INVESTMENT AGREEMENT

INVESTMENT AGREEMENT (this “AGREEMENT”), dated as of September 12, 2006 by and
between Homeland Security Network Inc, Inc., a Nevada corporation (the
“Company”), and EFUND SMALL CAP FUND II, LP., a Nevada limited liability company
(the “Purchaser”).

Whereas, the parties desire that, upon the terms and subject to the conditions
contained herein, the Purchaser shall invest up to $5,000,000 to purchase the
Company’s Common Stock, $0.001 par value per share (the “Common Stock”);

Whereas, such investments will be made in reliance upon the provisions of
Section 4(2) under the Securities Act of 1933, as amended (the “1933 Act”), Rule
506 of Regulation D, and the rules and regulations promulgated thereunder,
and/or upon such other exemption from the registration requirements of the 1933
Act as may be available with respect to any or all of the investments in Common
Stock to be made hereunder; and

Whereas, contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit A (as amended from time to
time, the “Registration Rights Agreement”) pursuant to which the Company has
agreed to provide certain registration rights under the 1933 Act, and the rules
and regulations promulgated thereunder, and applicable state securities laws.

NOW THEREFORE, in consideration of the foregoing recitals, which shall be
considered an integral part of this Agreement, the covenants and agreements set
forth hereafter, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Purchaser
hereby agree as follows:

Section 1. DEFINITIONS.

As used in this Agreement, the following terms shall have the following meanings
specified or indicated, and such meanings shall be equally applicable to the
singular and plural forms of the defined terms.

“1933 Act” shall have the meaning set forth in the preamble, above.

“1934 Act” shall mean the Securities Exchange Act of 1934, as it may be amended.

“Affiliate” shall have the meaning specified in Section 5(h), below.

“Agreed Upon Procedures Report” shall have the meaning specified in Section
2(o), below.

“Agreement” shall mean this Investment Agreement.

“Best Bid” shall mean the highest posted bid price of the Common Stock.

“Bring Down Cold Comfort Letter” shall have the meaning specified in Section
2(n), below.

“Buy In” shall have the meaning specified in Section 6, below.

“Buy In Adjustment Amount” shall have the meaning specified in Section 6.

“Closing” shall have the meaning specified in Section 2(h).

“Closing Date” shall mean five (5) Trading Days following the Put Notice Date.

“Common Stock” shall have the meaning set forth in the preamble to this
Agreement.

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“Control” or “Controls” shall have the meaning specified in Section 5(h).

“Covering Shares” shall have the meaning specified in Section 6.

“Effective Date” shall mean the date the SEC declares effective under the 1933
Act the Registration Statement covering the Securities.

“Environmental Laws” shall have the meaning specified in Section 4(m), below.

“Execution Date” shall mean the date first indicated above.

“Indemnitiees” shall have the meaning specified in Section 10, below.

“Indemnified Liabilities” shall have the meaning specified in Section 10, below.
 
“Ineffective Period” shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.

“Purchaser” shall have the meaning indicated above.

“Major Transaction” shall have the meaning specified in Section 2(g), above.

“Material Adverse Effect” shall have the meaning specified in Section 4(a).

“Material Facts” shall have the meaning specified in Section 2(m).

“Maximum Common Stock Issuance” shall have the meaning specified in Section
2(j).

“Minimum Acceptable Price” with respect to any Put Notice Date shall mean 75% of
the average of the closing bid prices for the fifteen Trading Day period
immediately preceding such Put Notice Date.

“Open Period” shall mean the period beginning on and including the Trading Day
immediately following the Effective Date and ending on the earlier to occur of
(i) the date which is 36 months from the Effective Date; and (ii) termination of
the Agreement in accordance with Section 9, below.

“Payment Amount” shall have the meaning specified in Section 2(p), below.

“Partial Release Form” shall have the meaning specified in Section 2(i), below.
 
“Pricing Period” shall mean the period beginning on the Put Notice Date and
ending on and including the date that is five Trading Days after such Put Notice
Date.

“Principal Market” shall mean the American Stock Exchange, Inc., the National
Association of Securities Dealers, Inc. Over-the-Counter Bulletin Board, the
Nasdaq National Market System or the Nasdaq SmallCap Market, whichever is the
principal market on which the Common Stock is listed.

“Prospectus” shall mean the prospectus, preliminary prospectus and supplemental
prospectus used in connection with the Registration Statement.

“Purchase Amount” shall mean the total amount being paid by the Purchaser on a
particular Closing Date to purchase the Securities.

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“Purchase Price” shall mean 91% of the average of the four lowest closing Best
Bid price of the Common Stock during the Pricing Period.

“Put Amount” shall have the meaning set forth in Section 2(b) hereof.

“Put Notice” shall mean a written notice sent to the Purchaser by the Company
stating the Put Amount of Shares the Company intends to sell to the Purchaser
pursuant to the terms of the Agreement and stating the current number of Shares
issued and outstanding on such date.
 
“Put Notice Date” shall mean the Trading Day immediately following the day on
which the Purchaser receives a Put Notice, however a Put Notice shall be deemed
delivered on (x) the Trading Day it is received by facsimile or otherwise by the
Purchaser if such notice is received prior to 9:00 am Eastern Time, or (y) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 9:00 am Eastern Time on a Trading Day. No Put Notice may be deemed
delivered on a day that is not a Trading Day.

“Put Restriction” shall mean the days between the end of the Pricing Period and
the date on which the Purchaser deems the Put closed. During this time, the
Company shall not be entitled to deliver another Put Notice.

“Registration Period” shall have the meaning specified in Section 5(c), below.

“Registration Rights Agreement” shall have the meaning set forth in the
recitals, above.

“Registration Statement” means the registration statement of the Company filed
under the 1933 Act covering the Common Stock issuable hereunder.

“Related Party” shall have the meaning specified in Section 5(h).

“Repurchase Event” shall have the meaning specified in Section 2(p).

“Resolution” shall have the meaning specified in Section 8(f).

“SEC” shall mean the U.S. Securities & Exchange Commission.

“SEC Documents” shall have the meaning specified in Section 4(f).

“Securities” shall mean the shares of Common Stock issued pursuant to the terms
of the Agreement.

“Shares” shall mean the shares of the Company’s Common Stock.

“Sold Shares” shall have the meaning specified in Section 6.

“Subsidiaries” shall have the meaning specified in Section 4(a).

“Trading Day” shall mean any day on which the Principal Market for the Common
Stock is open for trading, from the hours of 9:30 am until 4:00 pm.

“Transaction Documents” shall mean this Agreement, the Registration Rights
Agreement, and each of the other agreements entered into by the parties hereto
in connection with this Agreement.
 
“Valuation Event” shall have the meaning specified in Section 2(k).

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Section 2. PURCHASE AND SALE OF COMMON STOCK.
 
(a) Purchase and Sale of Common Stock. Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company, up to that number of Shares having an
aggregate Purchase Price of $5,000,000.

(b) Delivery of Put Notices. 

(i) Subject to the terms and conditions of the Transaction Documents, and from
time to time during the Open Period, the Company may, in its sole discretion,
deliver a Put Notice to the Purchaser which states the Put Amount (designated in
shares of Common Stock) which the Company intends to sell to the Purchaser on a
Closing Date. The Put Notice shall be in the form attached hereto as Exhibit F
and incorporated herein by reference. The amount that the Company shall be
entitled to Put to the Purchaser (the “Put Amount”) shall be equal to, at the
Company’s election, either: (a) 200% of the average daily volume (U.S. market
only) of the Common Stock for the 10 Trading Days prior to the applicable Put
Notice Date, multiplied by the average of the four daily closing Best Bid prices
immediately preceding the Put Date, or (b) a minimum of $10,000; provided that
in no event will the Put Amount be more than $100,000 with respect to any single
Put. During the Open Period, the Company shall not be entitled to submit a Put
Notice until after the previous Closing has been completed. The Purchase Price
for the Common Stock identified in the Put Notice shall be equal to 91% of the
average of the four lowest closing Best Bid price of the Common Stock during the
Pricing Period.

(ii) If any closing bid price during the applicable Pricing Period with respect
to that Put Notice is less than 75% of the any closing Best Bid prices of the
Common Stock for the fifteen Trading Days prior to the Put Notice Date (the
“Minimum Acceptable Price”), the Put Notice will terminate at the Company’s
request sent in accordance with Section 9 of this Agreement. In the event that
the closing bid price for the applicable Pricing Period is less than the Minimum
Acceptable Price, the Company may elect, by sending written notice to the
Purchaser to cancel the Put Notice.

(iii) Within seven calendar days after the commencement of each calendar quarter
occurring subsequent to the commencement of the Open Period, the Company
undertakes to notify Purchaser as to its reasonable expectations as to the Put
Amount it intends to raise during such calendar quarter, if any, through the
issuance of Put Notices. Such notification shall constitute only the Company’s
good faith estimate with respect to such calendar quarter and shall in no way
obligate the Company to raise such amount during such calendar quarter or
otherwise limit its ability to deliver Put Notices during such calendar quarter.
The failure by the Company to comply with this provision may be cured by the
Company’s notification Purchaser at any time as to its reasonable expectations
with respect to the current calendar quarter.

(c) Interest. It is the intention of the parties that any interest that may be
deemed to be payable under this Agreement shall not exceed the maximum amount
permitted under applicable law. If any applicable law sets the maximum interest
amount, and any payment required under this Agreement exceeds such limit, then:
(i) any such interest shall be reduced by the amount necessary to reduce the
interest to the legally permitted limit; and (ii) any sums already collected (if
any) from a party which exceed the legally permitted limits will be refunded to
such party.

(d) Purchaser’s Obligation to Purchase Shares. Subject to the conditions set
forth in this Agreement, following the Purchaser's receipt of a validly
delivered Put Notice, the Purchaser shall be required to purchase from the
Company during the related Pricing Period that number of Shares having an
aggregate Purchase Price equal to the lesser of (i) the Put Amount set forth in
the Put Notice, and (ii) 200% of the aggregate trading volume of the Common
Stock during the applicable Pricing Period times (x) 91% of the lowest closing
bid price of the Company's Common Stock during the specified Pricing Period, but
only if said Shares bear no restrictive legend, are not subject to stop transfer
instructions and are being held in escrow, pursuant to Section 2(h), prior to
the applicable Closing Date.
 
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(e) Limitation on Purchaser’s Obligation to Purchase Shares. In no event shall
the Purchaser purchase Shares (whether from the Company or in public or private
secondary transactions) other than pursuant to this Agreement until such date as
this Agreement is terminated.

(f) Conditions to Purchaser’s Obligation to Purchase Shares. Notwithstanding
anything to the contrary in this Agreement, the Company shall not be entitled to
deliver a Put Notice and the Purchaser shall not be obligated to purchase any
Shares at a Closing (as defined in Section 2(h)) unless each of the following
conditions are satisfied:

(i) a Registration Statement shall have been declared effective and shall remain
effective and available for the resale of all the Registrable Securities (as
defined in the Registration Rights Agreement) at all times until the Closing
with respect to the subject Put Notice;

(ii) at all times during the period beginning on the related Put Notice Date and
ending on and including the related Closing Date, the Common Stock shall have
been listed on the Principal Market and shall not have been suspended from
trading thereon for a period of five consecutive Trading Days during the Open
Period and the Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock;

(iii) the Company has complied with its obligations and is otherwise not in
breach of a material provision of, or in default under, this Agreement, the
Registration Rights Agreement or any other agreement executed in connection
herewith which has not been corrected prior to delivery of the Put Notice Date;

(iv) no injunction shall have been issued and remain in force, or action
commenced by a governmental authority which has not been stayed or abandoned,
prohibiting the purchase or the issuance of the Securities; and

(v) the issuance of the Securities will not violate any share Purchaser approval
requirements of the Principal Market.

If any of the events described in clauses (i) through (v) above occurs during a
Pricing Period, then the Purchaser shall have no obligation to purchase the Put
Amount of Common Stock set forth in the applicable Put Notice.

(g) Major Transaction. For purposes of this Agreement, a “Major Transaction”
shall be deemed to have occurred upon the closing of any of the following
events: (i) the consolidation, merger or other business combination of the
Company with or into another person (other than pursuant to a migratory merger
effected solely for the purposes of changing the jurisdiction of incorporation
of the Company or other than a transaction in which the Company is the surviving
corporation); (ii) the sale or transfer of all or substantially all of the
Company’s assets; or (iii) the consummation of a purchase, tender or exchange
offer made to, and accepted by, the Purchasers of more than 50% of the economic
interest in, or the combined voting power of all classes of voting stock of, the
Company.

(h) Mechanics of Purchase of Shares by Purchaser. Subject to the satisfaction of
the conditions set forth in Sections 2(f), 7 and 8, the closing of the purchase
by the Purchaser of Shares or the Purchaser deeming a Put closed (a “Closing”)
shall occur on the date which is no later than seven Trading Days following the
applicable Put Notice Date or when the Purchaser deems a Put closed (each a
“Closing Date”). Prior to each Closing Date, (i) the Company shall deliver to
the Purchaser pursuant to the this Agreement, certificates representing the
Shares to be issued to the Purchaser on such date and registered in the name of
the Purchaser; and (ii) the Purchaser shall deliver to the Company the Purchase
Price to be paid for such Shares, determined as set forth in Sections 2(b) and
2(d). In lieu of delivering physical certificates representing the Securities
and provided that the Company’s transfer agent then is participating in The
Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”)
program, upon request of the Purchaser, the Company shall use its commercially
reasonable efforts to cause its transfer agent to electronically transmit the
Securities by crediting the account of the Purchaser’s prime broker (which shall
be specified by the Purchaser a reasonably sufficient time in advance) with DTC
through its Deposit Withdrawal Agent Commission (“DWAC”) system.  

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The Company understands that a delay in the issuance of Securities beyond the
Closing Date could result in economic loss to the Purchaser. After the Effective
Date, as compensation to the Purchaser for such loss, the Company agrees to pay
late payments to the Purchaser for late issuance of Securities (delivery of
Securities after the applicable Closing Date) in accordance with the following
schedule (where “No. of Days Late” is defined as the number of days beyond the
Closing Date): 

Late Payment For Each
 
No. of Days Late
$10,000 of Common Stock
   
1
$100
2
$200
3
$300
4
$400
5
$500
6
$600
7
$700
8
$800
9
$900
10
$1,000
Over 10
$1,000 + $200 for each
 
Business Day late beyond 10 days

The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Purchaser’s right to
pursue actual damages for the Company’s failure to issue and deliver the
Securities to the Purchaser, except to the extent that such late payments shall
constitute payment for and offset any such actual damages alleged by the
Purchaser, and any Buy In Adjustment Amount.

(i) reserved.

(j) Overall Limit on Common Stock Issuable. Notwithstanding anything contained
herein to the contrary, if during the Open Period the Company becomes listed on
an exchange that limits the number of shares of Common Stock that may be issued
without share Purchaser approval, then the number of Shares issuable by the
Company and purchasable by the Purchaser, including the shares of Common Stock
issuable to the Purchasers pursuant to Section 11(b), shall not exceed that
number of the shares of Common Stock that may be issuable without share
Purchaser approval, subject to appropriate adjustment for stock splits, stock
dividends, combinations or other similar recapitalization affecting the Common
Stock (the “Maximum Common Stock Issuance”), unless the issuance of Shares,
including any Common Stock to be issued to the Purchasers pursuant to Section
11(b), in excess of the Maximum Common Stock Issuance shall first be approved by
the Company’s share Purchasers in accordance with applicable law and the By-laws
and Amended and Restated Certificate of Incorporation of the Company, if such
issuance of shares of Common Stock could cause a delisting on the Principal
Market. The parties understand and agree that the Company’s failure to seek or
obtain such share Purchaser approval shall in no way adversely affect the
validity and due authorization of the issuance and sale of Securities or the
Purchaser’s obligation in accordance with the terms and conditions hereof to
purchase a number of Shares in the aggregate up to the Maximum Common Stock
Issuance limitation, and that such approval pertains only to the applicability
of the Maximum Common Stock Issuance limitation provided in this Section 2(j).

(k) For the purpose of this Agreement, the term “Valuation Event” means the
Company taking any of the following actions at any time during a Pricing Period:

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(i) the subdivision or combinations of the Company’s Common Stock;

(ii) the payment of a dividend or any other distribution with respect to shares
of the Company’s Common Stock;

(iii) the issuance of any options or other rights to subscribe for or purchase
Common Stock (“Options”) or any securities convertible into or exchangeable for
Common Stock (“Convertible Securities”), except for Incentive Stock Option
Plans, the price per share for which Common Stock is shall be less than the bid
price in effect immediately prior to such issuance of such Options or
Convertible Securities;

(iv) the issuance of shares of Common Stock other than as provided in the
foregoing subsections (i) through (iii), at a price per share less, or for other
consideration lower, than the bid price in effect immediately prior to such
issuance, or without consideration, except for Incentive Stock Option Plans; or

(v) the distribution of its assets or evidences of indebtedness to the
Purchasers of Common Stock as a dividend in liquidation or by way of return of
capital or other than as a dividend payable out of earnings or surplus legally
available for dividends under applicable law or any distribution to such
Purchasers made in respect of the sale of all or substantially all of the
Company’s assets (other than under the circumstances provided for in the
foregoing subsections (i) through (iv)).
 
(l) The Company agrees that it shall not take any action that would result in a
Valuation Event occurring during a Pricing Period.

(m) reserved.

(n) Audit.

(i) Whenever reasonably requested by Purchaser, the Company shall engage its
independent auditors to prepare in accordance with the provisions of Statement
on Auditing Standards No. 71, as amended, such written report (the “Bring Down
Cold Comfort Letters”) with respect to the financial information contained in
the Registration Statement and shall have delivered to the Purchaser such a
report addressed to the Purchaser, on or prior to each Registration Opinion
Deadline;

(ii) in the event that the Purchaser shall have requested delivery of an Agreed
Upon Procedures Report pursuant to Section 2(o), the Company shall engage its
independent auditors to perform certain agreed upon procedures and report
thereon as shall have been reasonably requested by the Purchaser with respect to
certain financial information of the Company and the Company shall deliver to
the Purchaser a copy of such report addressed to the Purchaser. In the event
that the report required by this Section 2(n) cannot be delivered by the
Company’s independent auditors, the Company shall, if necessary, promptly revise
the Registration Statement and the Company shall not deliver a Put Notice to
Purchaser until such report is delivered.

(o) Procedure if Material Facts are Reasonably Believed to be Untrue or are
Omitted. In the event after such consultation the Purchaser or the Purchaser’s
counsel reasonably believes that the Registration Statement contains an untrue
statement or a material fact or omits a material fact required to be stated in
the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading,
(i) the Company shall file with the SEC an amendment to the Registration
Statement responsive to such alleged untrue statement or omission and provide
the Purchaser, as promptly as practicable, with copies of the Registration
Statement and related Prospectus, as so amended, or (ii) if the Company disputes
the existence of any such material misstatement or omission, and in the event
the dispute relates to the adequacy of financial disclosure and the Purchaser
shall reasonably request, the Company’s independent auditors shall provide to
the Company a letter (“Agreed Upon Procedures Report”) outlining the performance
of such “agreed upon procedures,” which shall not require any more than the SAS
71 review described above as shall be reasonably requested by the Purchaser and
the Company shall provide the Purchaser with a copy of such letter.

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(p) Delisting; Suspension. If at any time during the Open Period or within 30
calendar days after the end of the Open Period; (i) the Registration Statement,
after it has been declared effective, shall not remain effective and available
for sale of all the Registrable Securities for a period exceeding 10 calendar
days; (ii) the Common Stock shall not be listed on the Principal Market or shall
have been suspended from trading thereon (excluding suspensions of not more than
one trading day resulting from business announcements by the Company) or the
Company shall have been notified of any pending or threatened proceeding or
other action to delist or suspend the Common Stock; (iii) there shall have
occurred a Major Transaction (as defined in Section 2(g)) or the public
announcement of a pending Major Transaction which has not been abandoned or
terminated; or (iv) the Registration Statement is no longer effective or stale
for a period of more than five Trading Days as a result of the Company’s failure
to timely file its financial statements or for any other reason, the Company
shall repurchase, within 30 calendar days of the occurrence of one of the events
listed in clauses (i), (ii), (iii) or (iv) above (each a “Repurchase Event”) and
subject to the limitations imposed by applicable federal and state law, all or
any part of the Securities issued to the Purchaser within the 60 Trading Days
preceding the occurrence of the Repurchase Event and then held by the Purchaser
at a price per Share equal to the highest closing bid price during the period
beginning on the date of the Repurchase Event and ending on and including the
date on which the Purchaser is paid by the Company for the repurchase of the
Shares (the “Payment Amount”). If the Company fails to pay to the Purchaser the
full aggregate Payment Amount within ten calendar days of the occurrence of a
Repurchase Event, the Company shall pay to the Purchaser, on the first Trading
Day following such tenth calendar day, in addition to and not in lieu of the
Payment Amount payable by the Company to the Purchaser, an amount equal to 2% of
the aggregate Payment Amount then due and payable to the Purchaser, in cash by
wire transfer, plus compounded annual interest of 18% on such Payment Amount
during the period, beginning on the day following such tenth calendar day,
during which such Payment Amount, or any portion thereof, is outstanding.

Section 3. PURCHASER’S REPRESENTATIONS, WARRANTIES AND COVENANTS.

The Purchaser represents and warrants to the Company, and covenants, that:

(a) Sophisticated Purchaser. The Purchaser has, by reason of its business and
financial experience, such knowledge, sophistication and experience in financial
and business matters and in making investment decisions of this type that it is
capable of (i) evaluating the merits and risks of an investment in the
Securities and making an informed investment decision; (ii) protecting its own
interest; and (iii) bearing the economic risk of such investment for an
indefinite period of time.

(b) Authorization; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Purchaser and is a valid and
binding agreement of the Purchaser enforceable against the Purchaser in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.

(c) Section 9 of the 1934 Act. During the term of this Agreement, the Purchaser
will comply with the provisions of Section 9 of the 1934 Act, and the rules
promulgated thereunder, with respect to transactions involving the Common Stock.
The Purchaser agrees not to short, either directly or indirectly through its
affiliates, principals or advisors, the Company’s common stock during the term
of this Agreement.

(d) Accredited Purchaser. Purchaser is an “Accredited Purchaser” as that term is
defined in Rule 501(a)(3) of Regulation D of the 1933 Act.

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(e) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Purchaser and the consummation by the Purchaser of the
transactions contemplated hereby and thereby will not result in a violation of
Partnership Agreement or other organizational documents of the Purchaser.

(f) Opportunity to Discuss. The Purchaser has had an opportunity to discuss the
business, management and financial affairs of the Company with the Company’s
management.

(g) Investment Purposes. The Purchaser is purchasing the Securities for its own
account for investment purposes and not with a view towards distribution and
agrees to resell or otherwise dispose of the Securities solely in accordance
with the registration provisions of the 1933 Act (or pursuant to an exemption
from such registration provisions).

(h) No Registration as a Dealer. The Purchaser is not and will not be required
to be registered as a “dealer” under the 1934 Act, either as a result of its
execution and performance of its obligations under this Agreement or otherwise.

(i) The Purchaser is a Limited Liability Company, duly organized, validly
existing and in good standing in the State of Nevada.

(j) The Purchaser understands that it is liable for its own tax liabilities.

(k) The Purchaser will comply with Regulation M under the 1934 Act, if
applicable

Section 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

Except as set forth in the Schedules attached hereto, or as disclosed in the
Company’s materials, the Company represents and warrants to the Purchaser that:

(a) Organization and Qualification. The Company is a corporation duly organized
and validly existing in good standing under the laws of the State of Nevada, and
has the requisite corporate power and authorization to own its properties and to
carry on its business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 1 and 4(b), below).

(b) Authorization; Enforcement; Compliance with Other Instruments.

(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, and each of the
other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the “Transaction
Documents”), and to issue the Securities in accordance with the terms hereof and
thereof.

(ii) The execution and delivery of the Transaction Documents by the Company and
the consummation by it of the transactions contemplated hereby and thereby,
including without limitation the reservation for issuance and the issuance of
the Securities pursuant to this Agreement, have been duly and validly authorized
by the Company’s Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors, or its share Purchasers.

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(iii) The Transaction Documents have been duly and validly executed and
delivered by the Company.

(iv) The Transaction Documents constitute the valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors’
rights and remedies.

(c) Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of (i) 400,000,000 shares of Common Stock, .001 par value per
share, of which as of the date hereof, 175,336,430 shares are issued and
outstanding; shares of reserved for issuance pursuant to options, warrants and
other convertible securities. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in the Company’s publicly available filings with Periodic Filings, (i)
no shares of the Company’s capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company; (ii) there are no outstanding debt securities; (iii) there are no
outstanding shares of capital stock, options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries; (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement);
(v) there are no outstanding securities of the Company or any of its
Subsidiaries which contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the
Company or any of its Subsidiaries; (vi) there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement; (vii) the Company
does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (viii) there is no dispute as
to the classification of any shares of the Company’s capital stock. The Company
has furnished to the Purchaser, or the Purchaser has had access through EDGAR
to, true and correct copies of the Company’s Amended and Restated Certificate of
Incorporation, as in effect on the date hereof (the “Certificate of
Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the Purchasers thereof in respect
thereto.

(d) Issuance of Shares. The Company will reserve such number of shares for
issuance pursuant to this Agreement once this agreement has been duly authorized
and reserved for issuance (subject to adjustment pursuant to the Company’s
covenant set forth in Section 5(f) below) pursuant to this Agreement. Upon
issuance in accordance with this Agreement, the Securities will be validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issue thereof. In the event the Company cannot register a
sufficient number of Shares for issuance pursuant to this Agreement, the Company
will use its best efforts to authorize and reserve for issuance the number of
Shares required for the Company to perform its obligations hereunder as soon as
reasonably practicable.

(e) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby will not (i) result in a violation of the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock of the Company or the
By-laws; or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the
 
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Company or any of its Subsidiaries is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree (including United States
federal and state securities laws and regulations and the rules and regulations
of the Principal Market or principal securities exchange or trading market on
which the Common Stock is traded or listed) applicable to the Company or any of
its Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in Schedule 4(e), neither
the Company nor its Subsidiaries is in violation of any term of, or in default
under, the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company or the By-laws or their organizational charter or by-laws, respectively,
or any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries, except for possible conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not individually or in the aggregate have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, statute, ordinance, rule, order or
regulation of any governmental authority or agency, regulatory or
self-regulatory agency, or court, except for possible violations the sanctions
for which either individually or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, the Transaction Documents in accordance with the terms hereof
or thereof. All consents, authorizations, permits, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof and are
in full force and effect as of the date hereof. Except as disclosed in Schedule
4(e), the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company is not, and will not
be, in violation of the listing requirements of the Principal Market as in
effect on the date hereof and on each of the Closing Dates and is not aware of
any facts which would reasonably lead to delisting of the Common Stock by the
Principal Market in the foreseeable future.

(f) SEC Documents; Financial Statements. The Company has delivered to the
Purchaser or its representatives, or they have had access through EDGAR to, true
and complete copies of the SEC Documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a 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. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, 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 they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Purchaser which is not included in the SEC Documents, including,
without limitation, information referred to in Section 4(d) of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary to make the statements therein, in the light of the circumstance
under which they are or were made, not misleading. Neither the Company nor any
of its Subsidiaries or any of their officers, directors, employees or agents
have provided the Purchaser with any material, nonpublic information which was
not publicly disclosed prior to the date hereof and any material, nonpublic
information provided to the Purchaser by the Company or its Subsidiaries or any
of their officers, directors, employees or agents prior to any Closing Date
shall be publicly disclosed by the Company prior to such Closing Date.

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(g) Absence of Certain Changes. Except as set forth in the SEC Documents, the
Company does not intend to change the business operations of the Company. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.

(h) Absence of Litigation. Except as set forth in Schedule 4(h) and the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency, self-regulatory organization
or body pending or, to the knowledge of the executive officers of Company or any
of its Subsidiaries, threatened against or affecting the Company, the Common
Stock or any of the Company’s Subsidiaries or any of the Company’s or the
Company’s Subsidiaries’ officers or directors in their capacities as such, in
which an adverse decision could have a Material Adverse Effect.

(i) Acknowledgment Regarding Purchaser’s Purchase of Shares. The Company
acknowledges and agrees that the Purchaser is acting solely in the capacity of
arm’s length purchaser with respect to the Transaction Documents and the
transactions contemplated hereby and thereby. The Company further acknowledges
that the Purchaser is not acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated hereby and thereby and any advice given by the
Purchaser or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Purchaser’s purchase of the Securities. The Company
further represents to the Purchaser that the Company’s decision to enter into
the Transaction Documents has been based solely on the independent evaluation by
the Company and its representatives.

(j) No Undisclosed Events, Liabilities, Developments or Circumstances. Except as
set forth in the SEC Documents, since December 31, 2005, no event, liability,
development or circumstance has occurred or exists, or to the Company’s
knowledge is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, assets, prospects,
operations or financial condition, that would be required to be disclosed by the
Company under applicable securities laws on a registration statement filed with
the SEC relating to an issuance and sale by the Company of its Common Stock and
which has not been publicly announced.

(k) Employee Relations. Neither the Company nor any of its Subsidiaries is
involved in any union labor dispute nor, to the knowledge of the Company or any
of its Subsidiaries, is any such dispute threatened. Neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that relations with their employees are
good. No executive officer (as defined in Rule 501(f) of the 1933 Act) has
notified the Company that such officer intends to leave the Company’s employ or
otherwise terminate such officer’s employment with the Company.

(l) Intellectual Property Rights. Except as set forth in Schedule 4(l) the
Company and its Subsidiaries own or possess adequate rights or licenses to use
all trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. Except as set forth the SEC Documents,
none of the Company’s trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights necessary to conduct its business as now or as
proposed to be conducted have expired or terminated, or are expected to expire
or terminate within two years from the date of this Agreement. The Company and
its Subsidiaries do not have any knowledge of any infringement by the Company or
its Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on the SEC Documents, there is no claim, action
or proceeding being made or brought against, or to the Company’s knowledge,
being threatened against, the Company or its Subsidiaries regarding trademark,
trade name, patents, patent rights, invention, copyright, license, service
names, service marks, service mark registrations, trade secret or other
infringement; and the Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
Subsidiaries have taken commercially reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties.

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(m) Environmental Laws. The Company and its Subsidiaries (i) are, to the
knowledge of management of the Company, in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental Laws”); (ii)
have, to the knowledge of management of the Company, received all permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their respective businesses; and (iii) are in compliance, to the
knowledge of the Company, with all terms and conditions of any such permit,
license or approval where, in each of the three foregoing cases, the failure to
so comply would have, individually or in the aggregate, a Material Adverse
Effect.

(n) Title. The Company and its Subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the SEC Documents or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its Subsidiaries.
Any real property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.

(o) Insurance. The Company and each of its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as management of the Company reasonably believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.

(p) Regulatory Permits. The Company and its Subsidiaries have in full force and
effect all certificates, approvals, authorizations and permits from the
appropriate federal, state, local or foreign regulatory authorities and
comparable foreign regulatory agencies, necessary to own, lease or operate their
respective properties and assets and conduct their respective businesses, and
neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
approval, authorization or permit, except for such certificates, approvals,
authorizations or permits which if not obtained, or such revocations or
modifications which, would not have a Material Adverse Effect.

(q) Internal Accounting Controls. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

(r) No Materially Adverse Contracts, Etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company’s officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which in the judgment of the Company’s officers has or is
expected to have a Material Adverse Effect.

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(s) Tax Status. Except as Disclosed on Schedule 4(s) the Company and each of its
Subsidiaries has made or filed all United States federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim.

(t) Certain Transactions. Except as set forth in the SEC Documents filed at
least ten days prior to the date hereof and except for arm’s length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed in the SEC Documents, none
of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

(u) Dilutive Effect. The Company understands and acknowledges that the number of
shares of Common Stock issuable upon purchases pursuant to this Agreement will
increase in certain circumstances including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines during the
period between the Effective Date and the end of the Open Period. The Company’s
executive officers and directors have studied and fully understand the nature of
the transactions contemplated by this Agreement and recognize that they have a
potential dilutive effect. The Board of Directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation to issue shares of Common Stock upon purchases pursuant to this
Agreement is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other share Purchasers of
the Company.

(v) Right of First Refusal. The Company shall not, directly or indirectly,
without the prior written consent of Purchaser offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its Common Stock or securities
convertible into Common Stock at a price that is less than the market price of
the Common Stock at the time of issuance of such security or investment (a
“Subsequent Financing”) for a period of one year after the Effective Date,
except (i) the granting of options or warrants to employees, officers, directors
and consultants including shares issued to such people under Form S-8, and the
issuance of shares upon exercise of options granted, under any stock option plan
heretofore or hereafter duly adopted by the Company or for services rendered or
to be rendered; (ii) shares issued upon exercise of any currently outstanding
warrants or options and upon conversion of any currently outstanding convertible
debenture or convertible preferred stock, in each case disclosed pursuant to
Section 4(c); (iii) securities issued in connection with the capitalization or
creation of a joint venture with a strategic partner; (iv) shares issued to pay
part or all of the purchase price for the acquisition by the Company of another
entity (which, for purposes of this clause (iv), shall not include an individual
or group of individuals); and (v) shares issued in a bona fide public offering
by the Company of its securities, unless (A) the Company delivers to Purchaser a
written notice (the “Subsequent Financing Notice”) of its intention to effect
such Subsequent Financing, which Subsequent Financing Notice shall describe in
reasonable detail the proposed terms of such Subsequent Financing, the amount of
proceeds intended to be raised thereunder, the person with whom such Subsequent
Financing shall be effected, and attached to which shall be a term sheet or
similar document relating thereto; and (B) Purchaser shall not have notified the
Company by 5:00 p.m. (New York time) on the fifth Trading Day after its receipt
of the Subsequent Financing Notice of its willingness to provide, subject to
completion of mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Financing Notice. If
Purchaser shall fail to notify the Company of its intention to enter into such
negotiations within such time period, then the Company may effect the Subsequent
Financing substantially upon the terms set forth in the Subsequent Financing
Notice; provided that the Company shall provide Purchaser with a second
Subsequent Financing Notice, and Purchaser shall again have the right of first
refusal set forth above in this Section, if the Subsequent Financing subject to
the initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
Trading Days after the date of the initial Subsequent Financing Notice. The
rights granted to Purchaser in this Section are not subject to any prior right
of first refusal given to any other person disclosed on Schedule 4(c).

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(w) Lock-up. The Company shall cause its officers, insiders, directors,
affiliates or other related parties to refrain from selling Common Stock during
each Pricing Period, except for shares issued under S-8 or otherwised agreed to
by the parties pursuant to a Lock-up and Leak-out Agreement.

(x) No General Solicitation. Neither the Company, nor any of its affiliates, nor
any person acting on its behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D) in connection with
the offer or sale of the Common Stock offered hereby.

(y) No brokers, finders or financial advisory fees or commissions will be
payable by the Company with respect to the transaction contemplated by this
Agreement.

Section 5. COVENANTS OF THE COMPANY

(a) Best Efforts. The Company shall use commercially reasonable efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Section 7
of this Agreement.
 
(b) Blue Sky. The Company shall, at its sole cost and expense, on or before each
of the Closing Dates, take such action as the Company shall reasonably determine
is necessary to qualify the Securities for, or obtain exemption for the
Securities for, sale to the Purchaser at each of the Closings pursuant to this
Agreement under applicable securities or “Blue Sky” laws of such states of the
United States, as reasonably specified by Purchaser, and shall provide evidence
of any such action so taken to the Purchaser on or prior to the Closing Date.
 
(c) Reporting Status. Until the earlier to occur of (i) the first date which is
after the date this Agreement is terminated pursuant to Section 9 and on which
the Purchasers (as that term is defined in the Registration Rights Agreement)
may sell all of the Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto); and (ii) the date on
which (A) the Purchasers shall have sold all the Securities; and (B) this
Agreement has been terminated pursuant to Section 9 (the “Registration Period”),
the Company shall file all reports required to be filed with the SEC pursuant to
the 1934 Act, and the Company shall not terminate its status as a reporting
company under the 1934 Act.

(d) Use of Proceeds. The Company will use the proceeds from the sale of the
Shares (excluding amounts paid by the Company for fees as set forth in the
Transaction Documents) for general corporate and working capital purposes

(e) Financial Information. The Company agrees to make available to the Purchaser
via EDGAR or other electronic means the following to the Purchaser during the
Registration Period: (i) within five Trading Days after the filing thereof with
the SEC, a copy of its Annual Reports on Form 10-KSB, its Quarterly Reports on
Form 10-QSB, any Current Reports on Form 8-K and any Registration Statements or
amendments filed pursuant to the 1933 Act; (ii) on the same day as the release
thereof, facsimile copies of all press releases issued by the Company or any of
its Subsidiaries; (iii) copies of any notices and other information made
available or given to the share Purchasers of the Company generally,
contemporaneously with the making available or giving thereof to the share
Purchasers; and (iv) within two calendar days of filing or delivery thereof,
copies of all documents filed with, and all correspondence sent to, the
Principal Market, any securities exchange or market, or the National Association
of Securities Dealers, Inc., unless such information is material nonpublic
information.

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(f) Reservation of Shares. Subject to the following sentence, the Company shall
take all action necessary to at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the issuance of the Securities hereunder. In the event that the Company
determines that it does not have a sufficient number of authorized shares of
Common Stock to reserve and keep available for issuance as described in this
Section 5(f), the Company shall use its best efforts to increase the number of
authorized shares of Common Stock by seeking share Purchaser approval for the
authorization of such additional shares.

(g) Listing. The Company shall promptly secure and maintain the listing of all
of the Registrable Securities (as defined in the Registration Rights Agreement)
upon the Principal Market and each other national securities exchange and
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, such listing
of all Registrable Securities from time to time issuable under the terms of the
Transaction Documents. The Company shall maintain the Common Stock’s
authorization for quotation on the Principal Market. Neither the Company nor any
of its Subsidiaries shall take any action which would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market (excluding suspensions of not more than one trading day resulting from
business announcements by the Company). The Company shall promptly provide to
the Purchaser copies of any notices it receives from the Principal Market
regarding the continued eligibility of the Common Stock for listing on such
automated quotation system or securities exchange. The Company shall pay all
fees and expenses in connection with satisfying its obligations under this
Section 5(g).

(h) Transactions With Affiliates. The Company shall not, and shall cause each of
its Subsidiaries not to, enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary’s
officers, directors, persons who were officers or directors at any time during
the previous two years, share Purchasers who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption to any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a “Related Party”),
except for (i) customary employment arrangements and benefit programs on
reasonable terms, (ii) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtainable from a person other than such Related Party, or (iii) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. “Affiliate” for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) is under common control with that person or entity. “Control” or
“Controls” for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.

(i) Filing of Form 8-K. On or before the date which is three Trading Days after
the Execution Date, the Company shall file a Current Report on Form 8-K with the
SEC describing the terms of the transaction contemplated by the Transaction
Documents in the form required by the 1934 Act, if such filing is required.

(j) Corporate Existence. The Company shall use its best efforts to preserve and
continue the corporate existence of the Company.

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(k) Notice of Certain Events Affecting Registration; Suspension of Right to Make
a Put. The Company shall promptly notify Purchaser upon the occurrence of any of
the following events in respect of a Registration Statement or related
prospectus in respect of an offering of the Securities: (i) receipt of any
request for additional information by the SEC or any other federal or state
governmental authority during the period of effectiveness of the Registration
Statement for amendments or supplements to the Registration Statement or related
prospectus; (ii) the issuance by the SEC or any other federal or state
governmental authority of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose;
(iii) receipt of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in such
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company’s reasonable determination that a post-effective
amendment to the Registration Statement would be appropriate, and the Company
shall promptly make available to Purchaser any such supplement or amendment to
the related prospectus. The Company shall not deliver to Purchaser any Put
Notice during the continuation of any of the foregoing events.

(l) Reserved

Section 6. COVER. If the number of Shares represented by any Put Notices become
restricted or are no longer freely trading for any reason, and after the
applicable Closing Date, the Purchaser purchases, in an open market transaction
or otherwise, the Company’s Common Stock (the “Covering Shares”) in order to
make delivery in satisfaction of a sale of Common Stock by the Purchaser (the
“Sold Shares”), which delivery such Purchaser anticipated to make using the
Shares represented by the Put Notice (a “Buy-In”), the Company shall pay to the
Purchaser the Buy-In Adjustment Amount (as defined below). The “Buy-In
Adjustment Amount” is the amount equal to the excess, if any, of (a) the
Purchaser’s total purchase price (including brokerage commissions, if any) for
the Covering Shares over (b) the net proceeds (after brokerage commissions, if
any) received by the Purchaser from the sale of the Sold Shares. The Company
shall pay the Buy-In Adjustment Amount to the Purchaser in immediately available
funds immediately upon demand by the Purchaser. By way of illustration and not
in limitation of the foregoing, if the Purchaser purchases Common Stock having a
total purchase price (including brokerage commissions) of $11,000 to cover a
Buy-In with respect to the Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which the Company will be required to pay to the
Purchaser will be $1,000.

Section 7. CONDITIONS OF THE COMPANY’S OBLIGATION TO SELL.
 
The obligation hereunder of the Company to issue and sell the Securities to the
Purchaser is further subject to the satisfaction, at or before each Closing
Date, of each of the following conditions set forth below. These conditions are
for the Company’s sole benefit and may be waived by the Company at any time in
its sole discretion.

(a) The Purchaser shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.

(b) The Purchaser shall have delivered to the Company the Purchase Price for the
Securities being purchased by the Purchaser at the Closing (after receipt of
confirmation of delivery of such Securities) by wire transfer of immediately
available funds pursuant to the wire instructions provided by the Company.

(c) The representations and warranties of the Purchaser shall be true and
correct as of the date when made and as of the applicable Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Purchaser shall have performed, satisfied and complied
with the covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Purchaser at or
prior to such Closing Date.

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(d) No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(e) No Valuation Event shall have occurred since the applicable Put Notice Date.

Section 8. FURTHER CONDITIONS OF THE PURCHASER’S OBLIGATION TO PURCHASE.
 
The obligation of the Purchaser hereunder to purchase Shares is subject to the
satisfaction, on or before each Closing Date, of each of the following
conditions set forth below.

(a) The Company shall have executed each of the Transaction Documents and
delivered the same to the Purchaser.

(b) The Common Stock shall be authorized for quotation on the Principal Market
and trading in the Common Stock shall not have been suspended by the Principal
Market or the SEC, at any time beginning on the date hereof and through and
including the respective Closing Date (excluding suspensions of not more than
one Trading Day resulting from business announcements by the Company, provided
that such suspensions occur prior to the Company’s delivery of the Put Notice
related to such Closing).

(c) The representations and warranties of the Company shall be true and correct
as of the date when made and as of the applicable Closing Date as though made at
that time (except for (i) representations and warranties that speak as of a
specific date and (ii) with respect to the representations made in Sections
4(g), (h) and (j) and the third sentence of Section 4(k) hereof, events which
occur on or after the date of this Agreement and are disclosed in SEC filings
made by the Company at least ten Trading Days prior to the applicable Put Notice
Date) and the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Transaction Documents to be
performed, satisfied or complied with by the Company on or before such Closing
Date. The Purchaser may request an update as of such Closing Date regarding the
representation contained in Section 4(c) above.

(d) reserved 

(e) The Company shall have executed and delivered to the Purchaser the
certificates representing, or have executed electronic book-entry transfer of,
the Securities (in such denominations as such Purchaser shall request) being
purchased by the Purchaser at such Closing.

(f) The Board of Directors of the Company shall have adopted resolutions
consistent with Section 4(b)(ii) above (the “Resolutions”) and such Resolutions
shall not have been amended or rescinded prior to such Closing Date.

(g) reserved.

(h) No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement.

(i) The Registration Statement shall be effective on each Closing Date and no
stop order suspending the effectiveness of the Registration statement shall be
in effect or shall be pending or threatened. Furthermore, on each Closing Date
(i) neither the Company nor Purchaser shall have received notice that the SEC
has issued or intends to issue a stop order with respect to such Registration
Statement or that the SEC otherwise has suspended or withdrawn the effectiveness
of such Registration Statement, either temporarily or permanently, or intends or
has threatened to do so (unless the SEC’s concerns have been addressed and
Purchaser is reasonably satisfied that the SEC no longer is considering or
intends to take such action), and (ii) no other suspension of the use or
withdrawal of the effectiveness of such Registration Statement or related
prospectus shall exist.

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(j) At the time of each Closing, the Registration Statement (including
information or documents incorporated by reference therein) and any amendments
or supplements thereto shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading or which would require public
disclosure or an update supplement to the prospectus.

(k) There shall have been no filing of a petition in bankruptcy, either
voluntarily or involuntarily, with respect to the Company and there shall not
have been commenced any proceedings under any bankruptcy or insolvency laws, or
any laws relating to the relief of debtors, readjustment of indebtedness or
reorganization of debtors, and there shall have been no calling of a meeting of
creditors of the Company or appointment of a committee of creditors or
liquidating agents or offering of a composition or extension to creditors by,
for, with or without the consent or acquiescence of the Company.

(l) If applicable, the share Purchasers of the Company shall have approved the
issuance of any Shares in excess of the Maximum Common Stock Issuance in
accordance with Section 2(j).

(m) The conditions to such Closing set forth in Section 2(f) shall have been
satisfied on or before such Closing Date.

(n) The Company shall have certified to the Purchaser the number of shares of
Common Stock outstanding as of a date within ten Trading Days prior to such
Closing Date.
 
Section 9. TERMINATION. This Agreement shall terminate upon any of the following
events:

(i) when the Purchaser has purchased an aggregate of $5,000,000 in the Common
Stock of the Company pursuant to this Agreement; provided that the Company’s
representations, warranties and covenants contained in this Agreement insofar as
applicable to the transactions consummated hereunder prior to such termination,
shall survive the termination of this Agreement for the period of any applicable
statute of limitations;

(ii) on the date which is 36 months after the Effective Date;

(iii) if the Company shall file or consent by answer or otherwise to the entry
of an order for relief or approving a petition for relief, reorganization or
arrangement or any other petition in bankruptcy for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or shall make
an assignment for the benefit of its creditors, or shall consent to the
appointment of a custodian, receiver, trustee or other officer with similar
powers of itself or of any substantial part of its property, or shall be
adjudicated a bankrupt or insolvent, or shall take corporate action for the
purpose of any of the foregoing, or if a court or governmental authority of
competent jurisdiction shall enter an order appointing a custodian, receiver,
trustee or other officer with similar powers with respect to the Company or any
substantial part of its property or an order for relief or approving a petition
for relief or reorganization or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy or insolvency law, or an
order for the dissolution, winding up or liquidation of the Company, or if any
such petition shall be filed against the Company;

(iv) if the Company shall issue or sell any equity securities or securities
convertible into, or exchangeable for, equity securities or enter into any other
equity financing facility during the Open Period, other than in compliance with
Section 4(v);

(v) the trading of the Common Stock is suspended by the SEC, the Principal
Market or the NASD for a period of five consecutive Trading Days during the Open
Period;

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(vi)  the Company shall not have filed with the SEC the initial Registration
Statement with respect to the resale of the Registrable Securities in accordance
with the terms of the initial Registration Rights Agreement within one calendar
year of the date hereof or the Registration Statement has not been declared
effective within one year and six months of the date hereof; or

(vii) The Common Stock ceases to be registered under the 1934 Act or listed or
traded on the Principal Market. Upon the occurrence of one of the
above-described events, the Company shall send written notice of such event to
the Purchaser.

Section 10. INDEMNIFICATION. In consideration of the parties mutual obligations
set forth in the Transaction Documents, each of the parties (in such capacity,
an “Indemnitor”) shall defend, protect, indemnify and hold harmless the other
and all of the other party’s share Purchasers, officers, directors, employees,
counsel, and direct or indirect Purchasers and any of the foregoing person’s
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the “Indemnitees”) from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys’ fees and disbursements (the
“Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Indemnitor or any other certificate,
instrument or document contemplated hereby or thereby; (ii) any breach of any
covenant, agreement or obligation of the Indemnitor contained in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby; or (iii) any cause of action, suit or claim brought or made against
such Indemnitee by a third party and arising out of or resulting from the
execution, delivery, performance or enforcement of the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby,
except insofar as any such misrepresentation, breach or any untrue statement,
alleged untrue statement, omission or alleged omission is made in reliance upon
and in conformity with written information furnished to Indemnitor which is
specifically intended for use in the preparation of any such Registration
Statement, preliminary prospectus, prospectus or amendments to the prospectus.
To the extent that the foregoing undertaking by the Indenitor may be
unenforceable for any reason, the Indemnitor shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The indemnity provisions contained herein
shall be in addition to any cause of action or similar rights Indemnitor may
have, and any liabilities the Indemnitor or the Indemnitees may be subject to.

Section 11. GOVERNING LAW; MISCELLANEOUS.

(a) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the County of
Los Angeles, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.

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(b) Legal Fees; and Miscellaneous Fees. Except as otherwise set forth in the
Transaction Documents, each party shall pay the fees and expenses of its
advisers, counsel, the accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. Any attorneys’ fees and
expenses incurred by either the Company or by the Purchaser in connection with
the preparation, negotiation, execution and delivery of any amendments to this
Agreement or relating to the enforcement of the rights of any party, after the
occurrence of any breach of the terms of this Agreement by another party or any
default by another party in respect of the transactions contemplated hereunder,
shall be paid on demand by the party which breached the Agreement and/or
defaulted, as the case may be. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of any Securities.

(c) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.

(d) Headings; Singular/Plural. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. Whenever required by the context of this
Agreement, the singular shall include the plural and masculine shall include the
feminine.

(e) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

(f) Entire Agreement; Amendments. This Agreement supersedes all other prior oral
or written agreements between the Purchaser, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement and the instruments referenced herein (including the other
Transaction Documents) contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company nor the Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Purchaser, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought.

(g) Notices. Any notices or other communications required or permitted to be
given under the terms of this Agreement must be in writing and will be deemed to
have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:

If to the Company:

HOMELAND SECURITY NETWORK, Inc.
300 North Coit Rd.
Suite 1200
Richardson, TX 75080
Facsimile: 214-618-6428

With Copy to:
Jeffrey Conrad, Esq.
1719 Huntington Ln.
Redondo Beach, CA 90278
 
 
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If to the Purchaser:
EFUND SMALL CAP FUND II, LP
301 E. Ocean Blvd. Ste. 640
Long Beach, CA 90802
Facsimile: 562-983-0662
 
Each party shall provide five days’ prior written notice to the other party of
any change in address or facsimile number.

(h) No Assignment. This Agreement may not be assigned.

(i) No Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and is not for the benefit of, nor may any provision hereof
be enforced by, any other person.

(j) Survival. The representations and warranties of the Company and the
Purchaser contained in Sections 2 and 3, the agreements and covenants set forth
in Sections 4 and 5, and the indemnification provisions set forth in Section 10,
shall survive each of the Closings and the termination of this Agreement.

(k) Publicity. The Company and Purchaser shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of Purchaser without
the prior written consent of such Purchaser, except to the extent required by
law. Purchaser acknowledges that this Agreement and all or part of the
Transaction Documents may be deemed to be “material contracts” as that term is
defined by Item 601(b)(10) of Regulation S-B, and that the Company may therefore
be required to file such documents as exhibits to reports or registration
statements filed under the 1933 Act or the 1934 Act. Purchaser further agrees
that the status of such documents and materials as material contracts shall be
determined solely by the Company, in consultation with its counsel.

(l) Further Assurances. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

(m)  Placement Agent. There were no brokers involved in this Agreement.

(n) No Strict Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

(o) Remedies. The Purchaser and each Purchaser of the Shares shall have all
rights and remedies set forth in this Agreement and the Registration Rights
Agreement and all rights and remedies which such Purchasers have been granted at
any time under any other agreement or contract and all of the rights which such
Purchasers have under any law. Any person having any rights under any provision
of this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any default
or breach of any provision of this Agreement, including the recovery of
reasonable attorneys fees and costs, and to exercise all other rights granted by
law.

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(p) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchaser hereunder or the Registration Rights Agreement or the
Purchaser enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.

(q) Pricing of Common Stock. For purposes of this Agreement, the bid price of
the Common Stock in this Agreement shall be as reported on Bloomberg.com.

* * *
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SIGNATURE PAGE OF INVESTMENT AGREEMENT
 
Your signature on this Signature Page evidences your agreement to be bound by
the terms and conditions of the Investment Agreement and the Registration Rights
Agreement as of the date first written above.

The undersigned signatory hereby certifies that he has read and understands the
Investment Agreement, and the representations made by the undersigned in this
Investment Agreement are true and accurate, and agrees to be bound by its terms.

EFUND SMALL CAP FUND II, LP 

By: /s/ Barrett Evans
Barrett Evans, Managing Member

HOMELAND SECURITY NETWORK, INC.

By: /s/ Peter Ubaldi
       Peter Ubaldi, President

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