<PAGE>   1
                                                                    EXHIBIT 10.3

                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT


                 THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement")
is dated and effective as of May 1, 1996, by and between JMAR Industries, Inc.,
a Delaware corporation (the "Company") and Dr. John S. Martinez (the
"Employee").

                              W I T N E S S E T H:

                 WHEREAS, the Company desires to continue to retain the
services of Dr. John S. Martinez as Chief Executive Officer; and

                 WHEREAS, Dr. Martinez desires to provide his services to the
Company, on the terms and conditions set forth herein;

                 NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties hereto hereby agree as follows:

                 1.       Employment and Term.  The Company hereby extends the
period of employment of the Employee as Chief Executive Officer of the Company,
for a term commencing on the date hereof and continuing to and ending on
December 31, 1999, unless this Agreement is sooner terminated as set forth
herein.  This Agreement shall be automatically renewable thereafter for
successive one year terms unless either party shall deliver written notice to
the other party in accordance with Paragraph 10 hereof of its intention not to
so renew no later than 60 days
<PAGE>   2
prior to the end of the term of the Agreement then in effect.  In the event the
Company delivers notice of its intention not to so renew, the delivery of such
notice shall be deemed a termination under Section 5.5 of this Agreement.

                 2.       Position and Duties.  Dr. Martinez agrees to be
available to serve as Chief Executive Officer of the Company, and the Company
agrees to elect Dr. Martinez as Chief Executive Officer of the Company and to
retain him as Chief Executive Officer for the term of this Agreement and all
successive renewals hereof.  In addition to serving as Chief Executive Officer,
Dr. Martinez shall also possess such other titles and serve in such other
capacities as the Company shall from time to time determine and shall render
such services and have such duties and responsibilities as may be assigned to
him from time to time by the Company consistent with such positions.  Dr.
Martinez shall devote such time, attention and energy to the business of the
Company as he in his sole discretion shall determine is necessary and agrees to
perform faithfully and diligently such duties and responsibilities as may be
assigned to him to the best of his ability.  The Company acknowledges and
agrees that Dr. Martinez may serve as a consultant or in any other capacity for
any other business as Dr. Martinez in his sole discretion may determine.




                                       2
<PAGE>   3
                 3.   Compensation and Expenses.

                 3.1  For the services to be rendered by the Employee as Chief
Executive Officer, the Company shall pay to him a salary which is no less than
a rate of $175,000 per annum, payable biweekly, in accordance with the regular
payroll schedule of the Company.  Said salary may be increased annually at the
discretion of the Board of Directors.

                 3.2  The Company shall continue to pay or reimburse the
Employee for all reasonable expenses incurred by him on the business of the
Company.

                 3.3  The Company will continue to provide the Employee with an
auto lease allowance of $600 per month.

                 4.   Insurance Plans.  The Employee shall have the right to 
participate in all group insurance and other employee benefit plans now in
effect or hereafter established by the Company for the benefit of the class of
employees of which he would be a member for so long as any such plan is
maintained in effect for the benefit of such class, with Dr. Martinez's
participation or share therein being determined by the provisions and
requirements of the respective plan.

                 5.   Termination.

                 5.1  This Agreement shall terminate upon the occurrence of
either of the following events:  (a) the death of Dr. Martinez; (b) the
incapacity or disability of Dr. Martinez which





                                       3
<PAGE>   4
renders him unable to perform substantially all of the services contemplated by
this Agreement for a continuous period of ninety days; or (c) the mutual
agreement of the parties to this Agreement.

                 5.2  This Agreement may be terminated by the Company prior to
the date specified in Section 1 hereof on the happening of one or more of the
following events:  (a) The commission of an act of fraud, dishonesty or
embezzlement by Dr. Martinez; (b) the willful neglect by Dr. Martinez in the
performance of the services contemplated by this Agreement in such manner as to
provide reasonable cause for terminating his services; or (c) the breach by the
Employee of any of the covenants or obligations under this Agreement and such
breach provides reasonable cause for the Company to terminate this Agreement;
provided that, in order to terminate this Agreement pursuant to clauses (b) and
(c) of this Section 5.2, the Company shall have given thirty days written
notice of termination to the Employee, and the Employee shall have failed to
fully cure or correct such willful neglect or breach within the thirty days
immediately following such notice.

                 5.3  This Agreement may be terminated by the Employee prior to 
the date specified in Section 1 hereof on thirty days written notice of
termination to the Company if the Company breaches any of its covenants or
obligations under this Agreement





                                       4
<PAGE>   5
and such breach provides reasonable cause for the Employee to terminate this
Agreement.

                 5.4  In addition to the circumstances under which this
Agreement may be terminated by the Employee pursuant to Section 5.3, the
Employee may terminate this Agreement at any time, without cause, upon thirty
days written notice of termination to the Company.

                 5.5  In addition to the circumstances under which this
Agreement may be terminated by the Company pursuant to Section 5.2, the Company
may terminate this Agreement at any time, without cause, upon thirty days
written notice of termination to the Employee; provided, however, should the
Company terminate this Agreement pursuant to this Section 5.5 prior to the date
specified in Section 1 hereof (as extended by any automatic renewals hereof)
(other than a termination pursuant to the provisions of Section 5.2), then the
Employee shall become entitled to receive as severance pay an amount equal to
the greater of 36 month's pay or the balance of the compensation that would
have been payable to the Employee pursuant to Section 3.1 hereof during the
remainder of the term specified in Section 1 hereof (subject to earlier
termination on the happening of the event specified in clause (a) of Section
5.1), payable at the rate and times as such compensation would have been
payable to the Employee had this Agreement not been terminated pursuant to





                                       5
<PAGE>   6
this Section 5.5.  Said severance pay period was established pursuant to a
Resolution of the Board of Directors on September 28, 1989 as partial
consideration for Dr. Martinez' assignment to the Corporation of the rights to
the "California Jamar, Inc." name.  In addition to the payment of such
severance pay, the Company shall also continue in force and maintain all
insurance policies in which Dr. Martinez participates at the time of such
termination until the later of two years following such termination and
December 31, 1999.

                 5.6  Notwithstanding any termination of the Employee's
services hereunder, all of the covenants of the Employee contained in Sections
6 and 7 shall continue in full force and effect in accordance with their
respective terms.

                 6.   Confidential Information.  Dr. Martinez has previously 
entered into an Invention and Secrecy Agreement which remains in full force and
effect in accordance with the terms thereof. Paragraphs 6 and 7 of this
Agreement are intended to supplement and not limit or restrict the provisions of
such Invention and Secrecy Agreement. The Employee acknowledges that, in the
course of the performance of his services hereunder, he may become acquainted
with confidential information regarding the Company (and companies affiliated
with or owned, operated or supervised by the Company) and their business,
operations, finances, personnel, accounts, customers and suppliers. This





                                       6
<PAGE>   7
information may include information relating to persons, firms, corporations
and other entities which are or become suppliers or customers of the Company
(or a company affiliated with or owned, operated or supervised by the Company).
The Employee will not, either during the term of this Agreement or for a period
of one year thereafter, without the prior express written consent of the
Company, disclose or make any use of such confidential information except as
may be required in the course of the performance of his services hereunder.

                 7.  Protection of Property.  All records, files, manuals, lists
of customers, blanks, forms, materials, supplies, computer programs and other
materials furnished to the Employee by the Company (or any company affiliated
with or owned, operated or supervised by the Company), used on their behalf or
generated or obtained during the course of the performance of the Employee's
services hereunder, shall be and remain the property of the Company (or any
company affiliated with or owned, operated or supervised by the Company, as the
case





                                       7
<PAGE>   8
may be).  The Employee shall be a holder thereof for the sole use and benefit
of the Company (or any company affiliated with or owned, operated or supervised
by the Company, as the case may be), and shall safely keep and preserve such
property, except as consumed in the normal business operations of the Company
(or any company affiliated with or owned, operated or supervised by the
Company, as the case may be).  The Employee acknowledges that this property is
confidential and is not readily accessible to the Company's competitors.  Upon
termination of this Agreement hereunder, the Employee shall immediately deliver
to the Company, or its authorized representative, all such property, including
all copies, remaining in the Employee's possession or control.

                 8.  Indemnification.  The Company will protect, defend, 
indemnify and hold harmless Dr. Martinez from and against any and all demands,
claims, recoveries, obligations, losses, damages and liabilities and all
related costs, expenses (including reasonable attorneys' fees), interest and
penalties which Dr. Martinez shall incur or suffer which arise from, result
from or relate to the performance of his services under this Agreement.
Furthermore, the Company agrees to use its best efforts to maintain in effect a
Directors' and Officers' Liability Insurance policy having coverage limits of
no less than $1,000,000 per incident.

                 9.  Assignment.  Neither the rights nor obligations under this 
Agreement may be assigned, transferred, pledged or hypothecated by any party
hereto, except that this Agreement shall be binding upon and inure to the
benefit of any successor of the Company, whether by merger, purchase or
otherwise and the Company may assign this Agreement to any subsidiary or
affiliate of the Company.





                                       8
<PAGE>   9
                 10.      Notices.  Any notice required or permitted to be
given under this Agreement shall be deemed to have been duly given if in
writing and if personally delivered or sent by registered or certified mail,
return receipt requested, with postage prepaid.

                 If to the Company:

                                  JMAR Industries, Inc.
                                  3956 Sorrento Valley Blvd.
                                  San Diego, California 92121
                                  Attention: President

                 If to the Employee:

                                  Dr. John S. Martinez
                                  P. O. Box 1030
                                  Del Mar, California 92014

Any party may change the address to which notices are to be sent to it or him
by giving ten days written notice of such change of address to the other party
in the manner above provided for giving notice.  Notices will be considered
delivered on the date of personal delivery or on the date of deposit in the
United States mail in the manner above provided for giving notice by mail.

                 11.  Waiver.  The waiver by any party hereto of a breach of any
of the provisions of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach hereof by such party.

                 12.  Severability.  If any one or more covenants, agreements or
provisions herein contained shall be held or





                                       9
<PAGE>   10
determined for any reason whatsoever to be invalid or unenforceable, either in
whole or in part, then such covenants, agreements or provisions, or portion
thereof, shall be null and void and shall be deemed separable from the
remaining covenants, agreements or provisions hereof and shall in no way affect
the validity of any of the other provisions hereof.

                 13.  Attorneys' Fees.  The prevailing party in any
litigation concerning the enforcement or interpretation of this Agreement shall
be entitled to recover reasonable costs and attorneys' fees.

                 14.  Choice of Law.  This Agreement shall be governed by and 
construed in accordance with the laws of the State of California.

                 15.  Entire Agreement.  This Agreement contains the entire
agreement of the parties with respect to the transactions contemplated hereby,
and no party shall be liable or bound except as expressly provided herein.

                 16.  Headings.  The subject headings of sections of this
Agreement are included for the purposes of convenience only





                                       10
<PAGE>   11
and shall not affect the construction or interpretation of any term or
provision hereof.

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.


JMAR INDUSTRIES, INC.

By:/s/ Dennis E. Valentine                 
   -------------------------------------------
   Dennis E. Valentine,
   Chief Financial Officer


/s/ John S. Martinez                       
-------------------------------------------
John S. Martinez, Ph.D, Employee





                                       11