future.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements contained in this Form 10-Q which are not related to
historical results, including statements regarding JMAR's future sales or profit
growth, competitive position or products, projects or processes currently under
development and the ability of the Company to successfully introduce those
products into the commercial marketplace or to apply those products, projects or
processes to alternative applications and the Company's plans to address the
Year 2000 issues, its estimated costs of remediation and testing, the impact of
the failure to reach compliance and its timetable for the implementation of its
Year 2000 plans, are forward-looking statements that necessarily are based on
11
<PAGE> 13
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 certain markets and customers,
delays in shipments or cancellations of orders, failure of expected orders to
materialize, fluctuation in margins, timing of future orders, customer
reorganizations, failure of advanced technology to perform as predicted,
uncertainties associated with the timing of the funding of government contracts,
fluctuations in demand, delays in development, introduction and acceptance of
new products, changing business and economic conditions in various geographic
regions, 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, micromachining, etc.) to commercial products, availability
of working capital to support growth, continued government funding of advanced
lithography, successful integration of acquisitions, other competitive factors
and temporary cessation of operations at one or more of its division facilities
due to natural events such as floods, earthquakes and fires, and other risks
detailed in the Company's Form 10-K for the year ended December 31, 1998 and in
the Company's other filings with the Securities and Exchange Commission.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's market risks pursuant to Item 3 are not material and
therefore are not required to be disclosed.
12
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities
(c)(i) Pursuant to the Board Member Compensation Program adopted by the
Company in August, 1997, the Company issued a total of 1,104 shares of
Common Stock to its outside directors as compensation for services as
directors in February, 1999. This transaction was exempt under Section
4(2) of the Securities Act of 1933.
(ii)In connection with the hiring of Michael Fossey as JMAR Precision
Systems, Inc.'s Senior Vice President of Business Development on March
15, 1999, the Company issued a warrant (the "Incentive Warrant")
exercisable for 25,000 shares of Common Stock at an exercise price of
$3.00 per share. The Incentive Warrant was issued pursuant to the
Management Incentive Plan dated August 15, 1996 for JMAR Precision
Systems, Inc. The Incentive Warrant was issued in a transaction exempt
under Section 4(2) of the Securities Act of 1933. The Incentive Warrant
becomes exercisable upon the earlier of (i) forty-five days after the
average closing high bid price of the Company's Common Stock for 20
consecutive trading days is greater than $6.38; (ii) the exercise of
holders of at least 90 percent of the Company's publicly traded
warrants; or (iii) nine years and six months after the date of grant.
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
March 31, 1999.
13
<PAGE> 15
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 TECHNOLOGIES, INC.
May 10, 1999 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
14
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