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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 June 30, 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
(858) 535-1706
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(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 practicable date (August 6, 1999).
Common Stock, $.01 par value: 18,025,181 shares
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INDEX
<TABLE>
<CAPTION>
PAGE #
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1998 and
June 30, 1999 2
Consolidated Statements of Operations - Three months ended
June 30, 1999 and 1998 and six months ended June 30, 1999 and 1998 3
Consolidated Statements of Cash Flows - Six months ended
June 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
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>
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PART I - FINANCIAL INFORMATION
JMAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ......................... $ 3,586,732 $ 3,848,183
Accounts receivable, net .......................... 7,119,344 7,766,961
Notes and other receivable ........................ 68,759 66,682
Inventories ....................................... 5,630,776 5,848,936
Prepaid expenses and other ........................ 866,056 828,664
------------ ------------
Total current assets .......................... 17,271,667 18,359,426
Receivable from officer ............................... 85,728 83,212
Property and equipment, net ........................... 2,309,563 2,710,699
Other assets, net ..................................... 1,310,588 1,245,987
Goodwill, net ......................................... 425,431 475,509
------------ ------------
TOTAL ASSETS .................................. $ 21,402,977 $ 22,874,833
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................. $ 2,593,138 $ 4,728,068
Accrued liabilities ............................... 856,767 570,945
Accrued payroll and related costs ................. 1,070,340 1,153,304
Line of credit .................................... 4,070,000 2,100,000
Notes payable and capital lease obligations ....... 234,565 593,975
------------ ------------
Total current liabilities ..................... 8,824,810 9,146,292
------------ ------------
Notes payable and capital lease obligations, net
of current portion .................................. 301,301 475,362
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued and
outstanding as of June 30, 1999 and
December 31, 1998 ............................... -- --
Common stock, $.01 par value; 40,000,000 shares
authorized; Issued and outstanding 18,033,781
as of June 30, 1999 and 18,080,853 shares as
of December 31, 1998 ............................ 180,338 180,809
Additional-paid in capital ........................ 36,475,417 36,593,901
Accumulated deficit ............................... (24,378,889) (23,521,531)
------------ ------------
Total stockholders' equity .................... 12,276,866 13,253,179
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $ 21,402,977 $ 22,874,833
============ ============
</TABLE>
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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales ...................................... $ 6,769,017 $ 6,063,437 $ 13,464,482 $ 10,363,516
Costs of sales ............................. 4,800,606 3,818,270 9,833,182 6,455,533
------------ ------------ ------------ ------------
Gross profit ........................... 1,968,411 2,245,167 3,631,300 3,907,983
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and
administrative ......................... 1,849,636 1,505,314 3,672,912 2,815,052
Research, development and
engineering ............................ 373,531 429,758 781,492 762,559
------------ ------------ ------------ ------------
Total operating expenses ................. 2,223,167 1,935,072 4,454,404 3,577,611
------------ ------------ ------------ ------------
Income (loss) from operations .............. (254,756) 310,095 (823,104) 330,372
Interest and other income (expense), net ... 58,254 41,742 73,848 79,833
Interest expense ........................... (67,451) (52,716) (108,102) (93,001)
============ ============ ------------ ------------
Net income (loss) .......................... $ (263,953) $ 299,121 $ (857,358) $ 317,204
============ ============ ============ ============
Basic and diluted net income (loss)
per share ................................ $ (.01) $ .02 $ (.05) $ .02
============ ============ ============ ============
Shares used in computation of net
income (loss) per share:
Basic .................................... 18,033,781 18,049,323 18,045,180 18,001,069
============ ============ ============ ============
Diluted .................................. 18,033,781 19,231,810 18,045,180 19,261,773
============ ============ ============ ============
</TABLE>
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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................... $ (857,358) $ 317,204
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization ......................................... 439,367 371,775
Services received in exchange for common stock ........................ 4,120 19,614
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable, net ............................................ 647,617 (1,173,334)
Inventories ......................................................... 218,160 80,392
Prepaid expenses and other .......................................... (37,392) (240,965)
Other assets ........................................................ (104,179) (393,523)
Decrease in:
Accounts payable and accrued liabilities ............................ (1,932,072) (121,058)
------------ ------------
Net cash used in operating activities ................................. (1,621,737) (1,139,895)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of fixed assets .................................... 338,986 --
Capital expenditures .................................................. (208,993) (454,441)
Payments received on notes and other receivables ...................... -- 6,302
Increase in notes receivable .......................................... (4,593) (2,372)
Patent costs .......................................................... (78,568) (19,003)
------------ ------------
Net cash provided by (used in) investing activities ............... 46,832 (469,514)
------------ ------------
Cash flows from financing activities:
Net borrowings under short-term debt agreements ....................... 1,970,000 1,575,000
Net payments of notes payable ......................................... (533,471) (164,922)
Repurchases of stock .................................................. (130,824) --
Net proceeds from the exercise of options and warrants ............... 7,749 107,204
------------ ------------
Net cash provided by financing activities ......................... 1,313,454 1,517,282
------------ ------------
Net decrease in cash and cash equivalents ................................. (261,451) (92,127)
Cash and cash equivalents, beginning of period ............................ 3,848,183 3,644,117
------------ ------------
Cash and cash equivalents, end of period .................................. $ 3,586,732 $ 3,551,990
============ ============
</TABLE>
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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 and six
months ended June 30, 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 June 30, 1999 and December 31, 1998, inventories
consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Raw materials, components and sub-assemblies ..... $3,266,411 $3,127,225
Work-in-process .................................. 1,688,867 2,068,309
Finished goods ................................... 675,498 653,402
---------- ----------
$5,630,776 $5,848,936
========== ==========
</TABLE>
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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) PROPERTY AND EQUIPMENT
At June 30, 1999 and December 31, 1998, property and equipment consisted
of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Equipment and machinery .......................... $ 4,850,564 $ 5,003,891
Furniture and fixtures ........................... 623,253 609,659
Leasehold improvements ........................... 123,963 106,462
----------- -----------
5,597,780 5,720,012
Less-accumulated depreciation .................... (3,288,217) (3,009,313)
----------- -----------
$ 2,309,563 $ 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.
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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 biotech 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 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 design and
engineering 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 six and three months ended June 30, 1999 and
1998 was as follows:
<TABLE>
<CAPTION>
SEMICONDUCTOR
MICROELECTRONICS PRODUCTS AND
EQUIPMENT PROCESSES
SEGMENT SEGMENT CORPORATE TOTAL
---------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Six Months Ended June 30, 1999:
Revenues $ 7,884,562 $ 5,579,920 $ -- $ 13,464,482
Operating income (loss) (1,046,857) 223,753 -- (823,104)
Total assets 14,365,891 4,275,435 2,761,651 21,402,977
Three Months Ended June 30, 1999:
Revenues $ 4,207,832 $ 2,561,185 $ -- $ 6,769,017
Operating income (loss) (305,312) 50,556 -- (254,756)
Six Months Ended June 30, 1998:
Revenues $ 10,006,591 $ 356,925 $ -- $ 10,363,516
Operating income (loss) 519,662 (189,290) -- 330,372
Total assets 14,225,239 2,127,896 2,685,891 19,039,026
Three Months Ended June 30, 1998:
Revenues $ 5,879,374 $ 184,063 $ -- $ 6,063,437
Operating income (loss) 408,481 (98,386) -- 310,095
</TABLE>
In the table above, Corporate assets are principally cash, deferred income taxes
and other assets.
7
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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(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.
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.
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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 recent changes in the way the
Company is reporting its operating segments.
RESULTS OF CONSOLIDATED OPERATIONS
Net income (loss) for the three months ended June 30, 1999 and 1998 were
$(263,953) and $299,121, respectively. During the same periods, revenues
increased 12% to $6,769,017 for the three months ended June 30, 1999 from
$6,063,437 for the three months ended June 30, 1998.
The improvement in revenues to the highest level for any second quarter
in the Company's history was chiefly attributable to sustained growth in the
Semiconductor Products and Processes Segment, a surge of orders from the biotech
products market 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 a
decline in orders for the Company's products from the disk drive industry
worldwide. As a result of an increase in orders in the precision instrument
products which started in the first quarter of 1999, the revenues from the
Company's precision instrument products increased 65% in the second quarter of
1999 in comparison to the first quarter of 1999. For the six months ended June
30, 1999 revenues were $13,464,482 compared with $10,363,516 for the six month
period ended June 30, 1998. Net income (loss) for the first half of 1999 and
1998 was $(857,358) and $317,204, respectively.
Gross margins for the six months ended June 30, 1999 and 1998 were 27.0%
and 37.7%, 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 will continue to be lower
compared to 1998.
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. Included are increases in payroll
costs 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. 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
23.5 percent of revenues in the first half of 1999.
Selling, general and administrative ("SG&A") expenses for the three
months ended June 30, 1999 and 1998 were $1,849,636 and $1,505,314,
respectively, and were $3,672,912 and $2,815,052 for the six months ended June
30, 1999 and 1998, 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 $944,364 and $431,985 for the three months ended June 30, 1999
and 1998, respectively, and $2,382,350 and $849,333 for the six month periods
ended June 30, 1999 and 1998, respectively. The increase in Customer-Funded RD&E
expenditures for 1999 is related to an increase of $939,884 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 $593,133
related to the Company's contract for the development of a unique microcircuit
architecture and devices for the
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replacement of obsolete integrated circuits. Company-Funded RD&E costs are shown
in "Operating Expenses" and totaled $373,531 and $429,758 for the three months
ended June 30, 1999 and 1998, respectively, and $781,492 and $762,559 for the
six months ended June 30, 1999 and 1998, respectively. Hence, total RD&E
expenses for the three month periods were $1,317,895 and $861,743 for 1999 and
1998, respectively, and $3,163,842 and $1,611,892 for the six month periods in
1999 and 1998, respectively. Therefore, RD&E expenditures as a percentage of
sales were 23.5% and 15.6% for the six months ended June 30, 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 development of a
unique microcircuit architecture and devices for the replacement of obsolete
integrated circuits, the continued development of commercial laser systems, the
development of new software for the Company's test and measurement 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 three months ended June 30, 1999 as compared to the
three months ended June 30, 1998 for the Microelectronics Equipment Segment
decreased $1,671,542 from $5,879,374 to $4,207,832, or 28.4 percent. Revenue for
the six month period in 1999 as compared to 1998 for this Segment decreased
$2,122,029 from $10,006,591 to $7,884,562, or 21.2 percent. This decrease
primarily reflects lower shipments of precision instruments to the disk drive
industry worldwide. As a result, the Microelectronics Equipment Segment
operating income for the three months ended June 30, 1999 as compared to the
three months ended June 30, 1998 was adversely affected as well, decreasing
$713,793 from income of $408,481 to a loss of $305,312. Operating income for
the six month period in 1999 as compared to 1998 for this Segment decreased
$1,566,519 from income of $519,662 to a loss of $1,046,857. 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 Segment
The Semiconductor Products and Processes Segment experienced significant
growth in revenues for the three months ended June 30, 1999 as compared to the
three months ended June 30, 1998 of $2,377,122 from $184,063 to $2,561,185.
Revenue for the six month period in 1999 as compared to 1998 for this Segment
increased $5,222,995 from $356,925 to $5,579,920. 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 for the three
months ended June 30, 1999 as compared to the three months ended June 30, 1998
increased $148,942 from a loss of $98,386 to income of $50,556. Operating
income for the six month period in 1999 as compared to 1998 for this Segment
increased $413,043 from a loss of $189,290 to income of $223,753.
CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
Cash and cash equivalents at June 30, 1999 and December 31, 1998 were
$3,586,732 and $3,848,183, respectively. The decrease in cash and cash
equivalents for the six months ended June 30, 1999 and 1998 was $261,451 and
$92,127, respectively. The decrease in cash for the six months ended June 30,
1999 resulted primarily from cash used in operations of $1,621,737, net payments
of notes payable of $533,471, capital expenditures of $208,993, repurchases of
stock of $130,824 and patent costs of $78,568 offset in part by borrowings from
the Company's working capital bank line of $1,970,000 and proceeds from sale of
fixed assets of $338,986.
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
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<PAGE> 12
"prime rate". As of August 9, 1999, JMAR's availability pursuant to the Line was
$2,830,000. 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 August 9, 1999, the Company had
repurchased 252,900 shares pursuant to this repurchase program at a total cost
of approximately $496,000.
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.
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 a 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 thorough review of the
Company's internal systems and products as well as its suppliers' compliance.
This assessment has been 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 identified certain corrective actions. 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 completed the corrective actions
required to be taken. The Company is continuing to assess and reassess its Year
2000 issues as it obtains additional information and test procedures from
semiconductor industry groups.
In connection with its assessment of the Year 2000 issues, the Company
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.
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
11
<PAGE> 13
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
from early 1998 through the beginning of the Year 2000 will be approximately
$75,000 and its other expenses over the same period will be approximately
$15,000. 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
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 and market acceptance of technology transfer
(e.g., advanced laser systems, lithography and non-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 1,932 shares of
Common Stock to its outside directors as compensation for services as
directors in April and June, 1999. These transactions were 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
June 30, 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.
August 9, 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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