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                                                            Exhibit 10.1
          
 SBA                AUTHORIZATION AND LOAN AGREEMENT
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                                                            LOAN NUMBER

                                                       DELTA 155 873 40 06 LA

U.S. Small Business Administration
Los Angeles District Office
330 North Brand, Suite #120
Glendale, CA 91203-2304

Lender:

The Pacific Bank, N.A.
350 Primrose Road
Burlingame, CA 94010

       Your request dated AUGUST 5, 1997 for SBA to guarantee SEVENTY-FIVE 
       percent (75%) of a loan in the amount of $200,000 to be made by Lender 
       to PERCEPTRONICS, INC., 21010 ERWIN STREET, WOODLAND HILLS, CA 91367 
       is hereby approved pursuant to Section 7a of the Small Business Act 
       as amended.
          
1.     THE FOLLOWING FORMS ARE HEREWITH ENCLOSED:
 
1.A    One original of SBA Form 147, Note, to be signed by the Borrower.
 
1.B    Copies of the SBA Form 1050 Settlement Sheet are to be completed and
       executed by Lender and Borrower to reflect each disbursement. Prompt
       reporting of disbursements is necessary.
       
1.C    SBA Form 159 Compensation Agreement shall be executed by Borrower, its 
       representative and Lender, and returned to SBA if either Borrower or 
       Lender has employed and compensated an agent or representative 
       (including an attorney, accountant, packager or other consultant) in 
       connection with the Borrower's loan application. If no such fees have 
       been charged, please write "None" and return the Form to SBA Finance 
       Division.
               
1.D    The original copy of this Authorization shall be executed prior to first
       disbursement and retained in loan file by the Lender. Additional SBA 
       Forms required, if any, are itemized below.
               
1.E    SBA Form 148 - Guaranty (one set(s)
1.F    SBA Form 155 - Standby Agreement (one set) 
1.G    SBA Form 160 - Corporate Resolution to Borrow


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Borrower: Perceptronics, Inc. 
Page 2

1.K    SBA Form 722 - Equal Employment Opportunity Poster: Borrower will post 
       in its place of business SBA Form 722, Equal Opportunity Poster, where 
       it will be clearly visible to employees, applicants for employment, and 
       members of the general public.
       
2.         THIS AUTHORIZATION IS SUBJECT TO:
       
2.A    Provisions of the Guaranty Agreement between Lender and SBA, dated April
       1, 1996, and any Supplemental Guaranty Agreement between Lender and SBA.
       
2.B.01 First disbursement of the loan being made not later than THREE (3) 
       months, and no disbursement being made later than SIX (6) months, from 
       the date of this Authorization, unless such time is extended pursuant to 
       prior written consent by SBA.
       
2.C    Receipt by Lender of satisfactory evidence that there has been no 
       unremedied adverse change since the date of the Application, or since 
       any of the preceding disbursements, in the financial or any other 
       condition of Borrower, which would warrant withholding or not making any 
       such disbursement or any further disbursement.
       
2.D    The representations made by Borrower in its loan application, the 
       requirements or conditions set forth in Lender's application form, 
       including the supporting documents thereto, the conditions set forth 
       herein and any future conditions imposed by Lender (with prior SBA 
       approval).
       
2.E    Notwithstanding any other provisions of this Authorization, the Lender 
       may use its own form(s) in lieu of  standard SBA forms, except for SBA 
       Form 147, Note; and SBA Form 148, Guaranty; SBA Form 159, Compensation 
       Agreement; and SBA Form 1050, Settlement Sheet. Lender may use 
       computer-generated replications of these four mandated SBA Forms, as 
       long as they are exact reproductions of these SBA Forms. Lender will be 
       held responsible for any errors or omissions.
          
2.F    Borrower and Guarantors, if any, acknowledge that in accordance with 13 
       CFR Part 101, they are not entitled to and hereby waive the right to 
       claim or assert any immunities or defenses, including but not limited to 
       any right of subrogation and/or contribution against SBA, which may be 
       available under local law, to defeat, modify, or otherwise limit their 
       obligation to repay any monies advanced by Lender to Borrower pursuant 
       to the terms of this Loan Authorization.
       
3.     TERMS OF LOAN:
 
3.A    Repayment term, interest rate(s), and maturity.
 
       Repayment terms contained in the executed SBA Form 147 Note shall 
       conform to the following paragraphs:
          
3.A.04 Installments, including principal and interest, each in the amount of 
       FOUR THOUSAND THREE HUNDRED SEVENTY FOUR dollars ($4,374), commencing 
       one month(s) from date of fifth day of the first month after first 
       disbursement and continuing due and payable monthly thereafter until 
       FIVE years from the date of fifth day of the first month after first 
       disbursement when the full unpaid balance of principal and interest 
       shall become due and payable. Each installment shall be applied to 
       interest accrued as of date of receipt and the balance, if any, to 
       principal.

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Borrower: Perceptronics, Inc. 
Page 3

       THIS IS A VARIABLE INTEREST RATE NOTE. Interest on unpaid principal 
       shall accrue at the initial rate of ELEVEN AND ONE QUARTER percent 
       (11.25%) per annum. Commencing on the first calendar day of the 
       calendar month following first disbursement, and monthly thereafter, 
       the interest rate shall increase or decrease to TWO AND THREE QUARTERS 
       percent (2.75%) above the Prime Rate in effect on the first business 
       day of the month, as published in the Money Rates Section of THE WALL 
       STREET JOURNAL.
          
       NOTE: The amount of the monthly payment shown above is based upon the 
       prime interest rate as of the date of the receipt of the loan 
       application by SBA of EIGHT AND ONE HALF percent (8.50%) plus a spread 
       of TWO AND THREE QUARTERS percent (2.75%).
          
       The amount of the monthly installments of principal and interest 
       required herein shall be increased or decreased, as appropriate, to an 
       amount necessary to amortize principal remaining unpaid as of the date 
       of the change in the interest rate over the remaining term of this Note.
          
       The Lender shall give the Borrower written notice of any change in the 
       interest rate of this Note and of any change (either an increase or 
       decrease) in the amount of the principal and interest installments 
       required herein within thirty (30) days after the effective date of any 
       such change.
          
       If the Borrower shall be in default in payment due on the indebtedness 
       herein and the Small Business Administration (SBA) purchases its 
       guaranteed portion of said indebtedness, the rate of interest on both 
       the guaranteed and unguaranteed portion herein shall become fixed at the
       rate in effect as of the first date of uncured default. If the Borrower 
       shall not be in default in payment when SBA purchases its guaranteed 
       portion, the rate of interest on both the guaranteed and unguaranteed 
       portion shall be fixed at the rate in effect as of the date of purchase 
       by SBA.
   
       LATE CHARGE: If a payment is more than 10 days late, Borrower will be
       charged 5.0% of the unpaid portion of the regularly scheduled payment.
       (Late fee may not exceed 5.0% and may not be charged to SBA if SBA
       purchases the loan pursuant to its guaranty.)
          
3.B    USE OF PROCEEDS OF LOAN AS FOLLOWS:
       
3.B.10         Approximately $200,000 for debt repayment to LORAL FAIRCHILD.
          
3.C    COLLATERAL
          
3.C.05         SECOND security interest to be taken by Financing Statement and
               Security Agreement in all of the following personal property, 
               now owned or hereafter acquired, wherever located, and proceeds
               therefrom:
               
3.C.05.a            Machinery, Equipment and Furniture
       
3.C.05.b            EXCLUDING Titled Motor Vehicles
       
3.C.05.d            Inventory
          
3.C.05.e            Accounts


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Borrower: Perceptronics, Inc. 
Page 4

3.C.05.f       General Intangibles

3.C.05.g       Chattel Paper

3.C.05.h       Documents

3.C.05.n  Said security interest subject to lien(s) in favor of US SMALL 
          BUSINESS ADMINISTRATION against ALL BUSINESS ASSETS in the amount of
          approximately $360,000.

3.C.10    Guaranty on SBA Form 148 executed by GERSHON WELTMAN

4.     TO FURTHER INDUCE SBA TO GUARANTEE THIS LOAN, BORROWER AGREES TO THE
       FOLLOWING CONDITIONS DURING THE TERM OF THIS LOAN:
     
4.A    Execution of all documents required in Item 1 above.

4.A.01    If this is an "Eligible Passive Company" loan, all references to
          "Borrower" in Section 4 of this Authorization and Loan Agreement also
          apply to "Operating Company," where appropriate. 

4.B    Reimbursable Expenses
            
       Borrower will, on demand, reimburse Lender for any and all expenses 
       incurred, or which may be hereafter incurred, by Lender from time to 
       time in connection with or by reason of Borrower's application for, and 
       the making and administration of the loan.
          
4.C    Books, Records and Reports
 
       Borrower will at all times keep proper books of account in a manner 
       satisfactory to Lender and/or SBA. Borrower hereby authorizes Lender or 
       SBA to make or cause to be made, at Borrower's expense and in such 
       manner and at such times as Lender or SBA may require, (a) inspections 
       and audits of any books, records and paper in the custody or control of 
       Borrower or others, relating to Borrower's financial or business 
       conditions, including the making of copies thereof and extracts 
       therefrom, and (b) inspections and appraisals of any of Borrower's 
       assets. Borrower will furnish to Lender for the 12 month period ending 
       DECEMBER 31, 1997 and QUARTERLY thereafter (no later than 3 months 
       following the expiration of any such period) and at such other times and 
       in such form as Lender may prescribe, Borrower's financial and operating 
       statements. Borrower hereby authorizes all Federal, State and municipal 
       authorities to furnish reports of examinations, records, and other 
       information relating to the conditions and affairs of Borrower and any 
       desired information from reports, returns, files, and records of such 
       authorities upon request therefore by Lender or SBA.
          
4.C.03    The Borrower's financial and operating statements required in 
          Paragraph 4.C herein shall include annual financial statements 
          reviewed by an independent public accountant submitted within 
          ninety (90) days of the close of Borrower's fiscal year.
          
4.C.04    If loan is not closed within four months from date of the 
          Authorization, Borrower shall furnish Lender current, signed 
          financial statements for the business, each principal and each 
          guarantor.


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Borrower: Perceptronics, Inc. 
Page 5

4.D    Borrower shall not execute any contracts for management consulting 
       services without prior approval of Lender.

4.E    Distributions and Compensation -

       A. If Borrower is a corporation, the written consent of the Lender is
          required to declare or pay any dividends or make any distribution
          upon its capital stock, or purchase or retire any capital stock.

          Lender's approval is also required if a corporate borrower intends
          to consolidate, or merge with another company, or give any
          preferential treatment, make any advance, directly or indirectly,
          by way of loan, gift, bonus, or otherwise, to any company, directly
          or indirectly, controlling or  affiliated with or controlled by
          corporate Borrower, or any other company, or to any officer,
          director or employee of Borrower, or of any such company.
          
       B. If Borrower is a limited liability company, partnership or
          individual, Lender's approval is required to make any distribution
          of assets of the business of Borrower, except for reasonable
          compensation for services, or give any preferential treatment, make
          any advance, directly or indirectly, by way of loan, gift, bonus or
          otherwise, to any partner or any of its employees, or to any
          company, directly or indirectly controlling or affiliated with or
          controlled by borrower, or any other company.
               
          Regardless of the Borrower's structure or business form, Borrower
          will not, without prior consent of Lender, (a) pledge, mortgage or
          otherwise encumber in any manner whatsoever any of Borrower's
          present or after acquired property or assets, (b) borrow money or
          obtain a loan from any person, corporation or any other source, (c)
          make any investments in other business or real property, (d) make
          or guarantee any advances or loans made to others, (e) incorporate,
          if presently a partnership, limited liability company, or sole
          proprietorship, and (f) sell a substantial part, or all of its
          assets.
          
4.F    OTHER PROVISIONS
 
4.F.03    SBA Form 147 Note shall be executed by PERCEPTRONICS, INC. (a
          corporation) by those corporate officers so authorized in a
          Resolution of Board of Directors. (SBA Form 160 may be used for
          this corporate resolution.)
          
4.F.05    Borrower to execute SBA Form 159, Compensation Agreement, prior to
          first disbursement.
 
4.F.08    Borrower will post in its place of business SBA Form 722 Equal
          Opportunity Poster where it will be clearly visible to employees,
          applicants for employment, and members of the general public.
       
4.F.09    Prior to first disbursement, the Lender must be in receipt of
          evidence of the kind described below from an independent
          authoritative source which is sufficient to indicate to the Lender
          that the property is not in a special flood hazard area (SFHA).
          "Property" is defined as the asset(s) financed as a part of the SBA
          financial assistance and/or other collateral deemed necessary by
          the SBA. If such evidence is not provided to the Lender, the
          borrower must obtain, and maintain, a standard Flood Insurance
          Policy or other appropriate special flood hazard insurance in
          amounts and coverages equal to the lesser of (1) the insurable
          value of the property or (2) the maximum amount of coverage
          available. Borrower can show that special flood hazard insurance
          has been


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Borrower: Perceptronics, Inc. 
Page 6

           acquired by submitting a copy of the policy or providing evidence
           of premium payment for the appropriate coverage to a licensed
           insurance agent. Borrower will not be eligible for any future
           disaster assistance or SBA business loan assistance if special
           flood hazard insurance is not maintained as stipulated herein
           throughout the entire term of this loan.
          
           As evidence that the property is not located within a special 
           flood hazard area subject to flooding, mudslides or erosions, the 
           Lender may rely upon a determination of special flood hazard area 
           status by the borrower's property & casualty insurance company, 
           real estate appraiser, title insurance company, a local government 
           agency or other authoritative source acceptable to SBA which would 
           ordinarily have knowledge of the special flood hazard area status 
           for the property.
          
           Any such flood insurance obtained shall name Lender as Mortgagee or
           Loss Payee and providing that the interests of the Mortgagee or
           Loss Payee shall not be impaired or invalidated by an act of
           neglect of the owner/insured. Insurance policy shall refer to the
           SBA loan number.
          
4.F.10     Borrower and/or owners of the collateral shall provide and maintain
           fire, lightning and extended coverage for the maximum insurable
           amount on all real and personal property taken as collateral,
           naming Lender as Mortgagee or Loss Payee and providing that the
           interests of the Mortgagee or Loss Payee shall not be impaired or
           invalidated by an act of neglect of the owner/insured. Insurance
           policy shall refer to the SBA loan number.
       
4.F.12     Prior to first disbursement, Borrower must furnish to Lender a copy
           of a lease indicating a term for at least the term of the loan for
           premises located at 21010 ERWIN STREET, WOODLAND HILLS, CA 91367.
           For Eligible Passive Company loans: 1) options for renewal are
           acceptable if exercisable exclusively by the operating small
           business concern; and 2) lease between the Eligible Passive Company
           and the Operating Company must be subordinated to Lender's
           mortgage, trust deed lien, or other security interest on the
           property.
          
4.F.14     Agreement by WEGMANN & COMPANY, Standby Creditor, to postpone all
           rights to collect the indebtedness owed by PERCEPTRONICS, Inc.,
           Standby Debtor, in the amount of $50,000. (A copy of the Standby
           Debtor's Note or other written evidence of the indebtedness owed to
           Standby Creditor shall be attached to the Agreement). (SBA Form
           155, Standby Agreement, may be used for this Agreement.)
       
4.F.14.a        Standby Debtor may pay and the Standby Creditor may accept
                payment of interest at an interest rate not to exceed NINE
                percent (9%) per annum, until such time as Lender or SBA
                issues written notice that no future payments may be made by
                Standby Debtor or accepted by Standby Creditor.
          
4.F.24     Prior to first disbursement, Borrower shall furnish to Lender an
           Employer Identification Number issued by the Internal Revenue
           Service.
           
4.F.25     Prior to any disbursement on account of this loan, Borrower shall
           submit satisfactory evidence to Lender that Borrower is
           incorporated in the State of CALIFORNIA and that it has the right
           to transact business in said State and that it is in good standing
           with the Secretary of State.


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Borrower: Perceptronics, Inc. 
Page 7

4.F.26     Prior to or at the time of the first disbursement, Borrower 
           shall provide Lender with satisfactory evidence that it is 
           duly licensed.
          
4.F.45     Lender to remit its check for the SBA guaranty fee in the amount
           of $4,500, to SBA within 90 days from the date of this
           Authorization and Loan Agreement. The check, identified by the SBA 
           loan number, must be forwarded to the U. S. Small Business
           Administration, P.O. Box 748, Denver, Colorado 80259. Lender may
           charge this guaranty fee to the Borrower; only after Lender has
           paid the fee to SBA and the initial disbursement has been made on
           the loan.  The fee may be part of the loan proceeds.

           Lender agrees to pay an ongoing guaranty fee equal to one-half of
           one percent per annum on the guaranteed portion of the outstanding
           balance. This fee shall be paid by the lender following the receipt
           of a payment from the borrower. The fee may not be charged to the
           borrower and shall be received by the SBA-designated fiscal and
           transfer agent by the third day of the month (or the next business
           day thereafter, if the third is not a business day), following
           receipt of a scheduled payment is a two business day grace period
           after the due date. Lender agrees to report the status of all of
           its SBA guaranteed loans on a monthly basis using SBA Form 1502 or
           an acceptable electronic format.
                
4.F.46     Prepayment penalty fees as a condition to this loan are prohibited;
           provided, however, that pursuant to the terms of SBA Form 147,
           Note, Borrower is required to provide Lender with written notice of
           intent to prepay part or all of this loan at least 3 weeks prior to
           the anticipated prepayment date. A prepayment is any payment made
           ahead of schedule that exceeds 20% of the then outstanding
           principal balance. If borrower makes a prepayment and fails to give
           at least 3 weeks advance notice of intent to prepay, then Borrower
           shall be required to pay Lender 3 weeks interest on the unpaid
           principal as of the date preceding such prepayment.
                
4.F.47     Such other terms and conditions which Lender may set forth which
           are not inconsistent with the provisions of this Authorization.
                
4.F.48     Borrower certifies that at the time it submitted its Loan
           Application it was and shall continue to be current on all Federal
           and State withholding taxes, payroll taxes, sales taxes, and
           similar funds held in trust.
                
4.F.50     Borrower acknowledges and understands that the funding of this loan
           is conditioned upon the real property offered as collateral and/or
           the business premises ("the Property") being free from
           contamination by any Hazardous Substance and that if such
           contamination is present or reasonably appears to be present, the
           loan may be funded or canceled at any time in the sole discretion
           of Lender and/or SBA. If the loan is canceled in whole or in part,
           Borrower agrees to release Lender and/or SBA from all liability. As
           used in this Loan Authorization, the term "contamination" means the
           presence of any Hazardous Substance at a level in excess of that
           permitted or allowed by local, state or federal laws and
           regulations.
                
4.F.50.a      For purpose of this Loan Authorization, the term "Hazardous
              Substance" means: (i) any substance, product, waste or other
              material of any nature whatsoever which is or becomes listed,
              regulated, or addressed pursuant to the Comprehensive
              Environmental Response, Compensation and Liability Act, 42
              U.S.C. Section 9601, et seq., ("CERCLA"); the Hazardous


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Borrower: Perceptronics, Inc. 
Page 8

              Materials Transportation Act, 49 U.S.C. Section 1801, et seq.; 
              the Resource Conservation and Recovery Act, 42 U.S.C. 
              Section 6901 et seq., ("RCRA"); the Toxic Substances Control 
              Act, 15 U.S.C. Sub-section 2601 et seq.; the Clean Water Act, 
              33 U.S.C. Sub-section 1251 et seq.; the California Hazardous 
              Waste Control Act, Health and Safety Code Sub-section 25100 
              et seq.; the California Hazardous Substance Account Act, Health 
              and Safety Code Sub-section 25330 et seq.; the California Safe
              Drinking Water and Toxic Enforcement Act, Health and Safety
              Code Sub-section 25249.5 et seq.; California Health and Safety
              Code Sub-section 25280 et seq., (Underground Storage of
              Hazardous Substances); the California Hazardous Waste
              Management Act, Health and Safety Code Sub-section 25170.1 et
              seq.; California Health and Safety Code Sub-section 25501 et
              seq., (Hazardous Materials Release Response Plans and
              Inventory); or the California Porter-Cologne Water Quality
              Control Act, Water Code Sub-section 13000 et seq., all as
              amended, or any other federal, state or local statute, law,
              ordinance, resolution, code, rule, regulation, order or decree
              regulating, relating to, or imposing liability or standards of
              conduct concerning any hazardous, toxic or dangerous waste,
              substance, or material, as now or at any time hereafter in
              effect; (ii) any substance, product, waste or other material
              of any nature whatsoever which may give rise to liability
              under any of the above statutes or under any statutory or
              common law theory based on negligence, trespass, intentional
              tort, nuisance or strict liability or under any reported
              decisions of a state or federal court; (iii) petroleum or
              crude oil other than petroleum and petroleum products which
              are contained within regularly operated motor vehicles; and
              (iv) asbestos.
          
4.F.51     Borrower represents, warrants and acknowledges that: (1) at the
           time it submitted its loan application it was and shall continue to
           be in compliance with all local, state, and federal laws and
           regulations pertaining to Hazardous Substances; (2) Borrower has no
           knowledge of any contamination from Hazardous Substances of any
           real or personal property pledged as collateral for this loan which
           is in violation of any such laws and regulations; (3) Borrower
           assumes full responsibility for all costs incurred in any clean-up
           involving Hazardous Substances and agrees to indemnify Lender and
           SBA against payment of any such costs (Borrower may be required by
           Lender and/or SBA to execute a separate indemnification agreement);
           (4) until full repayment of the loan, Borrower shall promptly
           notify Lender and SBA if it knows, suspects or believes there may
           be any Hazardous Substance in or around the real property securing
           this loan or if Borrower and/or such property are subject to any
           investigation by any Governmental agency pertaining to any
           Hazardous Substance.
                
4.F.52     Prior to first disbursement, Lender shall make a field visit to the
           site of all commercial real estate to be taken as collateral and
           shall obtain from Borrower (and owner if the loan is for the
           purchase of real estate) an executed Environmental Questionnaire
           and Disclosure Statement. Lender shall review the Statement and
           determine whether there is reason to believe that Hazardous
           Substances are present on the Property. If Lender makes such a
           determination, it shall advise SBA before any disbursement of loan
           proceeds. At the sole discretion of SBA and/or Lender, Borrower may
           be required, at Borrower's sole expense, to obtain a Phase I
           Environmental Risk Site Assessment and/or additional environmental
           reports or assessments satisfactory to SBA and/or Lender.
                
4.F.60     Borrower certifies that no principal who owns 50% of the voting
           interest of the company is delinquent more than 60 days under the
           terms of any (a) administrative order, (b) court order, or (c)
           repayment agreement that requires payment of child support.


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Borrower: Perceptronics, Inc. 
Page 9

5.     PARTIES AFFECTED.

       This Agreement shall be binding upon Lender, Borrower and each of their
       successors and assigns. No provision stated herein shall be waived 
       without the prior written consent of SBA.
                    
       SMALL BUSINESS ADMINISTRATION

       Administrator, Aida Alvarez
       By: /s/ Richard Jones
          ---------------------------------------------
       Name:        RICHARD JONES
            -------------------------------------------
          
       Title:  CHIEF FINANCE DIVISION
             ------------------------------------------

       Date:        SEPTEMBER 18, 1997
            -------------------------------------------

Acceptance by Lender and Borrower and Guarantors, if any

In consideration of the SBA guaranty of the loan to be advanced by Lender to
Borrower, the undersigned hereby acknowledge that they have received a copy and
understand the terms and conditions of this Loan Authorization, and agree to
perform in accordance therewith.

       LENDER
                    
       Name: The Pacific Bank, N.A.
                    
       By: /s/ Robert Holden
          ---------------------------------------------
           Robert Holden, Vice President
          
       Date: 
            -------------------------------------------

       BORROWER
                    
       Name: Perceptronics, Inc.
                    
       By: /s/ Gershon Weltman
          ---------------------------------------------
           Gershon Weltman, CEO
          
       Date:  9-24-97
            -------------------------------------------

       GUARANTORS (INDIVIDUAL)
                    
                    
                    

<PAGE>


       
                                                   DMB Approval No. 3245-0201
                          U.S. Small Business Administration
                                                          SBA LOAN NUMBER 
                                                         DELTA1558734006LA
                                         NOTE
       
                                                         SAN FRANCISCO. CA 
                                                        --------------------
                                                          (City and State)
       
                                            (Date):       September 23, 1997
$ 200,000.00
       
       
For value received, the undersigned promises to pay to the order of THE 
PACIFIC BANK, N.A. at its office in the city of BURLINGAME, state of 
CALIFORNIA, or at holder's option, at such other place as may be 
designated from time to time by the holder TWO HUNDRED THOUSAND & 00/100 
DOLLARS, with interest on unpaid principal computed from the date of 
each advance to the undersigned at the rate of (Initial) 11.250 per cent 
per annum, payment to be made in installments as follows:
       
Installments, including principal and interest, each in the amount of Four 
Thousand Three Hundred Seventy Four Dollars ($4,374.00) commencing one 
month(s) from date of fifth day of the first month after first disbursement 
and continuing due and payable monthly thereafter until five years from the 
date of fifth day of the first month after first disbursement when the full 
unpaid balance of principal and interest shall become due and payable. Each 
installment shall be applied to interest accrued as of date of receipt and 
the balance, if any, to principal.
       
THIS A VARIABLE INTEREST RATE NOTE. Interest on unpaid principal shall accrue 
at the initial rate of eleven and one quarter percent  (11.25%) per annum. 
Commencing on the first calendar day of the calendar month following first 
disbursement, and monthly thereafter, the interest rate shall increase or 
decrease to two and three quarters percent (2.75%) above the Prime Rate in 
effect on the first business day of the month, as published in the Money 
Rates Section of The Wall Street Journal.
NOTE: The amount of the monthly payment shown above is based upon the prime 
interest rate as of the date of the receipt of the loan application by SBA of 
Eight and One-Half percent (8.50%) plus a spread of two and three quarters 
percent (2.75%).
The amount of monthly installments of principal and interest required herein 
shall be increased or decreased, as appropriate, to an amount necessary to 
amortize principal remaining unpaid as of the date of the change in the 
interest rate over the remaining term of this Note.
The Lender shall give the Borrower written notice of any change in the 
interest rate of this Note and of any change (either an increase or decrease) 
in the amount of the principal and interest installments required herein 
within thirty (30) days after the effective date of any such change.
If the Borrower shall be in default in payment due on the indebtedness herein 
and the Small Business Administration (SBA) purchases its guaranteed portion 
of said indebtedness, the rate of interest on both the guaranteed and 
unguaranteed portion herein shall become fixed at the rate in effect as of 
the first date of uncured default. If the Borrower shall not be in default in 
payment when SBA purchases its guaranteed portion, the rate of interest on 
both the guaranteed and unguaranteed portion shall be fixed at the rate in 
effect as of the date of purchase by SBA.

LATE CHARGE: If a payment is more than 10 days late, Borrower will be charged 
5.0% of the unpaid portion of the regularly scheduled payment. (Late fee may 
not exceed 5.0% and may not be charged to SBA if SBA purchases the loan 
pursuant to it guaranty.)
       
If this Note contains a fluctuating interest rate, the notice provision is 
not a precondition for fluctuation (which shall take place regardless of 
notice). Payment of any installment of principal or interest owing on this 
Note may be made prior to the maturity date thereof without penalty.
       
Borrower shall provide lender with written notice of intent to prepay part or 
all of this loan at least three (3) weeks prior to the anticipated prepayment 
date. A prepayment is any payment made ahead of schedule that exceeds twenty 
(20) percent of the then outstanding principal balance. If borrower makes a 
prepayment and fails to give at least three weeks advance notice of intent to 
prepay, then, notwithstanding any other provision to the contrary in this 
Note or any other document, borrower shall be required to pay lender three 
weeks interest on the unpaid principal as of the date preceding such 
prepayment.
       
The term "Indebtedness" as used herein shall mean the indebtedness evidenced 
by this Note, including principal, interest, and expenses, whether 
contingent, now due, or hereafter to become due, and whether heretofore or 
contemporaneously herewith or hereafter contracted. The term "Collateral" as 
used in this Note shall mean any funds, guaranties, or other property or 
rights therein of any nature whatsoever or the proceeds thereof which may 
have been, are, or hereafter may be, hypothecated, directly or indirectly by 
the undersigned or others, in connection with, or as security for, the 
Indebtedness or any part thereof. The Collateral, and each part thereof, 
shall secure the indebtedness and each part thereof. The covenants and 
conditions set forth or referred to in any and all instruments of 
hypothecation constituting the Collateral are hereby incorporated in this 
Note as covenants and conditions of the undersigned with the same force and 
effect as though such covenants and conditions were fully set forth herein.
       
The Indebtedness shall immediately become due and payable, without notice or 
demand, upon the appointment of a receiver or liquidator, whether voluntary 
or involuntary, for the undersigned or for any of its property, or upon the 
filing of a petition by or against the undersigned under the provisions of 
any state insolvency law or under the provisions of the Bankruptcy Reform Act 
of 1978, as amended, or upon the making by the undersigned of an assignment 
for the benefit of its creditors. Holder is authorized to declare all or any 
part of the

<PAGE>



09-23-1997                      PROMISSORY NOTE                       Page 2
                                  (Continued)
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Indebtedness immediately due and payable upon the happening of any of the 
following events: (1) Failure to pay any part of the Indebtedness when due; 
(2) nonperformance by the undersigned of any agreement with, or any condition 
imposed by, Holder or Small Business Administration (hereinafter called 
"SBA"), with respect to the Indebtedness; (3) Holder's discovery of the 
undersigned's failure in any application of the undersigned to Holder or SBA 
to disclose any fact deemed by Holder to be material or of the making therein 
or in any of the said agreements, or in any affidavit or other documents 
submitted in connection with said application or the Indebtedness, of any 
misrepresentation by, on behalf of, or for the benefit of the undersigned; 
(4) the reorganization (other than a reorganization pursuant to any of the 
provisions of the Bankruptcy Reform Act of 1978, as amended) or merger or 
consolidation of the undersigned (or the making of any agreement therefor) 
without the prior written consent of Holder; (5) the undersigned's failure 
duly to account, to Holder's satisfaction, at such time or times as Holder 
may require, for any of the Collateral, or proceeds thereof, coming into the 
control of the undersigned; or (6) the institution of any suit affecting the 
undersigned deemed by Holder to affect adversely its interest hereunder in 
the Collateral or otherwise. Holder's failure to exercise its rights under 
this paragraph shall not constitute a waiver thereof.

Upon the nonpayment of the Indebtedness, or any part thereof, when due, 
whether by acceleration or otherwise, Holder is empowered to sell, assign, 
and deliver the whole or any part of the Collateral at public or private 
sale, without demand, advertisement, or notice of the time or place of sale 
or of any adjournment thereof, which are hereby expressly waived. After 
deducting all expenses incidental to or arising from such sale or sales, 
Holder may apply the residue of the proceeds thereof to the payment of the 
Indebtedness, as it shall deem proper, returning the excess, if any, to the 
undersigned. The undersigned hereby waives all right of redemption or 
appraisement whether before or after sale.

Holder is further empowered to collect or cause to be collected or otherwise 
to be converted into money all or any part of the Collateral, by suit or 
otherwise, and to surrender, compromise, release, renew, extend, exchange, or 
substitute any item of the Collateral in transactions with the undersigned or 
any third party, irrespective of any assignment thereof by the undersigned, 
and without prior notice to or consent of the undersigned or any assignee. 
Whenever any item of the Collateral shall not be paid when due, or otherwise 
shall be in default, whether or not the Indebtedness, or any part thereof, 
has become due, Holder shall have the same rights and powers with respect to 
such item of the Collateral as are granted in this paragraph in case of 
nonpayment of the Indebtedness, or any part thereof, when due.  None of the 
rights, remedies, privileges, or powers of Holder expressly provided for 
herein shall be exclusive, but each of them shall be cumulative with and in 
addition to every other right, remedy, privilege, and power now or hereafter 
existing in favor of Holder, whether at law or equity, by statute or 
otherwise.

The undersigned agrees to take all necessary steps to administer, supervise, 
preserve, and protect the Collateral; and regardless of any action taken by 
Holder, there shall be no duty upon Holder in this respect. The undersigned 
shall pay all expenses of any nature, whether incurred in or out of court, 
and whether incurred before or after this Note shall become due at its 
maturity date or otherwise, including but not limited to reasonable 
attorney's fees and costs, which Holder may deem necessary or proper in 
connection with the satisfaction of the Indebtedness or the administration, 
supervision, preservation, protection of (including, but not limited to, the 
maintenance of adequate insurance) or the realization upon the Collateral. 
Holder is authorized to pay at any time and from time to time any or all of 
such expenses, add the amount of such payment to the amount of the 
Indebtedness, and charge interest thereon at the rate specified herein with 
respect to the principal amount of this Note.

The security rights of Holder and its assigns hereunder shall not be impaired 
by Holder's sale, hypothecation, or rehypothecation of any note of the 
undersigned or any item of the Collateral, or by any indulgence, including 
but not limited to (a) any renewal, extension, or modification which Holder 
may grant with respect to the Indebtedness or any part thereof, or (b) any 
surrender, compromise, release, renewal, extension, exchange, or substitution 
which Holder may grant in respect of the Collateral, or (c) any indulgence 
granted in respect of any endorser, guarantor, or surety. The purchaser, 
assignee, transferee, or pledgee of this Note, the Collateral, and guaranty, 
and any other document (or any of them), sold, assigned, transferred, 
pledged, or repledged, shall forthwith become vested with and entitled to 
exercise all the powers and rights given by this Note and all applications of 
the undersigned to Holder or SBA, as if said purchaser, assignee, transferee, 
or pledgee were originally named as Payee in this Note and in said 
application or applications.

This promissory note is given to secure a loan which SBA is making or in 
which it is participating and, pursuant to Part 101 of the Rules and 
Regulation of SBA (13 C.F.R. 101.1(d)), this instrument is to be construed 
and (when SBA is the Holder or a party in interest) enforced in accordance 
with applicable federal law.

BORROWER:

PERCEPTRONICS, INC.

By: /s/ Gershon Weltman
   --------------------------------------------------
     DR. GERSHON WELTMAN, CHIEF EXECUTIVE OFFICER
     
Note.-- Corporate applicants must execute Note, in corporate name, by duly
authorized officer, and seal must be affixed and duly attested;  together with
signature of a general partner.