<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
Commission File Number 1-10515
JMAR INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 68-0131180
- ------------------------------ -----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
3956 Sorrento Valley Blvd.
San Diego, CA 92121
(619) 535-1706
(Address, including zip code and telephone number
including area code of registrant's principal
executive office)
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and has been subject to the filing requirements
for at least the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date (November 11, 1996).
Common Stock, $.01 par value: 16,709,994 shares
<PAGE> 2
JMAR INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE #
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1995 and
September 30, 1996 2
Consolidated Statements of Operations - Three months
ended September 30, 1996 and 1995 and nine months ended
September 30, 1996 and 1995 3
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. N/A
Item 2. N/A
Item 3. N/A
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. N/A
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
<PAGE> 3
JMAR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
================================================================================
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
ASSETS ------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................ $ 1,553,406 $ 1,837,647
Accounts receivable, net ............................................. 2,995,979 1,742,484
Notes receivable ..................................................... 78,744 979,165
Inventories (Note 2) ................................................. 3,414,240 2,585,575
Prepaid expenses and other ........................................... 437,098 137,736
------------ ------------
Total current assets ............................................. 8,479,467 7,282,607
Notes receivable .......................................................... 60,000 129,502
Receivable from officer ................................................... 72,725 69,524
Property and equipment, net (Note 3) ...................................... 2,547,670 571,622
Equity securities, at cost (Note 8) ....................................... 621,000 621,000
Other assets, net ......................................................... 398,123 290,208
Goodwill, net (Note 7) .................................................... 1,031,335 284,532
------------ ------------
TOTAL ASSETS ..................................................... $ 13,210,320 $ 9,248,995
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ..................................................... $ 990,979 $ 455,715
Accrued liabilities .................................................. 797,810 221,031
Accrued payroll and related costs .................................... 459,271 423,845
Notes payable ........................................................ 1,502,453 1,526,929
------------ ------------
Total current liabilities ........................................ 3,750,513 2,627,520
------------ ------------
Convertible notes payable (Note 9) ........................................ 1,563,585 1,536,273
------------ ------------
Notes payable, net of current portion ..................................... 569,713 --
------------ ------------
Contingencies (Note 6)
Stockholders' equity (Notes 5, 7 and 9):
Preferred stock, $.01 par value;
5,000,000 shares authorized; None issued and outstanding
as of September 30, 1996 and December 31, 1995 ..................... -- --
Common stock, $.01 par value; 40,000,000 shares authorized;
Issued and outstanding 16,269,994 shares as of September 30, 1996 and
14,228,585 shares as of December 31, 1995 .......................... 162,700 142,286
Additional-paid in capital ........................................... 34,268,677 31,796,142
Accumulated deficit .................................................. (27,104,868) (26,853,226)
------------ ------------
Total stockholders' equity ...................................... 7,326,509 5,085,202
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................... $ 13,210,320 $ 9,248,995
============ ============
</TABLE>
================================================================================
<PAGE> 4
JMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales ........................................... $ 4,577,362 $ 3,026,636 $ 11,068,868 $ 9,254,071
Costs of sales .................................. 2,885,486 1,740,209 6,788,793 5,445,747
------------ ------------ ------------ ------------
Gross profit ........................... 1,691,876 1,286,427 4,280,075 3,808,324
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and
administrative .............................. 1,287,267 985,494 3,409,492 2,931,010
Research, development and
engineering ................................. 333,653 182,984 867,030 653,379
------------ ------------ ------------ ------------
Total operating expenses ...................... 1,620,920 1,168,478 4,276,522 3,584,389
------------ ------------ ------------ ------------
Income from operations .......................... 70,956 117,949 3,553 223,935
Interest and other income (expense), net ........ 17,354 44,225 (23,239) 131,373
Interest expense ................................ (77,292) (73,816) (231,956) (247,420)
------------ ------------ ------------ ------------
Net income (loss) ............................... $ 11,018 $ 88,358 $ (251,642) $ 107,888
============ ============ ============ ============
Primary and fully diluted net income (loss) per
common and common equivalent share (Note 4): $ .00 $ .01 $ (.02) $ .01
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding:
Primary .................................... 17,387,712 14,946,117 15,197,530 13,889,883
============ ============ ============ ============
Fully diluted .............................. 17,401,943 14,946,117 15,197,530 14,052,132
============ ============ ============ ============
</TABLE>
===============================================================================
3
<PAGE> 5
JMAR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ (251,642) $ 107,888
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization ................................... 412,444 438,764
Issuance of common stock ........................................ -- 21,056
Change in assets and liabilities net of effects from acquisition:
Increase in:
Accounts receivable ........................................... (1,253,495) (443,989)
Inventories ................................................... (866,865) (834,386)
Prepaid expenses and other .................................... (299,362) (30,255)
Other assets .................................................. (95,558) (70,751)
Increase (decrease) in:
Accounts payable and accrued liabilities ...................... 691,899 (466,369)
----------- -----------
Net cash used in operating activities ........................... (1,662,579) (1,278,042)
----------- -----------
Cash flows from investing activities:
Capital expenditures ............................................ (526,371) (166,926)
Payments received on notes receivable ........................... 927,300 992,724
Acquisition costs, net of cash acquired ......................... (84,285) --
Proceeds from sale of assets .................................... -- 121,244
Patent costs .................................................... (10,940) (9,003)
----------- -----------
Net cash provided by investing activities .................. 305,704 938,039
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) of short-term debt .................... (199,100) 79,168
Net borrowings (payments) of notes payable ...................... 500,000 (313,092)
Net proceeds from the issuance of common stock .................. 156,000 15,488
Net proceeds from the exercise of warrants ..................... 615,734 59
----------- -----------
Net cash provided by (used in) financing activities ......... 1,072,634 (218,377)
----------- -----------
Net decrease in cash and cash equivalents ............................ (284,241) (558,380)
Cash and cash equivalents, beginning of period ....................... 1,837,647 1,945,378
----------- -----------
Cash and cash equivalents, end of period ............................. $ 1,553,406 $ 1,386,998
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON CASH ACTIVITY:
On May 23, 1996, the Company acquired approximately 94 percent of the
outstanding common stock of California ASIC. As consideration for the
acquisition, the Company issued the sellers an aggregate of
approximately 1,358,000 shares of its common stock (see Note 7).
===============================================================================
4
<PAGE> 6
JMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of JMAR Industries, Inc. (the "Company") and its subsidiaries. All significant
intercompany transactions have been eliminated.
The accompanying consolidated financial statements have been prepared
by the Company and are unaudited except for the balance sheet as of December 31,
1995. 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, 1995. The results of operations for the three and nine
months ended September 30, 1996 are not necessarily indicative of the results to
be expected for the full year.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, which provides companies the option to account for equity
instrument awards based on their estimated fair value at the date of grant
resulting in a charge to income in the periods the awards are expected to vest.
However, companies are permitted to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity award.
The Company will continue to apply APB Opinion No. 25 and will present pro forma
footnote disclosure describing the effect to the Company's net income and net
income per share data as permitted by SFAS 123.
(2) INVENTORIES
Inventories are carried at the lower of cost on the first-in, first-out
basis or market and are comprised of materials, direct labor and applicable
manufacturing overhead. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw materials ........................... $2,175,726 $1,333,163
Work in process ......................... 749,586 725,109
Finished goods .......................... 488,928 527,303
---------- ----------
$3,414,240 $2,585,575
========== ==========
</TABLE>
The increase in inventories between December 31, 1995 and September 30, 1996 is
primarily related to raw material and component purchases to support the
Company's increase in orders and higher level of production planned for the
remainder of 1996 and beyond.
5
<PAGE> 7
JMAR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) PROPERTY AND EQUIPMENT
As of September 30, 1996 and December 31, 1995, property and equipment
consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Equipment and machinery ..... $ 3,996,906 $ 1,815,406
Furniture and fixtures ...... 298,853 253,211
Leasehold improvements ...... 55,262 43,775
----------- -----------
4,351,021 2,112,392
Less-accumulated depreciation (1,803,351) (1,540,770)
----------- -----------
$ 2,547,670 $ 571,622
=========== ===========
</TABLE>
The increase in equipment and machinery between December 31, 1995 and
September 30, 1996 is primarily related to assets obtained in the acquisition of
California ASIC (see Note 7).
(4) INCOME (LOSS) PER SHARE
Income (loss) per common and common equivalent share is based on the
weighted average number of shares of common stock outstanding and dilutive
common equivalent shares from stock options, warrants and convertible notes
using the treasury method. Common stock equivalents are not included in the
calculation of loss per share as their effect would be antidilutive.
(5) EQUITY TRANSACTIONS
During the nine months ended September 30, 1996, the Company received
net proceeds of approximately $772,000 from the exercise of warrants into
approximately 424,000 shares of common stock and private placements of 200,000
shares of common stock.
(6) CONTINGENCIES
In July, 1995, a lawsuit was filed against Benchmark (a subsidiary of
the Company which no longer has any assets or operations) and Raytheon Company
by two individuals in the U.S. District Court for New Hampshire for an incident
which occurred prior to the Company's acquisition of Benchmark in September,
1992. The lawsuit alleges duty to warn, strict product liability, negligence and
ultrahazardous activity and loss of consortium. The plaintiff seeks general and
compensatory damage in the amount of $3,000,000. Benchmark believes that it has
valid defenses to this action. Benchmark has submitted the lawsuit to its
insurance carrier and believes that coverage is available for this lawsuit.
Benchmark's insurance company is currently paying the cost of defense of this
lawsuit. In addition, Benchmark is investigating whether any other parties are
responsible for the claims that are asserted in the lawsuit. JMAR has not been
named as a party to this suit and does not believe that there are any grounds
for the plaintiff to assert this claim against JMAR directly.
6
<PAGE> 8
(7) ACQUISITION OF CALIFORNIA ASIC TECHNICAL SERVICES, INC.
On May 23, 1996, the Company acquired (the "Acquisition") approximately
94 percent of the outstanding common stock of California ASIC Technical
Services, Inc., a Nevada corporation, (subsequently renamed California ASIC
("Cal ASIC")). The Acquisition involved a private tender offer to the
shareholders of Cal ASIC (the "Sellers"). As consideration for the Acquisition,
the Company issued to the Sellers an aggregate of approximately 1,358,000 shares
of its Common Stock. The shares issued by the Company are unregistered, however,
the Company agreed to use its best efforts to register the shares in the future.
The purchase price was negotiated at arm's length.
In addition, concurrent with the closing, the Company loaned $400,000
of its funds to Cal ASIC (in addition to $100,000 previously loaned) and agreed
to loan an additional $1,000,000 over an eighteen month period, of which
$500,000 was loaned in the quarter ended September 30, 1996, to be used by Cal
ASIC for equipment purchases and working capital purposes. In addition, the
Company agreed to loan the two majority shareholders of Cal ASIC up to $250,000,
secured by the JMAR stock they received in the Acquisition.
Cal ASIC is engaged in the design, fabrication, assembly and testing of
application specific integrated circuits for the electronics industry and will
be operated as a division of the Company.
The Company has accounted for the acquisition as a purchase effective
June 1, 1996. The allocation of the purchase price of Cal ASIC reflected in the
accompanying financial statements has been prepared based upon an independent
appraisal of certain of the acquired assets and using management's estimate of
fair value for the remaining net assets. The Company will continue to review its
allocation of the purchase price to the acquired assets and liabilities. The
increase in goodwill on the accompanying balance sheet is related to the
acquisition of Cal ASIC and will be amortized over five years.
The following unaudited proforma information gives effect to the
acquisition of Cal ASIC as if the acquisition occurred on January 1 of each
respective pro forma period. In connection with the Acquisition, Cal ASIC
entered into agreements with several of its creditors which reduced the related
liabilities due those creditors by approximately $850,000. Such debt reductions
will not be reflected in the statement of operations of the Company. The pro
forma loss from continuing operations excludes any impact from the debt
settlements of Cal ASIC directly attributable to the Acquisition. These
statements do not purport to be indicative of the results of operations which
actually would have occurred had the acquisition of Cal ASIC occurred on January
1 of each respective period or which may be expected to occur in the future.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
---------------------------------------
1996 1995
--------------- -----------
<S> <C> <C>
Total revenues ................ $ 11,081,000 $ 9,412,000
=============== ===========
Loss from continuing operations $ (657,000) $ (384,000)
=============== ===========
Loss per share ................ $ (.04) $ (.03)
=============== ===========
</TABLE>
(8) EQUITY SECURITIES
During 1995, the Company issued 1,000,000 shares of common stock in
exchange for preferred stock of Atlantic American Holding Company Limited
("Atlantic"), a newly formed insurance company. As a newly formed insurance
company, Atlantic has not yet generated significant operations. This investment
has been recorded in the accompanying financial statements, at cost, in the
amount of $621,000. If the operations of Atlantic are determined in the future
to be unsuccessful or insufficient, a writedown or writeoff of all or a portion
of the Company's investment in Atlantic may be necessary.
7
<PAGE> 9
Management of the Company will continue to evaluate the realizability of the
investment and will make appropriate adjustments to the investment, if
warranted.
(9) CONVERTIBLE NOTES PAYABLE
During October 1993 the Company issued $2,500,000 of convertible
promissory notes of which $1,600,000 remain outstanding at September 30, 1996.
The convertible notes bear interest at 8-1/4% and were initially convertible
into shares of common stock of the Company at $3.75 per share. In October 1996,
the Company entered into an agreement to amend the terms of the notes, whereby
the conversion price for a pro-rata share of the notes (62.5 percent) was
lowered to $2.27 per share, which was the fair market value of the Company's
common stock at the time of the amendment. Pursuant to these amended terms,
holders of $1,000,000 in convertible notes converted the notes into 440,000
shares. This transaction had no impact on the Company's results of operations
for any of the periods presented in the accompanying financial statements and
will not impact earnings for the year ending December 31, 1996, other than
reduced interest expense.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
Results of Consolidated Operations
On May 23, 1996, the Company acquired approximately 94 percent of the
outstanding common stock of California ASIC ("Cal ASIC"). The Company has
accounted for the acquisition as a purchase effective June 1, 1996. Included in
the results of operations of the Company for the three months ended September
30, 1996 is a net loss of $152,704, including goodwill amortization of $41,463,
related to Cal ASIC. Accordingly, the income from operations and net income for
the three months ended September 30, 1996 excluding the loss from Cal ASIC were
$226,985 and $163,722, respectively. Including the losses of Cal ASIC, the
operating income for the quarter was $70,956 and the net income for the quarter
was $11,018.
The Company's current outlook for the rest of fiscal year 1996 for the
Company's operations that existed prior to the acquisition of Cal ASIC is
positive. However, the Company expects to experience an adverse impact on
profits in the near term from Cal ASIC, including a non-cash charge of
approximately $160,000 per year of goodwill amortization. It is management's
belief that Cal ASIC will make a positive contribution to Company profit in
subsequent years. Manufacturing equipment product backlog as of September 30,
1996, including a letter of intent for approximately $1,951,000, was
approximately $7,268,000.
Revenues for the three months ended September 30, 1996 and 1995 were
$4,577,362 and $3,026,636, respectively, and were $11,068,868 and $9,254,071 for
the nine month periods ending September 30, 1996 and 1995, respectively. The
increase of $1,550,726 for the three months ended September 30, 1996 compared to
the three months ended September 30, 1995 and the increase of $1,814,797 for the
nine months ended September 30, 1996 compared to the nine months ended September
30, 1995 is attributable to the overall increase in volume in orders that the
Company has experienced in 1996 and the introduction of certain new products,
primarily the Mirage tabletop video measurement system. Inventories have
increased from $2,585,575 at December 31, 1995 to $3,414,240 at September 30,
1996 primarily due to raw material and component purchases to support the
Company's increase in orders and higher level of production planned for the
remainder of 1996 and beyond.
Gross margins for the nine months ended September 30, 1996 and 1995
were 38.7% and 41.2%, respectively. The lower gross margins for the nine months
ended September 30, 1996 versus the nine months ended September 30, 1995 is
primarily due to (i) competitive pressures on certain products; (ii) increase in
the cost of materials as the result of changes in certain product designs that
could not all be passed on to the customer; (iii) higher costs incurred on the
initial production run of Mirages; and (iv) lower margins at JTC. The Company
expects some of the above conditions to continue into the future, primarily the
existence of competitive pressures keeping prices of the Company's products from
increasing. The Company is exploring ways to improve its gross margins through
cost reduction programs and process changes.
Selling, general and administrative ("SG&A") expenses for the three
months ended September 30, 1996 and 1995 were $1,287,267 and $985,494,
respectively, and $3,409,492 and $2,931,010 for the nine month periods ended
September 30, 1996 and 1995, respectively. The increase in SG&A expenses in 1996
is due to (i) SG&A expenses of $156,029 and $230,975 related to Cal ASIC in the
three and nine month periods of 1996, respectively, compared to none in 1995;
(ii) an increase in amortization related to demonstration equipment due to the
increase in such equipment required to support the Company's increased marketing
efforts, primarily related to the Mirage; (iii) higher customer service costs
due to the hiring of three new customer service personnel needed to support the
increased sales volume experienced throughout 1996; and (iv) higher investor
relations costs.
9
<PAGE> 11
The Company's research, development and engineering program consists of
two components: that which is paid for by customers such as the U.S. government
("Customer-Funded RD&E"); and that which is paid for by the Company. All
research and development, regardless of whether customer or Company funded, is
expensed when incurred. The costs incurred by the Customer-Funded RD&E are
included in the "Costs of Sales" category of expenses and totaled $264,339 and
$242,929 for the three months ended September 30, 1996 and 1995, respectively,
and $818,073 and $959,984 for the nine month periods ended September 30, 1996
and 1995, respectively. The decrease in Customer-Funded RD&E for the nine months
in 1996 is primarily due to the delay in receipt of additional contract funding
from the U.S. government. During May, 1996, the Company received an additional
$1.2 million of contract funding from the U.S. Army Research Laboratory,
sponsored by the Defense Advanced Research Projects Agency ("DARPA") to continue
development of the Company's Picosecond X-ray Lithography System ("PXS") for
advanced semiconductor manufacturing. In addition, the U.S. Army Research
Laboratory and DARPA jointly agreed to deliver to the Company, and provide for
use by the Company, a government-owned X-ray Stepper, formerly located at Bell
Laboratories. The Stepper, developed over several years at an estimated cost of
in excess of $25 million, will be integrated with the PXS to provide the
foundation for a leading-edge X-ray lithography workstation. Other than
reimbursed costs to ship the Stepper to the Company, there is no cost or asset
related to the Stepper reflected in the accompanying financial statements. The
cost of the Company-funded RD&E is included in "Operating Expenses." Those
operating RD&E expenses were $333,653 and $182,984 for the three months ended
September 30, 1996 and 1995, respectively, and $867,030 and $653,379 for the
nine month periods ended September 30, 1996 and 1995, respectively. Therefore,
total RD&E expenses for the three month periods were $597,992 and $425,913 for
1996 and 1995, respectively, and $1,685,103 and $1,613,363 for the nine month
periods in 1996 and 1995, respectively. Some of the more significant research
and development projects the Company is working on in 1996 include (i) continued
development of a miniature laser lancet system for needle-less extraction of
blood from the body; (ii) continued development of an x-ray lithography source
and novel advanced optical lithography sources; (iii) continued development of a
fully integrated tabletop unit used in the microelectronics industry for non-
contact high precision measurement of electronic component dimensions; (iv)
continued development of a disk inspection system for failure analysis for the
disk drive industry; (v) continued development of a standard platform for laser
machining and welding applications; and (vi) continued development of the
Microlight 1000 micromachining demonstration center.
Interest and other income (expense) for 1996 includes a non-recurring
charge recorded in the first quarter of $80,000 relating to an investment
disposed of in a prior year.
Interest expense was $77,292 and $73,816 for the three months ended
September 30, 1996 and 1995, respectively, and $231,956 and $247,420 for the
nine months ended September 30, 1996 and 1995, respectively.
CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
The Company's working capital as of September 30, 1996 and December 31,
1995 was $4,728,954 and $4,655,087, respectively.
The Company had cash and cash equivalents at September 30, 1996 and
December 31, 1995 of $1,553,406 and $1,837,647, respectively. The decrease in
cash and cash equivalents for the nine months ended September 30, 1996 was
$284,241 as compared to a decrease in cash of $558,380 for the nine months ended
September 30, 1995. The decrease in cash during the nine months ended September
30, 1996 resulted from cash used in operations of $1,662,579 offset in part by
cash provided by financing activities of $1,072,634 (net proceeds from the
exercise of warrants, borrowings from notes payable, and net proceeds from
issuances of common stock, less net payments of short-term debt) and cash
provided by investing activities of $305,704 (primarily cash received from the
collection of a note receivable related to the sale of Surgilase, less capital
expenditures). The cash used in operations was primarily used to finance
accounts receivable and inventory purchases (see previous discussion) offset in
part by an increase in accounts payable and accrued liabilities. Accounts
receivable increased primarily due to
10
<PAGE> 12
the Company's increase in revenues for the three months ended September 30,
1996. Accounts payable and accrued liabilities increased primarily due to (i) an
increase in the Company's inventory purchases to support planned production
increases; (ii) reduction of $185,121 in the Company's borrowings under its
working capital line of credit; (iii) an increase in deposits and progress
payments the Company obtained in connection with customer orders; and (iv)
accruals associated with the Cal ASIC acquisition.
The Company anticipates that its operations will continue to require
the use of working capital. The working capital of PPL is generally funded
through its working capital line (the "Line") with a bank (the "Bank") and the
operations of JTC are currently funded through third party contracts. During
1995 and most of the first quarter of 1996, advances pursuant to the Line were
based on 80 percent of eligible accounts receivable and 25 percent of eligible
inventories up to $1,000,000. The Bank increased the Line from $1,500,000 in the
second quarter of 1995 to $3,000,000 in March, 1996, allowed certain foreign
receivables (up to $250,000) to be eligible receivables and increased the
percent of eligible inventories to 35 percent. As of September 30, 1996 PPL's
availability pursuant to the Line was approximately $2,334,000 of which
approximately $1,342,000 was borrowed at that time by PPL. The Line contains
several covenants relating to, among other matters, the maintenance of certain
minimum income levels and financial ratios, which if not met by the Company
could impact the availability of advances pursuant to the Line. In addition,
during the third quarter, the Bank loaned the Company $500,000 to be used for
equipment purchases by PPL. Concurrent with the closing of the acquisition (the
"Acquisition") of Cal ASIC, the Company loaned $400,000 of its funds to Cal ASIC
(in addition to $100,000 previously loaned) and agreed to loan an additional
$1,000,000 over an eighteen month period, of which $500,000 was loaned in the
quarter ended September 30, 1996, to be used by Cal ASIC for equipment purchases
and working capital purposes. In addition, the Company agreed to loan the two
majority shareholders of Cal ASIC up to $250,000, secured by the JMAR stock they
received in the Acquisition. During September, 1996, the Company entered into a
$950,000 lease financing agreement with Leasing Technologies International,
Inc., the proceeds of which will be used to finance Cal ASIC equipment and
software financing requirements. Management believes that the Company has
existing resources to adequately fund operations and working capital
requirements as well as the Cal ASIC obligations for the next twelve months
based on the current level of operations and current business conditions.
However, the working capital needs of Cal ASIC may be greater than that which
the Company has currently committed to fund and the Company has $600,000 of
convertible debt due in October, 1997. If the convertible debt is not converted
or if Cal ASIC requires additional working capital funds, the Company believes
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.
At December 31, 1995, the Company had in excess of $24 million of
Federal net operating loss carryforwards, subject to certain annual limitations.
To the extent the Company has taxable income in the future, these carryforwards
will be used by the Company to reduce its cash outlay for taxes.
During 1995, the Company issued 1,000,000 shares of common stock in
exchange for preferred stock of Atlantic American Holding Company Limited
("Atlantic"), a newly formed insurance company. As a newly formed insurance
company, Atlantic has not yet generated significant operations. This investment
has been recorded in the accompanying financial statements, at cost, in the
amount of $621,000. Atlantic through its wholly owned subsidiary, Condor
Insurance Limited (collectively, with Atlantic, "Atlantic"), commenced
operations prior to the Company's investment in Atlantic. Based on information
provided by Atlantic, during 1995 Atlantic entered into surety bond agreements,
generating in excess of $500,000 in insurance premium revenues. If the
operations of Atlantic are determined in the future to be unsuccessful or
insufficient, a writedown or write-off of all or a portion of the Company's
investment in Atlantic may be necessary. On September 27, 1996, the Company
served Atlantic with a complaint seeking declaratory judgment whereby the
Company contends, among other items, that Atlantic has no rights to pledge its
JMAR stock as collateral or security to third parties or sell its JMAR stock
unless done so in the ordinary course of business to satisfy policyholder claims
and that the Company has certain rights and claims regarding any such sale of
JMAR stock owned by Atlantic. The Company has not determined that there is a
permanent impairment in the value of its investment in
11
<PAGE> 13
Atlantic, however, the management of the Company will continue to evaluate the
realizability of the investment and will make appropriate adjustments to the
investment, if warranted.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not related
to historical results are forward-looking statements that necessarily are based
on certain assumptions and are subject to certain risks and uncertainties that
could cause actual future performance and results to differ materially from
those stated or implied in the forward-looking statements. These risks and
uncertainties include delays in shipment or cancellation of orders, timing of
future orders, fluctuations in customer and market demand, customer
reorganizations, ability to successfully integrate acquisitions, continued
government funding of advanced lithography, successful transfer of technology to
commercial applications, continued growth of target markets and other risks
detailed in the Company's Form 10-K for the year ended December 31, 1995 and in
the Company's other filings with the Securities and Exchange Commission.
12
<PAGE> 14
JMAR INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders' held on September 20,
1996, the following matters were voted on:
(a) The following directors were elected: John S. Martinez, James H. Banister,
Jr. and Barry Ressler (11,786,600 affirmative votes and 31,435 votes withheld);
C. Neil Beer (11,787,000 affirmative votes and 30,991 votes withheld); Vernon H.
Blackman (11,786,544 affirmative votes and 31,491 votes withheld); and Marvin W.
Sepe (11,787,100 affirmative votes and 30,935 votes withheld).
(b) A motion to amend the Company's 1991 Stock Option Plan increasing the number
of shares of Common Stock authorized to be granted from 480,000 to 1,480,000 and
other related amendments was passed with 4,904,926 affirmative votes, 710,975
negative votes, 166,922 abstaining votes and 6,035,212 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this Report:
Exhibit 10.1 Master Lease Agreement and related documents dated as of
September 10, 1996 between Leasing Technologies International, Inc.,
JMAR Industries, Inc. and California ASIC Technical Services, Inc.
Exhibit 10.2 Installment Note dated September 1, 1996 between Comerica
Bank-California and Pacific Precision Laboratories, Inc.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K/A dated August 2, 1996, relating
to the Company's Form 8-K dated May 23, 1996, indicating that the
Company had acquired approximately 94 percent of the outstanding shares
of capital stock of California ASIC Technical Services, Inc.
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 INDUSTRIES, INC.
November 11, 1996 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
<PAGE> 1
EXHIBIT 10.1
[LTI LOGO] Leasing
Technologies
International, Inc.
September 26, 1996
VIA FACSIMILE: 619-535-1835
Mr. Dennis E. Valentine
Chief Financial Officer
JMAR Industries, Inc.
3956 Sorrento Valley Blvd.
San Diego, CA 92121
Dear Mr. Valentine:
We are pleased to inform you that your $950,000 revolving lease line is now
available.
AVAILABILITY DATE: 9/26/96
EXPIRATION DATE: 12/31/97
Continued availability under this line is subject to the following: receipt of
periodic financial data, periodic credit review, lease documentation
satisfactory to us, no material adverse change in the company's financial
condition as determined by us, and no lease defaults.
All other terms of the prior lease line letter will remain in effect.
We look forward to a long and mutually beneficial relationship.
Very truly yours,
/s/ John Strahley
John Strahley
Manager, Investments &
Financial Analysis
cc: Barbara Hughes, Leasing Technologies International, Inc.
John Miscovich, Balboa Capital
Soundview Plaza + 1266 Main Street + Stamford, CT 06902 + (203) 967-4300 +
Fax: (203) 323-2394
<PAGE> 2
[LTI LETTERHEAD]
August 21, 1996
VIA FACSIMILE AND FIRST CLASS MAIL
Mr. Dennis E. Valentine
Chief Financial Officer
JMAR Industries, Inc.
3956 Sorrento Valley Blvd.
San Diego, CA 92121
Dear Mr. Valentine:
We are pleased to inform you that Leasing Technologies International, Inc.
("LTI") hereby proposes a $950,000 Revolving Lease Line for Fair Market Value
Leases for JMAR Industries, Inc. The purpose of the line is for the lease of
wafer processing, assembly, test, computers, office automation and other
equipment approved by LTI under a Master Lease Agreement to be entered into by
JMAR Industries, Inc. and LTI. Availability under this line is subject to
completion of due diligence, receipt of periodic financial data, periodic credit
review, and documentation satisfactory to LTI.
Any leases created under this lease line will be subject to there being no
material adverse change of circumstances for JMAR Industries, Inc. and there
existing no Event of Default as defined in any lease schedule under the Master
Lease in the opinion of LTI.
The following is an outline of the various terms of our lease line:
LESSEES: JMAR Industries, Inc. and California ASIC Technical Services,
Inc.
AMOUNT: $950,000
TYPE: Lease Line for Fair Market Value leases under a Master Lease
Agreement.
AVAILABILITY: Through December 31, 1997 subject to no material adverse change
in company's financial condition as determined by LTI and no
lease defaults.
PURPOSE: Purchase/Leaseback or to acquire new computers, office
automation, and other equipment for use by lessee.
TERM: Up to 36 months, depending on equipment.
UPGRADES: Leased equipment may be upgraded during the lease term if
approved in advance by LTI.
<PAGE> 3
Mr. Dennis Valentine
Page 2 August 21, 1996
LEASE PRICING: Pricing is set on each transaction proposal as
determined by LTI upon review of equipment type, market
rates, lease term and other pertinent factors.
PAYMENTS: Rent and other payments due on first of each month,
with first payment due at closing of each lease
schedule.
SECURITY DEPOSIT: An amount equal to one monthly payment due upon closing
of each schedule, unless specified otherwise.
LEGAL REQUIREMENT: Execution of Master Lease Agreement and related
documents satisfactory to LTI.
LEASE SCHEDULES: Multiple schedules of at least $50,000 permitted under
each transaction proposal.
COMMITMENT FEE: A commitment fee of $9,500 is to be remitted with your
executed copy of this proposal. This amount, less
$1,500 in connection with the set-up and documentation
of this transaction, shall be applied toward the
security deposit on each schedule on a pro rata basis.
If Lessor fails to deliver the lease commitment, the
$9,500 less out-of-pocket expenses ($1,500 maximum)
shall be promptly refunded. If Lessee shall decline
for any reason, Lessor shall retain the $9,500.
Please evidence your approval of the foregoing by signing where indicated below
and returning this letter to us on or before September 6, 1996.
Very truly yours,
/s/ Arnold J. Hoegler
--------------------------
Arnold J. Hoegler
Executive Vice President
Agreed and accepted by:
/s/ Dennis E. Valentine
- ------------------------
JMAR Industries, Inc.
Date: September 4, 1996
------------------
cc: J. Miscovich, Balboa Capital Corporation
<PAGE> 4
LEASING TECHNOLOGIES INTERNATIONAL, INC.
TRANSACTION PROPOSAL NO. 1 8/21/96
Lessee: JMAR Industries, Inc.
Equipment: Wafer processing, assembly, test, computer equipment
approved by LTI.
Cost (approximate): up to $750,000
Commencement: Prior to 10/1/96
Term: 36 Months
Rate Factor: .03266
Monthly Rental: $24,495
Other: Last month in advance
In the event of software financing pursuant to
Transaction Proposal No. 2 or the financing of
equipment as described above that is not deemed
acceptable to LTI, LTI shall obtain other collateral
consisting of equipment valued at up to $300,000 not
already subject to liens, or blanket lien to be
released on the earlier of: (1) six consecutive
profitable quarters, or (2) a minimum of $300,000
credit line with a bank, in which case LTI's security
interest will be subordinated to the new bank.
End of Lease Option: Upon written notice in accordance with Section 3 of
Master Lease Agreement, you may:
1. Renew lease at FMV rate
2. Renew lease for 12 months at 50% of existing rent;
equipment may then be purchased at end of 12 months
for $1.00
3. Purchase equipment at FMV
4. Return the equipment subject to a remarketing charge
equal to 3% of the Cost.
Note: The Rate Factor is subject to change upon any changes in the Prime Rate
prior to drawdowns.
TRANSACTION IS SUBJECT TO CREDIT AND FINAL EQUIPMENT APPROVAL.
AGREED AND ACCEPTED BY:
/s/ Dennis E. Valentine
- ---------------------------------
JMAR Industries, Inc.
Date: September 4, 1996
---------------------------
<PAGE> 5
LEASING TECHNOLOGIES INTERNATIONAL, INC.
TRANSACTION PROPOSAL NO. 2 8/21/96
Lessee: JMAR Industries, Inc.
Equipment: Software approved by LTI.
Cost (approximate): up to $200,000
Commencement: Prior to 9/1/96
Term: 30 Months
Rate Factor: .03815
Monthly Rental: $7,630
Other: 10% Cash Security Deposit
Other collateral as per transaction proposal No. 1
End of Lease Option: Upon written notice in accordance with Section 3 of Master
Lease Agreement, you may:
1. Renew lease for 12 months at 40% of existing rent;
equipment may then be purchased at end of 12 months
for $1.00.
2. Purchase equipment at 15% of cost;
3. Return the equipment subject to a remarketing charge
equal to 7% of the Cost.
Note: The Rate Factor is subject to change upon any changes in the Prime Rate
prior to drawdowns.
TRANSACTION IS SUBJECT TO CREDIT AND FINAL EQUIPMENT APPROVAL.
AGREED AND ACCEPTED BY:
/s/ Dennis E. Valentine
___________________________________
JMAR Industries, Inc.
Date: September 6, 1996
-----------------------------
<PAGE> 6
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT (THE "LEASE") IS MADE THE 10TH DAY OF SEPTEMBER,
1996 BETWEEN LEASING TECHNOLOGIES INTERNATIONAL, INC., WITH ITS PRINCIPAL OFFICE
AT SOUNDVIEW PLAZA, 1266 MAIN STREET, STAMFORD, CT 06902 (THE "LESSOR"), AND
JMAR INDUSTRIES, INC., WITH A PRINCIPAL OFFICE AT 3956 SORRENTO VALLEY BLVD.,
SAN DIEGO, CA 92121 AND CALIFORNIA ASIC TECHNICAL SERVICES, INC. WITH A
PRINCIPAL OFFICE AT 13845 B ALTON PARKWAY, IRVINE, CA 92718 (HEREINAFTER
SOMETIMES COLLECTIVELY REFERRED TO AS THE "LESSEE" AND INDIVIDUALLY, AS AN
"INDIVIDUAL LESSEE"). THE PARTIES HERETO AGREE AS FOLLOWS:
1. LEASE:
This Lease establishes the general terms and conditions by which Lessor
may lease to any individual Lessee the Equipment (the "Equipment") listed on
each Equipment Schedule executed periodically pursuant to this Lease. Each such
Equipment Schedule shall incorporate by reference the terms of this Lease, and
shall be a separate lease agreement as to the Equipment listed thereon for all
purposes, including default. If the provisions of an Equipment Schedule conflict
with the provisions of this Lease, the provisions of such Equipment Schedule
shall prevail. Although each Equipment Schedule may be executed only by an
Individual Lessee, each Individual Lessee and its respective successors and
assigns shall be absolutely and unconditionally jointly and severally liable for
each and every obligation arising under this Lease and any Equipment Schedule
thereto. Each Individual Lessee agrees that Lessor may proceed directly against
any Individual Lessee for the payment, performance or observance of each and
every obligation of any Individual Lessee under this Lease or any Equipment
Schedule thereto. The obligations of any Individual Lessee shall not be subject
to any counterclaim, setoff, recoupment or defense based upon any claim any
Individual Lessee may have against any other Individual Lessee or the Lessor,
and shall remain in full force and effect without regard to, and shall not be
released, discharged or in any way affected by, any Individual Lessee, including
without limitation (a) any waiver, consent, extension, renewal, indulgence or
other action or inaction under or in respect of this Lease or any Equipment
Schedule; (b) any invalidity or unenforceability, in whole or in part, of any
such agreement or instrument with respect to any Individual Lessee; (c) any
failure on the part of any Individual Lessee for any reason to perform or comply
with any term of any Equipment Schedule; (d) any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition, liquidation or similar
proceeding with respect to any other Individual Lessee its properties or
creditors; or (e) any other occurrence whatsoever, whether similar or dissimilar
to the foregoing, with respect to any other Individual Lessee. Each Individual
Lessee hereby waives any requirement of diligence or promptness on the part of
the Lessor in the enforcement of the Lessor's rights hereunder or under any
other Loan Document with respect to the obligations of itself or of any other
Individual Lessee. Without limiting the foregoing any failure to make any demand
upon, to pursue or exhaust any rights or remedies against Individual Lessee, or
any delay with respect thereto, shall not affect the obligations of any
Individual Lessee hereunder.
2 DEFINITIONS:
(a) The "Installation Date" means the date determined in accordance with
the applicable Equipment Schedule.
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<PAGE> 7
(b) The "Commencement Date" means, as to any item of the Equipment
designated on any Equipment Schedule where the Installation Date for such item
of Equipment falls on the first day of the month, that date, or, in any other
case, the first day of the month following the month in which such Installation
Date falls.
(c) The "Daily Rental" means 1/30th of the amount set forth as the
monthly rental in the applicable Equipment Schedule.
3. TERM OF LEASE:
The term of this Lease, as to all Equipment designated on any Equipment
Schedule, shall commence on the Installation Date for such Equipment, and shall
continue for an initial period ending that number of months as is specified on
the applicable Equipment Schedule from the Commencement Date for the last item
of Equipment to be installed (the "Initial Term"). The term of this Lease for
all such Equipment shall be automatically extended for successive monthly
periods until terminated in accordance with this Lease. Any termination shall
be effective only on the last day of the Initial Term or the last day of any
such successive period.
4. RENTAL:
The monthly rental payable hereunder is as set forth in the Equipment
Schedule(s). Rental shall begin to accrue on the Installation Date for each item
of Equipment and shall be due and payable by Lessee in advance on the first day
of each month. If the Installation Date does not fall on the first day of a
month, the rental for that period of time from the Installation Date until the
Commencement Date shall be an amount equal to the Daily Rental multiplied by the
number of days from (and including) the Installation Date to (but not including)
the Commencement Date and shall be due and payable on the Installation Date. In
addition to the monthly rental set forth in the Equipment Schedule(s), Lessee
shall pay to Lessor an amount equal to all taxes paid, payable or required to be
collected by Lessor, however designated, which are levied or based on the
rental, on the Lease or on the Equipment or on its purchase for lease hereunder,
or on its use, lease, operation, control or value (including, without
limitation, state and local privilege or excise taxes based on gross revenue),
any penalties or interest in connection therewith which are attributable to
Lessee's negligence or taxes or amounts in lieu thereof paid or payable by
Lessor in respect of the foregoing, but excluding taxes based on Lessor's net
income. Personal property taxes assessed on the Equipment during the term hereof
shall be paid by Lessee. Lessee agrees to file, on behalf of Lessor, all
required property tax returns and reports concerning the Equipment with all
appropriate governmental agencies, and, within not more than thirty (30) days
after the due date of such filing to send Lessor confirmation of such filing.
Lessee agrees that Lessor, or Lessor's agent may file all required property tax
returns and reports and pay all taxes thereon pertaining to the Equipment. In
such event, Lessee shall reimburse Lessor for all costs and expenses incurred in
connection therewith, provided that such costs and expenses (including property
taxes) shall not exceed the property taxes pursuant to statutory tax rates and
regulations.
Interest on any past due payments, including but not limited to
administrative charges and any other charges or fees arising out of or related
to this Lease, shall accrue at the rate of 1 1/2% per
2
<PAGE> 8
month, or if such rate shall exceed the maximum rate allowed by law, then at
such maximum rate, and shall be payable on demand. Charges for taxes, penalties
and interest shall be promptly paid by Lessee when invoiced by Lessor.
As security for the full performance of all of the Lessee's obligations
under each Equipment Schedule, Lessee shall, simultaneously with the execution
and delivery of each Equipment Schedule, deposit with Lessor the amount set
forth on such Equipment Schedule. The security deposit shall be promptly
returned to the Lessee by the Lessor upon the expiration of such Equipment
Schedule and return of all Equipment, provided that all Lessee obligations
under such Equipment Schedule have been fulfilled.
5. INSTALLATION, USE AND QUIET POSSESSION OF EQUIPMENT:
(a) Lessee, at its own expense, will provide the required suitable
electric current to operate the Equipment and appropriate installation
facilities as specified by the manufacturer.
(b) Any equipment, cards, disks, tapes or other items not specified in
the Equipment Schedule(s) which are used on or in connection with the Equipment
must meet the specifications of the manufacturer and shall be acquired by
Lessee at its own expense.
(c) Lessee shall use the Equipment solely in connection with Lessee's
business and for no other purpose. Subject to the preceding sentence, Lessee
shall be entitled to unlimited usage of the Equipment without extra charge by
Lessor.
(d) Unless otherwise set forth in the applicable Equipment Schedule,
Lessee will at all times keep the Equipment in its sole possession and control.
The Equipment shall not be moved from the location stated in the applicable
Equipment Schedule without the prior written consent of Lessor.
(e) After prior notice to Lessor, Lessee may, at its own expense, make
alterations in or add attachments to the Equipment, provided such alterations
or attachments do not interfere with the normal and satisfactory operation or
maintenance of the Equipment or with Lessee's ability to obtain and maintain
the maintenance contract required by Section 5(h) hereof. The manufacturer or
other organization selected by Lessee and approved in writing by Lessor, (which
consent shall not be unreasonably withheld) to maintain the Equipment
("Maintenance Organization") may incorporate engineering changes or make
temporary alterations to the Equipment upon request of Lessee. All such
alterations and attachments shall be and become the property of Lessor or, at
the option of Lessee, shall be removed by Lessee and the Equipment restored, at
Lessee's expense, to its original condition as of the Installation Date
thereof, reasonable wear and tear only excepted, and upon the removal and
restoration, the alteration and/or attachment which was made by Lessee shall
become the property of Lessee.
(f) So long as Lessee is not in default hereunder, neither Lessor nor
any party claiming through or under Lessor shall interfere with Lessee's use or
possession of any Equipment during the term of this Lease.
3
<PAGE> 9
(g) Lessee shall, during the term of this Lease, at its expense, keep
the Equipment in good working order and condition and make all necessary
adjustments, repairs and replacements and shall not use or permit the Equipment
to be used in any manner or for any purpose for which, in the opinion of the
manufacturer, the Equipment is not designed or reasonably suitable.
(h) Unless otherwise set forth in the applicable Equipment Schedule,
Lessee shall, during the term of this Lease, at its own expense, enter into and
maintain in force a contract with the manufacturer or the Maintenance
Organization covering at least prime shift maintenance of the Equipment. Such
contract shall commence upon expiration of the manufacturer's warranty period,
if any, relating to such item. Lessee shall furnish Lessor with a copy of such
contract(s).
(i) At the termination of the applicable Equipment Schedule, Lessee
shall, at its expense, return not less than all the Equipment subject thereto
to Lessor (at the location designated by Lessor within the Continental United
States) in the same operating order, repair, condition and appearance as on the
Installation Date, reasonable wear and tear only excepted, with all engineering
and safety changes prescribed by the manufacturer or Maintenance Organization
incorporated therein. Lessee shall, prior to such termination, arrange and pay
for any repairs, changes and manufacturer's certifications as are necessary for
the manufacturer or Maintenance Organization to accept the Equipment under
contract maintenance at its then standard rates. Lessee shall return all
accessories supplied with the Equipment, including but not limited to all
manuals, cables and software diskettes. Lessee shall promptly pay, after
receipt of an invoice therefore, all costs and expenses pertaining to the
replacement of any missing items and for the repair of any Equipment, together
with any audit, inspection or certification charges reasonably incurred by
Lessor.
6. LEASEHOLD RIGHTS AND INSPECTION:
(a) Lessee shall have no interest in the Equipment other than the
rights acquired as a lessee hereunder and the Equipment shall remain personalty
regardless of the manner in which it may be installed or attached. Lessee
shall, at Lessor's request, affix to the Equipment, tags, decals or plates
furnished by Lessor, indicating Lessor's ownership and Lessee shall not permit
their removal or concealment. Lessee shall replace any such tag, decal or plate
which may be removed or destroyed or become illegible. Lessee shall keep all
Equipment free from any marking or labeling which might be interpreted as a
claim of ownership thereof by Lessee or any party other than Lessor or anyone
claiming through Lessor.
(b) Lessee shall keep the Equipment free and clear of all liens and
encumbrances except liens or encumbrances arising through the actions or
omissions of Lessor. Lessee shall not assign or otherwise encumber this Lease
or any of its rights hereunder or sublease the Equipment without the prior
written consent of Lessor except that Lessee may assign this Lease or sublease
the Equipment to its parent or any subsidiary corporation, or to a corporation
which shall have acquired all or substantially all of the property of Lessee by
merger, consolidation or purchase. No permitted assignment or sublease shall
relieve Lessee of any of its obligations hereunder.
(c) Lessor or its agents shall have free access to the Equipment at all
reasonable times for the purpose of inspection and for any other purpose
contemplated by this Lease.
4
<PAGE> 10
(d) Lessee shall immediately notify Lessor of all details concerning
any damage to, or loss of, the Equipment arising out of any event or occurrence
whatsoever, including but not limited to, the alleged or apparent improper
manufacture, functioning or operation of the Equipment.
7. NO WARRANTIES BY LESSOR:
Lessee represents that, at the Installation Date thereof, it shall have
(a) thoroughly inspected the Equipment; (b) determined for itself that all
items of Equipment are of a size, design, capacity and manufacture selected by
it; and (c) satisfied itself that the Equipment is suitable for Lessee's
purposes. LESSOR SUPPLIES THE EQUIPMENT AS IS AND NOT BEING THE MANUFACTURER OF
THE EQUIPMENT, THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO
WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED AS TO THE EQUIPMENT'S
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DESIGN, CONDITION, QUALITY,
CAPACITY, MATERIAL OR WORKMANSHIP OR AS TO PATENT INFRINGEMENT OR THE LIKE, it
being agreed that all such risks, as between Lessor and Lessee, are to be
borne by Lessee. Lessee agrees to look solely to the manufacturer or to
suppliers of the Equipment for any and all warranty claims and any and all
warranties made by the manufacturer or the supplier of Lessor are, to the
extent to which the same may be assignable, hereby assigned to Lessee for the
term of the applicable Equipment Schedule. Lessee agrees that Lessor shall not
be responsible for the delivery, installation, maintenance, operation or
service of the Equipment or for delay or inadequacy of any or all of the
foregoing. Lessor shall not be responsible for any direct or consequential loss
or damage resulting from the installation, operation or use of the Equipment or
otherwise. Lessee will defend, indemnify and hold Lessor harmless against any
and all claims, demands and liabilities arising out of or in connection with
the design, manufacture, possession or operation of the Equipment.
8. RISK OF LOSS ON LESSEE:
(a) Beginning on the Installation Date thereof and continuing until the
Equipment is returned to Lessor as provided in this Lease, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment, howsoever caused. During the term of this Lease
as to any Equipment Schedule, Lessee shall, at its own expense, keep in effect
"all risk" property insurance and public liability insurance policies covering
the Equipment designated in each Equipment Schedule. The public liability
insurance policy shall be in such amount as is reasonably acceptable to Lessor.
The "all risk" property insurance policy shall be for an amount not less than
the replacement cost of the Equipment. Lessor, its successors and assigns
and/or such other party as may be designated by any thereof to Lessee, in
writing, shall be named as additional insureds and loss payees on such
policies, which shall be written by an insurance company of recognized
responsibility which is reasonably acceptable to Lessor. Evidence of such
insurance coverage shall be furnished to Lessor no later than the Installation
Date set forth in the Equipment Schedule(s) and, from time to time, thereafter
as Lessor may request. Such policies shall provide that no less than ten days
written notice shall be given Lessor and any other party named as loss payee
prior to cancellation of such policies for any reason. To the extent of
Lessor's interest therein, Lessee hereby irrevocably appoints Lessor or any
other party named as loss payee as Lessee's attorney-in-fact coupled with an
interest to make claim for, receive payment of, and execute any and all
documents that may be required to be provided to the insurance carrier in
5
<PAGE> 11
substantiation of any such claim for loss or damage under said insurance
policies, and to endorse Lessee's name to any and all drafts or checks in
payment of the loss proceeds.
(b) If any item of Equipment is rendered unusable as a result of any
physical damage to, or destruction of, the Equipment, Lessee shall give to
Lessor immediate notice thereof and this Lease shall continue in full force and
effect without any abatement of rental. Lessee shall determine, within fifteen
(15) days after the date of occurrence of such damage or destruction, whether
such item of Equipment can be repaired. In the event Lessee determines that the
item of Equipment cannot be repaired, Lessee shall either, at its expense,
promptly replace such item of Equipment with equal or greater fair market value
and convey title to such replacement to Lessor free and clear of all liens and
encumbrances, and this Lease shall continue in full force and effect as though
such damage or destruction had not occurred, or pay Lessor therefor in cash the
Stipulated Loss Value (defined below) within sixty (60) days of such loss or
damage or sooner if received earlier. "Stipulated Loss Value," as used herein,
shall be an amount as shown on Exhibit A to the applicable Equipment Schedule.
In the event Lessee determines that such item of Equipment can be repaired,
Lessee shall cause such item of Equipment to be promptly repaired. All proceeds
of insurance received by Lessor, the designated loss payee, or Lessee under the
policy referred to in the preceding paragraph of this Section shall be applied
toward the cost of any such repair, replacement, or Stipulated Loss Value if
applicable so long as Lessee shall not be in default of its obligations
hereunder.
9. EVENTS OF DEFAULT AND REMEDIES:
The occurrence of any one of the following shall constitute an Event of
Default hereunder:
(a) Lessee fails to pay an installment of rent on or before the date
when the same becomes due and payable and such failure continues for a period
of ten (10) days;
(b) Lessee attempts to remove, sell, transfer, encumber, sublet or part
with possession of the Equipment or any items thereof, except as expressly
permitted herein.
(c) Lessee shall fail to observe or perform any of the other
obligations required to be observed or performed by Lessee hereunder and such
failure shall continue uncured for ten (10) days after written notice thereof
to Lessee by Lessor or the then assignee hereof.
(d) Lessee ceases doing business as a going concern, makes an
assignment for the benefit of creditors, admits in writing its inability to pay
its debts as they become due, files a voluntary petition of bankruptcy, is
adjudicated a bankrupt or an insolvent, files a petition seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar arrangement under any present or future statute, law or
regulation or files an answer admitting the material allegations of the
petition filed against it in any such proceeding, consents to or acquiesces in
the appointment of a trustee, receiver, or liquidator of it or of all or any
substantial part of its assets or properties, or if it or its shareholders
shall take any action looking to its dissolution or liquidation.
<PAGE> 12
(e) Within thirty (30) days after the commencement of any proceedings
against Lessee seeking reorganization, arrangement, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such proceedings shall not have been dismissed, or if within thirty
(30) days after the appointment without Lessee's consent or acquiescence of any
trustee, receiver or liquidator of it or of all or any substantial part of its
assets and properties, such appointment shall not be vacated.
(f) Lessee defaults in the performance or observation of any term,
condition or covenant of any loan agreement, indenture, trust agreement, lease
or similar agreement to which Lessee is a party or by which Lessee is bound and
such default continues beyond any applicable cure period;
(g) Lessee enters into any transaction which adversely affects a
significant portion of the business value of Lessee and which affects the
ability of the Lessee to repay the Lessee's obligations under the Lease.
Upon the occurrence of an Event of Default, Lessor may at its option do
any one or more of the following: (i) by notice to Lessee terminate this Lease
as to any or all Equipment Schedules; (ii) whether or not this Lease is
terminated as to any or all Equipment Schedules, take possession on not less
than ten (10) days' notice of any or all of the Equipment listed on any or all
Equipment Schedules, wherever situated, and for such purpose, enter upon any
premises without liability for so doing or Lessor may cause Lessee and Lessee
hereby agrees, to return said Equipment to Lessor as provided in this Lease;
(iii) recover from Lessee, as liquidated damages for loss of a bargain and not
as a penalty, all past due amounts as well as an amount equal to the present
value of all monies to be paid by Lessee during the remaining Initial Term or
any successive period then in effect, calculated by discounting at the rate of
six percent (6%) per annum compounded monthly, which payment shall become
immediately due and payable; and (iv) sell, dispose of, hold, use or lease any
Equipment as Lessor in its sole discretion may determine (and Lessor shall not
be obligated to give preference to the sale, lease or other disposition of the
Equipment over the sale, lease or other disposition of similar equipment owned
or leased by Lessor).
In the event that Lessee shall have first paid to Lessor or its
assigns the liquidated damages referred to in (iii) above, Lessee shall
thereafter be entitled to receive all rentals or proceeds received from any
reletting or sale of the Equipment during the balance of the Initial Term
(after deduction of Lessor's expected residual value of the Equipment at the
expiration of the Initial Term or any extension thereof and of all expenses
incurred in connection therewith) said amount never to exceed the amount of the
liquidated damages paid by Lessee. Lessee agrees that Lessor shall have no
obligation to sell the Equipment. Lessee shall in any event remain fully liable
for reasonable damages as provided by law and for all costs and expenses
incurred by Lessor or its assigns on account of such default including but not
limited to all court costs and reasonable attorney's fees. Lessor shall use
reasonable efforts to mitigate such damages by reletting the Equipment. Lessee
hereby agrees that, in any event, it will be liable for any deficiency after
any lease or other disposition of the Equipment. The rights afforded Lessor
hereunder shall not be deemed to be exclusive, but shall be in addition to any
rights or remedies provided by law.
10. NET LEASE:
7
<PAGE> 13
Except as otherwise specifically provided in this Lease, it is
understood and agreed that this is a net lease, and that, as between Lessor and
Lessee, Lessee shall be responsible for all costs and expenses of every nature
whatsoever arising out of or in connection with or related to this Lease or the
Equipment (including, but not limited to, transportation in and out, rigging,
manufacturer's approved packing, installation, certification costs and
disconnect charges). Lessee hereby agrees that in the event that Lessee fails
to pay or perform any obligation under this Lease, Lessor may, at its option,
pay or perform said obligation and any payment made or expense incurred by
Lessor in connection therewith shall become additional rent which shall be due
and payable by Lessee upon demand. Lessee acknowledges that Lessor may, from
time to time, and at Lessee's request, execute and deliver purchase orders
pertaining to the purchase of equipment to be leased pursuant to this Lease.
Lessee agrees that it will indemnify and hold Lessor harmless from and against
any and all loss, cost, liability and expense that Lessor may incur as a result
of the execution and delivery of such purchase orders.
11. ASSIGNMENT:
Lessee agrees that Lessor may transfer or assign all or any part of
Lessor's right, title, and interest in, under or to the Equipment and this Lease
and any or all sums due or to become due pursuant to any of the above, to any
third party (the "Assignee") for any reason and that the Assignee may so
re-assign and transfer. Lessee agrees that upon receipt of written notice from
Lessor or Assignee of such assignment, Lessee shall perform all of its
obligations hereunder for the benefit of Assignee and any successor assignee
and, if so directed, shall pay all sums due or to become due thereunder
directly to the Assignee or to any other party designated by the Assignee.
Lessee hereby covenants, represents and warrants as follows and agrees that the
Assignee and any successor assignee shall be entitled to rely on and shall be
considered a third party beneficiary of the following covenants,
representations and warranties: (i) Lessee's obligations hereunder are absolute
and unconditional and are not subject to any abatement, reduction, recoupment,
defense, offset or counterclaim available to Lessee for any reason whatsoever
including operation of law, defect in the Equipment, failure of Lessor or
Assignee to perform any of its obligations hereunder or for any other cause or
reason whatsoever, whether similar or dissimilar to the foregoing; (ii) Lessee
shall not look to Assignee or any successor assignee to perform any of Lessor's
obligations hereunder; (iii) Lessee will not amend or modify this Agreement
without the prior written consent of the Assignee and any successor assignee;
and (iv) Lessee will send a copy to Assignee and any successor assignee of each
notice which Lessee sends to Lessor.
12. REPRESENTATIONS AND WARRANTIES OF LESSEE:
Lessee represents and warrants to Lessor and its assigns, as follows:
1. The execution, delivery and performance of this Lease has been duly
authorized and, upon execution by Lessor and Lessee, will constitute a valid
obligation binding upon and enforceable against Lessee in accordance with its
terms, subject to laws governing creditors' rights;
2. The performance by Lessee will not result in any breach, default or
violation of, Lessee's certificate of incorporation or by-laws or any agreement
to which Lessee is a party;
8
<PAGE> 14
3. Lessee is in good standing in its jurisdiction of incorporation and
in any jurisdiction in which any of the Equipment is to be located; and
4. Any and all financial statements or other information with respect
to Lessee heretofore furnished by Lessee to Lessor was, when furnished, and
remains at the time of execution of this Lease, true and complete.
Lessor represents and warrants to Lessee as follows:
1. The execution, delivery and performance of this Lease has been duly
authorized and, upon execution by Lessor and Lessee, will constitute a valid
obligation binding upon and enforceable against Lessor in accordance with its
terms, subject to laws governing creditors' rights; and
2. The performance by Lessor will not result in any breach, default or
violation of, Lessor's certificate of incorporation or by-laws or any agreement
to which Lessor is a party;
The foregoing representations and warranties shall survive the
expiration or termination of this Lease.
13. END OF LEASE:
Provided (i) no Event of Default has occurred and is continuing and
(ii) Lessee has made all payments in accordance with the Lease, upon written
notice furnished by Lessee no later than four (4) months prior to the
expiration of the Initial Term, Lessee may, with respect to each Equipment
Schedule (if set forth in such Equipment Schedule) either:
(a) Extend the Initial Term for the Equipment (i) for the additional
period set forth on the applicable Equipment Schedule, and (ii) at the Monthly
Rental set forth on the Equipment Schedule. Provided all payments have been
made in accordance with the Lease and there shall be no default under the Lease
by Lessee, title to the Equipment shall pass to Lessee at the expiration of
that extension and upon payment of $1.00.;
(b) Extend the Initial Term for not less than all the Equipment for an
additional 12 months at Fair Market Value rental;
(c) Purchase not less than all the Equipment at Fair Market Value for a
purchase price equal to the Fair Market Value thereof as of the end of the
Initial Term, plus any taxes applicable at the time of purchase. The purchase
price shall be paid by Lessee to Lessor at least fifteen (15) days before the
expiration of the Initial Term;
(d) Terminate the applicable Equipment Schedule and return not less
than all the Equipment, subject to a remarketing charge equal to the percentage
set forth in the applicable Equipment Schedule of Lessor's original Purchase
Price for the Equipment. If Lessee desires to
9
<PAGE> 15
purchase less than all of the Equipment of an applicable Schedule, at Lessor's
option, Lessor will sell said Equipment so purchased to Lessee at Fair Market
Value, without Lessee being subject to a remarketing charge; or
(e) Such other alternatives as may be set forth on the Equipment
Schedule.
Not less than ninety (90) days prior to the end of the Initial Term, Lessee may
provide written notice to Lessor of Lessee's intention to exercise the purchase
or extension option described above. If, on or before a date sixty (60) days
prior to the expiration of the Initial term Lessor and Lessee are unable to
agree upon a determination of the fair market value of the Equipment, such fair
market value shall be determined in accordance with the procedure for appraisal
as described below. After a determination of the fair market value of the
Equipment has been made in accordance with the procedure described below,
Lessee may exercise its option to purchase the Equipment for the fair market
value thereof by delivering written notice to Lessor not more than ten (10)
days after completion of appraisal as described below.
Appraisal shall mean a procedure whereby two independent appraisers, neither of
whom shall be a manufacturer of such Items of Equipment, one chosen by Lessee
and one by Lessor, shall mutually agree upon the amount in question based upon
the definition set forth below. Each party shall deliver a written notice to
the other party appointing its appraiser on or before a date sixty days prior
to the expiration of the Initial Term. If within fifteen (15) days after
appointment of the two appraisers as described above, the two appraisers are
unable to agree upon the amount in question, a third independent appraiser, who
shall not be a manufacturer of such Items of Equipment, shall be chosen within
five (5) business days thereafter by the mutual consent of such first two
appraisers or, if such first two appraisers fail to agree upon the appointment
of a third appraiser, such appointment shall be made by an authorized
representative of the American Arbitration Association or any organization
successor thereof. The decision of the third appraiser so appointed and chosen
shall be given ten (10) business days after the selection of such third
appraiser. Lessee shall pay the fees and expenses of the appraiser which it
chooses and of the third independent appraiser; and the first $1,500 of the
fees and expenses of the appraiser chosen by Lessor.
For purposes hereof, Fair Market Value shall mean the amount that would obtain
in a retail arm's length transaction between an informed and willing
lessee-buyer in possession and an informed and willing lessor-seller. Rental
charges previously paid pursuant to the applicable Equipment Schedule shall
have no effect on the determination of Fair Market Value. Unless otherwise
stated in the Equipment Schedule: the Fair Market Value for items set forth on
the Equipment Schedule which do not have a readily ascertainable market value,
(including but not limited to software, cabling and certain equipment) shall be
determined by multiplying the Lessor's acquisition cost of such items by a
fraction, the numerator of which shall be the Fair Market Value of the other
items and the denominator of which shall be the Lessor's acquisition cost of
such other items; and the determination of Fair Market Value shall be based
upon the assumption that all items set forth on the Equipment Schedule or
included with the Equipment may be transferred to, and used by, a third party
user. In such determination, all alternative uses in the hands of each buyer or
lessee,
10
<PAGE> 16
including, without limitation, the further leasing of the Equipment shall be
taken into account in making such determination.
If, for any reason, the parties are unable to agree on the Fair Market Value
with respect to said purchase or rental, then the Lease with respect to the
Equipment shall remain in full force and effect. Thereafter, the Lease with
respect to the Equipment shall be governed by such alternative as Lessee may
select pursuant to the terms of Section 13.
14. MISCELLANEOUS:
(a) During the term of this Lease, Lessee hereby agrees to deliver to
Lessor or Assignee and any successor assignee a copy of JMAR Industries, Inc.'s
quarterly unaudited financial statements, and the annual financial budget for
the upcoming year as soon as available and as it may be adjusted during the
year. Lessee shall also furnish, as soon as available and in any event within
ninety (90) days after the last day of Lessee's fiscal year, a copy of JMAR
Industries, Inc.'s annual audited statements and consolidating and consolidated
balance sheet, if any, as of the end of such fiscal year, accompanied by the
opinion of an independent certified public accounting firm of recognized
standing. In the event California ASIC Technical Services, Inc. prepares annual
audited financial statement, said statements shall be forwarded to Lessor as
soon as available and in any event within ninety (90) days after the last day of
Lessee's fiscal year. The Lessee shall furnish such other financial information
as may be reasonably requested by Lessor.
(b) This Lease constitutes the entire agreement between Lessee and
Lessor with respect to the Equipment, and except as agreed upon in writing no
covenant, condition or other term or provision hereof may be waived or modified
orally.
(c) All notices hereunder shall be in writing and shall be delivered in
person or sent by registered or certified mail, postage prepaid, or by
facsimile transmission (confirmed by registered mail as set forth in this
section) to the address of the other party as set forth herein or to such other
address as such party shall have designated by proper notice.
(d) This Lease shall be binding upon and inure to the benefit of Lessor
and Lessee and their respective successors and assigns (including any
subsequent assignee of Assignee).
(e) If any term or provision of this Lease or the application thereof
to any person is, to any extent, invalid or unenforceable, the remainder of
this Lease, or the application of such provision to the person other than those
to which it is invalid or unenforceable, shall not be affected thereby, and
each provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
(f) No waiver of any of the terms and conditions hereof shall be
effective unless in writing and signed by the party against whom such waiver is
sought to be enforced. Any waiver of the terms hereof shall be effective only
in the specific instance and for the specific purpose given. The subsequent
acceptance of rental payments hereunder by Lessor shall not be deemed a waiver
of any
11
<PAGE> 17
prior existing breach by Lessee regardless of Lessor's knowledge of such prior
existing breach at the time of acceptance of such rental payments.
(g) Lessor is hereby authorized by Lessee to cause this Lease or other
instruments, including Uniform Commercial Code Financing Statements to be filed
or recorded for the purpose of showing Lessor's interest in the Equipment and
Lessee agrees that Lessor may execute such instruments for and on behalf of
Lessee. All filing fees reasonably incurred by Lessor in connection therewith
and filing fees incurred by Lessor's assignees in perfecting security interests
shall be paid by Lessee or reimbursed to Lessor by Lessee.
(h) In the event of any conflict between the terms and conditions of
this Lease and the terms and conditions of any Equipment Schedule(s) or
Rider(s) thereto, the terms and conditions of such Equipment Schedule(s) or
Rider(s) shall prevail.
(i) No consent or approval provided for herein shall be binding upon
Lessor unless signed on its behalf by an officer of Lessor. THIS LEASE SHALL BE
DEEMED TO HAVE BEEN MADE IN THE STATE OF CONNECTICUT AND SHALL BE GOVERNED IN
ALL RESPECTS BY THE LAWS OF SUCH STATE. The Lessee accepts for itself the
non-exclusive jurisdiction of any Federal or State court of competent
jurisdiction in the State of Connecticut in any action, suit or proceeding of
any kind against it which arises out of or by reason of this Lease or any
Equipment Schedule.
(j) Lessee acknowledges that the late payment by Lessee to Lessor of
monthly rental and other sums due hereunder will cause Lessor harm and to
incur costs not contemplated by this Lease, the precise amount and severity of
which will be difficult to ascertain. Such costs include, but are not limited
to, administrative, accounting and legal charges which Lessor may incur due to
such late payment. Accordingly, if any monthly rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's assignee within twenty (20)
days after the same is due, Lessee shall pay to Lessor or Lessor's assignee a
late charge equal to five per cent (5%) of such overdue amount monthly until
such overdue amount is paid or if such charge shall exceed the maximum charge
allowed by law, then at such maximum charge. Lessee acknowledges that such
late charge represents a fair and reasonable estimate of the cost Lessor will
incur by reason of a late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default, if any, with
respect to such overdue amounts, nor prevent Lessor from exercising any of the
other rights and remedies which Lessor may have pursuant to this Lease.
(k) The obligations which Lessee is required to perform during the term
of this Lease shall survive the expiration or other termination of this Lease.
(l) Lessee will promptly execute and deliver to Lessor such further
documents and assurances and take such further action as Lessor may reasonably
request in order to effectuate the intent and purpose of this Lease and to
establish and protect the rights, interests and remedies intended to be created
in favor of Lessor hereunder, including without limitation, the execution and
filing of financing statements and continuation statements with respect to this
Lease, the Equipment
12
<PAGE> 18
and any Equipment Schedule. Lessee authorizes Lessor to effect any such filing
and Lessor's reasonable expenses (together with the reasonable expenses of
Lessor's assignees in this regard) shall be payable by Lessee on demand.
LESSOR: LESSEE:
Leasing Technologies International, Inc. JMAR Industries, Inc.
BY: /s/ Arnold J. Hoegler BY: /s/ Dennis E. Valentine
------------------------------------- ----------------------------
NAME: Arnold J. Hoegler NAME: Dennis E. Valentine
----------------------------------- ---------------------------
TITLE: Executive Vice President TITLE: Chief Financial Officer
---------------------------------- --------------------------
DATE: 11/6/96 DATE: October 18, 1996
----------------------------------- --------------------------
California ASIC Technical
Services, Inc.
BY: /s/ Marvin W. Sepe
-----------------------------
NAME: Marvin W. Sepe
---------------------------
TITLE: Exec V.P./Gen. Mgr
--------------------------
DATE: October 21, 1996
--------------------------
<PAGE> 1
EXHIBIT 10.2
[COMERICA LOGO]
VARIABLE RATE-INSTALLMENT NOTE
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
$500,000.00 SEPTEMBER 1, 1996 OCTOBER 1, 2000 95-4070595
- --------------------------------------------------------------------------------
For Value Received, the undersigned promise(s) to pay to the order of COMERICA
--------
BANK-CALIFORNIA ("Bank"), at any office of the Bank in the State of California,
- ---------------
FIVE HUNDRED THOUSAND AND NO/100 Dollars (U.S.) in installments of $10,417.00
- --------------------------------- ------------
each [ ] INCLUSIVE OF [X] PLUS Interest on the unpaid balance from the date of
this Note at a per annum rate equal to the Bank's base rate from time to time
in effect PLUS 1.250 % per annum until maturity, whether by acceleration or
----- ------
otherwise, or until Default, as later defined, and after that at a default rate
equal to the rate of interest otherwise prevailing under this Note plus 3% per
annum (but in no event in excess of the maximum rate permitted by law).
Interest shall be calculated for the actual number of days the principal is
outstanding on the basis of a 360 day year if this Note evidences a business or
commercial loan or a 365 day year if a consumer loan. The Bank's "base rate" is
that annual rate of interest so designated by the Bank and which is changed by
the Bank from time to time. Interest rate changes will be effective for
Interest computation purposes as and when the Bank's base rate changes.
Installments of principal and accrued interest due under this Note shall be
payable on the 1ST day of each MONTH , commencing NOVEMBER 1, 1996 , and
--- --------- --------------------
the entire remaining unpaid balance of principal and accrued interest shall be
payable on the Maturity Date set forth above. If the frequency of principal and
interest installments is not otherwise specified, installments of principal and
interest due under this Note shall be payable monthly on the first day of each
month.
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on OCTOBER 1, 2000
----------------
(if left blank, the amortization terms ends on the Maturity Date). In the
event this Note evidences a business or commercial loan and the Bank's base
rate changes, the Bank, at its sole option, may from time to time recalculate
the periodic installment amount so that the remaining periodic installments
will fully amortize the remaining loan balance within the remaining
amortization term in equal installments at the interest rate then being charged
under this Note. THE UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS
THEY MAY BE RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO
TIME AND ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE
OR THE OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment
under this Note shall become payable on a day other than a day on which the Bank
is open for business, this payment may be extended to the next succeeding
business day and interest shall be payable at the rate specified in this Note
during this extension. Any payments of principal in excess of the installment
payments required under this Note need not be accepted by the Bank (except as
required under applicable law), but if accepted shall apply to the installments
last falling due. A late installment charge equal to 5% of each late
installment may be charged on any installment payment not received by the Bank
within 10 calendar days after the installment due date, but acceptance of
payment of this charge shall not waive any default under this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any
other collateral, rights and properties described in each and every deed of
trust, mortgage, security agreement, pledge, assignment and other agreement
which has been, or will at any time(s) later be, executed by any (or all) of
the undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, (i) to the extent that any portion of the
indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in any of the undersigned's
principal dwelling or in any of the undersigned's real property which is not a
purchase money security interest as to that portion, unless expressly provided
to the contrary in another place, or (ii) if the undersigned (or any of them)
has (have) given or give(s) Bank a deed of trust or mortgage covering real
property, that deed of trust or mortgage shall not secure this Note or any
other indebtedness of the undersigned (or any of them), unless expressly
provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to
pay any indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation or a limited liability company) is
the subject of a dissolution, merger or consolidation; or (d) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the indebtedness shall be discovered to be untrue or
incomplete; or (e) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the indebtedness; or (f) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (g) if the Bank deems itself insecure, believing that the
prospect of payment of this Note or any of the indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (h) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence thereof to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged premises by deed, installment sale
contract or other instrument, or (b) if the title to the mortgaged premises
shall become vested in any other person or party in any manner whatsoever, or
(c) if there is any disposition (through one or more transaction(s)) of legal or
beneficial title to a controlling interest of said trustor or mortgagor. All
payments under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note if signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell, assign,
or grant participations, or any interest, in any or all of the indebtedness, and
that, in connection with this right, but without limiting its ability to make
other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has relating to the
undersigned or the indebtedness. The undersigned agree(s) that the Bank may
provide information relating to this Note or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
<PAGE> 2
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal
expenses and reasonable attorney fees, whether inside or outside counsel is
used, whether or not suit is instituted and, if suit is instituted, whether at
the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to
this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY
JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR
IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
THIS VARIABLE RATE-INSTALLMENT NOTE IS SUBJECT TO THE TERMS OF A REVOLVING
CREDIT AGREEMENT DATED OCTOBER 6, 1993 AND ANY AND ALL AMENDMENTS THEREOF
INCLUDING BUT NOT LIMITED TO THE 5TH AMENDMENT TO REVOLVING CREDIT LOAN
AGREEMENT DATED MARCH 21, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
For Corporations, Partnerships, Trust, or Estates
PACIFIC PRECISION LABORATORIES, INC. /s/ Robert S. Hash President
- ------------------------------------ By: --------------------------------------- Its: -----------------------------------
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF TITLE
9207 ETON AVENUE /s/ Leo Yoffe Executive V.P./C.O.O./C.F.O.
- ------------------------------------ By: --------------------------------------- Its: -----------------------------------
STREET ADDRESS SIGNATURE OF TITLE
CHATSWORTH /s/ Dennis E. Valentine Secretary
- ------------------------------------ By: --------------------------------------- Its: -----------------------------------
CITY SIGNATURE OF TITLE
CA 91311
- ------------------------------------ By: --------------------------------------- Its: -----------------------------------
STATE ZIP CODE SIGNATURE OF TITLE
For Individuals or Sole Proprietorships
Name(s) of Obligor(s) (Type or Print): Signature(s) of Obligor(s):
------------------------------------------- ----------------------------------------
- ------------------------------------ ------------------------------------------- ----------------------------------------
STREET ADDRESS
- ------------------------------------ ------------------------------------------- ----------------------------------------
CITY
- ------------------------------------ ------------------------------------------- ----------------------------------------
STATE ZIP CODE
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
FOR BANK USE ONLY CCAR #
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) Name
BROCK MULLINS METRO SAN FERNANDO PACIFIC PRECISION LABORATORIES, INC.
- ---------------------------------------------------------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48252 95779 5882057501 $500,000.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,553,406
<SECURITIES> 0
<RECEIVABLES> 3,134,723
<ALLOWANCES> 0
<INVENTORY> 3,414,240
<CURRENT-ASSETS> 8,479,467
<PP&E> 4,351,021
<DEPRECIATION> 1,803,351
<TOTAL-ASSETS> 13,210,320
<CURRENT-LIABILITIES> 3,750,513
<BONDS> 1,563,585
0
0
<COMMON> 162,700
<OTHER-SE> 7,163,809
<TOTAL-LIABILITY-AND-EQUITY> 13,210,320
<SALES> 11,068,868
<TOTAL-REVENUES> 11,068,868
<CGS> 6,788,793
<TOTAL-COSTS> 6,788,793
<OTHER-EXPENSES> 4,276,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,956
<INCOME-PRETAX> (251,642)
<INCOME-TAX> 0
<INCOME-CONTINUING> (251,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (251,642)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
