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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, 2003
Commission File Number 1-10515

JMAR TECHNOLOGIES, INC.

5800 Armada Drive
Carlsbad, CA 92008
(760) 602-3292

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (November 6, 2003).

Common Stock, $.01 par value: 26,910,550 shares

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INDEX

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PART I - FINANCIAL INFORMATION

JMAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
As of September 30, 2003 and December 31, 2002

The accompanying notes to these consolidated financial statements are an integral part of these consolidated balance sheets.

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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2003 and 2002
and Nine Months Ended September 30, 2003 and 2002
(Unaudited)

     The accompanying notes to these consolidated financial statements are an integral part of these consolidated statements.

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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the Three Months Ended September 30, 2003 and 2002
and Nine Months Ended September 30, 2003 and 2002
(Unaudited)

The accompanying notes to these consolidated financial statements are an integral part of these consolidated statements.

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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited)

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: During the nine months ended September 30, 2003, the holder of Series A and B Convertible Preferred Stock converted $1,471,800 of the Preferred Stock into 1,672,500 shares of common stock of the Company (see Note 10). In addition, during the nine months ended September 30, 2003, $897,000 of the Company’s working capital line of credit was converted into 975,000 shares of common stock of the Company (see Note 9).

The accompanying notes to these consolidated financial statements are an integral part of these consolidated statements.

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

(1)

Basis of Presentation and Financial Condition

     The accompanying consolidated financial statements include the accounts of JMAR Technologies, Inc. (the “Company” or “JMAR”) and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the December 31, 2002 financial statements.

     Founded in 1987, we are a semiconductor industry-focused company. JMAR is the originator of Collimated Plasma Lithography (“CPL”), a next-generation lithography (NGL) alternative designed to deliver affordable, sub-100 nanometer chip-making capability in a compact format to the semiconductor industry. JMAR’s operations include its Research Division in San Diego, California, where research and development of lasers and laser produced plasma generators is performed; its Systems Division in Burlington, Vermont, where CPL Stepper Systems and other products are designed and manufactured; and its Microelectronics Division, based in Sacramento, California, where JMAR provides process integration and maintenance support for the U.S. Government’s Defense Microelectronics Activity semiconductor fabrication facility.

     In the first quarter of 2002, the Company decided to discontinue and sell its standard semiconductor products business and shift more of its resources to accelerate the market entry of its CPL products. Also, in furtherance of its efforts to focus its resources on its CPL business, during the latter half of 2002, the Company concluded that its precision equipment business did not fit with the strategic direction of the Company’s CPL business area and that the markets for that business’ products would continue to be slow in the near term. Therefore, in December, 2002, the Company decided to initiate the process of selling that business and, in July 2003, the Company completed the sale of that business (See Note 14).

     The standard semiconductor products business and the precision equipment business have been accounted for in the accompanying consolidated financial statements as discontinued operations and the statement of operations for the three and nine months ended September 30, 2002 has been restated to reflect the discontinuation of the precision equipment business (See Note 8).

     The accompanying consolidated financial statements as of and for the three and nine months ended September 30, 2003 and 2002, have been prepared by the Company and are unaudited. The consolidated 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 of operations 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 accounting principles generally accepted in the United States of America 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 interim consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2002. The results of operations for the three and nine months ended September 30, 2003 are not necessarily indicative of the results to be expected for the full year.

     The Company incurred significant losses for the nine months ended September 30, 2003 and for the years ended December 31, 2002 and 2001. As of September 30, 2003, the Company has stockholders’ equity of approximately $3.9 million and working capital of approximately $174,000. Management has taken steps to reduce its future cash flow requirements through the discontinuance of its

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

standard semiconductor products and precision equipment businesses mentioned above. Additionally, management has completed additional debt and preferred stock financings in the first and third quarters of 2003 (see Notes 9 and 10). Management believes that the Company has adequate resources to fund its operations and working capital requirements through September 30, 2004 except for $1.2 million in debt due in February, 2004 to the former creditors of SAL, Inc., which the Company acquired in August, 2001. Of this amount, approximately $222,000 is owed to related parties. The Company has had discussions with the representative of the noteholders of this debt regarding the extinguishment of this debt with stock or otherwise amending the terms of the debt. If the Company is unsuccessful in its negotiations with the noteholders, it will need to raise additional financing to retire this debt. In November 2003, the Company received $1 million in funding under its DARPA contract and is expecting additional funding of $1.6 million before December 31, 2003, the receipt of which is based on certain milestones. If this funding is not received, the Company may need to obtain financing to continue this work. The Company expects to receive approximately $5.4 million in additional funding under its DARPA contract for 2004. Because of normal delays in the release of such funding, in the first quarter of 2004, the Company expects a delay in receipt of these funds which may require the Company to obtain financing for the costs incurred on this contract prior to the receipt of funds. In addition, the Company has determined that it will require additional financing to complete or accelerate the development of some of its high value emerging new products, including its patented CPL systems for the manufacture of high-performance semiconductors. There can be no assurance that additional financings will be available when needed, or if available, will be done on favorable terms.

(2)

Recent Accounting Pronouncements

     In September 2001, FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to (a) all entities and (b) legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of long-lived assets, except for certain obligations of lessees. This statement amends FASB Statement No. 19, “Financial Accounting and Reporting by Oil and Gas Producing Companies,” and is effective for financial statements issued for fiscal years beginning after September 15, 2002. The Company has implemented SFAS No. 143 effective January 1, 2003. The impact of such adoption is not anticipated to have a material effect on the Company’s financial statements.

     In November 2002, the EITF reached a consensus on Issue 00-21, titled “Accounting for Revenue Arrangements with Multiple Deliverables,” which addresses how to account for arrangements that involve the delivery or performance of multiple products, services, and/or rights to use assets. Revenue arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meet the following criteria: (1) the delivered item has value to the customer on a standalone basis; (2) there is objective and reliable evidence of the fair value of undelivered items; and (3) delivery of any undelivered item is probable. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair values, with the amount allocated to the delivered item being limited to the amount that is not contingent on the delivery of additional items or meeting other specified performance conditions. The new standard is required to be adopted for all new applicable revenue arrangements no later than the third quarter of 2003. Management believes the implementation of EITF 00-21 will not have a material effect on the Company’s financial statements.

     The FASB has issued Interpretation No. 46, “Consolidation of Variable Interest Entities” – an interpretation of Accounting Research Bulletin (“ARB”) No. 51. This Interpretation defines a variable interest entity and provides that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity should be included in consolidated financial statements with those of the business enterprise. Furthermore, the Board indicates that the voting interest approach of ARB No. 51 is not effective in identifying controlling financial interests in entities that are not controllable through voting interest or in which the equity investors do not bear the residual economic risk. This Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after September 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Management believes the implementation of this Interpretation will not have a material effect upon the Company’s financial statements.

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

     In May 2003 FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, which requires that certain financial instruments previously presented as equity or temporary equity be presented as liabilities. Such instruments include mandatory redeemable preferred and common stock, and certain options and warrants. SFAS 150 is effective for financial instruments issued, entered into or modified after May 31, 2003 and is generally effective at the beginning of the first interim period beginning after September 15, 2003. The adoption of SFAS 150 did not have a material effect on the Company’s financial position or results of its operations.

(3)

Stock-Based Compensation Plans

     The Company has six stock option or warrant plans: the 1991 Stock Option Plan (the “1991 Plan”), the 1999 Stock Option Plan (the “1999 Plan”), the Management Anti-Dilution Plan (the “Anti-Dilution Plan”), two incentive plans which provide for the issuance of options and warrants to Research Division employees (the “Research Division Plans”), and an incentive plan which provides for the issuance of options to Microelectronics Division employees (the “Microelectronics Division Plan”). The Company may also from time-to-time enter into equity compensation agreements with individuals that are not covered by a plan and currently is a party to non-plan option and warrant agreements with several individuals. The Company accounts for these plans under APB Opinion No. 25 using the intrinsic value method, under which no compensation cost has been recognized. Had compensation cost for these plans been determined using the fair value method under SFAS No. 123, the Company’s loss applicable to common stock and loss per share would have been the following pro forma amounts (unaudited):

     The fair value of each option and warrant grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of approximately 2.74 percent (4 percent in 2002); expected dividend yields of 0 percent; expected lives of 6 years and expected volatility of 142 percent.

     The Company was authorized to grant options or warrants to its employees (including directors) and consultants for up to 1,480,000 shares under the 1991 Plan, 1,900,000 shares under the 1999 Plan, 806,637 shares under the Anti-Dilution Plan, 350,000 shares under the Research Division Plans, and 25,000 shares under the Microelectronics Division Plan (the “Plans”). In addition, the Company currently has outstanding options to purchase 613,000 shares granted to several individuals outside of the Plans. Under all Plans, the option or warrant exercise price is equal to or more than the stock’s market price on date of grant. During the quarter ended September 30, 2003, 10,000 options were granted pursuant to the 1999 Plan.

(4)

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, 2003 and December 31, 2002, inventories consisted of the following:

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

(5)

Property and Equipment

     At September 30, 2003 and December 31, 2002, property and equipment consisted of the following:

     During 2003, the Company wrote-off a $200,056 asset that will not be used by the Company in the future.

(6)

Segment Information

     In the first quarter of 2002, the Company decided to discontinue and sell its standard semiconductor products business and shift more of its resources to accelerate the market entry of its CPL products. Also, in furtherance of its efforts to focus its resources on its CPL business, during the later half of 2002, the Company concluded that the precision equipment business did not fit with the strategic direction of the Company’s CPL business area and that the markets for that segments’ products would continue to be slow in the near term. Therefore, in December, 2002, the Company decided to initiate the process of selling this business and in July 2003, the Company completed the sale of that business (See Note 14).

     As a result of these decisions, and to streamline the Company’s operations and better support the commercialization of its emerging CPL semiconductor manufacturing systems and related technologies, the Company now operates in three business segments, as follows:

     Research Division (formerly JMAR Research) – This segment’s role is as an innovator of laser and laser-produced plasma technologies for the Company’s CPL Source, EUV generators, and related products such as high-brightness lasers. During the nine months ended September 30, 2003 and 2002, this segment accounted for approximately 33% and 37%, respectively, of the Company’s revenues.

     Systems Division (formerly JMAR/SAL NanoLithography) – This segment encompasses the development of X-ray lithography steppers, and the product engineering, production and integration of CPL light sources and complete CPL stepper systems. During the nine months ended September 30, 2003 and 2002, this segment accounted for approximately 41% and 48%, respectively, of the Company’s revenues.

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

     Microelectronics Division – In 2002, JMAR discontinued the standard products business and the assets of its Sacramento operations were sold to JSI Microelectronics, Inc., a wholly-owned subsidiary of the Company, now the Microelectronics Division. This segment provides process integration and maintenance support for the Defense Microelectronics Activity semiconductor fabrication facility in Sacramento, California, and ASIC design and production capability for the military and commercial markets. During the nine months ended September 30, 2003 and 2002, this segment accounted for approximately 26% and 15%, respectively, of the Company’s revenues.

     The accounting policies of the reportable segments are the same as those described in Note 2 of the Company’s Form 10-K for the year ended December 31, 2002. The Company evaluates the performance of its operating segments primarily based on revenues and operating income. Corporate costs are generally allocated to the segments.

     Segment information for the three and nine months ended September 30, 2003 and 2002 (excluding discontinued operations) is as follows (2002 has been restated to reflect the new business segments):

     The asset writedown for 2003 of $200,056 relates to an asset held by the Research Division that will not be used by the Company in the future. The special item for 2002 of $1,074,324 relates to the retirement benefits in August 2002 of the Company’s former Chairman and Chief Executive Officer.

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

     Sales to the United States Government aggregated $2,685,466, $8,610,484, $4,679,389 and $10,618,745 for the three and nine months ended September 30, 2003 and 2002, respectively. In addition, sales to General Dynamics Advanced Information Systems were $948,525, $3,504,632, $1,027,332 and $2,028,028 for the three and nine months ended September 30, 2003 and 2002, respectively.

(7)

Comprehensive Loss

     The other comprehensive loss for the nine months ended September 30, 2002 represents the Company’s investment in Bede plc (“Bede”). In January 2002, the Company sold its remaining 545,500 shares of its investment in Bede for net proceeds of approximately $1.4 million. The gain from that transaction of $1,349,721 is included in this Consolidated Statement of Operations for the nine months ended September 30, 2002. For the three and nine months ended September 30, 2003, the Company did not have any elements of comprehensive income or loss, and therefore, there was no difference in the Company’s net loss and comprehensive loss for that period. For the nine months ended September 30, 2002, the Company had an additional unrealized loss on marketable securities of $75,143 for the period from January 1, 2002 to the sale date of the securities, however, that loss was realized as a result of the sale of the securities.

(8)

Discontinued Operations/Assets Held for Sale

     The loss from operations of discontinued operations of $258,673 and $1,405,490 for the three and nine months ended September 30, 2003 includes $155,526 and $467,503, respectively, related to the standard semiconductor products business and $103,147 and $937,987, respectively, related to the precision equipment business. In July 2003, the Company sold JPSI, exclusive of certain assets and liabilities, to several private investors (see Note 14). In accordance with SFAS No. 144, the results of operations of the precision equipment business for 2003 through the sale date are reported in discontinued operations. The gain on disposal of discontinued operations of $205,000 for the three and nine months ended September 30, 2003 relates to the sale of JPSI.

     In September 2000, JSI moved into a significantly larger facility in anticipation of realizing its growth plans. Prior to December 31, 2001, the Company decided to take action to sublease that facility and move JSI into a smaller facility. The Company does not yet have a subtenant for this facility and, as of September 30, 2003, the Company has approximately $577,000 accrued for estimated future losses under this lease. The lease provides for rent and related expenses of approximately $36,000 per month through August 2005. If the Company is unsuccessful in obtaining a subtenant on acceptable terms, there could be further losses related to that lease.

     At September 30, 2003 and December 31, 2002, net assets and liabilities of assets held for sale consisted of the following:

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

(9)

Line of Credit

     In March 2003, the Company entered into a Revolving Fixed Price Convertible Note (the “Working Capital Line”) with Laurus Master Fund (“Laurus”) replacing its previous bank credit agreement, which had a compensating balance of $1.5 million at December 31, 2002. The Working Capital Line allows the Company to borrow from time-to-time up to 85% of eligible accounts receivable of the Company to a maximum of $3 million. The Company can convert a portion of the principal outstanding under the Working Capital Line to common stock at $.92 per share (the “Conversion Price”) if the market price of the Company’s common stock averages 118% of the Conversion Price or higher for 22 consecutive trading days. Laurus can convert any portion of the principal outstanding to common stock at the Conversion Price any time the market price of the Company’s common stock is in excess of the Conversion Price. After the first $2 million of conversions into common stock, the Conversion Price will be adjusted upward if the average stock prices at that time are above the Conversion Price. In the nine months ended September 30, 2003, Laurus converted $897,000 of the Working Capital Line into 975,000 shares of Common Stock of the Company. The interest rate on the Working Capital Line is prime (4 percent at September 30, 2003) plus .75 percent, subject to a floor of 5 percent. The amount outstanding at September 30, 2003 under the Working Capital Line was approximately $100,000, net of discount of approximately $88,000, and the maximum amount borrowed during 2003 was approximately $2.5 million. The Working Capital Line also requires the Company to meet certain financial covenants. The term of the Working Capital Line runs until March, 2006. The available borrowings under the Working Capital Line were approximately $2 million at September 30, 2003.

(10)

Equity Transactions

     In February 2003, under its Shelf Registration Statement, the Company sold 100,000 shares of its common stock for gross proceeds of $100,000. In connection with this transaction, the Company issued to the purchaser warrants to purchase 20,000 shares of its common stock at an exercise price of $1.25 per share and a term of three years.

     In March 2003, the Company sold for cash, under its Shelf Registration Statement, $1 million of 8 percent Series A Convertible Preferred Stock (“Series A Preferred”) to Laurus which are convertible at any time by Laurus at a fixed conversion price of $.88 per share. The Series A Preferred is redeemable in two years, if not previously converted. Except for the conversion price, the conversion terms of the Series A Preferred are the same as the conversion terms of the Working Capital Line. The proceeds received under the Series A Preferred were initially restricted, however, the funds are released as the Preferred Stock is converted to common stock. During the nine months ended September 30, 2003, Laurus converted $780,296 of the Series A Preferred into 886,700 shares of common stock of the Company. As of September 30, 2003, restricted cash was $189,704. The amount of Series A Preferred outstanding at September 30, 2003 was $219,704, net of discount of $35,015.

     In addition, in March, 2003, the Company sold for cash, under its Shelf Registration Statement, $1 million of 3 percent Series B Convertible Preferred Stock (“Series B Preferred”) to Laurus which are convertible at any time by Laurus at a fixed conversion price of $.88 per share. The Series B Preferred is redeemable in cash or stock (if the closing market price of the Company’s common stock is 118% of the Conversion Price or higher for the 11 trading days prior to the redemption date) in twelve equal monthly installments of $83,333 starting October 1,

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

2003, if not previously converted. Conversions to equity are offset against the required repayments and, as a result of conversions to date, the first installment payment is scheduled for June 2004. Except for the conversion price, the conversion terms of the Series B Preferred are the same as the conversion terms of the Working Capital Line. In the nine months ended September 30, 2003, Laurus converted $691,504 of the Series B Preferred into 785,800 shares of common stock of the Company. The amount of Series B Preferred outstanding at September 30, 2003 was $308,496, net of discount of $67,350.

     In connection with all of the above financing transactions with Laurus, the Company issued to Laurus warrants to purchase 550,000 shares of common stock at prices ranging from $1.058 to $1.33 and a term of seven years. In addition, Laurus will be issued a warrant to purchase one share of common stock for every $20 of principal under the Working Capital Line converted to equity, up to a total of 150,000 shares, at an exercise price of $1.15 per share. The Company valued all of these warrants using the Black-Scholes model and recorded the fair value of $374,000 as a discount to the convertible debt and preferred stock. As a result of the convertible securities issued to Laurus described above, the Company recorded an additional discount of $444,000 representing the intrinsic value of the beneficial conversion feature for the convertible debt and preferred stock, which will be amortized over the redemption period of the preferred stock and the life of the debt using the effective interest method.

     In September 2003, the Company sold for cash $1.5 million of 8 percent Series C Convertible Preferred Stock (“Series C Preferred”) to Laurus which are convertible at any time by Laurus at a fixed conversion price of $2.08 per share. The Series C Preferred is redeemable in cash or stock (if the closing market price of the Company’s common stock is 118% of the Conversion Price or higher for the 11 trading days prior to the redemption date) in twelve equal monthly installments starting in April, 2004, if not previously converted. Conversions to equity are offset against the required repayments. Except for the conversion price, the conversion terms of the Series C Preferred are the same as the conversion terms of the Working Capital Line. The amount of Series C Preferred outstanding at September 30, 2003 was $1.5 million, net of discount of $474,598.

     In connection with the September 2003 financing, the Company issued to Laurus warrants to purchase 150,000 shares of common stock at an exercise price of $2.60 and a term of seven years. The Company valued these warrants using the Black-Scholes model and recorded the fair value of $201,000 as a discount to the preferred stock. In addition, the Company recorded an additional discount of $201,000 representing the intrinsic value of the beneficial conversion feature for the convertible preferred stock, which will be amortized over the redemption period of the preferred stock using the effective interest method.

     Included in the loss applicable to common stock in the Statement of Operations for the three and nine months ended September 30, 2003 is preferred stock dividends of $439,290 and $668,743, respectively. The nine month period includes $40,113 of dividends paid in cash and $628,630 related to the beneficial conversion feature. Included in interest expense for the nine months ended September 30, 2003 is $187,935 related to the beneficial conversion feature attributable to the convertible debt. In addition, there will be an additional beneficial conversion feature in the amount of $32,000 recorded as additional borrowings are made against the Working Capital Line and an additional beneficial conversion charge of $52,000 will be recorded prorata upon conversion of the convertible debt for the warrants issued thereon. In connection with the Preferred Stock issuances, the Company paid Laurus fees of $172,750 and incurred other costs of approximately $41,000.

(11)

Earnings (Loss) Per Share

     The Company accounts for earnings per share in accordance with SFAS No. 128, “Earnings per Share”. Basic earnings per common share were computed by dividing loss applicable to common stock by the weighted average number of shares of common stock outstanding during the period. For the three and nine months ended September 30, 2003 and 2002, the denominator in the diluted loss per share computation was the same as the denominator for basic loss per share due to antidilutive effects of the Company’s warrants, stock options, convertible debt and convertible preferred stock. As of September 30, 2003 and 2002, the Company had shares issuable under outstanding warrants, stock options, convertible preferred stock and

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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

convertible debt of 7,824,029 and 4,313,575, respectively, all of which are antidilutive and were excluded from the computation of diluted loss per share.

(12)

Intangible Assets

     The Company adopted Financial Accounting Standards Board No. 142 “Goodwill and Other Intangible Assets” (“FASB 142”) effective January 1, 2002. In accordance with FASB 142, the Company does not amortize goodwill. The Company’s goodwill of $3,790,907 at September 30, 2003 and December 31, 2002 is related to the Systems Division, acquired in August 2001. As of September 30, 2003, the Company had the following amounts related to other intangible assets:

     Aggregate amortization expense of the intangible assets with determinable lives was $69,826 and $209,419 for the three and nine months ended September 30, 2003, respectively. The unamortized balance of intangible assets is estimated to be amortized as follows: