Document:

Exhibit 10.2

                           CONSENT AND AMENDMENT No. 2

         CONSENT AND AMENDMENT No. 2 (this "Consent and Amendment") dated as of
May 26, 2004 among FINLAY FINE JEWELRY CORPORATION, a Delaware corporation (the
"Borrower"), FINLAY ENTERPRISES, INC., a Delaware corporation (the "Parent"),
the lenders named herein and signatory hereto (the "Lenders") and GENERAL
ELECTRIC CAPITAL CORPORATION, as agent (the "Agent"), for the Lenders.

                              W I T N E S S E T H :
                              - - - - - - - - - -

         WHEREAS, the Parent, the Borrower, the Lenders and the Agent are
parties to a Second Amended and Restated Credit Agreement dated as of January
22, 2003 (as heretofore and hereafter amended, modified or supplemented from
time to time in accordance with its terms, the "Credit Agreement");

         WHEREAS, the Borrower intends to issue $200,000,000 of certain senior
notes (the "Senior Notes (2012)") and to use the cash proceeds thereof to (i)
repurchase outstanding Senior Notes, (ii) pay dividends to the Parent to allow
Parent to repurchase a portion of the outstanding Senior Debentures, (iii) pay
certain amounts, not to exceed $37,000,000, owing by the Borrower to the Parent
under the Tax Allocation Agreement, which such amounts shall be used by the
Parent solely to repurchase Senior Debentures, and (iv) with respect to the
foregoing clauses (i), (ii) and (iii), to pay, and to fund the payment by the
Parent of, certain call premiums, consent fees and other expenses due with
respect thereto (collectively, the "Financing Transactions"); and

         WHEREAS, the parties hereto have agreed to the consents and amendments
to the Credit Agreement set forth herein subject to the terms and conditions
contained herein in order to, among other things, permit the transactions
described above;

         NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and subject to the fulfillment of the conditions
set forth below, the parties hereto agree as follows:

         1. Defined Terms. Unless otherwise specifically defined herein, all
capitalized terms used herein shall have the respective meanings ascribed to
such terms in the Credit Agreement.

         2. Consent. Notwithstanding anything else in the Credit Agreement to
the contrary, the undersigned Agent and Lenders hereby consent to (a) the
issuance by the Borrower of the Senior Notes (2012); provided, that the Net Cash
Proceeds of such Senior Notes (2012) are used to fund the Financing
Transactions, (b) the repurchase by the Borrower of outstanding Senior Notes
with the Net Cash Proceeds of the Senior Notes (2012) and/or Revolving Advances
(including the payment of certain call premiums, consent fees and other expenses
due in connection therewith), (c) the payment by the Borrower of (i) dividends
to the Parent to allow the Parent to repurchase a portion of the outstanding
Senior Debentures (including the payment of certain call premiums, consent fees
and other expenses due in connection therewith) and (ii) up to $37,000,000 to
Parent as repayment of certain amounts owing by the Borrower to Parent under the
Tax Allocation Agreement, provided, that the Parent shall use such amounts
repaid by the Borrower solely to repurchase Senior Debentures (including the
payment of certain call premiums, consent fees and other expenses due in
connection therewith), (d) the due execution and delivery by (i) the Borrower
(with the consent of the holders of the Senior Notes) of the Second Supplemental
Indenture to the Senior Note Indenture, dated as of June 3, 2004, between the
Borrower and HSBC Bank USA

                                       10

(formerly known as Marine Midland Bank), as trustee, substantially in the form
of Exhibit A attached hereto, and (ii) the Parent (with the consent of the
holders of the Senior Debentures) of the Second Supplemental Indenture to the
Senior Debenture Indenture, dated as of June 3, 2004 between the Parent and HSBC
Bank USA (formerly known as Marine Midland Bank), as trustee, substantially in
the form of Exhibit B attached hereto, and (e) the execution and delivery by the
Parent, the Borrower and eFinlay of an amendment to the Gold Consignment
Agreement (and any ancillary documents thereto) in respect of the Financing
Transactions. If the Senior Notes (2012) have not been issued on or prior to
June 25, 2004, this Consent and Amendment shall expire and the provisions of
this Section 2 shall be of no further force and effect.

         3. Amendment to Credit Agreement.

              (a) Amendments to Section 1.1 of the Credit Agreement.

                   (i) As of the Effective Date (as defined herein), Section 1.1
of the Credit Agreement is hereby amended by adding the following definitions in
their appropriate alphabetical order:

              "Amendment No. 2" shall mean the Consent and Amendment No. 2 to
         the Credit Agreement dated May 26, 2004 entered into among the Parent,
         the Borrower, the Agent and the Lenders party thereto.

              "Amendment No. 2 Effective Date" shall mean June 3, 2004, the
         Effective Date as defined in Amendment No. 2.

              "Remaining Senior Debentures" shall mean the Senior Debentures
         that have not been repurchased by the Parent as of the Amendment No. 2
         Effective Date.

              "Remaining Senior Notes (2008)" shall mean the Senior Notes that
         have not been repurchased by the Borrower as of the Amendment No. 2
         Effective Date.

              "Senior Note (2012) Indenture" shall mean the indenture dated as
         of June 3, 2004 between the Borrower and HSBC Bank USA, as trustee
         under which the Senior Notes (2012) were issued.

              "Senior Notes (2012)" shall mean the Borrower's 8.375% Senior
         Notes due 2012 in the original principal amount of $200,000,000 and any
         notes that may subsequently be issued in exchange therefor that are
         substantially identical in all material respects (other than with
         respect to any transfer restrictions).

                   (ii) As of the Effective Date, the definition of "Additional
Repurchase Amount" is hereby amended by deleting the phrase "Senior Debentures
and Senior Notes" in the fourth line thereof and replacing it in its entirety
with the phrase "Senior Notes (2012), Senior Debentures, Senior Notes, Remaining
Senior Debentures and Remaining Senior Notes (2008)".

                   (iii) As of the Effective Date, the definition of "Change of
Control" is hereby amended and restated in its entirety to read as follows:

              "'Change of Control' shall mean a "Change of Control" as such term
         is defined in the Senior Note (2012) Indenture (as in effect on the
         Amendment No. 2 Effective Date)."

                                        2

                   (iv) As of the Effective Date, the definition of "EBITDA" is
hereby amended by deleting the existing clause (iv) of such definition in its
entirety and replacing it with the following new clause (iv):

                  "(iv) any losses or gains resulting from the repurchase,
         acquisition or redemption of Senior Notes (2012), Senior Debentures,
         Senior Notes, Remaining Senior Debentures or Remaining Senior Notes
         (2008)."

              (b) As of the Effective Date, Section 2.6(f) of the Credit
Agreement is hereby amended by deleting the grid contained therein in its
entirety and replacing it with the following grid:

                     "IF LEVERAGE                               APPLICABLE            APPLICABLE
                       RATIO IS                                INDEX MARGIN        EURODOLLAR MARGIN

                            (greater than or equal to)  3.50      1.00%                 2.00%
      (less than) 3.50  but (greater than or equal to)  3.00      0.75%                 1.75%
      (less than) 3.00  but (greater than or equal to)  2.25      0.50%                 1.50%
      (less than) 2.25  but (greater than or equal to)  1.50      0.25%                 1.25%
      (less than) 1.50                                            0.00%                 1.00%"

              (c) As of the Effective Date, Section 7 of the Credit Agreement is
hereby amended by (i) deleting the term "Senior Notes" in the fourth line of
clause (b) and replacing it in its entirety with the phrase "Senior Notes (2012)
or Remaining Senior Notes (2008)" and (ii) inserting the following new clause
(c) immediately after clause (b) to read in its entirety as follows:

              "(c) Solely on the Amendment No. 2 Effective Date, proceeds of
         Revolving Advances may be used to repurchase Senior Notes to the extent
         such repurchases are permitted hereunder."

              (d) As of the Effective Date, Section 8.17(a) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:

              "(a) Leverage Ratio. The Parent shall maintain, or cause to be
         maintained, a Leverage Ratio, as of the end of each period of four
         consecutive quarters of the Parent ending on or about the dates set
         forth below, of not more than the ratio set forth below opposite such
         date:

                    Four Fiscal Quarters
                    Ending On or About          Ratio
                    -----------------           -----
                    April 30, 2004              4.00
                    July 31, 2004               4.00
                    October 31, 2004            4.00
                    January 31, 2005            3.00
                    April 30, 2005              3.70
                    July 31, 2005               3.70
                    October 31, 2005            3.70

                                        3

                    January 31, 2006            2.80
                    April 30, 2006              3.50
                    July 31, 2006               3.50
                    October 31, 2006            3.50
                    January 31, 2007            2.60
                    April 30, 2007              3.50
                    July 31, 2007               3.50
                    October 31, 2007            3.50 "

              (e) As of the Effective Date, Section 8.17(c) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:

              "(c) EBITDA. The Parent shall maintain, or cause to be maintained,
EBITDA for each period of four consecutive fiscal quarters of the Parent ending
on or about the dates set forth below of not less than the amount set forth
below opposite such date:

                   Four Fiscal Quarters
                   Ending On or About                   Amount
                   -----------------                    ------
                   April 30, 2004                    $71,000,000
                   July 31, 2004                     $68,000,000
                   October 31, 2004                  $67,000,000
                   January 31, 2005                  $67,000,000
                   April 30, 2005                    $68,000,000
                   July 31, 2005                     $68,000,000
                   October 31, 2005                  $68,000,000
                   January 31, 2006                  $72,000,000
                   April 30, 2006                    $73,000,000
                   July 31, 2006                     $73,000,000
                   October 31, 2006                  $74,000,000
                   January 31, 2007                  $77,000,000
                   April 30, 2007                    $78,000,000
                   July 31, 2007                     $78,000,000
                   October 31, 2007                  $78,000,000"

                                        4

              (f) As of the Effective Date, sub-clause (e) of Section 9.2 of the
Credit Agreement is hereby amended and restated in its entirety to read as
follows:

              "(e) Liens in favor of HSBC Bank USA (formerly known as Marine
         Midland Bank) pursuant to the Security and Pledge Agreement solely to
         the extent such Liens secure the Remaining Senior Debentures, if any;"

              (g) As of the Effective Date, Section 9.3 of the Credit Agreement
is hereby amended as follows:

                   (i) Sub-clause (b) of such Section 9.3 is hereby amended and
         restated in its entirety to read as follows:

                        "(b) unsecured Current Liabilities incurred in the
              ordinary course of business other than unsecured Current
              Liabilities for Indebtedness for Borrowed Money;"

                   (ii) Sub-clause (e) of such Section 9.3 is hereby amended by
         deleting in its entirety the phrase "[Intentionally Omitted]" in the
         existing sub-clause (e) thereof and replacing it with the following new
         sub-clause (e):

                   "(e) Indebtedness of the Borrower evidenced by the Senior
              Notes (2012);"

                   (iii) Sub-clause (h) of such Section 9.3 is hereby amended
         and restated in its entirety to read as follows:

                   "(h) Indebtedness of the Borrower evidenced by the Remaining
              Senior Notes (2008) in an amount not to exceed $10,000,000 in the
              aggregate;"

                   (iv) Sub-clause (i) of such Section 9.3 is hereby amended and
         restated in its entirety to read as follows:

                           "(i) Indebtedness of the Parent evidenced by the
                  Remaining Senior Debentures in an amount not to exceed
                  $20,000,000 in the aggregate;"

              (h) As of the Effective Date, Section 9.6(a)(v) of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:

                   "(v) the Borrower may pay dividends to the Parent to make
         principal or interest payments on, or to repurchase, acquire or redeem
         Remaining Senior Debentures, in each case as permitted by Section
         9.6(b) hereof; provided, that immediately after giving effect to any
         such repurchase, acquisition or redemption of Remaining Senior
         Debentures, the Borrower shall have the ability to draw an additional
         Revolving Advance in the amount of at least $15,000,000; and"

              (i) As of the Effective Date, Section 9.6(a)(vii) of the Credit
Agreement is hereby amended by deleting the phrase "Senior Debentures and Senior
Notes" in the fourth line thereof in its entirety and replacing it with the
phrase "Senior Notes (2012), Senior Debentures, Senior Notes, Remaining Senior
Debentures or Remaining Senior Notes (2008)"

                                        5

              (j) As of the Effective Date, Section 9.6(b) of the Credit
Agreement is hereby amended by deleting in the fifth and sixth lines thereof the
phrase "the Senior Notes and the Senior Debentures, respectively" in its
entirety and replacing it with the phrase "the Senior Notes (2012), the
Remaining Senior Notes (2008) and the Remaining Senior Debentures, as the case
may be".

              (k) As of the Effective Date, Section 9.6(b)(ii) of the Credit
Agreement is hereby amended by deleting subsection (ii) in its entirety and
replacing it with the following new subsection (ii):

                   "(ii) the Borrower may, from time to time, repurchase,
         acquire or redeem Remaining Senior Notes (2008) or Senior Notes (2012);
         provided, that such Remaining Senior Notes (2008) or Senior Notes
         (2012), as the case may be, are repurchased at prices deemed favorable
         by the Borrower's board of directors; provided, further, solely with
         respect to the Senior Notes (2012), that the amount of such Senior
         Notes (2012) repurchased under this clause (ii) shall not exceed
         $25,000,000 plus the Additional Repurchase Amount in the aggregate;"

              (l) As of the Effective Date, Section 9.6(b)(iii) of the Credit
Agreement is hereby amended by deleting subsection (iii) in its entirety and
replacing it with the following new subsection (iii):

                   "(iii) the Parent may, from time to time, repurchase, acquire
         or redeem Remaining Senior Debentures; provided, that such Remaining
         Senior Debentures are repurchased at prices deemed favorable by the
         Parent's board of directors; and"

              (m) As of the Effective Date, Section 9.12(a) of the Credit
Agreement is hereby amended by inserting the phrase "the Senior Note (2012)
Indenture or any Senior Note (2012), " immediately after the phrase "any term,
provision or condition of" in the second line thereof.

              (n) As of the Effective Date, Section 9.15 of the Credit Agreement
is hereby amended by inserting the phrase "and the Senior Note (2012) Indenture"
immediately after the end of the parenthetical in the fifth line thereof and
immediately before the beginning of clause (a) of such Section 9.15.

              (o) As of the Effective Date, Section 9.21 of the Credit Agreement
is hereby amended and restated in its entirety to read as follows:

                   "ss. 9.21. INDENTURE GUARANTEES. Other than as set forth on
         Schedule 9.21 hereto, engage in any transaction (or series of related
         transactions) which would cause any Subsidiary of the Parent to be
         obligated to guarantee the obligations of the Borrower under the Senior
         Notes (2012)."

              (p) As of the Effective Date, Section 11.1(c) of the Credit
Agreement is hereby amended by deleting the last sentence thereof in its
entirety and replacing it with the following sentence:

                   "The capital stock of the Borrower and its Subsidiaries is
         owned free and clear of all Liens, except (i) Liens in favor of the
         Agent for the benefit of the Lenders and (ii) with respect to the
         capital stock of the Borrower, Liens in favor of the trustee under the
         Senior Debenture Indenture solely to extent such Liens secure the
         Remaining Senior Debentures."

                                       6

              (q) As of the Effective Date, Section 11.14 of the Credit
Agreement is hereby amended and restated in its entirety to read as follows:

                   "ss. 11.14 REMAINING SENIOR DEBENTURE COLLATERAL. The Liens
         in favor of the trustee for the holders of the Remaining Senior
         Debentures if any, secure only the obligations of the Parent under or
         with respect to the Remaining Senior Debentures."

         4. Representations and Warranties. Each of the Parent and the Borrower
represents and warrants as follows (which representations and warranties shall
survive the execution and delivery of this Consent and Amendment):

              (a) Each of the Parent and the Borrower has taken all necessary
action to authorize the execution, delivery and performance of this Consent and
Amendment.

              (b) This Consent and Amendment has been duly executed and
delivered by the Parent and the Borrower and the acknowledgement attached hereto
has been duly executed and delivered by each Subsidiary party hereto. This
Consent and Amendment and the Credit Agreement as amended hereby constitute the
legal, valid and binding obligation of the Parent and the Borrower, enforceable
against them in accordance with their respective terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general equity principles.

              (c) No consent or approval of any person, firm, corporation or
entity, and no consent, license, approval or authorization of any governmental
authority is or will be required in connection with the execution, delivery,
performance, validity or enforcement of this Consent and Amendment other than
any such consent, approval, license or authorization which has been obtained and
remains in full force and effect or where the failure to obtain such consent,
license, approval or authorization would not result in a Material Adverse
Effect.

              (d) After giving effect to this Consent and Amendment, each of the
Borrower and the Parent is in compliance with all of the various covenants and
agreements set forth in the Credit Agreement and each of the other Loan
Documents.

              (e) After giving effect to this Consent and Amendment, no event
has occurred and is continuing which constitutes a Default or an Event of
Default.

              (f) All representations and warranties contained in the Credit
Agreement and each of the other Loan Documents are true and correct in all
material respects as of the date hereof, except to the extent that any
representation or warranty relates to a specified date, in which case such are
true and correct in all material respects as of the specific date to which such
representations and warranties relate.

         5. Effective Date. (a) The consents to the Credit Agreement contained
in Section 2 above shall become effective on the date (i) this Consent and
Amendment has been duly executed and delivered by the Borrower, the Parent, the
Agent and the Majority Lenders and (ii) the acknowledgement attached hereto has
been executed and delivered by each of the Subsidiaries party hereto.

              (b) The amendments to the Credit Agreement contained herein shall
become effective as of June 3, 2004 (the "Effective Date") only if at such time
(i) the conditions set forth in the preceding clause (a) have been satisfied,
(ii) all of the conditions set forth in (x) the Offer to

                                        7

Purchase and Consent Solicitation Statement, dated as of May 7, 2004, relating
to the Senior Debentures (other than the Bank Consent Condition as defined
therein) and (y) the Offer to Purchase and Consent Solicitation Statement, dated
as of May 7, 2004, relating to the Senior Notes (other than the Bank Consent
Condition as defined therein) shall have been satisfied, and (iii) the Agent
shall have received (x) a copy of that certain opinion of Blank Rome LLP,
counsel to the Credit Parties, dated as of the date hereof and addressed to
Credit Suisse First Boston (the "Blank Rome Opinion"), and (y) a reliance letter
from Blank Rome LLP addressed to the Agent and the Lenders consenting to the
reliance by the Agent and the Lenders on the opinions set forth in the Blank
Rome Opinion.

         6. Tax Allocation Agreement. The Majority Lenders hereby consent to the
termination by the Parent and the Borrower of the Tax Allocation Agreement
pursuant to the terms contained therein upon the satisfaction of all liabilities
thereunder.

         7. Expenses. The Borrower agrees to pay on demand all costs and
expenses, including reasonable attorneys' fees, of the Agent incurred in
connection with this Consent and Amendment.

         8. Continued Effectiveness. The term "Agreement", "hereof", "herein"
and similar terms as used in the Credit Agreement, and references in the other
Loan Documents to the Credit Agreement, shall mean and refer to, from and after
the Effective Date, the Credit Agreement as amended by this Consent and
Amendment. Each of the Borrower and the Parent hereby agrees that all of the
covenants and agreements contained in the Credit Agreement and the Loan
Documents are hereby ratified and confirmed in all respects.

         9. Counterparts. This Consent and Amendment may be executed in
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute a single instrument. Delivery of an executed
counterpart of a signature page to this Consent and Amendment by telecopier
shall be effective as delivery of a manually executed counterpart of this
Consent and Amendment.

         10. Governing Law. This Consent and Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to the conflict of laws provisions thereof.

                                      * * *

                                        8

         IN WITNESS WHEREOF the parties hereto have caused this Consent and
Amendment to be duly executed by their respective officers as of the date first
written above.

                            FINLAY FINE JEWELRY CORPORATION

                            By: /s/ Bruce E. Zurlnick
                               -----------------------------------
                                Name:  Bruce E. Zurlnick
                                Title: Senior Vice President,
                                Treasurer and CFO

                            FINLAY ENTERPRISES, INC.

                            By: /s/ Bruce E. Zurlnick
                               -----------------------------------
                                Name:  Bruce E. Zurlnick
                                Title: Senior Vice President,
                                Treasurer and CFO

                            GENERAL ELECTRIC CAPITAL CORPORATION,
                            Individually and as Agent

                            By: /s/ Charles Chiodo
                               -----------------------------------
                                Name:  Charles Chiodo
                                Title: Duly Authorized Signatory

                           FLEET PRECIOUS METALS INC.

                           By: /s/ Frederick W. Reinhardt
                               -----------------------------------
                               Name:  Fredrick W. Reinhardt
                               Title: Senior Vice President

                           By:/s/ Phyllis E. Casey
                               -----------------------------------
                              Name:  Phyllis E. Casey
                              Title: Vice President

                 Signature Pages to Consent and Amendment No. 2

                           ABN AMRO BANK N.V.

                           By:
                               -----------------------------------
                               Name:
                               Title:

                           BANK LEUMI USA

                           By: /s/ David Selove
                               -----------------------------------
                               Name:  David Selove
                               Title: Vice President

                           By: /s/ Jeffrey E. Pfeffer
                               -----------------------------------
                               Name:  Jeffrey E. Pfeffer
                               Title: Senior Vice President

                           JPMORGAN CHASE BANK

                           By: /s/ Irene B. Spector
                               -----------------------------------
                               Name:  Irene B. Spector
                               Title: Vice President

                           WELLS FARGO FOOTHILL, LLC

                           By: /s/ Lan Wong
                               -----------------------------------
                               Name:  Lan Wong
                               Title: Vice President

                 Signature Pages to Consent and Amendment No. 2

Each of the Guarantors, by signing below, confirms in favor of the Agent and the
Lenders that it consents to the terms and conditions of the foregoing Consent
and Amendment No. 2 to the Second Amended and Restated Credit Agreement and
agrees that it has no defense, offset, claim, counterclaim or recoupment with
respect to any of its obligations or liabilities under its respective Guaranty
and that all terms of such Guaranty shall continue in full force and effect,
subject to the terms thereof.

FINLAY JEWELRY, INC.

By: /s/ Bruce E. Zurlnick
    --------------------------------------------
    Name:  Bruce E. Zurlnick
    Title: Senior Vice President,
           Treasurer and CFO

FINLAY MERCHANDISING & BUYING, INC.

By: /s/ Bruce E. Zurlnick
    --------------------------------------------
    Name:  Bruce E. Zurlnick
    Title: Senior Vice President,
           Treasurer and CFO

eFINLAY, INC.

By: /s/ Bruce E. Zurlnick
    --------------------------------------------
    Name:  Bruce E. Zurlnick
    Title: Senior Vice President,
           Treasurer and CFO

                 Signature Pages to Consent and Amendment No. 2<PAGE>

                                                                    Exhibit 10.1

                    AGREEMENT OF PURCHASE AND SALE OF ASSETS

      THIS AGREEMENT OF PURCHASE AND SALE OF ASSETS (this "Agreement"), is
entered into this September 7, 2004, between JMAR Technologies, Inc., a Delaware
corporation ("JMAR"), on the one hand, and Gregory M. Quist ("Quist") and David
A. Drake ("Drake"), doing business as The LXT Group, on the other hand (Quist
and Drake are referred to herein collectively as "Sellers").

                                   WITNESSETH:

      WHEREAS, the parties entered into a letter agreement, dated April 16, 2004
("Letter Agreement") and an Alliance Agreement, dated June 10, 2004 ("Alliance
Agreement"), both of which provide for the execution of a definitive agreement
to fund the development of the proof of concept model and beta models of the
CORTS system and, upon the satisfaction of certain conditions, to purchase the
CORTS Business; and

      WHEREAS, JMAR desires to purchase and acquire from Sellers, and Sellers
desire to sell, transfer and assign to JMAR, for the purchase price and upon the
terms and subject to the conditions hereinafter set forth, substantially all of
the assets of the CORTS Business; and

      NOW, THEREFORE, in consideration of the representations, warranties,
covenants, agreements and undertakings hereinafter set forth in this Agreement,
the parties hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

      1.1   "CORTS" shall mean a continuous online real-time surveillance system
that uses light scattering for detection of microorganism contamination of
water.

      1.2   "CORTS Technology" shall mean the technology related to the CORTS
system, including the technology described in the Provisional Patent Application
prepared by Quist and Drake and filed with the U.S. Patent & Trademark Office on
January 8, 2004 (the "Provisional Application"), and all designs,
specifications, build list, software, algorithms and related technology.

      1.2   "CORTS Business" shall mean all of the tangible and intangible
assets or other rights owned by Quist and/or Drake related to the CORTS system
and the CORTS Technology.

      1.3   "Seed Stage" shall mean the activities performed during the period
from April 19, 2004 until January 5, 2005.

<PAGE>

                                   ARTICLE II
                          PURCHASE AND SALE OF ASSETS;
                       CONSIDERATION AND TERMS OF PAYMENT

      2.1 Sale of Assets. On the terms and subject to the conditions set forth
in this Agreement, at the Closing (as defined in Section 5.1 hereof), Sellers
will sell, transfer, convey, assign and deliver to JMAR, and JMAR will purchase
and acquire from Sellers, all right, title and interest of Sellers in, to and
under all of Seller's respective rights, assets, and properties related to, used
in or necessary for the CORTS Business, of every kind, nature, character and
description, tangible and intangible (including goodwill), real, personal, and
mixed (including fixtures and improvements), known and unknown, and wherever
located, whether accrued, contingent or otherwise and whether now existing or
hereafter acquired prior to the Closing Date (collectively the "Purchased
Assets"). The Purchased Assets will include, without limitation, the following
assets and properties of the Sellers related to, used in or necessary for the
CORTS Business:

      (a) all machinery, equipment, furniture, furnishings, office supplies and
      similar property;

      (b) all inventories of raw materials, work in process, finished products,
      goods, products, including the Proof of Concept, Alpha models and Beta
      Models, spare parts, replacement and component parts, and office and other
      supplies (collectively, the "Inventories");

      (c) all rights to unfilled customer orders;

      (d) all of the rights of Sellers under all contracts, arrangements,
      confidentiality agreements, patent assignments, license and technology
      agreements, leases and other agreements;

      (e) all accounts receivable and other receivables and all prepaid
      expenses, prepayments and deposits;

      (f) (i) all patents throughout the world and applications therefor
      including the Provisional Application and all applications for patents
      filed between the date hereof and the Closing Date, (ii) all trademarks,
      service marks and trade names throughout the world, including
      registrations and applications for registration thereof, including
      "BioSentry," and (iii) all copyright registrations throughout the world
      and applications therefor, and any other non-registered copyrights;

      (g) all designs, software, algorithms, drawing packages, plans, trade
      secrets, inventions, processes, procedures, research records,
      manufacturing know-how and manufacturing formulae;

      (h) all books, records, manuals and other materials, including, without
      limitation, all lists of customers, distribution lists, production data,
      sales and promotional materials and

                                       2
<PAGE>

      records, research and development files, data and laboratory books, patent
      disclosures and accounting records, excluding professional books and
      published papers owned by Sellers prior to April 1, 2004; and

      (i) to the extent their transfer is permitted by law, all governmental and
      other licenses, permits and approvals and license applications relating
      specifically to the Purchased Assets.

At the Closing, Sellers will transfer, convey, assign and deliver all of the
Purchased Assets to JMAR free and clear of all liabilities, obligations,
security interests, liens, charges, encumbrances and claims.

      2.2   Assumption of Liabilities. On the terms and subject to the
conditions set forth in this Agreement, at the Closing JMAR will assume and
agree to pay, perform or discharge all of the liabilities, obligations and
commitments arising out of or requiring performance under agreements, contracts
or commitments entered into after April 16, 2004 that are included in the
Purchased Assets (the "Assumed Liabilities"). At the Closing, JMAR will execute
and deliver to Sellers an assumption agreement for the Assumed Liabilities (the
"Assumption Agreement"). JMAR's assumption of the Assumed Liabilities shall not
abrogate any representation, warranty or covenant by Sellers relating to any of
the Assumed Liabilities and shall not exclude or interfere with any
indemnification to which JMAR may be entitled pursuant to Section 11.1.

      2.3   Excluded Liabilities. JMAR shall not assume any liabilities,
obligations or commitments of Sellers (collectively, the "Excluded Liabilities")
relating to or arising out of the business, products, services, operations,
assets, properties, taxes or deferred taxes of Sellers on or prior to the
Closing, or based on any omission or state of facts or events existing or
occurring on or prior to the Closing, other than the Assumed Liabilities.

      2.4   Purchase Price. In consideration for the sale, transfer, conveyance,
assignment and delivery by Sellers of all of the Purchased Assets to JMAR, at
the Closing JMAR will pay or cause to be paid to Sellers the total Purchase
Price as follows:

      (a)   JMAR will pay the Sellers a total of $250,000 in cash, divided
            equally between Quist and Drake. One-half of the payment shall be
            made in the form of cancellation of the $125,000 loan made by JMAR
            to Sellers pursuant to the Alliance Agreement (the "Loan");

      (b)   JMAR will issue and deliver 90,000 shares of JMAR common stock to
            Quist and 90,000 shares to Drake. If Quist's employment with JMAR
            terminates for any reason other than (i) termination upon the death
            or disability of Quist as provided in the form of Employment
            Agreement attached as Exhibit A hereto, (ii) termination by JMAR for
            Cause (as defined in Exhibit A), (iii) termination by JMAR because
            the CORTS Business has been discontinued in substantial part or (iv)
            termination by Quist without Good Reason (as defined in Exhibit A),
            then all of Quist's unvested shares shall immediately vest.
            Otherwise, if Quist is employed by JMAR at the end of the first year
            after the Closing Date, one-third

                                       3
<PAGE>

            of his shares shall thereupon vest, with an additional one-third
            vesting if he is so employed at the end of the second year after the
            Closing Date and the remaining one-third shall vest if he is
            employed at the end of the third year after the Closing Date. If
            Drake's employment with JMAR terminates for any reason other than
            (i) termination upon the death or disability of Drake as provided in
            Exhibit A, (ii) termination by JMAR for Cause (as defined in Exhibit
            A), (iii) termination by JMAR because the CORTS Business has been
            discontinued in substantial part or (iv) termination by Drake
            without Good Reason (as defined in Exhibit A), then all of Drake's
            unvested shares shall immediately vest. Otherwise, if Drake is
            employed by JMAR at the end of the first year after the Closing
            Date, one-third of his shares shall thereupon vest, with an
            additional one-third vesting if he is so employed at the end of the
            second year after the Closing Date and the remaining one-third shall
            vest if he is employed at the end of the third year after the
            Closing Date. Except as set forth above in this paragraph, upon the
            termination of employment of Quist or Drake, as the case may be, the
            unvested shares, if any, held by such person shall be forfeited; and

      (c)   On the Closing Date, JMAR will grant to each of Quist and Drake
            one-half of the right to receive an annual payment (the "Future
            Payment Right") calculated as follows:

            (i)   2% of the revenue of the CORTS Business for 2004 and for each
                  of the five full fiscal years after the Closing Date;

            (ii)  1% of the revenue of the CORTS Business for each of the next
                  two fiscal years;

            (iii) 25% of the "Residual Income" generated by the CORTS Business
                  for 2004 and for each of the five full fiscal years after the
                  Closing Date; and

            (iv)  4% of Residual Income for the next five full fiscal years.

            The Future Right Payment will be evidenced by a Future Payment Right
            Certificate executed by JMAR and delivered to Sellers at the
            Closing.

      (d)   The "Residual Income" of the CORTS Business for a given fiscal year
            shall be defined as the Net Income of the CORTS Business for that
            fiscal year (computed in accordance with generally accepted
            accounting principles ("GAAP")), less interest imputed on the
            average amount of the Total Investment (as defined in Section 2.4(e)
            below) as of the last day of each fiscal quarter during that fiscal
            year. The imputed interest for a given fiscal quarter shall be equal
            to (i) the average of the "prime rate" for that fiscal quarter, plus
            (ii) six percent (referred to herein as the "Applicable Rate").

      (e)   The Future Payment Right shall be calculated within 60 days after
            the end of each fiscal year, shall accrue and shall be deemed to
            have been earned by Quist

                                       4
<PAGE>

            and Drake, but no payment of the Future Payment Right will be made
            to Quist or Drake unless and until the Cumulative Cash (as defined
            below) is sufficient to repay JMAR's Total Investment in the CORTS
            Business, plus interest accrued at the Applicable Rate. If the
            Cumulative Cash is sufficient to repay JMAR's Total Investment in
            the CORTS Business, plus interest accrued at the Applicable Rate,
            then Quist and Drake shall be paid in the aggregate the lesser of
            (i) one-half of the Cumulative Cash after deduction of the Total
            Investment and said accrued interest for the applicable fiscal year
            or (ii) the total unpaid accrued Future Payment Right. "Total
            Investment" shall mean all amounts contributed by JMAR under Section
            7.2(a) prior to the Closing Date, plus all cash, direct costs paid
            by JMAR on behalf of the CORTS Business and all other assets
            contributed by JMAR to the CORTS Business after the Closing Date.
            JMAR will deliver a statement to Sellers setting forth the Total
            Investment amount as of the Closing Date and will provide an update
            of the Total Investment on a quarterly basis thereafter. "Cumulative
            Cash" shall mean cash or cash equivalents at the end of the subject
            period minus any outstanding working capital line of credit
            attributable directly to the CORTS Business.

      (f)   The maximum total payment to Sellers as a group under the Future
            Payment Right shall be $20,000,000 ("Maximum Future Payment").

      (g)   Schedule 2.4 hereto sets forth an illustration of the calculations
            to be made pursuant to this Section 2.4.

                                   ARTICLE III
                    REPRESENTATIONS AND WARRANTIES OF SELLERS

      Each of the Sellers represents and warrants on the date hereof and as of
the Closing Date to JMAR as follows:

      3.1   Authority Relative to this Alliance Agreement. Each of the Sellers
has the full power and authority to execute and deliver this Agreement and the
other documents to be executed in connection herewith and to consummate the
transactions contemplated hereby. This Agreement and the other documents to be
executed in connection herewith have been duly and validly executed and
delivered by Sellers and constitute the legal, valid and binding agreement and
obligation of Sellers, enforceable against Sellers in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally or by general principles of equity, including principles governing the
availability of equitable remedies.

      3.2   Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement and related agreements by Sellers nor the
consummation of the transactions contemplated hereby will (i) require any
consent, approval, authorization or permit from, or filing with or notification
to, any governmental or regulatory authority or other third party, except for
any such consents, approvals, authorizations, permits, filings or notifications,
the absence of which

                                       5
<PAGE>

would not have a material adverse effect on the assets, properties, business or
financial condition of the CORTS Business; (ii) conflict with or result in a
violation of any provision of (A) any statute, rule, regulation or ordinance
which conflict or violation might have a material adverse effect on the assets,
properties, business or financial condition of the CORTS Business, or (B) any
material order, injunction, judgment, award or decree applicable to Sellers or
the CORTS Business; or (iii) result in or require the creation or imposition of
any lien upon or with respect to any of the properties or assets of the Sellers
related to the CORTS Business.

      3.3   Patents, Trademarks, Trade Names, Etc. Schedule 3.3 hereto is a
complete and correct list of (i) all patents, technology, know-how and
processes, trademarks, service marks, trade names and copyrights (including all
applications for the registration thereof) and all licenses and other agreements
relating thereto, and (ii) all agreements relating to third party technology,
know-how and processes (collectively the "Intellectual Property"), which are
used or are proposed to be used in the CORTS Business and are owned or held by
or registered in the name of Sellers or in which Sellers have any rights as
licensor, licensee or otherwise. The Intellectual Property is owned by Sellers
and Sellers do not have actual knowledge that any Intellectual Property is not
valid or in full force and effect, nor have Sellers received any notice or claim
that any of the Intellectual Property is invalid or unenforceable. The
Intellectual Property which is owned by Sellers is owned free and clear of any
license, sublicense, agreement, right, judgment, order, lien, adverse claim,
charge or encumbrance of any nature whatsoever. [REDACTED] Sellers own, are
licensed, have rights under or have the right to use all patents, trademarks,
trade names, copyrights, licenses, technology, know-how, processes and other
intellectual property used in or necessary to operate the CORTS Business as it
is proposed to be operated. None of the Intellectual Property or any of the
technology covered thereby or any of the know-how included therein has been
misappropriated from any person, and Sellers are not infringing upon or
otherwise acting illegally with regard to any such property owned by any other
person, and there is no claim or action by any person pending, or to the
knowledge of Sellers threatened, with respect thereto.

      3.4   Litigation. Except for the receipt by JMAR of communications from
PointSource Technologies, Inc. ("PST") inquiring into the possibility of JMAR's
or Seller's use of PST proprietary information, Sellers have not been served
with or otherwise received notice of any pending or threatened claim, legal
action, suit, arbitration, governmental investigation or other legal or
administrative proceeding relating to the CORTS Business or the CORTS
Technology, the Letter Agreement, the Alliance Agreement or the transactions
contemplated hereby, and Sellers do not know of any basis therefor. No
unsatisfied order, decree or judgment is in effect with respect to the CORTS
Business, the CORTS Technology, the Alliance Agreement or the transactions
contemplated hereby. No citations, fines or penalties have been asserted against
Sellers or the CORTS Business under any federal, state or local law relating to
air or water pollution or other environmental protection matters, or relating to
occupational health or safety.

      3.5   Properties and Related Matters. Sellers have good and marketable
title to, or a valid leasehold interest in, or a valid license to use, all of
the tangible personal property used in or material to the business, operations
or financial condition of the CORTS Business, in each case free and clear of all
security interests, mortgages, deeds of trust, claims, liens, pledges, charges
or other encumbrances or adverse claims of any nature whatsoever. To the best of
Sellers' knowledge, all of the tangible personal property included in the
Purchased Assets is in good order and operating

                                       6
<PAGE>

condition, ordinary wear and tear excepted, and free from any defects, except
such minor defects which do not substantially interfere with the continued use
thereof in the conduct of normal operations in the manner and to the extent such
assets are presently being used, or are intended to be used.

      3.6   Contracts. Sellers have made available to JMAR complete and correct
copies of all written agreements, contracts and commitments, whether written or
oral, that relate to the CORTS Business and (i) to which Sellers are a party or
by which either or both is bound, or (ii) by which any of the assets, properties
or business of the CORTS Business are bound, together with all amendments
thereto (collectively, the "Material Contracts"), and accurate descriptions of
all oral Material Contracts. Such Material Contracts are in full force and
effect and there does not exist thereunder any material default or event or
condition which, after notice or lapse of time or both, would constitute a
material default thereunder by Sellers or, to the best knowledge of Sellers, by
any other party thereto. No consent by any third party is required under any of
the Material Contracts as a result of or in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.

      3.7   Compliance with Laws and Regulations. Sellers are in compliance, in
all material respects, with all existing laws, rules, regulations, ordinances,
orders, judgments and decrees now applicable to the business, properties or
operations of the CORTS Business as presently conducted. All of permits,
concessions, grants, franchises, licenses, filings and other governmental
authorizations and approvals which are necessary for the operation by Sellers of
the CORTS Business have been duly made or obtained and are in full force and
effect, and there are no proceedings pending or, to Sellers' knowledge,
threatened which may result in the revocation, cancellation or suspension, or
any adverse modification, of any thereof which might have a material adverse
impact on JMAR or the CORTS Business in JMAR's hands.

      3.8   Environmental Matters.

            (a) To the best of Sellers' knowledge, Sellers are not in violation
      of, and have not violated, in any material respect, any applicable
      federal, state, county or local statutes, laws, regulations, rules,
      ordinances, codes, licenses and permits of any governmental authorities
      relating to environmental matters including biological safety in
      connection with the ownership, use, maintenance or operation of any of the
      Purchased Assets or conduct of the CORTS Business.

      (b)   To the best of Sellers' knowledge, with respect to the CORTS
      Business and facilities, Sellers have complied in all material respects
      with all applicable environmental, health and safety statutes, ordinances,
      orders, rules, regulations and requirements that are applicable to the
      receipt, handling, use, storage, treatment, shipment and disposal of
      hazardous and toxic substances (including biological substances) and
      waste.

      (c)   To the best of Sellers' knowledge, except for federal guidelines on
      BioSafety Level 2 laboratory fabrication, there are no statutes, orders,
      rules or regulations relating to environmental matters including
      biological safety requiring any work, repairs, construction or capital
      expenditures of a material nature with respect to any of the properties,
      plant or

                                       7
<PAGE>

      equipment of Sellers used in connection with the CORTS Business.

      (d)   To the best of Sellers' knowledge, no hazardous or toxic materials,
      substances, pollutants, contaminants or wastes (including biological
      active substances) have been released into the environment, or deposited,
      discharged, placed or disposed of at, on or near any of the properties,
      plant, or equipment of the CORTS Business, nor have any of such properties
      been used at any time as a landfill or a waste disposal site except in
      compliance in all material respects with all applicable environmental
      health or safety statutes, ordinances, rules or regulations.

      (e)   To the best of Sellers' knowledge, no notices of any violation of
      any of the matters referred to in subsections (a) through (d) of this
      Section 3.8 relating to any of the properties, plant, equipment or assets
      of Sellers included within the Purchased Assets, have been received by
      Sellers or any of their respective affiliates.

      3.9   Expertise and Prior Experience. Quist has investigated light
scattering techniques as applied to particle detection since 1980. Quist holds a
Ph.D. from UCSB in Physics, a BS degree from Yale and several patents covering
particle detection systems. Quist has been developing microorganism detection
systems for commercial application since 1995. Quist is currently a member of
the board of directors of the Rincon Del Diablo Water District and serves as
Rincon's representative to the San Diego County Water Authority (SDCWA). Quist
has recently published a peer reviewed paper with the American Water Works
Association Research Foundation concerning light scattering for Cryptosporidium
detection. Drake has been active in signal processing, radar and data
acquisition systems since 1974. Drake has a BSEE from Caltech and holds patents
in cryptography and light scattering detection. Drake has served for nine years
as the representative from the City of Escondido to the SDCWA. Drake has served
in engineering management for 25 years. Quist and Drake have successfully
fielded light scattering microorganism detection systems at a major water
supplier and at the Super Bowl 2003 in San Diego.

      3.10  CORTS Capabilities. Previous versions of the CORTS system have been
characterized by raw false positive rates and the identification rate as
measured against all events. To the best of Sellers' knowledge, the proof of
concept instrument will have a raw false positive rate for 1, 2 and 4 micron PSL
spheres at or below 1 part in a thousand in purified water. To the best of
Sellers' knowledge, the identification rate of such spheres will be at or
greater than 95% as measured against all events.

      3.11  Investment in JMAR Shares. Each of the Sellers acknowledges and
agrees that with respect to JMAR Shares to be acquired hereunder: (i) JMAR
Shares are being acquired by each Seller for his own account without the
participation of any other person, with the intent of holding such shares for
investment and without the intent of participating, directly or indirectly, in a
distribution of JMAR Shares and not with a view to, or for resale in connection
with, any distribution of such shares or any portion thereof; (ii) JMAR Shares
are not being acquired based upon any oral representation by any person with
respect to the future value of such shares but rather upon an independent
examination and judgment as to the prospects of JMAR; (iii) JMAR Shares to

                                       8
<PAGE>

be received were not offered to the Sellers by means of publicly disseminated
advertisements or sales literature; (iv) each Seller agrees to continue to bear
the economic risk of the investment in JMAR Shares for an indefinite period and
will not offer for sale, sell or transfer JMAR Shares other than pursuant to an
effective registration statement under or exemption from the Securities Act of
1933 (the "Securities Act") and applicable state securities laws, with evidence
of compliance therewith satisfactory to JMAR. JMAR shall be entitled to rely
upon an opinion of counsel satisfactory to it with respect to compliance with
the above laws; (v) JMAR may refuse to permit the transfer of JMAR Shares held
by a Seller unless the transfer is pursuant to an effective registration under
the Securities Act or unless the request to transfer is accompanied by an
opinion of counsel acceptable to JMAR to the effect that neither the sale nor
the proposed transfer will result in a violation of the Securities Act or the
securities laws of any state or other jurisdiction; and (vi) a legend indicating
that JMAR Shares have not been registered under United States federal or state
securities laws and referring to the restrictions on transferability and sale of
such shares contained herein may be placed on the certificate or certificates
evidencing such shares delivered to each Seller or any substitute therefore and
any transfer agent of JMAR may be instructed to require compliance therewith.

         3.12 Disclosure. No representation or warranty by Sellers contained in
this Agreement nor any statement or certificate furnished or to be furnished by
Sellers to JMAR or its representatives in connection herewith or pursuant hereto
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact required to make the statements herein or
therein contained not misleading; provided, however, nothing in this Section
3.12 shall be deemed to imply that any statement contained in a draft document
was true or complete, or that any estimate or projection will prove to be true
or complete after the date made. The representations and warranties contained in
this Article III or elsewhere in this Agreement or any document delivered
pursuant hereto shall not be affected or deemed waived by reason of the fact
that JMAR and/or its representatives knew or should have known that any such
representation or warranty is or might be inaccurate in any respect.

                                   ARTICLE IV
                     REPRESENTATIONS AND WARRANTIES OF JMAR

      JMAR represents and warrants to Sellers as follows:

      4.1   Organization. JMAR is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted.

      4.2   Qualification. JMAR is duly qualified to do business as a foreign
corporation and in good standing in the State of California.

      4.3   Authorization of Agreement. JMAR has the requisite corporate power
and authority to enter into and deliver this Agreement and to carry out its
obligations hereunder. The execution and delivery by JMAR of this Agreement, the
performance by JMAR of its obligations hereunder

                                       9
<PAGE>

and the consummation by JMAR of the transactions contemplated hereby have been
or by the Closing will be duly authorized by all necessary corporate action on
its part. This Agreement has been duly and validly executed and delivered by
JMAR and is the legal, valid and binding agreement and obligation of JMAR,
enforceable against it in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally or by general principles of equity,
including principles governing the availability of equitable remedies.

      4.4   Consents and Approvals; No Violations. Neither the execution and
delivery of this Agreement or related agreements by JMAR nor the consummation of
the transactions contemplated hereby or compliance with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of JMAR, each as amended to date; (ii)
require any consent, approval, authorization or permit from, or filing with or
notification to, any governmental or regulatory authority or other third party,
except for any such consents, approvals, authorizations, permits, filings or
notifications, the absence of which would not have a material adverse effect on
the assets, properties, business or financial condition of JMAR; (iii) result in
a breach of the terms, conditions or provisions of, or constitute a default (or
an event which, upon notice or lapse of time or both, would constitute a
default) under or cause, permit or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions or provisions of
any material note, bond, deed of trust, mortgage, indenture, lease, license,
joint venture, loan or credit agreement or any other material agreement or other
material instrument or obligation to which JMAR is a party or by which JMAR or
any of its assets may be bound; (iv) conflict with or result in a violation of
any provision of (A) any statute, rule, regulation or ordinance which conflict
or violation might have a material adverse effect on the assets, properties,
business or financial condition of JMAR or (B) any material order, injunction,
judgment, award or decree applicable to JMAR or any of its properties or assets;
or (v) result in or require the creation or imposition of any lien upon or with
respect to any of the properties or assets of JMAR.

      4.5   JMAR Shares. JMAR Shares will, when issued, have been duly
authorized and when delivered on the Closing Date, will be duly and validly
issued, fully paid and nonassessable shares of Common Stock and will not have
been issued in violation of any preemptive or other right of any other person.
The issuance of JMAR Shares will be exempt from registration under the
Securities Act pursuant to Section 4(2) thereof.

      4.6   SEC Reports, Etc. The common stock of JMAR is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and JMAR
has timely filed all proxy statements, reports, schedules, forms, statements and
other documents required to be filed by it under the Exchange Act. JMAR has
furnished Sellers with copies of (i) its Annual Reports on Form 10-K for the
fiscal year ended December 31, 2003 and (ii) its Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 2004 (collectively, the "SEC Reports").
Each SEC Report was, at the time of its filing, in substantial compliance with
the requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as of
their respective filing dates, contained any untrue statement of material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of JMAR included in the SEC
Reports comply as to form in all material respects with

                                       10
<PAGE>

applicable accounting requirements and the published rules and regulations of
the Securities and Exchange Commission or other applicable rules and regulations
with respect thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent that they may not include footnotes or may be
condensed) and fairly present in all material respects the financial position of
JMAR as of the dates thereof and the results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end adjustments).

      4.7   No Omissions or Misrepresentations. None of the statements,
representations or warranties made by JMAR in this Agreement, or in any Exhibit
or Schedule hereto or in any agreement entered into pursuant hereto, contains
any untrue statement of any material fact or omits to state any material fact
necessary to be stated in order to make the statements, representations or
warranties contained herein or therein not misleading. The representations and
warranties contained in this Section 4.7 or elsewhere in this Agreement or any
document delivered pursuant hereto shall not be affected or deemed waived by
reason of the fact that Sellers and/or its representatives know or should have
known that any such representation or warranty is or might be inaccurate in any
respect.

                                    ARTICLE V
                                   THE CLOSING

      5.1   Time and Place of Closing. Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, the closing of the
sale and purchase contemplated by this Agreement (the "Closing") will take place
at the offices of LXT or JMAR on January 7, 2005 or at such time and place as
the parties may agree upon. The date upon and time at which the Closing actually
occurs is herein referred to as the "Closing Date".

      5.2   Deliveries by Sellers. At the Closing, Sellers will deliver the
            following to JMAR:

            (i)   The instruments of conveyance contemplated by Section 6.1(h);

            (ii)  The certificate contemplated by Section 6.1(c);

            (iii) Evidence of having obtained consents and releases required by
            Sellers pursuant to Section 6.1(i);

            (iv)  The books and records of Sellers included in the Purchased
            Assets;

            (v)   The Employment Agreements executed by Quist and Drake; and

            (vi)  All other agreements, documents, instruments and writings
            required to be delivered by Sellers at the Closing pursuant to this
            Agreement.

                                       11
<PAGE>

      5.3   Deliveries by JMAR. At the Closing, JMAR will deliver the following
            to Sellers:

            (i)   Two checks in the total amount of $125,000;

            (ii)  Cancelled original Promissory Notes executed by Sellers,
            together with Security Agreements, UCC Termination Statements and
            other documents and instruments evidencing cancellation of the Loan;

            (iii) A stock certificate for 90,000 shares of JMAR common stock
            issued in the name of Quist and a stock certificate for 90,000
            shares of JMAR common stock issued in the name of Drake;

            (iv)  A Future Payment Right Certificate executed by JMAR in favor
            of the Sellers;

            (v)   The certificate contemplated by Section 6.2(c);

            (vi)  The Assumption Agreement executed by JMAR;

            (vii) The legal opinion contemplated by Section 6.2(d);

            (viii) The Employment Agreements executed by JMAR; and

            (ix)  All other agreements, documents, instruments and writings
            required to be delivered by JMAR at the Closing pursuant to this
            Agreement.

                                   ARTICLE VI
                               CLOSING CONDITIONS

      6.1   Conditions to Obligations of JMAR. The obligations of JMAR to
perform this Agreement and its obligations hereunder are subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions, unless waived by JMAR:

      (a)   All representations and warranties of Sellers contained in the
      Alliance Agreement and in Article III hereof shall be true and correct
      when made and on and as of the Closing Date as though made on and as of
      the Closing Date;

      (b)   All covenants, agreements and obligations required by the terms of
      this Agreement to be performed by Sellers at or before the Closing Date
      shall have been duly and properly performed.

      (c)   There shall be delivered to JMAR a certificate executed by Sellers
      as of the Closing Date, certifying that the conditions set forth in
      paragraphs (a) and (b) of this Section have been fulfilled.

                                       12
<PAGE>

      (d)   JMAR shall be satisfied with all intellectual property matters,
      including having determined that any modifications to the design of the
      Proof of Concept, alpha or beta products that are required in order to
      avoid infringement of the PointSource patents can be made without
      significant adverse impact on the operation or economics of those units.
      The satisfaction of this condition shall not operate as a waiver of the
      representations of Sellers in Section 3.3 above.

      (e)   JMAR's Board of Directors shall have approved the execution by JMAR
      of this Agreement and the performance by JMAR of the transactions
      contemplated herein.

      (f)   Quist and Drake shall have entered into Employment Agreements with
      JMAR  in the form of Exhibit A hereto.

      (g)   All of the Milestones (as defined in Section 7.2(a) hereof) that are
      required to have been satisfied as of the Closing Date shall have been
      satisfied.

      (h)   JMAR shall have received from Sellers:

            (i)   a bill of sale and assignment, in form and substance
                  satisfactory to JMAR and Sellers, conveying good and
                  marketable title to the Purchased Assets to JMAR, free and
                  clear of all encumbrances;

            (ii)  assignments, in form and substance satisfactory to JMAR, of
                  the contracts, agreements, licenses, instruments (including
                  purchase and sales orders), leases, joint venture agreements,
                  claims, rights, copyrights, patents, trade secrets, other
                  intangible properties, included in the Purchased Assets
                  pursuant to Section 2.1;

            (iii) such other good and sufficient instruments of conveyance,
                  assignment and transfer, satisfactory in form and substance to
                  JMAR, as shall be effective to vest in JMAR valid, good and
                  marketable title to the Purchased Assets free and clear of all
                  encumbrances.

      (i)   All licenses, permits, authorizations, consents and approvals of and
      filing with or notification to any United States or foreign governmental
      or regulatory body required to be obtained or made in connection with the
      consummation of the transactions contemplated by this Agreement shall have
      been duly obtained or made by or on behalf of Sellers or JMAR, as the case
      may be, and all consents of other third parties required to have been
      obtained in connection with the consummation of such transactions shall
      have been obtained by or on behalf of Sellers or JMAR, as the case may be.

      6.2   Conditions to Obligations of Sellers. The obligations of Sellers to
perform this Agreement and their respective obligations hereunder are subject to
the satisfaction on or prior to the Closing Date of each of the following
conditions, unless waived by the Sellers:

      (a)   All representations and warranties of JMAR contained in Article IV
      hereof shall be true and correct when made and on and as of the Closing
      Date as though made on and

                                       13
<PAGE>

      as of the Closing Date.

      (b)   All covenants, agreements and obligations required by the terms of
      this Agreement to be performed by JMAR at or before the Closing shall have
      been duly and properly performed.

      (c)   There shall be delivered to Sellers a certificate executed by an
      officer of JMAR, dated as of the Closing Date, certifying that the
      conditions set forth in paragraphs (a) and (b) of this Section have been
      fulfilled.

      (d)   Sellers shall have received an opinion letter of Joseph G. Martinez,
      General Counsel of JMAR, dated as of the Closing Date, in form and
      substance agreed to by the parties.

      (e)   JMAR shall have entered into Employment Agreements with Quist and
      Drake in the form of Exhibit A hereto.

                                   ARTICLE VII
                            COVENANTS OF THE PARTIES

      7.1   Funding of Seed Stage. Subject to JMAR's maximum financial
commitment set forth in Section 7.2 below and the satisfaction of the Milestones
(as defined in Section 7.2(a) below), during the Seed Stage JMAR agrees to
provide funding and other resources to complete the activities set forth on
Schedule 7.2(a) hereto. These activities include the design, construction and
testing of a proof of concept model of the CORTS system, two alpha models and
five beta models.

      7.2   Maximum Funding Commitment.

      (a)   JMAR's total financial commitment during the Seed Stage shall not
exceed $1,000,000, including cash outlay, cost of labor (including applicable
overhead and general and administrative burden), consulting fees paid to Quist
and Drake and to other consultants (including those directly engaged by JMAR
with Sellers' consent), the cost of facility improvements, equipment and
materials and the value of assets contributed directly by JMAR. JMAR agrees to
continue to provide the monetary and non-monetary contributions described above
during the Seed Stage for so long as (i) the milestones listed on Schedule
7.2(a) hereto ("Milestones") are met in accordance with the schedule set forth
thereon, and (ii) the costs to complete the Seed Stage have not exceeded, and
are not expected by JMAR to exceed, the total budgeted costs set forth on
Schedule 7.2(b) hereto (the "Budgeted Costs"). In the event that the Milestones
are not met in accordance with Schedule 7.2(a) or the total costs of the Seed
Stage are expected to exceed the Budgeted Costs, then JMAR shall have the right
to terminate this Agreement pursuant to Section 9.1(b) below. The total
financial commitment described above shall be exclusive of the Loan.

      (b)   JMAR agrees to make available to Sellers certain of its engineering
and other

                                       14
<PAGE>

technical personnel and other staff to support completion of the Seed Stage
activities. The specific personnel and scheduling of such personnel shall be
determined by JMAR in its sole discretion. In the event that the personnel
required to complete the Seed Stage tasks are not available from JMAR, JMAR and
Sellers shall work together to identify and retain appropriate consultants or
other employees for the performance of the required tasks.

      7.3   No Shop Provision. Until the termination of this Agreement, Sellers
agree that neither Sellers nor any of their respective agents, representatives
or affiliates will, directly or indirectly, solicit, encourage, negotiate or
enter into any transaction with any other person with respect to the sale or
license of, or other transfer of rights to, the CORTS Business or the CORTS
Technology, nor will Sellers participate in any negotiations regarding or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek to do any of the
foregoing. In the event of a material violation of any of the provisions of this
Section 7.3 by one or both of the Sellers resulting in the failure to consummate
the transactions contemplated by this Agreement, Sellers will reimburse JMAR for
all of its actual costs incurred after the execution of the Letter Agreement and
before the termination of this Agreement.

      7.4   D&O Indemnification and Insurance Coverage. JMAR agrees that as
officers and/or employees of JMAR, Quist and Drake shall be entitled to the same
indemnification protections that are generally available to JMAR employees and
officers, as the case may be, as well as the benefits of any applicable JMAR's
directors and officers liability insurance coverage as in effect from time to
time. Prior to the Closing Date, JMAR will provide Sellers with a summary of the
terms of its then current directors and officers insurance coverage and other
information relevant to its obligations to indemnify its employees for their
actions in the course of their employment.

      7.5   Subsequent Sale of Business. In the event that after the Closing
JMAR sells the CORTS Business, then JMAR will pay Sellers the lesser of (i) 50%
of the gain (calculated in accordance with GAAP) over JMAR's Total Investment in
the CORTS Business or (ii) the remaining unpaid amount of the Maximum Future
Payment (defined in Section 3.5(f) above). If after the Closing Date JMAR
decides to discontinue its support or otherwise dispose of the CORTS Business,
then it will first offer to sell the assets of the CORTS Business (including
Intellectual Property) to Quist and Drake on terms that will include the
repayment to JMAR of its Total Investment in the CORTS Business, plus interest
accrued at the Applicable Rate (as defined in Section 3.5(d)), either in the
form of a purchase price payment, the payment of a royalty of 5% of future
revenues from the sale of systems using the CORTS Technology, or some
combination of purchase price and royalty. In the event of a sale, merger or
other transfer of the stock or assets of JMAR, the acquiring party (or surviving
party in a merger) shall be required to assume JMAR's obligations under this
Agreement.

                                       15
<PAGE>

      7.6   Further Agreements of Sellers and JMAR. Sellers shall, upon the
reasonable request of JMAR from time to time, execute and deliver to JMAR such
further bills of sale, endorsements and other good and sufficient instruments of
title, conveyance, transfer and assignment, as may be necessary or desirable in
order to vest in JMAR all right, title and interest in and to any and all of the
Purchased Assets to the extent contemplated by this Agreement. Sellers and JMAR
agree to cooperate in order to obtain all necessary consents to the transfer to
JMAR of any rights constituting part of the Purchased Assets.

                                  ARTICLE VIII
                           NON-COMPETITION PROVISIONS

      As additional consideration for and a material inducement to JMAR to enter
into this Agreement and in order to assure JMAR that it will receive the full
value of its purchase of the CORTS Business, each of the Sellers hereby makes
the following covenants to JMAR:

      8.1   Without the prior consent of JMAR, each of the Sellers agrees that
he shall not, as a partner, employee, officer, director, manager, agent,
associate, investor, or otherwise, directly or indirectly, own, purchase,
organize or take preparatory steps for the organization of, build, finance,
acquire, lease, operate, manage, or invest in any business, or permit his name
to be used or employed in connection with any business primarily involving the
scattering of light to detect particles in fluids; provided, however, that the
foregoing shall not prohibit the ownership of securities of corporations which
are listed on a national securities exchange or traded in the national
over-the-counter market in an amount which shall not exceed 5% of the
outstanding shares of any such corporation.

      8.2   The covenants and other provisions contained herein shall cover the
activities of each of the Sellers in every part of the world.

      8.3   The covenants contained in this Article VIII shall be effective as
to each of the Sellers until the fifth anniversary of the Closing Date.

      8.4   The covenants contained in this Article VIII shall be construed as
if each covenant is divided into separate and distinct covenants in respect of
the CORTS Business, each capacity in which each of the Sellers is prohibited
from competing and each part of the Territory in which the CORTS Business is
carrying on its business. Each such covenant shall constitute separate and
several covenants distinct from all other such covenants.

      8.5   Each of the Sellers recognizes that the territorial restrictions
contained in this Article VIII are properly required for the adequate protection
of the CORTS Business and that in the event any covenant or other provision
contained in this Article VIII shall be deemed to be illegal, unenforceable, or
unreasonable by a court or other tribunal of competent jurisdiction with respect
to any part of the Territory, such covenant or provision shall not be affected
with respect to any other part of the Territory, and each of the Sellers agrees
and submits to the reduction of

                                       16
<PAGE>

said territorial restriction to such an area as said court shall deem
reasonable.

      8.6   Each of the Sellers acknowledges that (i) the covenants and the
restrictions contained in this Article VIII are necessary, fundamental, and
required for the protection of the CORTS Business; (ii) such covenants relate to
matters which are a special, unique, and extraordinary character that gives each
of such covenants a special, unique, and extraordinary value; and (iii) a breach
of any of such covenants or any other provision of this Article VIII will result
in irreparable harm and damages to JMAR which cannot be adequately compensated
by a monetary award. Accordingly, it is expressly agreed by each of the Sellers
that in addition to all other remedies available at law or in equity, JMAR shall
be entitled to the immediate remedy of a temporary restraining order,
preliminary injunction, or such other form of injunctive or equitable relief as
may be used by any court of competent jurisdiction to restrain or enjoin each of
the Sellers from breaching any such covenant or provision or to specifically
enforce the provisions hereof.

                                   ARTICLE IX
                            TERMINATION OF AGREEMENT

      9.1 Termination. This Agreement may be terminated at any time prior to the
Closing by:

      (a)   The mutual consent of Sellers, on the one hand, and JMAR, on the
      other hand; or

      (b)   JMAR, if the Milestones have not been achieved in accordance with
      Schedule 7.2(b) hereto, or if the costs have exceeded, or if the costs are
      projected by Sellers and JMAR to exceed, the Budgeted Costs (as defined in
      Section 7.2(b)); or

      (d)   JMAR or the Sellers, if the Closing has not occurred by January 7,
      2005 through no fault of the terminating party; or

      (e)   JMAR, if Sellers shall have materially breached or failed in any
      material respect to comply with any of their obligations under this
      Agreement, or any representation or warranty of Sellers contained in the
      Alliance Agreement or in this Agreement shall have been inaccurate when
      made in any material respect; or

      (f)   Sellers, if JMAR shall have materially breached or failed in any
      material respect to comply with any of its obligations under this
      Agreement, or any representation or warranty of JMAR contained in the
      Alliance Agreement or in this Agreement shall have been inaccurate when
      made in any material respect.

      9.2 Procedure and Effect of Termination.

      (a)   In the event of termination of this Agreement by either or both of
      Sellers or JMAR, pursuant to Section 9.1, written notice thereof shall
      forthwith be given by the terminating party to the other party hereto, and
      this Agreement shall thereupon terminate and shall become void and have no
      effect, and the transactions contemplated hereby and

                                       17
<PAGE>

      thereby shall be abandoned, without further action by either of the
      parties hereto.

      (b)   In the event that JMAR terminates this Agreement pursuant to Section
      9.1(a), (b), (c) or (d) above, or in the event that Sellers terminate this
      Agreement pursuant to Section 9.1(f) above, then JMAR shall assign and
      transfer all property and rights acquired or created during the Seed Stage
      to Sellers and shall confirm Sellers' ownership of all of the intellectual
      property and other rights to the CORTS Technology. In consideration for
      said transfer and confirmation of rights, Sellers will grant JMAR a
      royalty of 5% of future revenues from the sale of systems using the CORTS
      Technology until JMAR's Total Investment (as defined in Section 2.4(e)
      above) in the Seed Stage is repaid. In the event that JMAR terminates this
      Agreement pursuant to Section 9.1(e) above, then JMAR shall retain all
      property and rights that it provided or otherwise contributed to the CORTS
      Business during the Seed Stage.

                                    ARTICLE X
                   SURVIVAL OF REPRESENTATIONS AND WARRANTIES
                               OF SELLERS AND JMAR

All representations and warranties of JMAR, on the one hand, and Sellers, on the
other, in this Agreement or in any document or other papers delivered pursuant
to or in connection with this Agreement shall survive the Closing and shall
expire and be deemed terminated and extinguished on the second anniversary of
the Closing Date.

                                   ARTICLE XI
                                 INDEMNIFICATION

      11.1 Obligation of Sellers. Subject to the limitation on Sellers'
liability under Section 11.4 below, each of the Sellers, jointly and severally,
agrees to indemnify, defend and hold harmless JMAR and its directors, officers,
employees, agents, subsidiaries and affiliates, and their respective successors
and assigns from and against all losses, liabilities, damages, deficiencies,
costs or expenses, including interest, penalties and reasonable attorneys' fees
and disbursements ("Losses") which any of them shall incur or suffer based upon,
arising out of or otherwise in respect of or involving (a) any inaccuracy in or
any breach of any representation, warranty, covenant or agreement of Sellers
contained in this Agreement or in any document or other papers delivered by
Sellers pursuant to this Agreement which was not waived by JMAR prior to
Closing, or (b) any liability, obligation, debt or commitment of Sellers, not
included in the Assumed Liabilities, or (c) any third-party claim or claims made
or threatened against JMAR or affecting any portion of the Purchased Assets
which arise out of the operation of the CORTS Business prior to the execution of
the Letter Agreement.

      11.2 Obligation of JMAR to Indemnify. JMAR agrees to indemnify, defend and
hold harmless Sellers and their respective successors and assigns from and
against all Losses which any of them shall incur or suffer based upon, arising
out of or otherwise in respect of or involving (a) any inaccuracy in or breach
of any representation, warranty, covenant or agreement of JMAR

                                       18
<PAGE>

contained in this Agreement or in any document or other papers delivered by JMAR
pursuant to this Agreement which was not waived by Sellers prior to Closing, or
(b) any liability, obligation, debt or commitment included in the Assumed
Liabilities, or (c) any third-party claim or claims made or threatened against
Sellers which arise out of or involve the operation of the CORTS Business after
the execution of the Letter Agreement; provided, however, JMAR shall not be
obligated to indemnify Sellers for Losses which are finally judicially
determined to have resulted from the gross negligence or willful misconduct of
Sellers, including Losses arising from the misappropriation of the trade secrets
of another person. JMAR shall have no obligation to indemnify Sellers against
Losses arising from their pursuit of the CORTS Business or their use of the
CORTS Technology after termination of this Agreement.

      11.3 Notice and Opportunity to Defend.

      (a) Notice of Asserted Liability. Promptly after receipt by any party
      hereto (the "Indemnitee") of notice of any demand, claim or circumstances
      that would give rise to a claim or the commencement (or threatened
      commencement) of any action, proceeding or investigation (an "Asserted
      Liability") that may result in a claim for indemnification under Section
      11.1 or 11.2, the Indemnitee shall give notice thereof (the "Claims
      Notice") to the party obligated to provide indemnification pursuant to
      Section 11.1 or 11.2 (the "Indemnifying Party"). The Claims Notice shall
      describe the Asserted Liability in reasonable detail, and shall indicate
      the amount (estimated, if necessary) of the loss or damage that has been
      or may be suffered by the Indemnitee.

      (b) Opportunity to Defend. The Indemnifying Party may elect to compromise
      or defend, at its own expense and by its own counsel, any Asserted
      Liability. If the Indemnifying Party elects to compromise or defend such
      Asserted Liability, it shall within 30 days of receipt of the Claims
      Notice notify the Indemnitee of its intent to do so, and the Indemnitee
      shall cooperate in the compromise of, or defense against, such Asserted
      Liability. The Indemnifying Party shall reimburse the Indemnitee for all
      out-of-pocket costs incurred by the Indemnitee in connection with such
      cooperation. If the Indemnifying Party elects not to compromise or defend
      the Asserted Liability, fails to notify the Indemnitee of its election as
      herein provided or contests its obligation to indemnify under this
      Agreement, the Indemnitee may pay, compromise or defend such Asserted
      Liability. Notwithstanding the foregoing, neither the Indemnifying Party
      nor the Indemnitee may settle or compromise any claim over the objection
      of the other, provided, however, that consent to settlement or compromise
      shall not be unreasonably withheld. In any event, the Indemnitee and the
      Indemnifying Party may participate, at their own expense, in the defense
      of such Asserted Liability. If the Indemnifying Party chooses to defend
      any claim, the Indemnitee shall make available to the Indemnifying Party
      any books, records or other documents within its control that are
      necessary or appropriate for such defense, subject to reasonable
      confidentiality protections.

      11.4 Limitation of Liability. The Sellers' liability for indemnification
under Section 11.1 hereof shall be limited to an offset by JMAR against payments
to Sellers under the Future Payment Right (as defined in Section 2.4(c) above).

                                       19
<PAGE>

                                   ARTICLE XII
                            MISCELLANEOUS PROVISIONS

      12.1 Waiver and Amendment. Any term or provision of this Agreement may be
waived at any time by the party which is entitled to the benefits thereof, but
only in a writing signed by such party, and this Agreement may be amended or
supplemented at any time, but only by written agreement of Sellers and JMAR. Any
such waiver with respect to a failure to observe any such provision shall not
operate as a waiver of any subsequent failure to observe such provision unless
otherwise expressly provided in such waiver.

      12.2 Expenses. Except as otherwise provided in this Agreement, Sellers and
JMAR shall pay their respective expenses separately incurred in connection with
this Agreement and the transactions contemplated hereby and thereby.

      12.3 Entire Agreement. This Agreement and the additional written
agreements called for herein together contain the entire agreement between
Sellers and JMAR with respect to the purchase and sale of the business and
assets of the CORTS Business and the related transactions and supersede all
prior arrangements or understandings with respect thereto, including the Letter
Agreement, dated April 16, 2004, between JMAR and the Sellers and the Alliance
Agreement, dated June 10, 2004, between JMAR and the Sellers. There have been no
oral representations or warranties and neither party has relied on any
representation not contained herein.

      12.4 Assignment. This Agreement and each other agreement entered into
pursuant hereto and all of the provisions hereof and thereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder and thereunder, shall be assigned by
either party hereto or thereto without the prior written consent of the other
party. Sellers hereby agree that notwithstanding the foregoing or the fact that
this Agreement shall have been executed by JMAR directly, JMAR may, at its
option, cause the transactions contemplated hereby to be consummated by (i) a
newly-formed subsidiary or subsidiaries of JMAR to be organized for the purpose
of consummating this transaction or (ii) any other affiliated corporation of
JMAR; provided, however, that JMAR's obligations shall be retained or guaranteed
by JMAR. This Agreement is not intended to confer upon any other party, except
the parties hereto, any rights or remedies hereunder.

      12.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which independently shall have the same effect as if it
were the original and all of which taken together shall constitute one and the
same document. Executed signature pages which are transmitted by facsimile to
the other party shall be deemed to have been delivered on the date so
transmitted provided that an originally executed signature is delivered to the
other party within 3 business days thereafter.

      12.6 Notices. All notices, consents, requests, instructions, approvals and
other communications provided for herein shall be validly given, made or served,
if in writing and delivered personally, sent by registered or certified mail,
postage prepaid, sent by established

                                       20
<PAGE>

overnight delivery service, or transmitted by fax (except for legal process) to:

            If to JMAR:

            JMAR Technologies, Inc.
            5800 Armada Drive
            Carlsbad, California 92008
            Attention:  General Counsel
            Fax: 760-602-3299

            If to Sellers:

            Gregory M. Quist
            2166 Weiss Way
            Escondido, California  92029
            Fax: 760-746-1942

            David A. Drake
            325 Rock Ridge Place
            Escondido, California 92027
            Fax: 760-489-6583

            With a copy to:

            Richard L. Seidenwurm, Esq.
            Solomon Ward Seidenwurm & Smith, LLP
            401 B Street, Suite 1200
            San Diego, CA  92101
            Fax: 619-231-4755

or to such other address or fax number as any party hereto may, from time to
time, designate in a written notice given in a like manner. Notice given by mail
as set out above shall be deemed delivered three days after the date it is
postmarked. Notice given by overnight delivery service shall be deemed delivered
when received. Notice given by fax shall be deemed given when transmitted,
provided that the sender retains a written confirmation of such transmission and
mails an original thereof to the other party within one business day after said
transmission.

      12.7 Arbitration. Any dispute, claim or controversy arising out of or
relating to this Agreement or breach, termination, enforcement, interpretation
or validity thereof, including the determination of the scope or applicability
of this Agreement to arbitrate, shall be determined by arbitration in San Diego
County, California, before a sole arbitrator, in accordance with the laws of the
State of California for agreements made in and to be performed in that State.
The arbitration shall be administered by JAMS pursuant to its Streamlined
Arbitration Rules and Procedures. Judgment on the Award may be entered in any
court having jurisdiction.

                                       21
<PAGE>

      12.8 Interpretation. The parties acknowledge that this Agreement has been
negotiated by both parties and that neither this Agreement nor any of its
provisions should be interpreted for or against any party on the basis said
party or its attorney drafted the Agreement or the provision in question.

      12.9 Severability. If any provision of this Agreement is declared by a
court of competent jurisdiction or arbitrator to be invalid, void or
unenforceable, the remaining provisions of this Agreement nevertheless will
continue in full force and effect without being impaired or invalidated in any
way.

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

      12.11 Attorneys' Fees. In the event suit is commenced to enforce or
contest this Agreement, or any portion thereof, the prevailing party in such
suit shall be entitled to recover from the non-prevailing party all fees, costs
and expenses of enforcing any right of such prevailing party under and with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.

      12.12 Force Majeure. Whenever a period of time is prescribed for action by
a party hereunder, such party shall not be responsible for, and there will be
excluded from the computation for such period of time, any delays due to an
event of force majeure, including but not limited to strikes, riots, acts of
God, war, governmental laws, regulations or restrictions of general application
to the public at large, or any other causes beyond the control of such party.

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

JMAR TECHNOLOGIES, INC.

By: /s/ RONALD A. WALROD
    Ronald A. Walrod, President and
    Chief Executive Officer

/s/ GREGORY M. QUIST
Gregory M. Quist, doing business as The LXT Group

/s/ DAVID A. DRAKE
David A. Drake, doing business as The LXT Group

                                       22
<PAGE>

                                List of Schedules

Schedule 2.4 - Calculation of Residual Income (Illustration)

Schedule 3.3 - List of Intellectual Property

Schedule 7.2(a) - Seed Stage Activities and Seed Stage Milestones

Schedule 7.2(b) - Budgeted Costs

Exhibits:

Exhibit A - Form of Employment Agreement

                                       23
<PAGE>

                                    EXHIBIT A

                              EMPLOYMENT AGREEMENT

            THIS EMPLOYMENT AGREEMENT (herein "Agreement") is entered into as of
      January ___, 2005, by and between JMAR Technologies, Inc. ("JMAR" or the
      "Company") and [Gregory Quist] [or] [David Drake] ("Executive").

                                    Recitals

      WHEREAS, JMAR desires to retain the services of Executive; and

      WHEREAS, Executive desires to be employed by JMAR.

      NOW, THEREFORE, JMAR and Executive agree as follows:

1.    Employment/Title/Responsibilities. The Company hereby employs Executive,
      and Executive hereby accepts such employment as [Chief Scientist] [or]
      [Chief Engineer] of the Company. Executive shall do and perform such other
      services, acts or things as shall be required of him from time to time by
      the Company, including those functions and responsibilities described on
      Schedule 1 hereto, and shall comply with the directives, policies,
      procedures and requirements issued or established from time to time by the
      Company. Executive shall at all times during his employment by the Company
      (unless otherwise agreed in writing by the Company) devote his entire
      productive time, energies, ability and attention to the business of the
      Company and perform faithfully and diligently such duties and
      responsibilities to the best of his abilities; provided, however, that
      Executive shall be entitled to vacation time and time off for sickness and
      disability in accordance with the policies of the Company in effect from
      time to time. [For Quist Agreement: Company acknowledges that Executive
      is, and may continue to be, a director of Rincon Del Diablo Municipal
      Water District and San Diego County Water District and that acting as such
      and receiving compensation therefor shall not constitute a violation of
      any provision of this Agreement.]

2.    Compensation/Benefits.

      2.1   As compensation for the services provided by Executive under this
      Agreement, JMAR will pay him an annual salary of $150,000 (Base Pay),
      payable in accordance with JMAR's usual payroll procedures. Executive's
      base pay shall be reviewed at least annually by JMAR's Chief Executive
      Officer, and in the Chief Executive Officer's sole discretion, may be
      increased at any time.

      2.2   Executive shall have the right to participate in such pension,
      profit sharing, bonus, group insurance or similar employee benefit plans
      established by the Company for the benefit of senior management of the
      Company, for so long as any such plan is maintained in effect for the
      benefit of such class, with Executive's participation or share therein
      being

                                       24
<PAGE>

      determined by the provisions and requirements of the respective plan.
      Executive shall commence accruing vacation at the rate of four weeks per
      year and beginning after his sixth year of service shall accrue one
      additional day of vacation for each additional year of service up to a
      maximum of five weeks per year. A summary of the Company's benefits plans
      has been provided to Executive.

      2.3   All payments from the Company to Executive pursuant to this
      Agreement, including salary or other amounts paid pursuant to Sections 2.1
      above or otherwise, shall be subject to such payroll tax, withholding,
      social security and other deductions as may be required by any Federal,
      state or local law, rule or regulation, which the Company may reasonably
      deem to be applicable thereto.

      2.4   The Company shall pay or reimburse Executive for all reasonable
      expenses incurred by Executive on the business of the Company and for the
      promotion of its business, provided such expenses are pre-approved in
      writing by the Company or are consistent with the written policies and
      guidelines approved by the Company and in effect from time to time.

3.    Term of Agreement. This Agreement shall be for a three (3) year period
      (the "Employment Period") beginning on the date first mentioned above, and
      if not previously terminated pursuant to the terms of this Agreement, the
      Employment Period shall end three (3) years later.

4.    Termination of Agreement.

      (a)   Without Cause or for Good Reason. In the event that Executive's
      employment is terminated by the Company without Cause, or is terminated by
      Executive for Good Reason, the Company shall continue to pay the Base Pay
      to Executive on a bi-weekly basis for the remainder of the Employment
      Period.

      (b)   Cause. Notwithstanding the provisions of Section 3 of this
      Agreement, this Agreement shall terminate automatically for Cause (as
      defined herein) upon written notice from the Board of Directors of Company
      to Executive. If this Agreement is terminated for Cause, all of
      Executive's rights under this Agreement shall cease as of the effective
      date of such termination and all of the Company's compensation and
      employment obligations under this Agreement shall terminate.

      (c)   Voluntary Termination. Notwithstanding the provisions of Section 3
      of this Agreement, in the event that Executive voluntarily terminates his
      employment not for Good Reason, all of Executive's rights under this
      Agreement shall cease as of the effective date of termination and all of
      the Company's compensation and employment obligations under this Agreement
      shall terminate.

      (d)   Disability. Notwithstanding the provisions of Section 3 of this
      Agreement, if, as a result of physical or mental injury or impairment,
      Executive is unable to perform all of the essential job functions of his
      position on a full time basis, taking into account any

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      reasonable accommodation required by law, and without posing a direct
      threat to himself and others, for a period up to one hundred eighty (180)
      days, all obligations of the Company to pay Executive the compensation as
      set forth in this Agreement are suspended. Executive further agrees that
      should he remain unable to perform all of the essential functions of his
      position on a full time basis, taking into account any reasonable
      accommodation required by law, and without posing a direct threat to
      himself or others, after one hundred eighty (180) days, the Company will
      suffer an undue hardship by continuing Executive in his position. Upon
      this event, all compensation and employment obligations of the Company
      under this Agreement shall cease (except Executive's rights under the
      Company's then existing short term and/or long term disability plans, if
      any), and this Agreement shall terminate.

      (e)   Death. Notwithstanding the provisions of Section 3 of this
      Agreement, this Agreement shall terminate automatically upon Executive's
      death and Executive's rights under this Agreement shall cease as of the
      date of such termination.

5.    Definitions

      5.1 Good Reason: For purposes of this Agreement, "Good Reason" means that
      any of the following are undertaken without Executive's express written
      consent: (a) the assignment to Executive of any duties or responsibilities
      which result in any diminution or adverse change of Executive's position,
      status or circumstances of employment; (b) a reduction by the Company in
      Executive's Base Salary; (c) the taking of any action by the Company which
      would adversely affect Executive's participation in, or reduce Executive's
      benefits under, the Company's benefit plans (including equity benefits) as
      of the time this Agreement is executed, except to the extent the benefits
      of all other executive officers of the Company are similarly reduced; (d)
      a relocation of Executive's principal office to a location outside of San
      Diego County, California; (e) any breach by the Company of any material
      provision of this Agreement; or (f) a Change of Control.

      5.2   Cause: For the purposes of this Agreement, "Cause" means: (i) an
      intentional action or intentional failure to act by Executive which was
      performed in bad faith and to the material detriment of the Company; (ii)
      Executive intentionally refuses or intentionally fails to act in
      accordance with any lawful and proper direction or order of the Chief
      Executive Officer or the Board; (iii) Executive willfully and habitually
      neglects the duties of employment or violates Section 9 of this Agreement;
      or (iv) Executive intentionally violates the provisions of the Employee
      Confidentiality and Inventions Agreement or Section 8 of this Agreement;
      provided, however, that in the event that any of the foregoing events
      under clauses (i), (ii), (iii) and (iv) above is capable of being cured,
      the Company shall provide written notice to Executive describing the
      nature of such event and Executive shall thereafter have ten (10) business
      days to cure such event.

      5.3   Change of Control: For purposes of this Agreement, a Change of
      Control means: (a) any sale, merger, consolidation, tender offer or
      similar acquisition of shares, as a result of which at least a majority of
      the voting power of the Company is not held, directly or indirectly, by
      the persons or entities who held the Company's securities with voting

                                       26
<PAGE>

      power before such transaction, or (b) a sale or other disposition of all
      or a substantial part of the Company's assets.

6.    Confidential Information. Concurrently herewith, Executive shall enter
      into an Employee Confidentiality and Inventions Agreement with JMAR in the
      form provided to Executive.

7.    No Violation of Other Contracts. Executive represents and warrants that
      the execution, delivery and performance of this Agreement by Executive
      does not and will not result in a breach of or violation of, or constitute
      a default under, any agreement to which Executive is a party or by which
      Executive is bound.

8.    No Conflicts of Interest. Unless agreed to by Company, Executive does not
      now, and during the term of his employment, will not have any financial
      interest, whether by stock ownership or otherwise, in any entity which is
      a supplier, customer or competitor of the Company; provided, however, that
      the foregoing shall not prohibit the ownership of securities of
      corporations which are listed on a national securities exchange or traded
      in the national over-the-counter market in an amount which shall not
      exceed 1% of the outstanding shares of any such corporation.

9.    Compliance with JMAR's Rules. Executive agrees to comply with all of the
      rules, regulations and standard practices of JMAR as in effect from time
      to time. JMAR will provide Executive with all such current rules,
      regulations and standard practices and all future updates.

10.   General Provisions.

      10.1  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 JMAR.

      10.2  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 JMAR:

                  JMAR Technologies, Inc.
                  5800 Armada Drive
                  Carlsbad, California 92008
                  Attn: General Counsel

                  If to the Employee:

                  [Gregory Quist] [or] [David Drake]

                                       27
<PAGE>

      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.

      10.3  Arbitration. Any controversy or claim arising out of or relating to
      this Agreement, or the breach thereof, shall be settled by arbitration in
      San Diego County, California, in accordance with the Commercial
      Arbitration Rules of the American Arbitration Association, and judgment
      upon the award of the arbitrator(s) shall be entered in any court with
      appropriate jurisdiction as the final binding judgment. The provisions of
      California Code of Civil Procedure Section 1283.05 (related to the
      availability of certain discovery procedures) are hereby incorporated into
      and made applicable to this Agreement. In addition to any other relief as
      may be granted, the prevailing party shall be entitled to reasonable
      attorneys' fees in such arbitration, with the amount thereof to be
      determined by the arbitrator or the court.

      10.4  Counterparts. This Agreement may be executed in several
      counterparts, and all counterparts so executed shall constitute one
      agreement binding on all of the parties hereto notwithstanding that all
      parties are not signatory to the original or same counterpart.

      10.5  Entire Agreement. This Agreement constitutes the entire agreement
      and understanding between Executive and JMAR with respect to the
      employment of Executive, and supersedes all other agreements, written or
      oral, regarding such employment. This Agreement may be altered or amended
      only by a written instrument executed by each of the parties hereto.

      10.6  Severability. If any provision of this Agreement or the application
      thereof to any person or circumstance shall be invalid or unenforceable to
      any extent, the remainder of this Agreement and the application of such
      provisions to other persons or circumstances shall not be affected thereby
      and shall be enforced to the greatest extent permitted by law.

      10.7  Interpretation of Agreement. In the event of any arbitration or
      other dispute, neither this Agreement nor any provision hereof shall be
      interpreted for or against any party on the basis said party or its
      attorney drafted the Agreement or provision in question.

      10.8  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.

      10.9  California Law. This Agreement shall be governed by and considered
      in accordance with the laws of the State of California.

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<PAGE>

      10.10 Headings. The subject headings of the Sections of this Agreement are
      included for the purposes of convenience only and shall not affect the
      construction or interpretation of any term or provision hereof.

AGREED TO AND ACCEPTED BY:

Employer:                                                 Employee:

JMAR TECHNOLOGIES, INC.

By: DRAFT                                                 DRAFT
       Joseph G. Martinez, Senior Vice                    [Gregory Quist] [or]
         President and General Counsel                    [David Drake]

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<PAGE>

                                   Schedule 1
                           (Specific Responsibilities)

                                       30

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