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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998
Commission File Number 1-10515
JMAR TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 68-0131180
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(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
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(Address, including zip code and telephone number including
area code of registrant's principal executive office)
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and has been subject to the filing requirements for at
least the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (August 11, 1998)
Common Stock, $.01 par value: 18,147,009 shares
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JMAR TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE #
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1997 and 2
June 30, 1998
Consolidated Statements of Income - Three months ended 3
June 30, 1998 and 1997 and six months ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows - Six months ended 4
June 30, 1998 and 1997
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II. OTHER INFORMATION
Item 1. N/A
Item 2. Changes in Securities 10
Item 3. N/A
Item 4. N/A
Item 5. N/A
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
1
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JMAR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
====================================================================================================
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................. $ 3,551,990 $ 3,644,117
Accounts receivable, net .................................. 5,482,111 4,308,777
Notes and other receivable ................................ 104,983 111,285
Inventories ............................................... 4,605,491 4,685,883
Prepaid expenses and other ................................ 998,861 757,896
------------ ------------
Total current assets .................................. 14,743,436 13,507,958
Receivable from officer ....................................... 80,750 78,378
Property and equipment, net ................................... 2,719,871 2,500,404
Other assets, net ............................................. 1,113,130 794,073
Goodwill, net ................................................. 381,839 388,065
------------ ------------
TOTAL ASSETS .......................................... $ 19,039,026 $ 17,268,878
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .......................................... $ 1,229,177 $ 1,175,717
Accrued liabilities ....................................... 716,862 546,615
Accrued payroll and related costs ......................... 884,088 1,228,853
Working capital line of credit............................. 2,050,000 475,000
Notes payable and capital lease obligations ............... 444,065 447,246
------------ ------------
Total current liabilities ............................. 5,324,192 3,873,431
------------ ------------
Notes payable and capital lease obligations, net of current
portion ..................................................... 745,494 907,235
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized; None issued and outstanding
as of June 30, 1998 and December 31, 1997 ........... -- --
Common stock, $.01 par value; 40,000,000 shares authorized;
Issued and outstanding 18,112,009 shares as of June 30,
1998 and 17,890,952 shares as of December 31, 1997....... 181,120 178,910
Additional-paid in capital ................................ 36,749,388 36,587,674
Accumulated deficit ....................................... (23,961,168) (24,278,372)
------------ ------------
Total stockholders' equity ............................ 12,969,340 12,488,212
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 19,039,026 $ 17,268,878
============ ============
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</TABLE>
2
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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 AND SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
==============================================================================================================
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales ..................................... $ 6,063,437 $ 5,568,606 $ 10,363,516 $ 10,814,107
Costs of sales ............................ 3,818,270 3,340,723 6,455,533 6,557,717
------------ ------------ ------------ ------------
Gross profit .......................... 2,245,167 2,227,883 3,907,983 4,256,390
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and
administrative ........................ 1,505,314 1,587,436 2,815,052 3,048,529
Research, development and
engineering ........................... 429,758 436,348 762,559 880,513
------------ ------------ ------------ ------------
Total operating expenses ................ 1,935,072 2,023,784 3,577,611 3,929,042
------------ ------------ ------------ ------------
Income from operations .................... 310,095 204,099 330,372 327,348
Interest and other income (expense), net .. 41,742 26,221 79,833 59,019
Interest expense .......................... (52,716) (44,858) (93,001) (99,888)
------------ ------------ ------------ ------------
Income before income taxes ................ 299,121 185,462 317,204 286,479
Income tax benefit ........................ -- 100,000 -- 100,000
------------ ------------ ------------ ------------
Net income ................................ $ 299,121 $ 285,462 $ 317,204 $ 386,479
============ ============ ============ ============
Basic and diluted net income per share .... $ .02 $ .02 $ .02 $ .02
============ ============ ============ ============
Weighted average shares outstanding:
Basic ................................. 18,049,323 16,884,515 18,001,069 16,839,023
============ ============ ============ ============
Diluted ............................... 19,231,810 18,344,301 19,261,773 18,298,809
============ ============ ============ ============
==============================================================================================================
</TABLE>
3
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JMAR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
=========================================================================================================
Six Months Ended
-------------------------------
June 30, 1998 June 30, 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 317,204 $ 386,479
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization ................................... 371,775 470,948
Services received in exchange for common stock or warrants ...... 19,614 --
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable ........................................... (1,173,334) (454,808)
Inventories ................................................... 80,392 (774,089)
Prepaid expenses and other .................................... (240,965) (356,923)
Other assets .................................................. (393,523) (176,752)
Increase (decrease) in:
Customer deposits ............................................. -- (724,325)
Accounts payable and accrued liabilities ...................... (121,058) 743,443
----------- -----------
Net cash used in operating activities ........................... (1,139,895) (886,027)
----------- -----------
Cash flows from investing activities:
Capital expenditures ............................................ (454,441) (442,158)
Increase in notes receivable .................................... (2,372) (52,553)
Payments received on notes and other receivable ................. 6,302 889,002
Patent costs .................................................... (19,003) (16,003)
----------- -----------
Net cash provided by (used in) investing activities ........ (469,514) 378,288
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under short-term debt agreements ...... 1,575,000 (225,800)
Net payments of notes payable ................................... (164,922) (7,174)
Net proceeds from the exercise of options and warrants ......... 107,204 354,995
----------- -----------
Net cash provided by financing activities ................... 1,517,282 122,021
----------- -----------
Net decrease in cash and cash equivalents ........................... (92,127) (385,718)
Cash and cash equivalents, beginning of period ...................... 3,644,117 2,629,286
----------- -----------
Cash and cash equivalents, end of period ............................ $ 3,551,990 $ 2,243,568
=========== ===========
=========================================================================================================
</TABLE>
4
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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of JMAR Technologies, Inc. (formerly JMAR Industries, Inc.) (the "Company") and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared by
the Company and are unaudited except for the balance sheet as of December 31,
1997. 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, 1997. The results of operations for the three and six
months ended June 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
(2) INVENTORIES
Inventories are carried at the lower of cost on the first-in, first-out
basis or market and are comprised of materials, direct labor and applicable
manufacturing overhead. At June 30, 1998 and December 31, 1997, inventories
consist of the following:
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
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<S> <C> <C>
Raw materials, components and sub-assemblies ... $2,329,012 $3,673,414
Work-in-process ................................ 1,567,541 680,883
Finished goods ................................. 708,938 331,586
---------- ----------
$4,605,491 $4,685,883
========== ==========
</TABLE>
(3) PROPERTY AND EQUIPMENT
As of June 30, 1998 and December 31, 1997, property and equipment
consist of the following:
5
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JMAR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
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<S> <C> <C>
Equipment and machinery .............. $ 4,851,064 $ 4,505,804
Furniture and fixtures ............... 500,543 407,722
Leasehold improvements ............... 102,253 85,892
----------- -----------
5,453,860 4,999,418
Less-accumulated depreciation ........ (2,733,989) (2,499,014)
----------- -----------
$ 2,719,871 $ 2,500,404
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</TABLE>
(4) EARNINGS PER SHARE
In 1997, the Company adopted FASB Statement No. 128 ("SFAS No. 128"),
Earnings per Share, effective December 15, 1997. There was no change to
previously reported earnings per share as a result of the adoption of this new
Financial Accounting Standard.
(5) NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted FASB Statement No. 130 ("SFAS 130"),
Reporting Comprehensive Income. SFAS 130 requires the reporting of additional
financial information. At June 30, 1998, there was no difference in the
Company's Net Income and Comprehensive Income.
In February, 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits". SFAS No. 132 revises and standardizes employers'
disclosures about pension and other postretirement benefits, but it does not
change the measurement or recognition of those benefits. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. SFAS No. 132
further requires restatement of disclosures for earlier periods provided for
comparative purposes. Management believes that the adoption of SFAS No. 132 will
not have any impact on the Company's consolidated financial statements or
disclosures thereto.
In March, 1998, the Accounting Standards Executive Committee (AcSEC)
issued AICPA Statement of Position (SOP) 98-1, "Accounting for costs of computer
software developed or obtained for internal use". This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics of internal-use software and
provides assistance in determining when computer software is for internal use.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998, with
earlier application permitted. The Company believes that the adoption of SOP
98-1 will have no significant impact on the Company's consolidated financial
statements, results of operations, or related disclosures thereto.
In April, 1998, AcSEC issued SOP 98-5, "Reporting on the costs of
start-up activities". This statement provides guidance on financial reporting of
start-up costs and organization costs and requires that such costs of start-up
activities be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998, with earlier application permitted. The
Company believes that the adoption of SOP 98-5 will have no significant impact
on the Company's consolidated financial statements, results of operations, or
related disclosures thereto.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2.
RESULTS OF CONSOLIDATED OPERATIONS
Operating income, income before income taxes and net income for the
three month period ending June 30, 1998 were $310,095, $299,121 and $299,121,
respectively, compared with $204,099, $185,462 and $285,462, respectively, for
the quarter ended June 30, 1997. Therefore, operating income, income before
income taxes and net income increased 52 percent, 61 percent and 5 percent,
respectively, in the three months ended June 30, 1998 compared to the three
months ended June 30, 1997. Net income for the second quarter of 1997 included a
tax benefit of $100,000 compared with no benefit recorded for the quarter ended
June 30, 1998. Revenues for the three month period ended June 30, 1998 were
$6,063,437 compared with $5,568,606 for the three month period ended June 30,
1997.
For the six months ended June 30, 1998 revenues were $10,363,516
compared with $10,814,107 for the six month period ended June 30, 1997.
Operating income, income before income taxes and net income for the first half
of 1998 were $330,372, $317,204 and $317,204, respectively, compared to
$327,348, $286,479 and $386,479 for the six months ended June 30, 1997. Also
included in the first half of 1997 was the tax benefit of $100,000 compared with
no benefit recorded for the six months ended June 30, 1998.
The increase in revenues of $494,831 for the three months ended June 30,
1998 compared to the three months ended June 30, 1997 is due to increased demand
by the semiconductor and computer disk drive industries for the Company's
precision measurement systems plus an increase in revenues generated by the
Company's continuing X-ray lithography source development program funded by the
Defense Advanced Research Projects Agency (DARPA).
The decrease in revenues of $450,591 for the six months ended June 30,
1998 compared to the six months ended June 30, 1997 is primarily attributable to
a decline in sales during the first quarter of 1998 of the Company's precision
instrument products to the disk drive industry that the Company believes was
caused primarily by the economic turmoil in Asia. The Company experienced a
substantial rebound in sales of its precision instrument products during the
second quarter of 1998 from its sales during the first quarter. At this time,
however, the Company's ability to forecast orders for its precision instrument
products for the remainder of 1998 is somewhat limited due to a number of
marketplace uncertainties including Asian economic problems and a significant
downturn in the worldwide semiconductor industry. Nevertheless, because of
anticipated increases in its semiconductor-related businesses during the second
half of 1998, the Company expects that its consolidated sales revenue for both
the second half and the full year will be greater than they were for the same
periods of 1997.
Gross margins for the six months ended June 30, 1998 and 1997 were 37.7%
and 39.4%, respectively, and were 37% and 40% for the three months ended June
30, 1998 and 1997, respectively. The lower gross margins for 1998 are primarily
due to competitive pricing pressures on certain products and higher engineering
costs related to the customization of certain products for new applications. The
Company expects these competitive pressures to continue on certain products in
the future and has initiated action to improve its gross margins. However, there
is no assurance that these actions will be adequate. In addition, to the extent
that the Company's semiconductor-related business at JMAR Semiconductor and JMAR
Research represent a greater percentage of the Company's total revenues, the
Company's margins may be lower in the future.
Selling, general and administration ("SG&A") expenses for the three
months ended June 30, 1998 and 1997 were $1,505,314 and $1,587,436,
respectively, and were $2,815,052 and $3,048,529 for the six months ending June
30, 1998 and June 30, 1997, respectively. The decrease in SG&A expenses in 1998
is primarily due to a decrease in SG&A expenses of approximately $298,000
related to the reorganization of JMAR Semiconductor (formerly California ASIC)
at the end of 1997.
7
<PAGE> 9
The Company's research, development and engineering program (RD&E)
consists of two types: Customer-Funded RD&E (U.S. government and other
companies) and Company-Funded RD&E. Both types of RD&E are expensed when
incurred. Customer-Funded RD&E costs incurred, included in "Costs of Sales"
expenses, totaled $431,985 and $361,612 for the three months ended June 30, 1998
and 1997, respectively, and $849,333 and $578,585 for the six month periods
ended June 30, 1998 and 1997, respectively. Company-Funded RD&E costs are shown
in "Operating Expenses" and totaled $429,758 and $436,348 for the three months
ended June 30, 1998 and 1997, respectively, and $762,559 and $880,513 for the
six month periods ended June 30, 1998 and 1997, respectively. Therefore, total
RD&E expenses for the three month periods were $861,743 and $797,960 for 1998
and 1997, respectively, and $1,611,892 and $1,459,098 for the six month periods
in 1998 and 1997, respectively. The increase in the Customer-Funded RD&E is
primarily related to an increase in the X-ray lithography program funded by
DARPA.
CONSOLIDATED LIQUIDITY AND FINANCIAL CONDITION
Cash and cash equivalents at June 30, 1998 and December 31, 1997 were
$3,551,990 and $3,644,117, respectively. The decrease in cash and cash
equivalents for the six months ended June 30, 1998 was $92,127 as compared to a
decrease of $385,718 for the six months ended June 30, 1997. The decrease in
cash for the six months ended June 30, 1998 resulted primarily from cash used in
operations of $1,139,895, mainly to fund the growth in the Company's accounts
receivable balance, capital expenditures of $454,441 and net payments of notes
payable of $164,922 offset in part by net short term bank credit line borrowings
of $1,575,000 and proceeds from the exercise of options and warrants of
$107,204. Cash from net income plus non-cash operating items for the six months
ended June 30, 1998 was $708,593.
JMAR's operations will continue to require the use of working capital.
The working capital of the Company is generally funded through its working
capital line with Comerica Bank (the "Bank") and through third
party contracts. Subsequent to June 30, 1998, the Bank increased the Company's
credit availability from $3.5 million to $6.0 million (the "Line"). The new
banking arrangement provides a revolving line of credit to JMAR for up to $5
million bearing interest at the Bank's prime rate, plus an additional $1 million
five-year term credit line at the Bank's prime rate for financing equipment
purchases and construction of prototype product demonstration systems such as
the Company's new Britelight lasers. This is in addition to an existing $787,000
equipment financing loan previously made by the Bank. As of July 31, 1998,
JMAR's availability pursuant to the Line was approximately $4,950,000. The Line
contains several covenants relating to, among other matters, the maintenance of
certain minimum income levels and financial ratios, which if not met by the
Company could impact the availability of advances pursuant to the Line. The
Company is in compliance with all covenants. Management believes that the
Company has existing resources to adequately fund operations and working capital
requirements through the end of 1998 based on the current level of operations
and business conditions.
At December 31, 1997, the Company had in excess of $25 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.
YEAR 2000 ISSUE
The "Year 2000 Issue" is the result of computer systems not being able
to distinguish the year 2000 from the year 1900. This issue affects virtually
every business, including the Company's, and can affect both the Company's
internal information systems, the equipment and components it buys from others
and the products it sells. Certain of the Company's products sold prior to
September, 1995 may be affected by this issue.
8
<PAGE> 10
In early 1998, the Company formed a task force to assess the nature,
extent and cost of remediation of any Year 2000 compliance issues confronting
the Company and its suppliers. This project encompasses a review of the
Company's internal systems and products as well as its suppliers' compliance.
This assessment has been substantially completed at the Company's Precision
Systems division and is underway in its Research and Semiconductor divisions. As
a result of its assessment process, the Company has identified certain
corrective actions which may be required. Some of these actions have already
been taken and others remain to be completed. Based upon its understanding of
the corrective actions which may be required, the Company expects to complete
all required actions by mid-1999.
In connection with its assessment of the Year 2000 issues, the Company
has sent out letters to its customers advising them of the Year 2000 issue and
providing them with a testing procedure to diagnose any potential problems which
may arise with Year 2000 issues. The Company has also sent questionnaires to its
key suppliers requesting information regarding their own Year 2000 compliance
efforts, as well as requesting confirmation that the components and services
provided by those suppliers are Year 2000 compliant.
Based upon its initial assessment, the Company believes that Year 2000
issues at its facilities should not have a material impact on the Company's
financial or operating performance. Although the Company believes that it is
justified in relying upon the information it has obtained from its key
suppliers, the Company has not obtained and does not intend to obtain
independent confirmation of its suppliers' Year 2000 compliance and, therefore,
no assurances can be given that the companies upon which the Company relies will
timely resolve their own Year 2000 compliance issues.
The costs to implement the Company's Year 2000 plan are primarily the
time devoted by personnel to assess the Year 2000 issues, to communicate with
suppliers and customers and to formulate and implement any necessary changes. It
is the Company's policy to expense such costs as incurred. To date, the
financial impact to the Company of assessing and implementing the changes
required to address the Year 2000 issue has not been material to the Company's
business, operations, financial condition, liquidity and capital resources.
Based upon the Company's current assessment, the Company does not expect the
Year 2000 issue to have a material impact on its business, operations, financial
condition, liquidity and capital resources in the future.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not related
to historical results, including statements regarding the Company's plans to
address the Year 2000 issues, its estimated costs of remediation and testing,
the impact of the failure to reach compliance and its timetable for the
implementation of its Year 2000 plans, are forward-looking statements that
necessarily are based on certain assumptions and are subject to certain risks
and uncertainties that could cause actual future performance and results to
differ materially from those stated or implied in the forward-looking
statements. These risks and uncertainties include concentration of sales to
certain markets and customers, delays in shipments or cancellations of orders,
failure of expected orders to materialize, fluctuations in margins, timing of
future orders, customer reorganizations, failure of advanced technology to
perform as predicted, uncertainties associated with the timing of the funding of
government contracts, fluctuations in demand, delays in development,
introduction and acceptance of new products, changing business and economic
conditions in various geographic regions, technical obsolescence of existing
products, technical problems in the development or modification of current
products or manufacturing processes, the impact of competitive products and
pricing, shifts in demand for the Company's products, the degree of success of
technology transfer (e.g., advanced lithography sources, micromachining, etc.)
to commercial products, availability of working capital to support growth,
continued government funding of advanced lithography, successful integration of
acquisitions, other competitive factors, temporary cessation of operations at
one or more of its division facilities due to natural events such as floods,
earthquakes and fires, and other risks detailed in the Company's Form 10-K for
the year ended December 31, 1997 and in the Company's other filings with the
Securities and Exchange Commission.
9
<PAGE> 11
JMAR TECHNOLOGIES, INC.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
(a) Effective as of May 15, 1998, pursuant to the Company's
Warrantholder Consent Solicitation, 2,449,691 of the original
2,705,882 of the Company's publicly traded Common Stock Purchase
Warrants (NASDAQ NM symbol: JMARW) have been amended as follows: (i) the
Warrant exercise price has been increased from $4.68 to $5.50 per share,
(ii) the existing redemption provision has been adjusted to provide that
the Company may redeem, upon 30 days' written notice, any unexercised
Warrants for $0.05 per Warrant if the average closing price of the
Company's Common Stock is $7.00 or more over a period of ten consecutive
trading days and (iii) the expiration date of the Warrants has been
extended to May 15, 2000. The Company reserves the right to amend
Warrants held by holders who did not respond to the Warrant Consent
Solicitation by the deadline in circumstances where the Company, in its
sole discretion, deems appropriate.
(c)(i) Pursuant to the Board Member Compensation Program adopted by the
Company in August, 1997, the Company issued a total of 537 shares of
Common Stock to its outside directors as compensation for services as
directors in April and June, 1998. These transactions were exempt under
Section 4(2) of the Securities Act of 1933.
(ii) In May, 1998, the Company issued to seven employees warrants
exercisable into 95,000 shares of Common Stock at an exercise price of
$3.00 per share. The warrants were issued pursuant to the Management
Incentive Plan dated August 15, 1996 for JMAR Precision Systems, Inc.
(the "Incentive Warrants"). The Incentive Warrants were issued in a
transaction exempt under Section 4(2) of the Securities Act of 1933. The
Incentive Warrants become exercisable upon the earlier of (i) forty five
days after such time as the closing high bid price of the Company's
Common Stock for 20 consecutive trading days is greater than $6.38; or
(ii) the exercise of holders of at least 90 percent of the Company's
publicly traded Warrants; or (iii) nine years and six months after the
date of grant. The Warrants expire ten years after date of grant.
(iii) On May 29, 1998, the Company acquired the remaining outstanding
shares of JMAR Semiconductor, Inc. by merging California ASIC, Inc.
("Cal ASIC") into JMAR Semiconductor, Inc. resulting in the conversion
of the remaining Cal ASIC shares into the right to receive a total of
24,045 shares of the Company's Common Stock. This transaction was exempt
under Section 4(2) of the Securities Act of 1933.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibit listed below is filed as part of this Report.
Exhibit 10.1 Master Revolving Note, Addendum to Master Revolving
Note, Variable Rate - Single Payment Note and Addendum to
$1,000,000 Variable Rate-Single Payment Note between Comerica
Bank-California and the Company.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on June 17, 1998,
describing the Company's name change and reporting the results of
the Company's Consent Solicitation to amend the Company's publicly
traded warrants.
10
<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JMAR TECHNOLOGIES, INC.
August 11, 1998 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
11
<PAGE> 1
[COMERICA LOGO]
EXHIBIT 10.1
MASTER REVOLVING NOTE
Variable Rate - Maturity Date - Obligatory Advances
(Business and Commercial Loans Only)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$5,000,000.00 June 25, 1998 June 01, 1999 68-0131180
- --------------------------------------------------------------------------------
</TABLE>
On the Maturity Date, as stated above, 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 Million and no/100 Dollars
(U.S.) or that portion of it advanced by the Bank and not repaid as later
provided) with interest until maturity, whether by acceleration or otherwise, or
an Event of Default, as later defined, at a per annum rate equal to the Bank's
base rate from time to time in effect plus *0.000% per annum and after that
at a 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). 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. Interest shall be calculated on the basis of a
360-day year for the actual number of days the principal is outstanding.
Accrued interest on this Note shall be payable on the 1st day of each MONTH
commencing August 01, 1998, until the Maturity Date when all amounts
outstanding under this Note shall be due and payable in full. If the frequency
of interest payments is not otherwise specified, accrued interest on this Note
shall be payable monthly on the first day of each month. If any payment of
principal or interest under this Note shall be payable on a day other than a
day on which the Bank is open for business, this payment shall be extended to
the next succeeding business day and interest shall be payable at the rate
specified in this Note during this extension. A late payment charge equal to 5%
of each late payment may be charged on any payment not received by the Bank
within 10 calendar days after the payment due date, but acceptance of payment
of this charge shall not waive any Default under this Note.
* See addendum for fixed rate option.
The principal amount payable under this Note shall be the sum of all advances
made by the Bank to or at the request of the undersigned, less principal
payments actually received in cash by the Bank. The books and records of the
Bank shall be the best evidence of the principal amount and the unpaid interest
amount owing at any time under this Note and shall be conclusive absent
manifest error. No interest shall accrue under this Note until the date of the
first advance made by the Bank; after that interest on all advances shall
accrue and be computed on the principal balance outstanding from time to time
under this Note until the same is paid in full.
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 security or
collateral 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 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") (i) fail(s) to pay 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 (ii) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any such guarantor and the Bank; or (iii)
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 of a limited
liability company) is the subject of a dissolution, merger or consolidation; or
(a) 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 (b) 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
(c) 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 (d) 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 (e) 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 of it 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 (or any
other indebtedness or obligations or shall convey, assign or transfer the
mortgaged premises by deed, installment sale contract 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 transactions) 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 is 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 the 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.
See Addendum and LIBOR Addendum.
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.
JMAR TECHNOLOGIES, INC.
By: /s/ DENNIS E. VALENTINE Its: Chief Financial Officer
------------------------------- -------------------------------
SIGNATURE OF TITLE
By: Its:
------------------------------- -------------------------------
SIGNATURE OF TITLE
By: Its:
------------------------------- -------------------------------
SIGNATURE OF TITLE
By: Its:
------------------------------- -------------------------------
SIGNATURE OF TITLE
Comerica Bank
/s/ BROCK MULLINS Its: Assistant Vice President
- -------------------------- -------------------------------
Signature of Brock Mullins Title
<TABLE>
<S> <C> <C> <C> <C>
9207 ETON AVENUE CHATSWORTH CALIFORNIA USA 91311
- ----------------------------------------------------------------------------------------------------
STREET ADDRESS CITY STATE COUNTRY ZIP CODE
For Bank Use Only CCAR #
- ----------------------------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) Name
BM WESTWOOD MIDDLE MARKET JMAR TECHNOLOGIES, INC.
- ----------------------------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48234 96551 $5,000,000.00
</TABLE>
CA 00184.1 (12-94)
<PAGE> 3
ADDENDUM TO MASTER REVOLVING NOTE
---------------------------------
This ADDENDUM TO MASTER REVOLVING NOTE (This "Addendum"), dated June 26,
1998, shall be a part of and is hereby incorporated into that certain Master
Revolving Note of even date herewith (the "Note"), executed by JMAR
Technologies, Inc. ("Borrower") in favor of Comerica Bank - California
("Bank"). All initially capitalized terms used but not defined in this addendum
shall have the meanings assigned to such terms in the Note. Borrower hereby
agrees that the following terms and conditions shall be incorporated into the
Note:
1. DEFINITIONS.
1.1 DEFINED TERMS. As used in this Addendum, the following terms shall
have the following respective meanings:
"Current Assets" shall mean, as of any applicable date of determination,
all cash, non-affiliated customer receivables, United States government
securities, claims against the United States government, and inventories.
"Current Liabilities" shall mean, as of any applicable date of
determination, (i) all liabilities of a person that should be classified as
current in accordance with GAAP, including without limitation any portion of
the principal of the indebtedness classified as current, plus (ii) to the
extent not otherwise included, all liabilities of the Borrower to any of its
affiliates whether or not classified as current in accordance with GAAP.
"Debt" shall mean, as of any applicable date of determination, all items
of indebtedness, obligation or liability of the Borrower, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, that should be classified as liabilities in
accordance with GAAP.
"Effective Tangible Net Worth" shall mean, as of any applicable date of
determination, the excess of (i) the net book value of all assets of the
Borrower (other than patents, patent rights, trademarks, trade names,
copyrights, licenses, goodwill, Employee Stock Ownership Plan receivables, and
similar intangible assets) after all appropriate deductions in accordance with
GAAP (including, without limitation, reserves for doubtful receivables,
obsolescence, depreciation and amortization), over (ii) all debt of the
Borrower, increased by (iii) subordinated debt if any.
"Event of Default" or "Default" shall have the meaning set forth in the
Note and in the Security Agreement (All Assets) dated June 26, 1998 executed by
JMAR Technologies, Inc. in
1
<PAGE> 4
favor of Comerica Bank-California.
"Financial Statements" shall mean all those balance sheets, income
statements and other financial data (whether of the Borrower, any of its
subsidiaries or otherwise) which have been furnished to the Bank for the
purposes of, or in connection with, this Agreement and the transactions
contemplated hereby.
"GAAP" shall mean, as of any applicable date of determination, generally
accepted accounting principles consistently applied.
"Guarantor" shall mean any individual who has signed and executed a
Guaranty document with the Bank in form and content satisfactory to the Bank.
"Net Income" shall mean the net income (or loss) of the Borrower for any
period determined in accordance with GAAP.
"Subordinated Debt" shall mean indebtedness of the Borrower to third
parties which has been subordinated to the Bank pursuant to a subordination
agreement in form and content satisfactory to the Bank.
"Subsidiaries" shall mean JMAR Precision Systems Inc., JMAR Semiconductor
Inc., JMAR Research Inc., and any other entities owned by JMAR Technologies Inc.
2. Affirmative Covenants.
On a continuing basis from the date of this Addendum until the later of the
Maturity Date or when the indebtedness is paid in full and the Borrower has
performed all of its other obligations hereunder, the Borrower covenants and
agrees that it will:
2.1 Financial and Other Information.
2.1.1 Annual Financial Reports. Furnish to the Bank, in form and reporting
basis satisfactory to the Bank, not later than ninety (90) days after the close
of each fiscal year of the Borrower, beginning with the fiscal year ending
December 31, 1998, financial statements of the Borrower and Subsidiaries on a
consolidated and consolidating basis containing the income statement and balance
sheet of the Borrower and Subsidiaries and a statement of cash flows for each
such fiscal year, and such other comments and financial details as are usually
included in similar reports. Such reports shall be prepared in accordance with
GAAP by independent certified public accountants of recognized standing selected
by the Borrower and acceptable to the Bank and shall be on an audited basis with
an unqualified opinion.
2.1.2 Quarterly Financial Statements. Furnish to the Bank not later than
thirty (30) days after the close of each quarter of each fiscal year of the
Borrower, beginning with the fiscal
2
<PAGE> 5
quarter ending June 30, 1998, financial statements of the Borrower and
Subsidiaries on a consolidated and consolidating basis containing the income
statement and balance sheet of the Borrower and Subsidiaries as of the end of
each such period, and such other comments and financial details as are usually
included in similar reports. These statements shall be company-prepared on the
same accounting basis as the statements required in section 2.1.1 of this
Agreement and shall be in such detail as the Bank may reasonably require, and
the accuracy of the statements shall be certified by the Borrower.
2.1.3 Aging of Accounts Receivable. Furnish to the Bank quarterly by the
15th day of the first month of each fiscal quarter an aging as of the end of the
preceding month of Borrower's Accounts Receivable in a form satisfactory to the
Bank.
2.1.4 Aging of Accounts Payable. Furnish to the Bank quarterly by the 15th
day of the first month of each fiscal quarter an aging as of the end of the
preceding month of Borrower's Accounts Payable in a form satisfactory to the
Bank
2.1.5 No Default Certificate. Together with each delivery of the financial
statements required by Sections 2.1.1 and 2.1.2 of this Agreement, furnish to
the Bank a certificate stating that no Event of Default or Default has occurred,
or if any such Event of Default or Default exists, stating the nature thereof,
the period of existence thereof and what action the Borrower proposes to take
with respect thereto.
2.1.6 Maintain Debt Ratio. On a consolidated basis, maintain the ratio of
its Debt (less debt subordinated to the Bank) to Effective Tangible Net Worth at
not more than the 1.25:1 at all times.
2.1.7 Maintain Effective Tangible Net Worth. On a consolidated basis,
maintain Effective Tangible Net Worth of not less than $7,500,000 at all times.
2.1.8 Maintain Annual Net Income. On a consolidated basis, maintain annual
Net Income after tax of not less than $1,000,000.
2.1.9 Maintain Quarterly Net Income. On a consolidated basis, maintain
quarterly Net Income after tax of not less than $0.
2.1.10 Maintain current ratio. On a consolidated basis, maintain a ratio of
Current Assets to Current Liabilities of not less than 1.75:1.
3. Advances
3.1 Advances on the Note are allowed to be made directly to JMAR
Technologies Inc. and JMAR Precision Systems, Inc.
3
<PAGE> 6
3.2 Maximum Advances. Advances made on the Note by JMAR Technologies Inc.
and transferred or loaned to subsidiaries other than JMAR Precision Systems
shall be limited to a maximum aggregate of $1,500,000.
4. Guarantees
The Note shall be supported by secured guarantees from JMAR Precision
Systems, Inc., JMAR Research, Inc. and JMAR Semiconducer, Inc.
IN WITNESS WHEREOF, Borrowers have executed this Addendum as of the date
first above written.
JMAR Technologies, Inc. Comerica Bank - California
/s/ Dennis E. Valentine /s/ Brock Mullins
- --------------------------------- ---------------------------------
4
<PAGE> 7
[COMERICA LOGO]
VARIABLE RATE - SINGLE PAYMENT NOTE
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
$1,000,000.00 June 25, 1998 June 01, 1999
- --------------------------------------------------------------------------------
On the Maturity Date, as stated above, 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, One Million and no/100 Dollars
(U.S.) with interest 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 0.000% 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). 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.
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. Accrued interest on this
Note shall be payable on either (i) [ ] the Maturity Date or (ii) [X] the 1st
day of each month commencing August 01, 1998, until the Maturity Date when all
amounts outstanding under this Note shall be due and payable in full. If the
frequency of interest payments is not otherwise specified, accrued interest on
this Note shall be payable monthly on the first day of each month. If any
payment of principal or interest under this Note shall be payable on a day
other than a day on which the Bank is open for business, this payment shall be
extended to the next succeeding business day and interest shall be payable at
the rate specified in this Note during this extension. A late payment charge
equal to 5% of each late payment may be charged on any payment not received by
the Bank within 10 calendar days after the payment 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 security or
collateral agreement which has been, or will at any time(s) later be, executed
by and (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") (i) fail(s) to pay 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 (ii) 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 (iii) 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 or 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
(a) 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 (b) 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
(c) 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 (d) 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 (e) 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 of it 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 transactions) 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 is 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 on 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.
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 the 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.
<PAGE> 8
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 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.
See Addendum.
JMAR TECHNOLOGIES, INC.
By: /s/ DENNIS E. VALENTINE Its: Chief Financial Officer
------------------------------- -------------------------------
SIGNATURE OF TITLE
By: Its:
------------------------------- -------------------------------
SIGNATURE OF TITLE
By: Its:
------------------------------- -------------------------------
SIGNATURE OF TITLE
By: Its:
------------------------------- -------------------------------
SIGNATURE OF TITLE
Comerica Bank
/s/ BROCK MULLINS ITS: Assistant Vice President
- -------------------------- -------------------------------
Signature of Brock Mullins Title
<TABLE>
<S> <C> <C> <C> <C>
9207 ETON AVENUE CHATSWORTH CALIFORNIA USA 91311
- --------------------------------------------------------------------------------------------------------
STREET ADDRESS CITY STATE COUNTRY ZIP CODE
For Bank Use Only CCAR #
- --------------------------------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) Name
BM WESTWOOD MIDDLE MARKET JMAR TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48234 96551 $1,000,000.00
</TABLE>
CA 00179 (9/95)
<PAGE> 9
ADDENDUM TO $1,000,000 VARIABLE RATE-SINGLE PAYMENT NOTE
This ADDENDUM TO VARIABLE RATE-SINGLE PAYMENT NOTE (This "Addendum"), dated
June 25, 1998, shall be a a part of and is hereby incorporated into that certain
Variable Rate-Single Payment Note of even date herewith (the "Note"), executed
by JMAR Technologies, Inc. ("Borrower") in favor of Comerica Bank-California
("Bank"). All initially capitalized terms used but not defined in this addendum
shall have the meanings assigned to such terms in the Note. Borrower hereby
agrees that the following terms and conditions shall be incorporated into the
Note:
1. USE OF FUNDS. Advances under the Note shall be used to finance 80% of the
total cost of new equipment. Borrower may also use the Note to finance 70% of
the total cost of demo inventory at JMAR Precision Systems, Inc.
2. ISSUANCE OF TERM NOTE. On 6/1/99 (the "Conversion Date"), the Borrower shall
execute and deliver to the Bank a term note (a "Term Note") consistent with the
Bank's then standard forms, in an aggregate principal amount equal to the
outstanding principal balance on the Note. The Term Note shall have a maturity
date that is 48 months from the date of its issuance. The outstanding principal
of the Term Note shall bear interest at the variable rate equal to the Bank's
base rate, or upon the request of the Borrower a fixed rate of interest equal to
two and one-half percent above Bank's Cost of Funds as determined on the
Conversion Date, and such interest shall be payable on the same dates on which
interest is payable under the Note. Principal shall be payable concurrently with
interest, in substantially equal installments such that the Term Note will be
fully amortized by its maturity date. The Term Note shall contain the same
covenants, conditions, and Defaults as are contained in the Note (including this
Addendum), and shall have the benefit of all collateral, guaranties and
subordination agreements in favor of the Note.
3. ADVANCES. Advances on the Note are allowed to be made directly to JMAR
Technologies, Inc. And JMAR Precision Systems, Inc.
IN WITNESS WHEREOF, Borrowers have executed this Addendum as of the date
first above written.
JMAR Technologies, Inc. Comerica Bank-California
/s/ JOHN S. MARTINEZ /s/ BROCK MULLINS
- ----------------------- -------------------------
1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,551,990
<SECURITIES> 0
<RECEIVABLES> 5,497,658
<ALLOWANCES> 15,547
<INVENTORY> 4,605,491
<CURRENT-ASSETS> 14,743,436
<PP&E> 5,453,860
<DEPRECIATION> 2,733,989
<TOTAL-ASSETS> 19,039,026
<CURRENT-LIABILITIES> 5,324,192
<BONDS> 745,494
0
0
<COMMON> 181,120
<OTHER-SE> 12,788,220
<TOTAL-LIABILITY-AND-EQUITY> 19,039,026
<SALES> 10,363,516
<TOTAL-REVENUES> 10,363,516
<CGS> 6,455,533
<TOTAL-COSTS> 6,455,533
<OTHER-EXPENSES> 3,577,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,001
<INCOME-PRETAX> 317,204
<INCOME-TAX> 0
<INCOME-CONTINUING> 317,204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 317,204
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
