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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, 2000
Commission File Number 1-10515
JMAR TECHNOLOGIES, INC.
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(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)
5800 Armada Drive
Carlsbad, CA 92008
(760) 602-3292
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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 (November 8, 2000).
Common Stock, $.01 par value: 22,226,279 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, 1999 and
September 30, 2000 2
Consolidated Statements of Operations - Three months ended
September 30, 2000 and 1999 and nine months ended September
30, 2000 and 1999 3
Consolidated Statements of Cash Flows - Nine months ended
September 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. N/A
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. N/A
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
1
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PART I - FINANCIAL INFORMATION
JMAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
=========================================================================================================
ASSETS
Sept. 30, 2000 Dec. 31, 1999
-------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ...................................... $ 8,027,928 $ 2,323,127
Accounts receivable, net ....................................... 5,422,434 7,079,435
Notes and other receivables .................................... 631,482 32,551
Inventories .................................................... 7,031,126 6,253,336
Prepaid expenses and other ..................................... 1,380,806 901,688
------------ ------------
Total current assets ....................................... 22,493,776 16,590,137
Property and equipment, net ........................................ 3,199,756 2,330,663
Other assets, net .................................................. 2,834,626 1,344,942
Notes receivable ................................................... 94,859 10,099
Goodwill, net ...................................................... 326,324 397,927
------------ ------------
TOTAL ASSETS ............................................... $ 28,949,341 $ 20,673,768
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................... $ 1,392,191 $ 2,456,928
Accrued liabilities ............................................ 543,569 593,283
Accrued payroll and related costs .............................. 1,113,878 875,693
Line of credit ................................................. -- 4,990,000
Notes payable and capital lease obligations .................... 161,405 205,490
------------ ------------
Total current liabilities ........................... 3,211,043 9,121,394
------------ ------------
Notes payable, capital leases and other long-term
liabilities, net of current portion ........................ 516,361 642,913
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued and outstanding
as of September 30, 2000 and December 31, 1999 ........... -- --
Common stock, $.01 par value; 40,000,000 shares authorized;
Issued and outstanding 22,184,842 as of September 30, 2000 and
18,074,836 shares as of December 31, 1999 ................ 221,848 180,748
Additional-paid in capital ..................................... 52,577,033 36,499,238
Accumulated deficit ........................................ (27,576,944) (25,770,525)
------------ ------------
Total stockholders' equity ................................ 25,221,937 10,909,461
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................. $ 28,949,341 $ 20,673,768
============ ============
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</TABLE>
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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 AND
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
==============================================================================================================================
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales ............................................ $ 3,769,493 $ 4,677,464 $ 13,736,115 $ 18,141,946
Costs of sales ................................... 2,739,950 3,067,231 9,269,658 12,900,413
------------ ------------ ------------ ------------
Gross profit ................................. 1,029,543 1,610,233 4,466,457 5,241,533
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and
administrative ............................... 1,683,268 1,633,779 4,881,160 5,306,691
Research, development and
engineering .................................. 485,660 508,699 1,534,140 1,290,191
------------ ------------ ------------ ------------
Total operating expenses ....................... 2,168,928 2,142,478 6,415,300 6,596,882
------------ ------------ ------------ ------------
Loss from operations ............................. (1,139,385) (532,245) (1,948,843) (1,355,349)
Gain on sale of subsidiary stock ................. -- 161,000 -- 161,000
Interest and other income (expense), net ......... 121,039 4,460 251,768 78,308
Interest expense ................................. (9,447) (72,112) (109,344) (180,214)
------------ ------------ ------------ ------------
Net loss ......................................... $ (1,027,793) $ (438,897) $ (1,806,419) $ (1,296,255)
============ ============ ============ ============
Basic and diluted net loss per share ............. $ (.05) $ (.02) $ (.08) $ (.07)
============ ============ ============ ============
Basic and diluted shares used in computation
of net loss per share .......................... 22,182,396 18,043,336 21,262,135 18,044,558
============ ============ ============ ============
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</TABLE>
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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
=====================================================================================================================
Nine Months Ended
-----------------
Sept. 30, 2000 Sept. 30, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $ (1,806,419) $ (1,296,255)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 780,488 736,078
Services received in exchange for common stock ............................ 2,403 5,320
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable, net ................................................ 1,657,001 2,679,986
Inventories ............................................................. (777,790) (750,915)
Prepaid expenses and other .............................................. (318,650) (96,116)
Other assets ............................................................ (86,985) 217,363
Decrease in:
Accounts payable and accrued liabilities ................................ (876,266) (2,724,443)
------------ ------------
Net cash used in operating activities ................................. (1,426,218) (1,228,982)
------------ ------------
Cash flows from investing activities:
Capital expenditures ...................................................... (1,341,047) (978,958)
Other assets .............................................................. (1,742,426) --
Payments received on notes and other receivables .......................... 12,016 --
Increase in notes receivable .............................................. (692,973) (31,838)
Patent costs .............................................................. (54,539) (112,889)
------------ ------------
Net cash used in investing activities ................................. (3,818,969) (1,123,685)
------------ ------------
Cash flows from financing activities:
Net borrowings (payments) under short-term debt agreements ................ (4,990,000) 2,445,000
Net payments of notes payable, capital leases
and other long-term liabilities ......................................... (170,637) (244,682)
Repurchases of stock ...................................................... -- (154,905)
Net proceeds from the exercise of options and warrants .................... 16,110,625 --
------------ ------------
Net cash provided by financing activities ............................. 10,949,988 2,045,413
------------ ------------
Net increase (decrease) in cash and cash equivalents .......................... 5,704,801 (307,254)
Cash and cash equivalents, beginning of period ................................ 2,323,127 3,848,183
------------ ------------
Cash and cash equivalents, end of period ...................................... $ 8,027,928 $ 3,540,929
============ ============
=====================================================================================================================
</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,
1999. 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, 1999. The results of operations for the three and nine
months ended September 30, 2000 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 September 30, 2000 and December 31, 1999, inventories
consisted of the following:
<TABLE>
<CAPTION>
Sept. 30, 2000 Dec. 31, 1999
-------------- -------------
<S> <C> <C>
Raw materials, components and sub-assemblies ..... $4,257,398 $4,096,529
Work-in-process .................................. 1,950,679 1,711,753
Finished goods ................................... 823,049 445,054
---------- ----------
$7,031,126 $6,253,336
========== ==========
</TABLE>
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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) SEGMENT INFORMATION
The Company's two Segments offer varying products and services that are
affected by different economic conditions. Further, the Segments reflect the
manner in which the Company now views the operating segments.
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 and processing tomorrow's
high-performance microelectronics products; 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 segment is a "fabless" supplier of semiconductors which focuses
on the development and delivery of high-performance custom and standard
microcircuit products for a wide range of commercial, medical and military
electronics uses. This segment also provides high value services related to the
development and operation of a CMOS (complementary metal-oxide semiconductor)
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 nine and three months ended September 30,
2000 and 1999 was as follows:
<TABLE>
<CAPTION>
SEMICONDUCTOR
MICROELECTRONICS PRODUCTS AND
EQUIPMENT PROCESSES CORPORATE TOTAL
---------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Nine Months Ended Sept. 30, 2000:
Revenues $ 10,904,918 $ 2,831,197 $ -- $ 13,736,115
Operating loss (1,770,892) (177,951) -- (1,948,843)
Total assets 15,004,290 8,927,610 5,017,441 28,949,341
Three Months Ended Sept. 30, 2000:
Revenues $ 2,912,795 $ 856,698 $ -- $ 3,769,493
Operating loss (1,081,508) (57,877) -- (1,139,385)
</TABLE>
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<PAGE> 8
JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SEMICONDUCTOR
MICROELECTRONICS PRODUCTS AND
EQUIPMENT PROCESSES CORPORATE TOTAL
---------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Nine Months Ended Sept. 30, 1999:
Revenues $ 11,193,194 $ 6,948,752 $ -- $ 18,141,946
Operating income (loss) (1,642,783) 287,434 -- (1,355,349)
Total assets 13,851,830 4,078,397 3,000,533 20,930,760
Three Months Ended Sept. 30, 1999:
Revenues $ 3,308,632 $ 1,368,832 $ -- $ 4,677,464
Operating income (loss) (595,924) 63,679 -- (532,245)
</TABLE>
In the tables above, Corporate assets are principally cash, including
the proceeds from the exercise of the Company's publicly traded warrants,
deferred income taxes and other assets.
(4) WARRANT AND OPTION EXERCISES
During the nine months ended September 30, 2000, the Company received
net proceeds of approximately $16.1 million from the exercise of approximately
4.1 million outstanding options and warrants, including its publicly traded
warrants. Of these funds, $4,990,000 was used to pay down the Company's working
capital line of credit.
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
The Company operates in two segments as follows: Microelectronics
Equipment and Semiconductor Products and Processes.
RESULTS OF CONSOLIDATED OPERATIONS
Revenues for the September 30, 2000 quarter were $3,769,493 compared
with $4,677,464 for the three months ended September 30, 1999. The Company's net
loss increased from a net loss of $438,897 for the three months ended September
30, 1999 to a net loss of $1,027,793 for the three months ended September 30,
2000. For the nine months ended September 30, 2000, revenues were $13,736,115
compared with $18,141,946 for the nine month period ended September 30, 1999.
Net loss for the first nine months of 2000 and 1999 was $1,806,419 and
$1,296,255, respectively.
In 1999 the Semiconductor Products and Processes Segment recorded
significant revenue attributable to non-recurring subcontracts related to
construction of a semiconductor fabrication facility for the Defense
Microelectronics Activity located in Sacramento, California. Furthermore, this
Segment's fiscal 2000 revenues were affected by the planned reassignment of a
substantial portion of the Company's semiconductor engineering staff from
government contract chip development work to internally funded commercial
product development and marketing activities consistent with the Company's plans
to accelerate its entry into the commercial telecom semiconductor product
market. In addition, there was a significant decline in shipments of the
Company's precision instrument products in the third quarter of 2000 primarily
related to requests from certain customers to reschedule shipments until the
fourth quarter of 2000 and the delay in shipment of certain products until the
fourth quarter of 2000 due to parts and labor shortages.
Gross margins for the nine months ended September 30, 2000 and 1999 were
32.5% and 28.9%, respectively. The higher gross margins for the nine months of
2000 are primarily due to an increase in sales of the Company's higher margin
precision instrument products in the Microelectronics Equipment Segment as well
as higher margins in the Semiconductor Products and Processes Segment. Gross
margins for the three months ended September 30, 2000 and 1999 were 27.3% and
34.4%, respectively. The lower gross margins for the third quarter of 2000 are
primarily due to the decline in revenues in that period of the Company's
precision instrument products discussed above. The Company continues to
experience competitive pressures on certain precision instrument products, which
may impact gross margins in the future. The Company's Semiconductor Products and
Processes Segment conducted by JSI is in the process of evolving from a lower
profit margin contract development business to a commercial business focused on
the telecommunications products markets. JMAR believes, but can give no
assurance that, as this evolution progresses, a greater proportion of JMAR's
sales will be generated by higher profit margin commercial semiconductor
products. Therefore, to the extent that the Company's commercial semiconductor
products begin to generate a higher percentage of the Company's revenues, the
Company's gross margins should improve. The Company also expects that as its
patented, laser-driven advanced light products enter the marketplace and gain
acceptance, they will also substantially improve gross profit margins.
The Company's operating results in 2000 were also impacted by JMAR's
continuing investments to accelerate the time-to-market for several new
high-performance products for the microelectronics marketplace. These
investments include increased 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 product development programs. As discussed
below, the Company-funded product development expenditures that were expensed
totaled $1,534,140 for the nine months ended September 30, 2000 compared to
$1,290,191 for the nine months ended September 30, 1999.
8
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Selling, general and administrative ("SG&A") expenses for the three
months ended September 30, 2000 and 1999 were $1,683,268 and $1,633,779,
respectively, and were $4,881,160 and $5,306,691 for the nine months ended
September 30, 2000 and 1999, respectively. The decrease in SG&A expenses in 2000
is primarily due to staff and cost reductions in the Microelectronics Equipment
Segment.
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 $1,052,193 and $906,241 for the three months ended September 30, 2000
and 1999, respectively, and $2,742,467 and $3,288,374 for the nine month periods
ended September 30, 2000 and 1999, respectively. Most of the decrease is related
to a delay in the X-ray lithography program funding provided by the Defense
Advanced Research Projects Agency, most of which is directed toward development
of JMAR's X-ray lithography source technology for the commercial semiconductor
market. The remainder relates to the Company's contract for the development of a
unique microcircuit architecture and devices for the replacement of obsolete
integrated circuits. The Company believes this latter technology has
applicability in both the government and commercial marketplaces. Company-Funded
RD&E costs are shown in "Operating Expenses" and totaled $485,660 and $508,699
for the three months ended September 30, 2000 and 1999, respectively, and
$1,534,140 and $1,290,191 for the nine months ended September 30, 2000 and 1999,
respectively. Hence, total RD&E expenditures for the three month periods were
$1,537,853 and $1,414,940 for 2000 and 1999, respectively, and $4,276,607 and
$4,578,565 for the nine month periods in 2000 and 1999, respectively. In
addition to these RD&E expenditures, capitalized product costs related to the
semiconductor chips for commercial telecommunications applications and
capitalized software were $543,327 and $15,153 for the three months ended
September 30, 2000 and 1999, respectively, and $1,395,025 and $135,644 for the
nine months ended September 30, 2000 and 1999, respectively. Including
capitalized product and software costs, RD&E expenditures as a percentage of
sales were 55.2% and 30.6% for the three months ended September 30, 2000 and
1999, respectively, and 41.3% and 26.0% for the nine months ended September 30,
2000 and 1999, respectively. 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 a new family of telecommunications semiconductor products, the
development of new software for the Company's test and measurement systems and
the engineering development of higher performance test, measurement and
inspection systems for the semiconductor, optical network and biomedical
industries.
Interest expense is significantly less for the three and nine months of
2000 versus the three and nine months of 1999 due to the payoff of the Company's
working capital line (the "Line") with Comerica Bank in late March 2000. The
full $5 million availability of the Line, subject to the formula discussed
below, continues in effect and can be drawn down if needed in the future. The
terms of the Line are described in "Consolidated Liquidity and Financial
Condition" below.
RESULTS OF SEGMENT OPERATIONS
Microelectronics Equipment Segment
Revenue for the three months ended September 30, 2000 as compared to
the three months ended September 30, 1999 for the Microelectronics Equipment
Segment decreased $395,837 from $3,308,632 to $2,912,795, or 12.0%. As discussed
above, there was a significant decline in shipments of the Company's precision
instrument products in the third quarter of 2000 primarily related to requests
from certain customers to reschedule shipments until the fourth quarter of 2000
and the delay in shipment of certain products until the fourth quarter of 2000
due to parts and labor shortages. This decline was offset in part by higher
contract revenues. Revenue for the nine month period in 2000 as compared to 1999
for this Segment decreased $288,276 from $11,193,194 to $10,904,918, or 2.6%.
Due to lower revenues, the operating loss of the Microelectronics Equipment
Segment for the three months ended September 30, 2000 as compared to the three
months ended September 30, 1999 increased from a loss of $595,924 to a
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<PAGE> 11
loss of $1,081,508. Operating loss for the nine month period in 2000 as compared
to 1999 for this Segment increased from a loss of $1,642,783 to a loss of
$1,770,892.
Semiconductor Products and Processes Segment
Revenue for the three months ended September 30, 2000 as compared to the
three months ended September 30, 1999 for the Semiconductor Products and
Processes Segment decreased $512,134 from $1,368,832 to $856,698, or 37.4%.
Revenue for the nine month period in 2000 as compared to 1999 for this Segment
decreased $4,117,555 from $6,948,752 to $2,831,197, or 59.3%. The revenues for
1999 included large one-time subcontracts let in 1999 as discussed above. The
revenues of this Segment in 2000 were impacted by the planned reassignment of
certain engineering staff from government contract chip development work to
internally funded commercial product development and marketing activities to
introduce a series of commercial telecom semiconductor chips starting in the
third quarter of 2000, also discussed above. Because of the decrease in
revenues, as well as the build-up of the sales and marketing staff and
infrastructure related to the planned introduction of the Company's new
commercial semiconductor chips, operating income (loss) for the three months
ended September 30, 2000 as compared to the three months ended September 30,
1999 decreased $121,556 from income of $63,679 to a loss of $(57,877). Operating
income (loss) for the nine month period in 2000 as compared to 1999 for this
Segment decreased from income of $287,434 to a loss of $(177,951).
CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
Cash and cash equivalents at September 30, 2000 and December 31, 1999
were $8,027,928 and $2,323,127, respectively. The increase in cash and cash
equivalents for the nine months ended September 30, 2000 was $5,704,801. That
increase resulted primarily from the exercise of warrants and options, including
the Company's publicly traded warrants, of $16,110,625 offset in part by cash
used in operations of $1,426,218, the payoff of the Company's working capital
bank line of $4,990,000, an increase in other assets of $1,742,426, capital
expenditures of $1,341,047 and an increase in notes receivable of $692,973.
JMAR's operations will continue to require the use of working capital.
In the past, the working capital of the Company has generally been funded
through its $5,000,000 working capital line (the "Line") with Comerica Bank (the
"Bank") and through third-party contracts. Although the Company chose to pay off
the outstanding balance of the Line, the availability of the Line is still in
effect. The Line consists of a $5 million primarily formula-based line of credit
with interest at prime rate. Of that amount, $750,000 is unrestricted with
advances on the balance based on a formula of 80 percent of eligible accounts
receivable, 35 percent of eligible inventories (up to $2.5 million), 50 percent
of unbilled revenue on a long-term contract and up to $500,000 for certain
foreign receivables. 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 adequate resources to fund
operations and working capital requirements for the next twelve months based on
the current level of operations and business conditions. The remaining funds
received from the exercise of warrants and options will be used to help
accelerate the Company's development of high-value semiconductors for the
rapidly growing Internet and Telecom markets and to help accelerate the
development and commercialization of its other high value proprietary products,
as needed. Management believes that the Company has adequate resources to fund
operations and working capital requirements for the next twelve months based on
the current level of operations and business conditions.
However, the Company has determined that it will require additional
financing to complete the development of some of its high value emerging new
products including a new family of telecommunications semiconductor
10
<PAGE> 12
products and its patented PXS point X-ray sources for lithography for the
semiconductor industry and other metrology applications. In addition to the
above financing needs, additional funds could be required for future
acquisitions should the Company elect to pursue such acquisitions. The Company
believes that it has available to it several potential sources of capital
including private offerings to individual investors and additional debt or
equity sales in the public market. The Company also believes that it has
opportunities for strategic relationships, which may include additional funding,
in order to accelerate the commercialization of its emerging products.
At December 31, 1999, the Company had in excess of $27 million of
Federal net operating loss carryforwards, subject to certain annual limitations,
which expire from 2004 through 2014. 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.
In April 2000, the Company entered into a series of agreements with Bede
Scientific Instruments, Ltd. ("Bede"), including a loan (the "Loan") of 450,000
British pounds, with interest accruing at 10% per annum, plus various equity
rights in Bede. At September 30, 2000, this loan receivable, including accrued
interest, is stated at $694,450 in the accompanying balance sheet. The equity
rights included the grant of an option to the Company to buy a 10% equity
interest in Bede on a fully-diluted, pre-IPO basis for 58,375 pounds. Concurrent
with an initial public offering ("IPO") of Bede and the admission to trading of
Bede's shares on the London Stock Exchange on November 6, 2000, the Company
exercised its option into 1,935,500 shares of Bede valued at approximately $5.4
million based upon the IPO share price of 1.90 pounds. In addition, from the IPO
proceeds, Bede will payoff the remaining 391,625 pounds, plus accrued interest,
owed on the unconverted portion of the Loan. There are no contractual
restrictions on the Company's ability to sell the shares it holds in Bede.
"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, 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 availability of future bank or
equity investor financing 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, fluctuations in margins, timing of future orders, lack of
availability of critical components, customer reorganizations, failure of
advanced technology and new intellectual property to perform as predicted, the
failure of pending patents to be issued, 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, etc.) to commercial
products, availability of working capital to support growth, continued
government funding of advanced lithography, successful integration of
acquisitions, declining credit markets, 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, 1999, in the Company's Form
8-K filed on February 15, 2000 and in the Company's other filings with the
Securities and Exchange Commission.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
As reported previously, in March 2000, the Company filed a Declaratory
Relief Action against Sands Brothers & Co., Inc. ("Sands"), one of its
former investment bankers seeking a finding that the Company's financial
services agreement did not apply to the Company's Warrant Redemption
program. In September 2000, the Company executed a mutual settlement
agreement with Sands which provided for the complete release of any and
all claims either party may have had against the other, the Company's
dismissal of its lawsuit for Declaratory Relief and the termination of
all aspects of their financial services agreement. No other
consideration was exchanged between the parties.
In February 2000, the Company retained Auerbach Pollak & Richardson,
Inc. ("Auerbach") as warrant solicitation agent in connection with the
exercise of the Company's publicly traded warrants in March 2000. As
consideration for its services as warrant solicitation agent, the
Company paid Auerbach a cash fee ($650,879) equal to 5% of the exercise
proceeds and issued Auerbach warrants to purchase 189,347 shares of
Common stock for $5.50 per share (the "Auerbach Warrants"). The Warrant
Agreement provides that the Auerbach Warrants are not exercisable until
the first trading day after September 15, 2000 and after the closing
price of the Company's Common Stock has exceeded $9.50 for any ten out
of twenty trading days or has averaged $9.50 for any ten consecutive
trading days. Auerbach has taken the position that the Auerbach Warrants
are presently exercisable as of September 18, 2000 based on the closing
prices of the Company's stock in August and September 2000. The Company
believes that the exercisability provision clearly provides that the
JMAR share price condition must be satisfied after September 15, 2000
and that the Auerbach Warrants are not yet exercisable. Auerbach claims
it has been damaged as a result of trades in the Company's stock it has
made and/or could have made in reliance upon the Auerbach Warrants
becoming exercisable on September 18, 2000. In October 2000, the Company
filed a Declaratory Relief Action in the U.S. District Court in San
Diego, California against Auerbach seeking a determination that the
Auerbach Warrants are not presently exercisable. The Company intends to
contest this matter vigorously and seek such additional remedies as it
deems to be necessary or appropriate.
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 308 shares of
Common Stock to its outside directors as compensation for services as
directors in August 2000. These transactions were exempt under Section
4(2) of the Securities Act of 1933.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on August 10, 2000,
the following matter was voted on:
(a) The following directors were elected: John S. Martinez (19,985,962
affirmative votes and 247,367 votes withheld); James H. Banister, Jr.
(20,019,001 affirmative votes and 214,328 votes withheld); C. Neil Beer
(20,015,951 affirmative votes and 217,378 votes withheld); Vernon H.
Blackman (20,016,301 affirmative votes and 217,028 votes withheld); and
Barry Ressler (20,018,001 affirmative votes and 215,328 votes withheld).
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ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the three months
ended September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JMAR TECHNOLOGIES, INC.
November 10, 2000 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
