SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                 |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For The Quarterly Period Ended September 30, 2001
                                       or
                 |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                           Commission file No. 0-12641


                                [OBJECT OMITTED]
                        IMAGING TECHNOLOGIES CORPORATION
             (Exact name of registrant as specified in its charter)


     DELAWARE                                                33-0021693
(State or other jurisdiction of                         (IRS Employer ID No.)
 incorporation or organization)

                             15175 Innovation Drive
                           San Diego, California 92128
                    (Address of principal executive offices)

       Registrant's Telephone Number, Including Area Code: (619) 613-1300

Check whether the registrant  (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.

                                 Yes |X| No |_|

The number of shares outstanding of the registrant's common stock as of November
13, 2001 was 205,978,931.

<PAGE>
                                                                            PAGE

PART I - FINANCIAL INFORMATION

       ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

       Consolidated Balance Sheets
         September 30, 2001 (unaudited) and June 30, 2001 (audited)            2

       Consolidated Statements of Operations
         Three months ended September 30, 2001 and 2000 (unaudited)            3

       Consolidated Statements of Cash Flows
         Three months ended September 30, 2001 and 2000 (unaudited)            4

       Notes to Consolidated Financial Statements.                             5


       ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS                            7

       ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                MARKET RISK                                                   14

PART II - OTHER INFORMATION

       ITEM 1.  LEGAL PROCEEDINGS                                             14

       ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                     14

       ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                               14

       ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS           14

       ITEM 5.  OTHER INFORMATION                                             15

       ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                              15


SIGNATURES                                                                    16


                                       1

<PAGE>

                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      SEPTEMBER 30, 2001 AND JUNE 30, 2001
                        (in thousands, except share data)

                                     ASSETS

<TABLE>
<CAPTION>

                                                                      9/30/01           6/30/01
<S>                                                                  <C>                <C>
Current assets
   Cash                                                              $     36           $    35
   Accounts receivable                                                    574                58
   Inventories                                                            140                50
   Prepaid expenses and other                                             273               259
                                                                     --------           -------
          Total current assets                                          1,023               402

Goodwill, net                                                             569               569
Property and Equipment, net                                               152               241

                                                                     $  1,744           $ 1,212
                                                                     ========           =======

<CAPTION>

              LIABILITIES AND SHAREHOLDERS' NET CAPITAL DEFICIENCY

<S>                                                                  <C>                <C>
Current liabilities
   Borrowings under bank notes payable                               $  4,018           $ 4,318
   Short-term debt                                                      4,606             3,379
   Accounts payable                                                     5,498             6,450
   Accrued expenses                                                     4,914             3,175
                                                                     --------           -------
          Total current liabilities                                    19,036            17,322
                                                                     --------           -------
Stockholders' net capital deficiency
   Series A preferred stock, $1,000 par value, 7,500 shares
    authorized, 420.5 shares issued and outstanding                       420               420
   Common stock, $0.005 par value, 500,000,000 shares
    Authorized; 170,901,065 shares issued and outstanding
    at June 30, 2001; 170,958,065 at September 30, 2001                   865               864
   Common stock warrants                                                  541               475
   Paid-in capital                                                     69,479            69,472
   Shareholder loans                                                     (105)             (105)
   Accumulated deficit                                                (88,492)          (87,236)
                                                                     --------           -------
          Total shareholders' net capital deficiency                  (17,292)          (16,110)
                                                                     --------           -------
                                                                     $  1,744           $ 1,212
                                                                     ========           =======
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       2

<PAGE>

                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
          THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
                        (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                 2001                2000
<S>                                                         <C>                 <C>
Revenues
  Sales of products                                         $   1,057           $     660
  Licenses and royalties                                           21                 177
                                                            ---------           ---------
                                                                1,078                 837
                                                            ---------           ---------
Costs and expenses
  Cost of products sold                                           598                 443
  Selling, general, and administrative                          1,413               2,351
  Research  and development                                        72                 239
                                                            ---------           ---------
                                                                2,083               3,033
                                                            ---------           ---------
Loss from operations                                           (1,005)             (2,196)
                                                            ---------           ---------
Other income (expense):
  Interest and finance costs, net                                (177)               (182)
  Other                                                            --                  --
                                                            ---------           ---------
                                                                 (177)               (182)
                                                            ---------           ---------
Loss before income taxes                                       (1,182)             (2,378)

Income tax benefit (expense)                                       --                  --
                                                            ---------           ---------

Net loss                                                    $  (1,182)          $  (2,378)
                                                            =========           =========
Earnings (loss) per common share
  Basic                                                     $   (0.01)          $   (0.02)
                                                            =========           =========
  Diluted                                                   $   (0.01)          $   (0.02)
                                                            =========           =========

Weighted average common shares                                170,984             103,160
                                                            =========           =========
Weighted average common shares - assuming dilution            170,984             103,160
                                                            =========           =========

</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       3
<PAGE>

                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                        2001              2000
                                                                        ----              ----
<S>                                                                 <C>                <C>
Cash flows from operating activities
   Net loss                                                         $ (1,182)          $(2,378)
   Adjustments to reconcile net loss to net
     cash from operating activities
        Depreciation and amortization                                     16                72
        Stock issued for services                                         73               450
        Changes in operating assets and liabilities
           Accounts receivable                                          (516)             (197)
           Inventories                                                   (90)              138
           Prepaid expenses and other                                    (14)              132
           Accounts payable and accrued expenses                         787               729
                                                                    --------           -------
               Net cash from (used by) operating activities             (926)           (1,054)
                                                                    --------           -------

Cash flows from investing activities
   Capital expenditures                                                   --               (55)
                                                                    --------           -------
           Net cash from (used by) investing activities                   --               (55)
                                                                    --------           -------
Cash flows from financing activities
   Net borrowings under bank notes payable                              (300)             (300)
   Issuance of other notes payable                                     1,227               250
   Net proceeds from issuance of common stock                             --             1,213
                                                                    --------           -------
               Net cash from financing activities                        927             1,163
                                                                    --------           -------

Net increase (decrease) in cash                                            1                54
   Cash, beginning of period                                              35               291
                                                                    --------           -------
   Cash, end of period                                              $     36           $   345
                                                                    ========           =======
Supplemental disclosure of cash flow information
   Cash paid during the period for interest                         $     --           $    --
   Cash paid during the period for income taxes                     $     --           $   182

</TABLE>

                 See Notes to Consolidated Financial Statements.


                                        4
<PAGE>

                IMAGING TECHNOLOGIES CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        (in thousands, except share data)
                                   (unaudited)

Note 1.  Basis Of Presentation

The  accompanying  unaudited  consolidated  condensed  financial  statements  of
Imaging Technologies Corporation and Subsidiaries (the "Company" or "ITEC") have
been prepared  pursuant to the rules of the Securities  and Exchange  Commission
(the  "SEC") for  quarterly  reports on Form 10-Q and do not  include all of the
information  and note  disclosures  required by  generally  accepted  accounting
principles.  These financial  statements and notes herein are unaudited,  but in
the opinion of  management,  include  all the  adjustments  (consisting  only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial  position,  results  of  operations,  and cash  flows for the  periods
presented.  These financial  statements  should be read in conjunction  with the
Company's  audited  financial  statements  and notes thereto for the years ended
June 30, 2001,  2000,  and 1999 included in the Company's  annual report on Form
10-K  filed  with  the  SEC.  Interim  operating  results  are  not  necessarily
indicative of operating  results for any future  interim  period or for the full
year.

Note 2.  Going Concern Considerations

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going  concern.  At September  30, 2001,  and for the
year then ended,  the Company has experienced a net loss and has deficiencies in
working capital and net worth that raise  substantial doubt about its ability to
continue  as a going  concern.  On August 20,  1999,  at the request of Imperial
Bank, the Company's primary lender, the Superior Court of San Diego appointed an
operational receiver who took control of the Company's day-to-day  operations on
August 23, 1999.  On June 21, 2000, in  connection  with a settlement  agreement
reached with  Imperial  Bank,  the  Superior  Court of San Diego issued an order
dismissing the operational receiver.

On October 21, 1999, Nasdaq notified the Company that it no longer complied with
the  bid  price  and  net  tangible  assets/market   capitalization/net   income
requirements for continued  listing on The Nasdaq SmallCap Market.  At a hearing
on December 2, 1999, a Nasdaq  Listing  Qualifications  Panel also raised public
interest concerns relating to the Company's financial  viability.  The Company's
common stock was delisted from The Nasdaq Stock Market  effective with the close
of  business  on March 1, 2000.  As a result of being  delisted  from The Nasdaq
SmallCap  Market,  stockholders may find it more difficult to sell common stock.
This lack of liquidity  also may make it more  difficult to raise capital in the
future.   Trading  of  the  Company's   common  stock  is  now  being  conducted
over-the-counter  through the NASD Electronic Bulletin Board and covered by Rule
15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers
who recommend these securities to persons other than  established  customers and
accredited  investors must make a special written suitability  determination for
the purchaser  and receive the  purchaser's  written  agreement to a transaction
prior to sale.  Securities  are exempt from this rule if the market  price is at
least  $5.00  per  share.  The  Securities  and  Exchange   Commission   adopted
regulations  that generally  define a "penny stock" as any equity  security that
has a market  price of less than  $5.00 per share.  Additionally,  if the equity
security is not  registered or authorized on a national  securities  exchange or
the Nasdaq and the issuer has net tangible assets under  $2,000,000,  the equity
security also would constitute a "penny stock." Our common stock does constitute
a penny stock  because our common  stock has a market  price less than $5.00 per
share,  our  common  stock is no longer  quoted on Nasdaq  and our net  tangible
assets do not exceed $2,000,000. As our common stock falls within the definition
of penny stock, these regulations require the delivery, prior to any transaction
involving our common stock, of a disclosure  schedule explaining the penny stock
market  and  the  risks  associated  with  it.   Furthermore,   the  ability  of
broker/dealers  to sell our common stock and the ability of shareholders to sell
our common  stock in the  secondary  market would be limited.  As a result,  the
market liquidity for our common stock would be severely and adversely  affected.
We can provide no assurance that trading in our common stock will not be subject
to these or other  regulations in the future,  which would negatively affect the
market for our common stock.

The Company must obtain additional funds to provide adequate working capital and
finance operations.  However, there can be no assurance that the Company will be
able to complete any additional debt or equity  financings on favorable terms or
at all, or that any such financings,  if completed, will be adequate to meet the
Company's  capital  requirements  including  compliance  with the Imperial  Bank
settlement agreement. Any additional equity or


                                       5
<PAGE>

convertible  debt  financings  could  result  in  substantial  dilution  to  the
Company's stockholders.  If adequate funds are not available, the Company may be
required to delay,  reduce or eliminate  some or all of its planned  activities,
including any potential mergers or acquisitions. The Company's inability to fund
its capital  requirements  would have a material  adverse effect on the Company.
The financial  statements do not include any adjustments  that might result from
the outcome of this uncertainty.

Note 3.  Earnings (Loss) Per Common Share

Basic earnings  (loss) per common share ("Basic EPS")  excludes  dilution and is
computed by dividing net income  (loss)  available to common  shareholders  (the
"numerator") by the weighted  average number of common shares  outstanding  (the
"denominator")  during the  period.  Diluted  earnings  (loss) per common  share
("Diluted  EPS") is similar  to the  computation  of Basic EPS  except  that the
denominator is increased to include the number of additional  common shares that
would have been  outstanding  if the dilutive  potential  common shares had been
issued. In addition, in computing the dilutive effect of convertible securities,
the  numerator  is  adjusted  to add  back  the  after-tax  amount  of  interest
recognized in the period  associated with any convertible  debt. The computation
of Diluted EPS does not assume  exercise or conversion of securities  that would
have an anti-dilutive  effect on net earnings (loss) per share. The following is
a reconciliation of Basic EPS to Diluted EPS:

<TABLE>
<CAPTION>

                                            Earnings (loss)        Shares           Per-Share
                                              (Numerator)       (Denominator)        Amount
<S>                                          <C>                 <C>               <C>
September 30, 2000
  Net loss                                   $      (2,378)
   Preferred dividends                                  (6)
                                             -------------
  Basi and diluted EPS                       $      (2,384)      103,160           $ (0.02)

September 30, 2001
  Net loss                                   $      (1,141)
   Preferred dividends                                  (6)
                                             -------------
  Basic and diluted EPS                      $      (1,147)      170,985           $ (0.01)
                                             =============       =======           =======

</TABLE>

<TABLE>
<CAPTION>

Note 4.  Inventories
                                                               September 30,      June 30,
                                                                   2001             2001
<S>                                                             <C>               <C>
     Inventories
         Materials and supplies                                 $     10          $     10
         Finished goods                                              130                40
                                                                ---------         --------
                                                                $    140          $     50
                                                                =========         ========

</TABLE>


                                       6
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

     The following  discussion and analysis  should be read in conjunction  with
the consolidated  financial  statements and notes thereto appearing elsewhere in
this Quarterly  Report on Form 10-Q.  The  discussion of the Company's  business
contained in this Quarterly Report on Form 10-Q may contain certain projections,
estimates and other  forward-looking  statements  that involve a number of risks
and uncertainties, including those discussed below at "Risks and Uncertainties."
While  this  outlook  represents  management's  current  judgment  on the future
direction  of the  business,  such risks and  uncertainties  could cause  actual
results to differ  materially from any future  performance  suggested below. The
Company  undertakes  no  obligation  to  release  publicly  the  results  of any
revisions to these forward-looking statements to reflect events or circumstances
arising after the date hereof.

OVERVIEW

     Imaging Technologies  Corporation develops and distributes imaging software
and distributes high-quality digital imaging products. The Company sells a range
of printer and imaging  products  for use in graphics  and  publishing,  digital
photography,  and other niche business and technical markets. The Company's core
technologies  are related the design and  development of software  products that
improve the accuracy of color reproduction.

     As of  the  end  of  fiscal  2001,  the  Company's  business  continues  to
experience  operational  and  liquidity  challenges.  Accordingly,  year-to-year
financial  comparisons may be of limited usefulness now and for the next several
quarters due to anticipated  changes in the Company's  business as these changes
relate to potential  acquisitions of new  businesses,  changes in product lines,
and the potential for discontinuing certain components of the business.

     The Company's current strategy is: (1) to commercialize its own technology,
which is embodies in its ColorBlind  Color  Management  software,  (2) to market
imaging products,  including  printers,  copiers,  and consumables  (toner, ink,
etc.) from other  manufacturers to its customers,  and (3) to develop e-commerce
sites  in  order  to sell  imaging  products  to  resellers  and  other  imaging
professionals.

     To  successfully  execute its current  strategy,  the Company  will need to
improve  its  working  capital  position.  The  Company  plans to  overcome  the
circumstances  that  impact  our  ability  to remain a going  concern  through a
combination  of  achieving  profitability,  raising  additional  debt and equity
financing, and renegotiating existing obligations.

     Since the removal of the court appointed operational receiver in June 2000,
the Company has been working to reduce  costs though the  reduction in staff and
the suspension of certain research and development programs,  such as the design
and manufacture of controller  boards and printers.  The Company began a program
to reduce its debt through debt to equity conversions.  Management  continues to
pursue the acquisition of businesses that will grow the Company's business.

     There  can be no  assurance,  however,  that  the  Company  will be able to
complete any additional debt or equity  financings on favorable terms or at all,
or that  any  such  financings,  if  completed,  will be  adequate  to meet  the
Company's  capital  requirements.  Any  additional  equity or  convertible  debt
financings could result in substantial  dilution to the Company's  stockholders.
If  adequate  funds are not  available,  the  Company  may be required to delay,
reduce  or  eliminate  some  or all of its  planned  activities,  including  any
potential mergers or acquisitions.  The Company's  inability to fund its capital
requirements  would  have a material  adverse  effect on the  Company.  Also see
"Liquidity  and  Capital   Resources."   and  "Item  1.  Business  -  Risks  and
Uncertainties - Future Capital Needs."

Restructuring and New Business Units

     In July 2001, the Company  suspended its printer  controller  manufacturing
operations  in  favor  of  re-selling  products  from  other  companies  to  its
customers.

Acquisition and Sale of Business Units

Subsequent  to the period ended  September  30, 2001,  on October 25, 2001,  the
Company acquired certain assets from three employees.  These assets,  related to
the Company's  office products and services  business  activities,  represent an
aggregate  of $260,000  and include  inventories,  fixed  assets,  and  accounts
receivable. The purchase price of the assets was 7,500,000 shares of ITEC common
stock,  determined  by the  market  price  of ITEC  common  stock at the date of
acquisition. The Company has agreed to register these shares.

Subsequent to the period ended  September  30, 2001,  on November 12, 2001,  the
Company acquired all of the outstanding shares of SourceOne,  Inc. ("SourceOne")
from Neotactix,  Inc. for 10,000,000  shares of ITEC common


                                       7
<PAGE>

stock.  These shares will be registered  by the Company  subsequent to filing of
audited  financial  statements  related to the acquisition on Form 8-K within 60
days of this filing.

The  acquisition  price also included the assumption of $750,000 in payments due
SourceOne  from  Neotactix.  ITEC paid $250,000 in cash at Closing.  These funds
were  provided by outside  investors in exchange for  13,888,890  shares of ITEC
common  stock.  The balance is payable in cash or stock on a  quarterly  payment
schedule  beginning in April 2002. The Company has agreed to register all shares
subsequent to filing of audited financial  statements related to the acquisition
on Form 8-K within 60 days of this filing.

The  purchase  price was  determined  through  analysis of  SourceOne's  recent,
unaudited  financial  performance.  SourceOne,  through  September 30, 2001, had
losses of approximately  $220 thousand on 6-month revenues of approximately  $25
million.  The total  purchase price of $750 thousand in cash plus the payment of
10,000,000 shares of ITEC common stock, was arrived at through negotiations. The
assets of SourceOne consist of cash, accounts receivable, and pre-paid insurance
premiums.

SourceOne  is  a  professional   employer  organization  ("PEO")  that  provides
comprehensive  personnel  management  services,  including  benefits and payroll
administration,  health and workers' compensation insurance programs,  personnel
records management, and employer liability management.

The Company will report this transaction, including audited financial statements
of SourceOne, on Form 8-K within 60 days of this report.

RESULTS OF OPERATIONS NET REVENUES

     Revenues  were $1.08  million  and $837  thousand  for the  quarters  ended
September  30, 2001 and 2000,  respectively.  The 29%  increase in sales was due
primarily  to the change in the  Company's  strategy to sell  several  brands of
office equipment rather than complete reliance on its own branded products. As a
residual component of this strategic shift, revenues from licenses and royalties
related to Company-developed  technologies decreased by $156 thousand or 89% for
the quarter ended September 30, 2001 and compared to the prior year.

COST OF PRODUCTS SOLD

     Cost of products sold were $598 thousand or 57% of products  sales and $443
thousand or 67% of product sales for the quarters  ended  September 30, 2001 and
2000,  respectively.  The  percentage  decrease  in 2001 as compared to 2000 was
primarily due to lower  margins for  purchased  products as compared to products
that the Company had, in the previous year, developed and manufactured under its
own brand name, as well as the amortization of capitalized  software  recognized
in 2000.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling,  general and administrative expenses were $ 1.4 million or 128% of
total revenues and $2.4 million or 281% of total revenues for the quarters ended
September 30, 2001 and 2000, respectively. Such expenses decreased by $1 million
or 42% for the period ended September 30, 2001 as compared to the previous year.
Selling,  general and  administrative  expenses  consisted  primarily of general
corporation functions, salaries, facilities, and fees for professional services,
including legal expenses.  The decrease in selling,  general and  administrative
expenses in the period ended September 30, 2001 as compared to the  year-earlier
period was due primarily to  management's  reduction of  associated  activities,
including reductions in personnel, marketing expenses, and facilities.

RESEARCH AND DEVELOPMENT

     Research and development expenses were $72 thousand or 7% and $239 thousand
or 29% of total revenue for the quarters ended  September 30, 2001 and September
30,  2000.  The  decrease  in expenses in 2001  compared to 2000  resulted  from
reductions  in research  and  development  activity  during the  period.  Due to
ongoing  shortages  in  working  capital,   the  Company  has  discontinued  its
development  activities  related to its own,  branded  products  and the sale of
engineering development contracts.


                                       8
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     Historically,  the Company has financed its  operations  primarily  through
cash  generated from  operations,  debt  financing,  and from the sale of equity
securities.

     In the  near-term,  the Company must rely on generating the majority of its
cash from the sale of equity  securities.  To address  these needs,  the Company
has, and plans to continue to sell both equity and debt securities. Additionally
the Company must produce profitable and cash flow positive operations and reduce
its dependence upon equity and debt financings.

     As of September  30,  2001,  the Company had  negative  working  capital of
approximately  $18 million compared to negative working capital of $16.9 million
for the year ended June 30, 2001, a decrease of approximately $1.1 million.  The
decrease is primarily due to the operating loss for the period..

     During the period ended September 30, 2001, the Company placed $1.2 million
of notes  payable  debt in  order  to  finance  operations.  Without  additional
funding,  through both equity and debt financing in the near future,  sufficient
to satisfy the creditors of the Company,  as well as providing  working  capital
for the Company,  the Company  will have to further  curtail its  operations  or
cease to operate.  The Company  continues to actively work with entities capable
of providing such funding.

     Net cash used in operating activities decreased by $128 thousand during the
quarter ended  September 30, 2001,  from $1.05 million  during the quarter ended
September 30, 2000, due primarily to reductions in operating expenses.

     No cash was used in investing activities during the quarter ended September
30, 2001. $55 thousand was used during the quarter ended September 30, 2000. The
decrease was due to lack of cash to make such investments.

     Net cash from financing  activities  decreased by $236 thousand  during the
quarter ended  September  30, 2001,  from $1.2 million  during the  year-earlier
quarter. The decrease was due primarily to a reduction in the amount of debt and
equity  securities  sold during the period ended  September 30, 2001 compared to
the  year-earlier  period,  which has been the principal source of liquidity for
the Company.

     The  Company's  5%  convertible  preferred  stock (which ranks prior to the
Company's common stock) carries cumulative  dividends,  when and as declared, at
an annual rate of $50.00 per share.  The aggregate  amount of such  dividends in
arrears at September 30, 2001, was approximately $315 thousand.

     The Company has no material commitments for capital expenditures.

     The Company's capital  requirements  depend on numerous factors,  including
market  acceptance of the products we sell, the resources the Company devotes to
marketing and selling  products and  services,  and other  factors.  The Company
anticipates that its capital  requirements will increase in future periods as it
continues  to  increase  its  sales and  marketing  efforts.  The  report of the
Company's   independent  auditors  accompanying  the  Company's  June  30,  2001
financial  statements  includes an explanatory  paragraph  indicating there is a
substantial  doubt about the Company's  ability to continue as a going  concern,
due primarily to the decreases in the Company's  working  capital and net worth.
If  adequate  funds are not  available,  the  Company  may be required to delay,
reduce  or  eliminate  some  or all of its  planned  activities.  The  Company's
inability to fund its capital  requirements would have a material adverse effect
on the Company. See "Risks and Uncertainties--Future Capital Needs."

RISKS AND UNCERTAINTIES FUTURE CAPITAL NEEDS

     IF WE ARE UNABLE TO SECURE  FUTURE  CAPITAL,  WE WILL BE UNABLE TO CONTINUE
OUR OPERATIONS.  Our business has not been profitable in the past and it may not
be profitable in the future.  We may incur losses on a quarterly or annual basis
for a number of  reasons,  some  within  and others  outside  our  control.  See
"Potential Fluctuation in Our Quarterly Performance." The growth of our business
will require the commitment of substantial  capital resources.  If funds are not
available  from  operations,  we will need  additional  funds.  We may seek such
additional  funding  through  public and private  financing,  including  debt or
equity financing.  Adequate funds for these purposes,  whether through financial
markets or from other sources,  may not be available when we need them.  Even if
funds are available, the terms under which the funds are available to us may not
be  acceptable  to us.  Insufficient  funds may  require us to delay,  reduce or
eliminate some or all of our planned activities.


                                       9
<PAGE>

     To successfully  execute our current strategy,  we will need to improve our
working capital position.  The report of our independent  auditors  accompanying
the  Company's  June 30,  2001  financial  statements  includes  an  explanatory
paragraph indicating there is a substantial doubt about the Company's ability to
continue as a going  concern,  due  primarily  to the  decreases  in our working
capital and net worth.  The Company  plans to overcome  the  circumstances  that
impact our ability to remain a going concern  through a combination of increased
revenues  and  decreased  costs,  with  interim  cash  flow  deficiencies  being
addressed through additional equity financing.

     IF OUR QUARTERLY PERFORMANCE CONTINUES TO FLUCTUATE, IT MAY HAVE A NEGATIVE
IMPACT  ON  OUR  BUSINESS.   Our  quarterly   operating  results  can  fluctuate
significantly  depending  on a number of factors,  any one of which could have a
negative impact on our results of operations. The factors include: the timing of
product  announcements and subsequent  introductions of new or enhanced products
by us and by our  competitors,  the  availability  and cost of  products  and/or
components,  the  timing  and  mix of  shipments  of our  products,  the  market
acceptance of our new products,  the  availability  of leasing or other purchase
financing for our customers, seasonality, currency fluctuations,  changes in our
prices and in our competitors'  prices, price protection offered to distributors
and OEMs for product price  reductions,  the timing of expenditures for staffing
and related support costs,  the extent and success of advertising,  research and
development expenditures, and changes in general economic conditions.

     We may  experience  significant  quarterly  fluctuations  in  revenues  and
operating  expenses as we introduce  new  products.  In addition,  our component
purchases,  production and spending levels are based upon our forecast of future
demand for our products.  Accordingly,  any  inaccuracy  in our forecasts  could
adversely affect our financial  condition and results of operations.  Demand for
our products could be adversely affected by a slowdown in the overall demand for
computer systems,  printer products or digitally printed images.  Our failure to
complete  shipments during a quarter could have a material adverse effect on our
results of operations for that quarter.  Quarterly  results are not  necessarily
indicative of future performance for any particular period.

     SINCE OUR COMPETITORS HAVE GREATER  FINANCIAL AND MARKETING  RESOURCES THAN
WE DO, WE MAY  EXPERIENCE A REDUCTION IN MARKET SHARE AND REVENUES.  The markets
for our  products  are highly  competitive  and  rapidly  changing.  Some of our
current  and  prospective  competitors  have  significantly  greater  financial,
technical,  manufacturing  and  marketing  resources  than we do. Our ability to
compete in our markets  depends on a number of  factors,  some within and others
outside our control. These factors include: the frequency and success of product
introductions by us and by our  competitors,  the selling prices of our products
and of our  competitors'  products,  the  performance of our products and of our
competitors'  products,  product distribution by us and by our competitors,  our
marketing ability and the marketing ability of our competitors,  and the quality
of customer support offered by us and by our competitors.

     A key element of our strategy is to provide competitively  priced,  quality
products.   We  cannot  be  certain  that  our  products  will  continue  to  be
competitively  priced.  We have reduced prices on certain of our products in the
past and will likely continue to do so in the future.  Price reductions,  if not
offset by similar reductions in product costs, will reduce our gross margins and
may adversely affect our financial condition and results of operations.

     IF WE ARE UNABLE TO DEVELOP AND/OR ACQUIRE NEW PRODUCTS IN A TIMELY MANNER,
WE MAY  EXPERIENCE A SIGNIFICANT  DECLINE IN SALES AND REVENUES,  WHICH MAY HURT
OUR  ABILITY  TO  CONTINUE   OPERATIONS.   The  markets  for  our  products  are
characterized by rapidly evolving technology, frequent new product introductions
and significant price competition.  Consequently,  short product life cycles and
reductions in product selling prices due to competitive  pressures over the life
of a product  are  common.  Our future  success  will  depend on our  ability to
continue to develop  new  versions of our  ColorBlind  software,  and to acquire
competitive  products  from  other  manufacturers.  We  monitor  new  technology
developments and coordinate with suppliers,  distributors and dealers to enhance
our products  and to lower  costs.  If we are unable to develop and acquire new,
competitive  products in a timely manner, our financial condition and results of
operations will be adversely affected.

     IF THE  MARKET'S  ACCEPTANCE  OF OUR  PRODUCTS  CEASES TO GROW,  WE MAY NOT
GENERATE  SUFFICIENT  REVENUES TO CONTINUE OUR  OPERATIONS.  The markets for our
products are relatively new and are still developing.  We believe that there has
been growing market acceptance for color printers, color management software and
supplies.  We cannot be certain,  however,  that these  markets will continue to
grow.  Other  technologies are constantly  evolving and improving.  We cannot be
certain that products based on these other technologies will not have a material
adverse effect on the demand for our products.  If our products are not accepted
by the  market,  we will  not  generate  sufficient  revenues  to  continue  our
operations.


                                       10
<PAGE>

     IF WE ACQUIRE COMPLEMENTARY  BUSINESSES,  WE MAY NOT BE ABLE TO EFFECTIVELY
INTEGRATE THEM INTO OUR CURRENT  OPERATIONS,  WHICH WOULD  ADVERSELY  AFFECT OUR
OVERALL  FINANCIAL  PERFORMANCE.  In order to grow our business,  we may acquire
businesses that we believe are  complementary.  To  successfully  implement this
strategy,  we must  identify  suitable  acquisition  candidates,  acquire  these
candidates  on acceptable  terms,  integrate  their  operations  and  technology
successfully with ours,  retain existing  customers and maintain the goodwill of
the acquired  business.  We may fail in our efforts to implement  one or more of
these tasks. Moreover, in pursuing acquisition opportunities, we may compete for
acquisition targets with other companies with similar growth strategies. Some of
these  competitors may be larger and have greater  financial and other resources
than we do.  Competition for these acquisition  targets likely could also result
in increased  prices of acquisition  targets and a diminished  pool of companies
available for acquisition.  Our overall financial performance will be materially
and adversely affected if we are unable to manage internal or  acquisition-based
growth  effectively.   Acquisitions  involve  a  number  of  risks,   including:
integrating  acquired products and technologies in a timely manner,  integrating
businesses  and employees with our business,  managing  geographically-dispersed
operations,    reductions    in   our    reported    operating    results   from
acquisition-related charges and amortization of goodwill, potential increases in
stock  compensation  expense and increased  compensation  expense resulting from
newly-hired employees,  the diversion of management attention, the assumption of
unknown liabilities, potential disputes with the sellers of one or more acquired
entities,  our  inability  to  maintain  customers  or  goodwill  of an acquired
business,  the need to divest  unwanted  assets or  products,  and the  possible
failure to retain key acquired personnel.

     Client satisfaction or performance problems with an acquired business could
also have a material adverse effect on our reputation, and any acquired business
could  significantly  under perform relative to our  expectations.  We cannot be
certain  that we will be able to  integrate  acquired  businesses,  products  or
technologies successfully or in a timely manner in accordance with our strategic
objectives,  which could have a material adverse effect on our overall financial
performance.

     In addition,  if we issue equity securities as consideration for any future
acquisitions, existing stockholders will experience ownership dilution and these
equity securities may have rights,  preferences or privileges  superior to those
of our common stock.

     IF WE ARE FOUND TO BE INFRINGING ON A  COMPETITOR'S  INTELLECTUAL  PROPERTY
RIGHTS OR IF WE ARE REQUIRED TO DEFEND AGAINST A CLAIM OF  INFRINGEMENT,  WE MAY
BE REQUIRED TO REDESIGN  OUR  PRODUCTS OR DEFEND A LEGAL  ACTION AT  SUBSTANTIAL
COSTS TO US. We  currently  hold no patents.  Our  software  products,  hardware
designs, and circuit layouts are copyrighted. However, copyright protection does
not prevent other companies from emulating the features and benefits provided by
our software,  hardware  designs or the  integration  of the two. We protect our
software  source  code as trade  secrets  and make our  proprietary  source code
available  to OEM  customers  only  under  limited  circumstances  and  specific
security and confidentiality constraints.

     Competitors may assert that we infringe their patent rights.  If we fail to
establish that we have not violated the asserted rights,  we could be prohibited
from  marketing the products that  incorporate  the  technology  and we could be
liable for  damages.  We could  also incur  substantial  costs to  redesign  our
products or to defend any legal action taken  against us. We have  obtained U.S.
registration  for several of our trade  names or  trademarks,  including:  PCPI,
NewGen,  ColorBlind,  LaserImage,  ColorImage,  ImageScript and ImageFont. These
trade names are used to distinguish our products in the marketplace.

     IF INTERNATIONAL FINANCIAL CONDITIONS DETERIORATE, OUR CONTINUED OPERATIONS
AND  OVERALL  FINANCIAL  PERFORMANCE  WILL BE  NEGATIVELY  IMPACTED.  WE CONDUCT
BUSINESS GLOBALLY.  Accordingly,  our future results could be adversely affected
by a variety of uncontrollable and changing factors including:  foreign currency
exchange  fluctuations,  regulatory,  political  or  economic  conditions  in  a
specific  country or region,  the imposition of  governmental  controls,  export
license requirements,  restrictions on the export of critical technology,  trade
restrictions,   changes  in  tariffs,   government  spending  patterns,  natural
disasters,  difficulties in staffing and managing international operations;  and
difficulties in collecting accounts receivable.

     In addition,  the laws of certain countries do not protect our products and
intellectual  property  rights  to the same  extent  as the  laws of the  United
States.

     We intend to pursue international  markets as key avenues for growth and to
increase the  percentage of sales  generated in  international  markets.  In our
2001, 2000, and 1999 fiscal years,  sales outside the United States  represented
approximately 72%, 2%, and 56% of our net sales,  respectively.  We expect sales
outside the United States to continue to represent a significant  portion of our
sales.  As we continue to expand our  international  sales


                                       11
<PAGE>

and operations,  our business and overall financial performance may be adversely
affected by the factors stated above.

     IF ALL OF THE LAWSUITS  CURRENTLY  FILED WERE DECIDED AGAINST US AND/OR ALL
THE JUDGMENTS CURRENTLY OBTAINED AGAINST US WERE TO BE IMMEDIATELY COLLECTED, WE
WOULD HAVE TO CEASE OUR  OPERATIONS.  On or about October 7, 1999, the law firms
of Weiss & Yourman and Stull, Stull & Brody made a public announcement that they
had filed a lawsuit  against us and  certain  current and past  officers  and/or
directors,  alleging  violation of federal  securities laws during the period of
April 21, 1998 through  October 9, 1998.  On or about  November  17,  1999,  the
lawsuit,  filed in the name of Nahid  Nazarian  Behfarin,  on her own behalf and
others purported to be similarly situated, was served on us. A motion to dismiss
the lawsuit was granted on February 16, 2001 on our behalf and those  individual
defendants  that have been  served.  However,  on or about  March 19,  2001,  an
amended  complaint was filed by Nahid  Nazarian  Behfarin,  Peter Cook,  Stephen
Domagala and Michael S. Taylor,  on behalf of  themselves  and others  similarly
situated.  On or about March 20,  2001,  we once again filed a motion to dismiss
the case along with certain other individual  defendants.  The motion was denied
and an answer to the  complaint  has been  filed on  behalf of the  company  and
certain individual defendants.  We believe these claims are without merit and we
intend to vigorously  defend  against them on our behalf as well as on behalf of
the other  defendants.  The  defense  of this  action has been  tendered  to our
insurance carriers.

     Throughout fiscal 1999, 2000 and 2001, and through the date of this filing,
approximately  fifty trade  creditors  have made  claims  and/or  filed  actions
alleging  the  failure of us to pay our  obligations  to them in a total  amount
exceeding $3 million.  These actions are in various stages of  litigation,  with
many resulting in judgments  being entered against us. Several of those who have
obtained  judgments have filed judgment liens on our assets.  These claims range
in value from less than one thousand  dollars to just over one million  dollars,
with the great majority being less than twenty  thousand  dollars.  Should we be
required to pay the full amount  demanded in each of these claims and  lawsuits,
we may have to cease our  operations.  However,  to date, the superior  security
interest held by Imperial Bank has prevented nearly all of these trade creditors
from collecting on their judgments.

     IF OUR  OPERATIONS  CONTINUE  TO  RESULT IN A NET  LOSS,  NEGATIVE  WORKING
CAPITAL AND A DECLINE IN NET WORTH,  AND WE ARE UNABLE TO OBTAIN NEEDED FUNDING,
WE MAY BE FORCED TO  DISCONTINUE  OPERATIONS.  For several  recent  periods,  up
through the present,  we had a net loss,  negative working capital and a decline
in net worth,  which raises substantial doubt about our ability to continue as a
going concern.  Our losses have resulted  primarily from an inability to achieve
revenue targets due to  insufficient  working  capital.  Our ability to continue
operations will depend on positive cash flow, if any, from future operations and
on our  ability to raise  additional  funds  through  equity or debt  financing.
Although we have reduced our work force and suspended some of our operations, if
we are unable to achieve the  necessary  product sales or raise or obtain needed
funding, we may be forced to discontinue operations.

     IF OUR WORLDWIDE  DISTRIBUTORS REDUCE OR DISCONTINUE SALES OF OUR PRODUCTS,
OUR BUSINESS MAY BE MATERIALLY AND ADVERSELY AFFECTED. Our products are marketed
and sold through a distribution channel of value added resellers, manufacturers'
representatives,  retail vendors, and systems integrators.  We have a network of
dealers  and  distributors  in the United  States and  Canada,  in the  European
Community  and on the  European  Continent,  as  well  as a  growing  number  of
resellers in Africa,  Asia, the Middle East,  Latin America,  and Australia.  We
support our  worldwide  distribution  network  and  end-user  customers  through
operations  headquartered  in San Diego.  As of  November  8, 2001,  we directly
employed 18 individuals involved in marketing and sales activities.

     A  portion  of our  sales are made  through  distributors,  which may carry
competing product lines. These distributors could reduce or discontinue sales of
our products,  which could adversely affect us. These  independent  distributors
may not devote the resources  necessary to provide effective sales and marketing
support of our  products.  In  addition,  we are  dependent  upon the  continued
viability and financial stability of these distributors, many of which are small
organizations   with  limited  capital.   These   distributors,   in  turn,  are
substantially  dependent on general economic conditions and other unique factors
affecting our markets.

     AS A COMPANY IN THE  TECHNOLOGY  INDUSTRY AND DUE TO THE  VOLATILITY OF THE
STOCK MARKETS  GENERALLY,  OUR STOCK PRICE COULD FLUCTUATE  SIGNIFICANTLY IN THE
FUTURE.  The  market  price of our  common  stock  historically  has  fluctuated
significantly. Our stock price could fluctuate significantly in the future based
upon any number of factors such as: general stock market  trends,  announcements
of developments related to our business,  fluctuations in our operating results,
a shortfall in our revenues or earnings  compared to the estimates of securities
analysts,   announcements   of  technological   innovations,   new  products  or
enhancements  by us or our  competitors,  general


                                       12
<PAGE>

conditions in the markets we serve, general conditions in the worldwide economy,
developments in patents or other intellectual  property rights, and developments
in our relationships with our customers and suppliers.

     In addition,  in recent  years the stock market in general,  and the market
for shares of technology  stocks in particular,  have experienced  extreme price
fluctuations,  which have often been  unrelated to the operating  performance of
affected  companies.  Similarly,  the  market  price  of our  common  stock  may
fluctuate   significantly   based  upon  factors   unrelated  to  our  operating
performance.

     IF AN OPERATIONAL RECEIVER IS REINSTATED TO CONTROL OUR OPERATIONS,  WE MAY
NOT BE ABLE TO CARRY OUT OUR BUSINESS  PLAN.  On August 20, 1999, at the request
of Imperial Bank, our primary lender, the Superior Court, San Diego appointed an
operational receiver to us. On August 23, 1999, the operational  65receiver took
control of our day-to-day operations.  On June 21, 2000, the Superior Court, San
Diego  issued  an  order  dismissing  the  operational  receiver  as a part of a
settlement of litigation with Imperial Bank pursuant to the Settlement Agreement
effective as of June 20, 2000.  The Settlement  Agreement  requires that we make
monthly  payments of $150,000 to Imperial Bank until the indebtedness is paid in
full. However,  in the future,  without additional funding sufficient to satisfy
Imperial  Bank and our other  creditors,  as well as  providing  for our working
capital,  there can be no  assurances  that an  operational  receiver may not be
reinstated.  If an operational  receiver is  reinstated,  we will not be able to
expand our products nor will we have complete control over sales policies or the
allocation of funds.

     The penalty for  noncompliance of the Settlement  Agreement is a stipulated
judgment that allows  Imperial  Bank to  immediately  reinstate the  operational
receiver and begin liquidation  proceedings against us. We are currently meeting
the monthly  amount of $150,000 as stipulated by the  Settlement  Agreement with
Imperial  Bank.  However,  the monthly  payments  have been  reduced to $100,000
through January of 2002.

     THE DELISTING OF OUR COMMON STOCK FROM THE NASDAQ  SMALLCAP MARKET HAS MADE
IT MORE DIFFICULT TO RAISE FINANCING, AND THERE IS LESS LIQUIDITY FOR OUR COMMON
STOCK AS A RESULT.  The Nasdaq  SmallCap  Market and  Nasdaq  Marketplace  Rules
require an issuer to evidence a minimum of $2,000,000 in net tangible  assets, a
$35,000,000 market capitalization or $500,000 in net income in the latest fiscal
year or in two of the last three fiscal years,  and a $1.00 per share bid price,
respectively. On October 21, 1999, Nasdaq notified us that we no longer complied
with the bid  price and net  tangible  assets/market  capitalization/net  income
requirements for continued  listing on The Nasdaq SmallCap Market.  At a hearing
on December 2, 1999, a Nasdaq  Listing  Qualifications  Panel also raised public
interest  concerns  relating  to  our  financial  viability.   While  the  Panel
acknowledged that we were in technical  compliance with the bid price and market
capitalization  requirements,  the Panel was of the opinion  that the  continued
listing  of  our  common  stock  on  The  Nasdaq  Stock  Market  was  no  longer
appropriate.  This  conclusion was based on the Panel's  concerns  regarding our
future  viability.  Our common stock was  delisted  from The Nasdaq Stock Market
effective  with the close of  business  on March 1,  2000.  As a result of being
delisted  from  The  Nasdaq  SmallCap  Market,  stockholders  may  find  it more
difficult to sell our common stock. This lack of liquidity also may make it more
difficult for us to raise capital in the future.

     Trading of our common stock is now being conducted over-the-counter through
the  NASD  Electronic  Bulletin  Board  and  covered  by Rule  15g-9  under  the
Securities  Exchange Act of 1934. Under this rule,  broker/dealers who recommend
these  securities to persons  other than  established  customers and  accredited
investors  must  make  a  special  written  suitability  determination  for  the
purchaser and receive the purchaser's  written  agreement to a transaction prior
to sale.  Securities  are exempt from this rule if the market  price is at least
$5.00 per share.

     The Securities and Exchange  Commission adopted  regulations that generally
define a "penny  stock" as any equity  security  that has a market price of less
than $5.00 per share. Additionally,  if the equity security is not registered or
authorized  on a national  securities  exchange or the Nasdaq and the issuer has
net tangible assets under $2,000,000,  the equity security also would constitute
a "penny  stock." Our common  stock does  constitute  a penny stock  because our
common stock has a market  price less than $5.00 per share,  our common stock is
no longer quoted on Nasdaq and our net tangible assets do not exceed $2,000,000.
As  our  common  stock  falls  within  the  definition  of  penny  stock,  these
regulations require the delivery,  prior to any transaction involving our common
stock, of a disclosure  schedule explaining the penny stock market and the risks
associated  with it.  Furthermore,  the  ability of  broker/dealers  to sell our
common  stock and the ability of  stockholders  to sell our common  stock in the
secondary  market would be limited.  As a result,  the market  liquidity for our
common  stock  would be  severely  and  adversely  affected.  We can  provide no
assurance that trading in our common stock will not be subject to these or other
regulations  in the  future,  which would  negatively  affect the market for our
common stock.


                                       13
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         None

PART II - OTHER INFORMATION
--------------------------------------------------------------------------------

ITEM 1.  LEGAL PROCEEDINGS

     On or about  October 7, 1999,  the law firms of Weiss & Yourman  and Stull,
Stull & Brody made a public  announcement  that they had filed a lawsuit against
us and certain current and past officers and/or directors, alleging violation of
federal  securities  laws during the period of April 21, 1998 through October 9,
1998.  On or about  November 17, 1999,  the lawsuit,  filed in the name of Nahid
Nazarian  Behfarin,  on her own  behalf  and others  purported  to be  similarly
situated,  was  served on us. A motion to dismiss  the  lawsuit  was  granted on
February 16, 2001 on our behalf and those  individual  defendants that have been
served.  However,  on or about March 19, 2001, an amended complaint was filed by
Nahid Nazarian Behfarin,  Peter Cook, Stephen Domagala and Michael S. Taylor, on
behalf of themselves and others similarly situated.  On or about March 20, 2001,
we once again  filed a motion to  dismiss  the case  along  with  certain  other
individual defendants.  The motion was denied and an answer to the complaint has
been  filed on behalf of the  company  and  certain  individual  defendants.  We
believe  these  claims  are  without  merit and we intend to  vigorously  defend
against  them on our  behalf as well as on behalf of the other  defendants.  The
defense of this action has been tendered to our insurance carriers.

     Throughout fiscal 1999, 2000 and 2001, and through the date of this filing,
approximately  fifty trade  creditors  have made  claims  and/or  filed  actions
alleging  the  failure of us to pay our  obligations  to them in a total  amount
exceeding $3 million.  These actions are in various stages of  litigation,  with
many resulting in judgments  being entered against us. Several of those who have
obtained  judgments have filed judgment liens on our assets.  These claims range
in value from less than one thousand  dollars to just over one million  dollars,
with the great majority being less than twenty thousand dollars.

     Furthermore,  from time to time,  the Company may be involved in litigation
relating  to  claims  arising  out of its  operations  in the  normal  course of
business.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     PRIVATE PLACEMENTS

     On July 26, 2001,  the Company  entered into a  convertible  note  purchase
agreement  with  an  investor  whereby  we sold to the  investor  a  convertible
promissory note in the aggregate principal amount of $1,000,000 bearing interest
at the rate of eight percent (8%) per annum, due July 26, 2004, convertible into
shares of our common stock.  Interest is payable, at the option of the investor,
in cash or shares of our common stock.  The note is convertible into such number
of shares of our common stock as is  determined  by dividing (a) that portion of
the outstanding  principal  balance of the note by (b) the conversion price. The
conversion  price  equals the lesser of (x) $.065 and (y) 70% of the  average of
the 3  lowest  closing  bid  prices  during  the 30  trading  days  prior to the
conversion date.  Additionally,  we issued a warrant to the investor to purchase
15,384,615  shares of our common  stock at an exercise  price equal to $.065 per
share.  The investor may exercise the warrant through July 26, 2006. The private
placement  was  exempt  from  registration  pursuant  to  Section  4(2)  of  the
Securities Act of 1933 and Rule 506 promulgated thereunder.

     On September 21, 2001, the Company entered into a convertible note purchase
agreement  with  an  investor  whereby  we sold to the  investor  a  convertible
promissory note in the aggregate  principal  amount of $300,000 bearing interest
at the rate of eight percent (8%) per annum, due September 21, 2004, convertible
into  shares of our common  stock.  Interest  is  payable,  at the option of the
investor,  in cash or shares of our common stock.  The note is convertible  into
such number of shares of our common stock as is  determined by dividing (a) that
portion of the outstanding  principal  balance of the note by (b) the conversion
price.  The conversion  price equals the lesser of (x) $.0266 and (y) 70% of the
average of the 3 lowest  closing bid prices  during the 30 trading days prior to
the  conversion  date.  Additionally,  we issued a warrant  to the  investor  to
purchase  11,278,195  shares of our common  stock at an exercise  price equal to
$.038 per share.  The investor may exercise the warrant  through  September  21,
2006.  The private  placement was exempt from  registration  pursuant to Section
4(2) of the Securities Act of 1933 and Rule 506 promulgated thereunder.

Common Stock Warrants

During the  quarter,  the  Company  issued  warrants  to  directors  and certain
officers to purchase up to 55,000,000  shares of its common stock at an exercise
price equal to $0. 02 per share.  The value of these  warrants  for  non-officer
directors is estimated at $66,000.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None


                                       14
<PAGE>

ITEM 5.  OTHER INFORMATION

During the period ended  September 30, 2001,  Christopher  McKee,  the Company's
President and Chief Operating Officer resigned his positions with the Company.

Acquisition of Assets

Subsequent  to the period ended  September  30, 2001,  on October 25, 2001,  the
Company acquired certain assets from three employees.  These assets,  related to
the Company's  office products and services  business  activities,  represent an
aggregate  of $260,000  and include  inventories,  fixed  assets,  and  accounts
receivable. The purchase price of the assets was 7,500,000 shares of ITEC common
stock,  determined  by the  market  price  of ITEC  common  stock at the date of
acquisition. The Company has agreed to register these shares.

Acquisition of Shares

Subsequent to the period ended  September  30, 2001,  on November 12, 2001,  the
Company acquired all of the outstanding shares of SourceOne,  Inc. ("SourceOne")
from Neotactix,  Inc. for 10,000,000  shares of ITEC common stock.  These shares
will be  registered  by the Company  subsequent  to filing of audited  financial
statements related to the acquisition on Form 8-K within 60 days of this filing.

The  acquisition  price also included the assumption of $750,000 in payments due
SourceOne  from  Neotactix.  ITEC paid $250,000 in cash at Closing.  These funds
were  provided by outside  investors in exchange for  13,888,890  shares of ITEC
common  stock.  The balance is payable in cash or stock on a  quarterly  payment
schedule  beginning in April 2002. The Company has agreed to register all shares
subsequent to filing of audited financial  statements related to the acquisition
on Form 8-K within 60 days of this filing.

The  purchase  price was  determined  through  analysis of  SourceOne's  recent,
unaudited  financial  performance.  SourceOne,  through  September 30, 2001, had
losses of approximately  $220 thousand on 6-month revenues of approximately  $25
million.  The total  purchase price of $750 thousand in cash plus the payment of
10,000,000 shares of ITEC common stock, was arrived at through negotiations. The
assets of SourceOne consist of cash, accounts receivable, and pre-paid insurance
premiums.

SourceOne  is  a  professional   employer  organization  ("PEO")  that  provides
comprehensive  personnel  management  services,  including  benefits and payroll
administration,  health and workers' compensation insurance programs,  personnel
records management, and employer liability management.

The Company will report this transaction, including audited financial statements
of SourceOne, on Form 8-K within 60 days of this report.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits:

     10(a)  Asset  Purchase  Agreement,  dated  October 25,  2001,  among the
            Company and Lisa Lavin, Gary J. Lavin, and Roland A. Fernando.

     10(b)  Acquisition  Assignment  Agreement,   dated  November  12,  2001,
            between the Company and Neotactix, Inc.

     10(c)  Acquisition Agreement,  dated November 12, 2001, among Neotactix,
            Inc., SourceOne Group, Inc.,and certain stockholders of SourceOne
            Group, Inc.

(b)   Reports on Form 8-K

        None.


                                       15
<PAGE>

SIGNATURES
--------------------------------------------------------------------------------

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Dated: November 13, 2001

IMAGING TECHNOLOGIES CORPORATION (Registrant)

By: /s/ Brian Bonar

-------------------------------------

Brian Bonar
Chairman, Chief Executive Officer, and Chief Accounting Officer


                                       16
<PAGE>

                                  EXHIBIT 10(a)
--------------------------------------------------------------------------------
                            ASSET PURCHASE AGREEMENT

PARTIES:

This  Agreement  is made and entered  into this 25th day of October  2001 by and
between Lisa and Gary J. Lavin,  residing at 3725  Wellborn  Street,  San Diego,
California  92103,  and Roland A.  Fernando,  residing  at 3151  Wheeling  Lane,
Bonita, California 91902, individuals (collectively, the "SELLERS"), and Imaging
Technologies Corporation, a Delaware corporation,  with its principal offices at
15175 Innovation Drive, San Diego, California 92128 ("ITEC").

RECITALS:

     A.   SELLERS own certain  assets,  acquired  through  the  execution  of an
          agreement  between  Color  Systems,   Inc.   ("CSI"),   Digital  Print
          Integrated,  Inc.  ("DPI") and certain  individuals (the "OCTOBER 2001
          AGREEMENT),  which consist of accounts  receivable,  inventories,  and
          fixed assets related to the business  operations of DPI, including the
          sale of office  machines  such as  printers,  copiers,  plotters,  and
          similar  equipment.

     B.   ITEC desires to purchase from SELLERS,  and SELLERS  desire to sell to
          ITEC,  substantially  all of such  assets,  which are  described  more
          specifically  described in EXHIBIT A attached  hereto,  upon the terms
          and conditions of this Agreement.

AGREEMENT;

NOW THEREFORE, in consideration of the mutual covenants and promises contained
herein, and for other good and valuable considerations, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:

I.   DEFINITIONS

     A.   "ACCOUNTS   RECEIVABLE"  shall  mean  open,  unpaid  invoices,   lease
          receivables,  and unapplied credit memos identified in EXHIBIT A as of
          the date of the Closing.

     B.   "FIXTURES  AND  EQUIPMENT"  shall  mean  the  workbenches,   shelving,
          computers  used in conjunction  with  operating the DPI business,  and
          other  equipment  identified in EXHIBIT A hereto as of the date of the
          Closing.

     C.   "PURCHASED  ASSETS" shall mean all of the assets identified in EXHIBIT
          A hereto.

II.  SALE OF ASSETS

     At Closing of the sale ("Closing"), SELLERS shall sell, assign, convey, and
deliver  to ITEC  the  Purchased  Assets,  free and  clear  of all  liabilities,
obligations, liens, security interests, and encumbrances of any kind.

III. CLOSING

     The Closing shall take place at ITEC's offices on October 26, 2001 at 10:00
a.m.  Pacific Time. At the Closing,  SELLERS shall deliver to ITEC such bills of
sale,  endorsements,  assignments,  and other good and sufficient instruments of
transfer  and  conveyance  as  shall  be  effective  to vest in  ITEC  good  and
marketable title to the Purchased Assets as provided in this Agreement.

IV   PURCHASE PRICE

     The Purchase  Price for the  Purchased  Assets  shall be Two Hundred  Sixty
Thousand  Dollars  ($260,000.00)  to be paid to  SELLERS  in the  form of  Seven
Million  Five  Hundred  Thousand  (7,500,000)  shares of ITEC common  stock (the
"Shares"). ITEC agrees that it will file a registration statement for the Shares
with the U.S. Securities and Exchange Commission ("SEC") within thirty (30) days
of the Closing.

V    ALLOCATION OF PURCHASE PRICE

     Thirty-five  percent  (35%) of the Shares  are to be issued to Lisa  Lavin,
thirty-five  percent (35%) to Gary J. Lavin,  and thirty percent (30%) to Roland
A. Fernando.  Such  allocation  shall be made in accordance  with all applicable
provisions of the Internal  Revenue Code and both SELLERS and ITEC agree to file
any applicable documents and/or forms with the Internal Revenue Service.

VI   FURTHER ASSURANCES

     From time to time, at ITEC's request,  whether at or after the Closing, and
without  further  consideration,  SELLERS  will execute and deliver such further
instruments  of  conveyance  and  transfer  and take such  other  action as ITEC
reasonably  may require more  effectively  to convey and transfer to ITEC any of
the Purchased Assets.


                                       1
<PAGE>

VII  REPRESENTATIONS AND WARRANTIES OF SELLERS

     SELLERS represent,  warrant,  and covenant to and with ITEC, as of the date
     of the Closing, as follows:

     A.   SELLERS know of no and have not been informed of any material consent,
          approval, or authorization of, or declaration,  filing or registration
          with any governmental or regulatory authority,  or any other person or
          entity,  which  is  required  to be made or  obtained  by  SELLERS  in
          connection  with the  execution,  delivery,  and  performance  of this
          Agreement,  and  the  consummation  of the  transactions  contemplated
          hereby.

     B.   Neither  SELLERS nor any affiliate of SELLERS has entered into or will
          enter into any contract, agreement, arrangement, or understanding with
          any person or firm, which will result in the obligation of ITEC to pay
          any  finder's  fee,  brokerage  commission,   or  similar  payment  in
          connection with the transactions contemplated hereby.

     C.   SELLERS  currently  have and will  have and will  transfer  to ITEC at
          Closing good and marketable title to all of the Purchased Assets, free
          and  clear  of all  mortgages,  pledges,  liens,  security  interests,
          conditional sales agreements, charges, encumbrances, restrictions, and
          equities, other than as expressly assumed by ITEC herein.

     D.   There  are  no  material  actions,  suits,  claims,   proceedings,  or
          investigations   pending  or,  to  the  best   knowledge  of  SELLERS,
          threatened  against or affecting  the Purchased  Assets,  at law or in
          equity,  or  before  or by any  federal,  state,  municipal,  or other
          governmental court, department,  commission, boards, bureau, agency or
          instrumentality.

     E.   The  Fixtures  and  Equipment  are  being  purchased  in  an  "as  is"
          condition.

     F.   All of the  representations  and warranties pursuant to this Agreement
          will survive  execution  and  delivery  hereof for a period of one (1)
          year. No remedies otherwise  available upon breach of a representation
          or warranty will be diminished by any investigation by or on behalf of
          a party.  Notice or acknowledgment of a breach of a representation and
          warranty by a party,  in the context of the  Closing,  will not affect
          the rights of a party to  participate  in the  Closing and reverse its
          rights with respect to such breach.

VIII REPRESENTATIONS OF ITEC

     ITEC  represents,  warrants,  and covenants to and with SELLERS,  as of the
     date of the Closing as follows:

     A.   ITEC is a corporation duly organized,  validly  existing,  and in good
          standing  under  the  laws of the  State  of  Delaware,  and has  full
          corporate  power  and  authority  to  conduct  its  business  as it is
          presently  being  conducted  and to own and lease its  properties  and
          assets.

     B.   ITEC has all necessary  corporate  power and authority,  and has taken
          all  corporate  action  necessary  to enter  into this  Agreement,  to
          consummate the transactions  contemplated  hereby,  and to perform its
          obligations  hereunder.  This  Agreement  has been duly  executed  and
          delivered  by  ITEC  and  constitutes  a  legal,  valid,  and  binding
          obligation of ITEC,  enforceable  against ITEC in accordance  with its
          respective terms.

     C.   Neither  the  execution  and  delivery  of  this  Agreement,  nor  the
          consummation of the  transactions  contemplated  hereby will result in
          (1) a violations  of or a conflict  with any of the  provisions of the
          Certificate  of  Incorporation  or Bylaws of ITEC,  (2) a violation by
          ITEC  of  any  statute,  rule,  regulation,  ordinance,  code,  order,
          judgment,  writ,  injunction,  decree or award,  which violation would
          have a material  adverse  effect on ITEC's  ability to consummate  the
          transactions contemplated hereby.

     D.   ITEC knows of no, and has not been informed of any, consent, approval,
          or authorization of, or declaration,  filing, or registration with any
          governmental or regulatory  authority,  or any other person or entity,
          which is required to be made or  obtained by ITEC in  connection  with
          the  execution,  delivery,  and  performance of this Agreement and the
          consummation of the transactions contemplated hereby.

     E.   Neither ITEC nor any affiliate of ITEC have entered into or will enter
          into any contract,  agreement,  arrangement, or understanding with any
          person or firm,  which will result in the obligation of SELLERS to pay
          any  finder's  fee,  brokerage  commission,   or  similar  payment  in
          connection with the transactions contemplated hereby.

IX   BULK SALES

     ITEC hereby waives all notices and filings in complying with the provisions
of  Article  6 of the  California  Uniform  Commercial  Code - Bulk  Transfer  -
relating to bulk transfers in connection with the  transactions  contemplated by
this  Agreement  and SELLERS  hereby  indemnify  ITEC  against  any  liabilities
resulting from such waiver.


                                       2
<PAGE>

X    INDEMNIFICATIONS

     A.   By SELLERS: It is specifically  acknowledged that ITEC does not assume
          and will not be responsible  for any  liabilities of SELLERS.  SELLERS
          shall  indemnify  and hold harmless ITEC against and in respect of any
          damage or deficiency,  including reasonable attorneys' fees and costs,
          resulting  from any  material  break  of  representation  or  warranty
          herein,  or  non-fulfillment  of any  agreement on the part of SELLERS
          under this Agreement.

     B.   By ITEC:  ITEC agrees  that,  on and after the date  hereof,  it shall
          indemnify and save and hold harmless  SELLERS from and against any and
          all damages,  including reasonable attorneys' fees and costs, incurred
          in  connection  with  or  arising  out of or  resulting  from  (1) any
          material breach of any covenant or warranty,  or the inaccuracy of any
          representation,  made by ITEC in or pursuant to this Agreement; or (2)
          any liability,  obligation,  or commitment of ITEC relating in any way
          to the Purchased Assets.

XI   PUBLICITY

     ITEC shall approve any public  announcement and/or press release concerning
     this transaction.

XII  EXPENSES

     Each  party  shall  pay  its  respective  expenses,   taxes,  charges,  and
liabilities  incurred  in  connection  with or  arising  out of this  Agreement,
including,  without limitation thereto, counsel fees, accounting fees, and other
expenses related to the assignment and delivery in place of the Purchased Assets
to ITEC.

XIII NOTICES

     Unless otherwise provided herein,  any notices,  request,  instruction,  or
other  document to be given  hereunder  by either party to the other shall be in
writing and delivered  personally or mailed by certified mail,  postage prepaid,
return receipt requested (such as mailed notice to be effective on the date such
receipt is  acknowledged  or refused),  to the addresses of the parties  written
hereinabove,  or at such other  addresses or  designation  as is provided by one
party to the other in writing.

XIX  CHOICE OF LAW

     This  Agreement  shall be  construed,  interpreted,  and the  rights of the
parties determined in accordance with the laws of the State of California.

XX   ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS

     This   Agreement,   together  with  all  exhibits  and  schedules   hereto,
constitutes the entire agreement  between the parties  pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations,
and discussions, whether oral or written. No supplement, modification, or waiver
of this Agreement shall be binding unless executed in writing by the party to be
bound thereby.  No waiver of any provisions of this Agreement shall be deemed or
shall  constitute  a  waiver  of any  other  provision  hereof  (whether  or not
similar),  nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.

XXI  MULTIPLE COUNTERPARTS

     This Agreement may be executed in one or more  counterparts,  each of which
shall be deemed an original,  but all of which  together  constitute one and the
same instrument.

XXII INVALIDITY

     In the  event  that  any one or more of the  provisions  contained  in this
Agreement or in any other  instrument  referred to herein shall, for any reason,
be held to be invalid,  illegal,  or unenforceable in any respect,  then, to the
maximum   extent   permitted   by   law,   such   invalidity,   illegality,   or
unenforceability  shall not affect any other  provision of this Agreement or any
other such instrument.

XXIII TITLES

     The titles,  captions,  or headings of the Articles and Sections herein are
inserted for  convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.

XXIV CONFIDENTIAL INFORMATION

     In  connection  with  the   negotiation  of  this  Agreement,   each  party
acknowledged that it has had access to confidential  information relating to the
other party.  Each party shall treat such information as confidential,  preserve
the  confidentiality  thereof,  and not  duplicate or make use of any other such
information,  except  to  advisors,  consultants,  lenders,  and  affiliates  in
connection  with the  transactions  contemplated  hereby or  pursuant  to, or as
required by law. If the  transaction  is not closed,  each party shall return to
the other all confidential


                                       3
<PAGE>

information  in tangible  form,  belonging  or relating to the other  party,  or
provide a certificate of  destruction  of such material  acceptable to the other
party.

IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be duly
executed on their respective behalf, by their respective officers thereunto duly
authorized, all as of the day and year first above written.


LISA LAVIN


------------------------------


GARY J. LAVIN


------------------------------


ROLAND A. FERNANDO


------------------------------


IMAGING TECHNOLOGIES CORPORATION


------------------------------------
Brian Bonar
Chief Executive Officer


                                       4
<PAGE>

                                  EXHIBIT 10(b)
--------------------------------------------------------------------------------

                        ACQUISITION ASSIGNMENT AGREEMENT

     This Acquisition Assignment Agreement ("Agreement") is made between Imaging
Technologies Corp. ("Itec") and Neotactix,  Inc. ("Neotactix") as of November 8,
2001.

     A.  Neotactix  has  entered  into an  Acquisition  Agreement  ("Acquisition
Agreement") with SourceOne Group, Inc. ("SourceOne"),  and its sole shareholder,
Parvez Gondal.  Pursuant to the  Acquisition  Agreement,  Neotactix will acquire
100% of the  outstanding  shares  ("SourceOne  Shares") of SourceOne from Parves
Gondal.

     B. Itec desires to acquire the business of SourceOne.  Neotactix desires to
transfer the SourceOne Shares to Itec in exchange for shares in Itec. As part of
such  transaction,  Scott W.  Absher  and  George  LeFevre  intend to enter into
employment agreements with SourceOne.

     Wherefore, in consideration of the premises and covenants set forth in this
Agreement, the parties agree as follows:

     1.  Assignment  of  Acquisition   Agreement.   Neotactix   hereby  assigns,
transfers,  and conveys to Itec all of its rights and  delegates  to Itec all of
its  obligations  under the  Acquisition  Agreement.  Itec hereby  purchases and
accepts the assignment,  transfer,  and conveyance of the rights and accepts the
delegation of the obligations of Neotactix under the Acquisition Agreement.

     2.  Consideration.  (a) As  additional  consideration,  Itec shall issue to
Neotactix  or its  designees  the amount of ten million  (10,000,000)  shares of
common stock of Itec  ("Consideration  Shares").  When issued, the Consideration
Shares shall be registered and freely tradeable. Itec shall use its best efforts
to include  such  Consideration  Shares in the Form S-2  registration  statement
currently pending before the Securities and Exchange Commission.  If Itec is not
able to include the Consideration  Shares in such registration  statement,  then
Neotactix or its designees  shall have the right to require Itec to register the
shares within a 180 day period on a form for which Itec is eligible.  Itec shall
use its best efforts to cause such registration statement to become effective.

         (b) As additional  consideration,  Itec shall pay to Neotactix the sum
of $250,000 upon the execution of this Agreement.

     3.  Representations and Warranties of Neotactix.  Neotactix  represents and
warrants that:

         (a) Neotactix is a corporation duly organized, validly existing, and in
good  standing  under  the laws of the  state of  Nevada.  It has all  requisite
corporate  power,  franchises,  licenses,  permits,  and  authority  to own  its
properties  and assets and to carry on its  business as it has been and is being
conducted.

         (b) Neotactix has all requisite  power and authority to enter into this
Agreement and to consummate the transactions  contemplated hereby. The execution
and delivery by the  Neotactix of this  Agreement  and the  consummation  of the
transactions  contemplated  hereby have been duly  authorized  by all  necessary
action  on the  parts of  Neotactix,  including  the  approval  of the  Board of
Directors of Neotactix.  This  Agreement has been duly executed and delivered by
the  Neotactix  constitutes  a  valid  and  binding  obligation  of  each  Party
enforceable in accordance with its terms, except that such enforceability may be
subject to: (a) bankruptcy,  insolvency,  reorganization,  or other similar laws
relating  to  enforcement  of  creditors'  rights  generally;  and  (b)  general
equitable  principles.  The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby will not, conflict with
or result in any violation  of, or default  (with or without  notice or lapse of
time, or both) under, or give rise to a right of termination,  cancellation,  or
acceleration of any obligation,  or to loss of a material  benefit under, or the
creation of a lien, pledge,  security interest,  charge, or other encumbrance on
any assets of any of the Parties (any such conflict,  violation, default, right,
loss, or creation being  referred to herein as a  "Violation")  pursuant to: (i)
any provision of the organization  documents of the Parties; or (ii) any loan or
credit agreement,  note, bond, mortgage,  indenture,  contract,  lease, or other
agreement, or instrument,  permit,  concession,  franchise,  license,  judgment,
order,  decree,  statute,  law,  ordinance,  rule, or  regulation  applicable to
Neotactix  respective  properties or assets,  other than in the case of any such
Violation  which  individually  or in the  aggregate  would not have a  material
adverse effect on Neotactix.

         (c)  Neotactix  will at the  time of the  Closing  own all  outstanding
shares of SourceOne free and clear of all  encumbrances  except the encumbrances
in connection  with the  Acquisition  Agreement  and the Stock Pledge  Agreement
executed in connection with the Acquisition  Agreement.  Neotactix has not sold,
hypothecated, loaned, encumbered, transferred, or granted option or other rights
on or in the SourceOne Shares.

     4.  Representations  and Warranties of Itec.  Itec  represents and warrants
that:


                                       1
<PAGE>

          (a) Itec is a corporation  duly organized,  validly  existing,  and in
good  standing  under the laws of the state of  Delaware.  It has all  requisite
corporate  power,  franchises,  licenses,  permits,  and  authority  to own  its
properties  and assets and to carry on its  business as it has been and is being
conducted.

          (b) Itec has all  requisite  power and  authority  to enter  into this
Agreement and to consummate the transactions  contemplated hereby. The execution
and  delivery  by the  Itec  of  this  Agreement  and  the  consummation  of the
transactions  contemplated  hereby have been duly  authorized  by all  necessary
action on the parts of Itec, including the approval of the Board of Directors of
Itec.  This  Agreement  has  been  duly  executed  and  delivered  by  the  Itec
constitutes  a valid  and  binding  obligation  of  each  Party  enforceable  in
accordance with its terms,  except that such  enforceability  may be subject to:
(a) bankruptcy,  insolvency,  reorganization,  or other similar laws relating to
enforcement  of  creditors'   rights   generally;   and  (b)  general  equitable
principles.  The  execution  and  delivery  of this  Agreement  do not,  and the
consummation of the transactions  contemplated hereby will not, conflict with or
result in any violation of, or default (with or without notice or lapse of time,
or  both)  under,  or give  rise to a right  of  termination,  cancellation,  or
acceleration of any obligation,  or to loss of a material  benefit under, or the
creation of a lien, pledge,  security interest,  charge, or other encumbrance on
any assets of Itec (any such  conflict,  violation,  default,  right,  loss,  or
creation  being  referred  to  herein as a  "Violation")  pursuant  to:  (i) any
provision of the  organization  documents  of the  Parties;  or (ii) any loan or
credit agreement,  note, bond, mortgage,  indenture,  contract,  lease, or other
agreement, or instrument,  permit,  concession,  franchise,  license,  judgment,
order, decree, statute, law, ordinance, rule, or regulation applicable to Itec's
respective  properties or assets,  other than in the case of any such  Violation
which  individually or in the aggregate would not have a material adverse effect
on Itec.

     5. Conditions Precedent

     5.1 Conditions to Each Party's Obligations.  The respective  obligations of
each Party  hereunder  shall be subject to the  satisfaction  prior to or at the
Closing of the following conditions:

         (a) No Restraints.  No statute,  rule,  regulation,  order,  decree, or
injunction  shall have been enacted,  entered,  promulgated,  or enforced by any
court or governmental entity of competent jurisdiction that enjoins or prohibits
the consummation of this Agreement and shall be in effect.

         (b) Legal  Action.  There shall not be pending or threatened in writing
any action,  proceeding,  or other application  before any court or governmental
entity  challenging or seeking to restrain or prohibit the  consummation  of the
transactions  contemplated by this Agreement,  or seeking to obtain any material
damages.

     5.2 Conditions to Neotactix's  Obligations.  The  obligations of Neotacticx
shall be subject to the satisfaction prior to or at the Closing of the following
conditions unless waived by Neotactix:

         (a)  Representations  and Warranties of Itec. The  representations  and
warranties of Itec set forth in this  Agreement  shall be true and correct as of
the date of this Agreement and as of the Closing as though made on and as of the
Closing,  except:  (i) as otherwise  contemplated by this Agreement;  or (ii) in
respects  that do not have a material  adverse  effect on the  Parties or on the
benefits of the  transactions  provided for in this  Agreement.  Neotactix shall
have  received  a  certificate  signed on behalf of Itec by the Chief  Executive
Officer of Itec to such effect on the Closing.

         (b)  Performance of Obligations of Itec.  Itec shall have performed all
agreements  and  covenants  required to be performed by it under this  Agreement
prior to the Closing,  except for breaches  that do not have a material  adverse
effect on the Parties or on the  benefits of the  transactions  provided  for in
this Agreement.  Neotactix shall have received a certificate signed on behalf of
Itec by the Chief Executive Officer of Itec to such effect on the Closing.

     5.3  Conditions to Itec's  Obligations.  The  obligations  of Itec shall be
subject  to the  satisfaction  prior  to or at  the  Closing  of  the  following
conditions unless waived by Itec:

         (a) Representations  and Warranties of Neotactix..  The representations
and  warranties  of  Neotactix  set  forth in this  Agreement  shall be true and
correct as of the date of this Agreement and as of the Closing as though made on
and as of the Closing,  except: (i) as otherwise contemplated by this Agreement;
or (ii) in respects that do not have a material adverse effect on the Parties or
on the benefits of the transactions  provided for in this Agreement.  Itec shall
have received  certificates signed on behalf of Neotactix by the Chief Executive
Officer or President of each Neotactix to such effect on the Closing.

         (b)  Performance  of  Obligations  of Neotactix.  Neotactix  shall have
performed all agreements and covenants required to be performed by it under this
Agreement prior to the Closing,  except for breaches that do not have a material
adverse  effect on the Parties or on the benefits of the  transactions  provided
for in this Agreement. Itec shall have received certificates signed on behalf of
Neotactix  and the Company by the Chief  Executive  Officer or President of each
Neotactix to such effect on the Closing.

     6. Closing.


                                       2
<PAGE>

     6.1. Neotactix Acting in its Own Name. The Closing of the transaction shall
take place  concurrently  with the  Closing of the  Acquisition  Agreement.  For
convenience,  Neotactics  shall  act in its own  name but on  behalf  of Itec in
closing the Acquisition Agreement.

     6.2 Deliveries by Neotactix. At Closing, Neotactix shall make the following
deliveries to Itec:

         (a) A  certificate  executed  by  Neotactix  certifying  that:  (i) all
Neotactix's  representations  and warranties under this Agreement are true as of
the Closing,  as though each of those  representations  and  warranties had been
made on that date; and (ii) Neotactix has performed all agreements and covenants
required to be performed by it under this Agreement prior to the Closing, except
for breaches that do not have a Material Adverse Effect on the Parties or on the
benefits of the transactions provided for in this Agreement; and

         (b) Certified  resolutions  of the Board of Directors of Neotactix,  in
form satisfactory to counsel for Itec, authorizing the execution and performance
of this Agreement.

     6.3  Deliveries  by  Itec.  At  Closing,  Itec  shall  make  the  following
deliveries to Neotactix:

         (a)  A  certificate  executed  by  Itec  certifying  that:  (i)  Itec's
representations  and warranties under this Agreement are true as of the Closing,
as though each of those  representations  and  warranties  had been made on that
date; and (ii) Itec has performed all  agreements  and covenants  required to be
performed by it under this Agreement  prior to the Closing,  except for breaches
that do not have a material  adverse effect on the Parties or on the benefits of
the transactions provided for in this Agreement;

         (b)  Certified  resolutions  of the Board of  Directors of Itec in form
satisfactory to counsel for Neotactix, authorizing the execution and performance
of this Agreement.

     7. Registration Rights

     7.00 Registration Rights. Itec and the Neotactix agree as follows:

     7.01 Definitions. As used in this Article 7:

         (a) The terms "register",  "registered" and  "registration"  refer to a
registration  effected  by  preparing  and filing a  registration  statement  in
compliance with the Act and the declaration or ordering of the  effectiveness of
such registration statement.

         (b) The term "Registrable Securities" means (i) the Common Stock issued
or issuable  pursuant to  Assignment  Acquisition  Agreement and (ii) any Common
Stock of Itec  issued or  issuable  in  respect  of such  Common  Stock or other
securities  issued or issuable  pursuant  to the Common  Stock or upon any stock
split,  stock  dividend,  recapitalization,  or similar  event.  Notwithstanding
anything set forth above, the above-described securities shall not be treated as
Registrable Securities if and so long as they (A) have been sold to or through a
broker or dealer or underwriter in a public  distribution or a public securities
transaction,  or (B) have been sold (or are available for sale in the opinion of
counsel  to Itec and market  conditions  would  permit  the sale of such  shares
within a 90 day period) pursuant to Rule 144(k) in a transaction exempt from the
registration  and  prospectus  delivery  requirements  of the  Act so  that  all
transfer  restrictions and restrictive  legends with respect thereto are removed
upon the consummation of such sale.

         (c)  The  term  "Holder"  means  Neotactix  or any  transferee  holding
Registrable  Securities  or  the  Shares  (and  any  person  holding  Shares  or
Registrable  Securities to whom the  registration  rights have been  transferred
pursuant to paragraph 7.11 hereof).

         (d) The term "SEC" means the Securities and Exchange  Commission or any
successor agency thereto.

     7.02 Company Registration.

     If at any time, or from time to time,  Itec shall determine to register any
of its  securities,  either for its own account or for the account of a security
holder or holders, other than a registration relating solely to employee benefit
plans,  or a  registration  on Form  S-4  relating  solely  to an SEC  Rule  145
transaction, or a registration on any other form (other than Form S-1, S-3, SB-1
or SB-2) which does not include  substantially  the same information as would be
required  to be  included  in a  registration  statement  covering  the  sale of
Registrable Securities, Itec will:

          (i) promptly give to each Holder written notice thereof; and

          (ii) include in such registration (and any related qualification under
blue sky laws or other  compliance),  and in any underwriting  involved therein,
all the Registrable  Securities  specified in any written request or requests by
any  Holder or  Holders  received  by Itec  within  twenty  (20) days after such
written notice is given on the same terms and conditions as the Common Stock, if
any, otherwise being sold through the underwriter in such registration.


                                       3
<PAGE>

          (b) If the registration of which Itec gives notice is for a registered
public offering involving an underwriting, Itec shall so advise the Holders as a
part of the written notice given pursuant to paragraph 7.3(a). In such event the
right of any Holder to  registration  pursuant  to this  paragraph  7.3 shall be
conditioned  upon  such  Holder's  participation  in such  underwriting  and the
inclusion of such Holder's  Registrable  Securities in the  underwriting  to the
extent provided  herein.  All Holders  proposing to distribute  their securities
through such  underwriting,  if any,  (together  with Itec and the other holders
distributing  their securities  through such  underwriting)  shall enter into an
underwriting  agreement in customary form with the  underwriter or  underwriters
selected for such underwriting by Itec.

          (c)  Notwithstanding any other provision of this paragraph 7.3, if the
underwriter determines that marketing factors require a limitation of the number
of  shares  to be  underwritten,  the  underwriter  may  limit  the  Registrable
Securities  or other  securities to be included in the  registration;  provided,
however,  that if such registration is other than the first registered  offering
of  Itec's  securities  to  the  public,  the  underwriter  may  not  limit  the
Registrable  Securities to be included in such  registration to less than 30% of
the  securities  included  therein  (based  on  aggregate  market  values).  Any
reduction by the  underwriter of the number of  Registrable  Securities or other
securities  to be included in such  registration  shall be made in the following
manner: initially,  shares of Common Stock held by the Founders or other members
of Itec's management shall be excluded from such underwritten public offering to
the extent required by the underwriter, and if a further reduction in the number
of shares is  required,  Itec  shall so advise  all  Holders  and other  holders
distributing their securities through such underwriting and the number of shares
of  Registrable  Securities  and other  securities  that may be  included in the
registration  and  underwriting  shall be allocated among the holders thereof in
proportion,  as nearly as practicable,  to the respective amounts of Registrable
Securities and other securities  contractually entitled to registration with the
offering  held by such  Holders  and other  holders at the time of filing of the
Registration  Statement.  To facilitate  the  allocation of shares in accordance
with the above provisions,  Itec may round the number of shares allocated to any
Holder or holder to the nearest 100 shares. The Company shall advise all Holders
of Registrable  Securities  which would otherwise be registered and underwritten
pursuant hereto of any such limitations, and the number of shares of Registrable
Securities  that may be  included in the  registration.  If any Holder or holder
disapproves  of the terms of any such  underwriting,  such  Holder or holder may
elect to withdraw  therefrom by written notice to Itec and the underwriter.  Any
securities excluded or withdrawn from such underwriting shall not be transferred
in a public  distribution  prior to ninety (90) days after the effective date of
the registration  statement relating thereto,  or such shorter period of time as
the underwriters may require.

          (d) The Company  shall have the right to  terminate  or  withdraw  any
registration initiated by it under this paragraph 7.2 prior to the effectiveness
of  such  registration  whether  or not  any  Holder  has  elected  to  register
securities in such registration.

     7.03  Registration  on Form S-3. If any Holder or Holders request that Itec
file a  registration  statement on Form S-3 (or any successor  form to Form S-3)
for a public  offering of shares of the  Registrable  Securities  the reasonably
anticipated  aggregate  price  to the  public  of  which,  net  of  underwriting
discounts  and  commissions,  would  exceed  $500,000,  and Itec is a registrant
entitled  to use Form S-3 to register  the  Registrable  Securities  for such an
offering,  Itec shall use its best efforts to cause such Registrable  Securities
to be  registered  for the  offering on such form and to cause such  Registrable
Securities  to be qualified in such  jurisdictions  as the Holder or Holders may
reasonably request; provided, however, that Itec shall not be required to effect
more than one  registration  pursuant to this  paragraph  7.3 in any twelve (12)
month period. The substantive provisions of paragraph 7.3(b) shall be applicable
to each registration initiated under this paragraph 7.3.

     7.04 Expenses of Registration. All expenses incurred in connection with any
registration, qualification or compliance pursuant to this Article 7, including,
without  limitation,  all registration,  filing and qualification fees, printing
expenses,  escrow fees, fees and  disbursements of counsel for Itec,  accounting
fees and expenses,  and expenses of any special audits incidental to or required
by such registration, shall be borne by Itec; provided, however, that Itec shall
not be required to pay stock transfer taxes or underwriters' fees,  discounts or
commissions  relating  to  Registrable  Securities,  or fees of counsel  for the
selling shareholders.

     7.05  Registration  Procedures.  If and  whenever  Itec is  required by the
provisions of this Article 7 to use its best efforts to effect the  registration
of any of the Registrable  Securities under the Act, Itec will, as expeditiously
as possible:

     (a) Prepare and file with the SEC a registration  statement with respect to
such securities and use its best efforts to cause such registration statement to
become and remain  effective  for such period as may be  necessary to permit the
successful  marketing of such  securities  but not exceeding one hundred  twenty
(120)  days or until the  Holder or  Holders  have  completed  the  distribution
described  in the  registration  statement  relating  thereto,  whichever  first
occurs.

     (b) Prepare and file with the SEC such  amendments and  supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary  to  comply  with  the  provisions  of  the  Act;  and  to  keep  such
registration  statement effective for that period of time specified in paragraph
7.05(a).


                                       4
<PAGE>

     (c) Furnish to each Holder participating in the registration such number of
prospectuses and preliminary prospectuses in conformity with the requirements of
the Act, and such other documents as such seller may reasonably request in order
to facilitate the public sale or other disposition of the Registrable Securities
being sold by such Holder;

     (d) Use its best efforts to register or qualify the Registrable  Securities
covered by such  registration  statement under such other securities or blue sky
laws of such jurisdictions as each such selling Holder of Registrable Securities
shall  reasonably  request and do any and all other acts and things which may be
necessary or desirable  to enable such Holder to  consummate  the public sale or
other disposition in such jurisdictions provided that Itec shall not be required
in connection  therewith or as a condition  thereto to qualify to do business or
file a general consent to service of process in any such jurisdictions.

     (e)  Notify  each  Holder  of  Registrable   Securities   covered  by  such
registration  statement  at any  time  when a  prospectus  relating  thereto  is
required to be delivered under the Act of the happening of any event as a result
of which the  prospectus  included in such  registration  statement,  as then in
effect,  includes  an untrue  statement  of a material  fact or omits to state a
material fact required to be stated  therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.

7.06 Indemnification.

     (a)  Neotactix  agrees  to  indemnify  and hold  harmless  each  Holder  of
Registrable  Securities with respect to which a registration  statement has been
filed under the Act pursuant to this Article 7, each of such Holder's  partners,
officers and directors,  each  underwriter of any of the Registrable  Securities
included in such registration  statement,  and each person, if any, who controls
any such  Holder or  underwriter  within  the  meaning  of the Act  (hereinafter
collectively referred to as the "Holder-Underwriters"), as follows:

          (i) against  any and all loss,  liability,  claim,  damage and expense
whatsoever  arising out of any untrue statement or alleged untrue statement of a
material  fact  contained  in such  registration  statement  (or  any  amendment
thereto),  or the  omission or alleged  omission  therefrom  of a material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading,  or arising out of any untrue  statement or alleged untrue statement
of a material fact contained in any preliminary prospectus or prospectus (or any
amendment or supplement thereto),  or the omission or alleged omission therefrom
of a material fact  necessary in order to make the  statements  therein,  in the
light of the  circumstances  under which they were made, not misleading,  unless
such untrue  statement or omission or such alleged untrue  statement or omission
was made in reliance upon and in conformity with written  information  furnished
to  Itec  by any  Holder-Underwriter  expressly  for  use in  such  registration
statement  (or  any  amendment  thereto)  or  such  preliminary   prospectus  or
prospectus (or any amendment or supplement thereto);

          (ii) against any and all loss,  liability,  claim,  damage and expense
whatsoever  to the extent of the  aggregate  amount  paid in  settlement  of any
litigation,  commenced or threatened,  or of any claim whatsoever based upon any
such untrue  statement  or  omission or any such  alleged  untrue  statement  or
omission, if such settlement is effected with the written consent of Itec (which
consent shall not be unreasonably withheld); and

          (iii)  against  any  and  all  expense   (including   attorneys  fees)
whatsoever reasonably incurred in investigating,  preparing,  settling (with the
consent of Itec, which consent shall not be unreasonably  withheld) or defending
against any litigation,  commenced or threatened,  or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue statement
or  omission,  to the extent that any such expense is not paid under (i) or (ii)
above;  provided,  however, that the foregoing indemnity agreement in paragraphs
(i), (ii) and (iii) of this  paragraph  7(a) is subject to the  condition  that,
insofar as it relates to any such untrue  statement,  alleged untrue  statement,
omission or alleged omission made in a preliminary  prospectus but eliminated or
remedied  in the  amended  prospectus  on  file  with  the SEC at the  time  the
registration  statement becomes  effective,  or in the amended  prospectus filed
with the SEC pursuant to Rule 424(b) (the "Final  Prospectus"),  such  indemnity
agreement shall not inure to the benefit of any underwriter,  or any Holder,  if
there is no underwriter,  or if a copy of the Final Prospectus was not furnished
to the person or entity  asserting  the loss,  liability,  claim or damage at or
prior to the time such action is required by the Act.

               In no case shall Itec be liable  under this  indemnity  agreement
with respect to any loss,  liability,  claim,  damage or expense with respect to
any claim made against any  Holder-Underwriter  unless Itec shall be notified in
writing of the nature of the claim within a reasonable  time after the assertion
thereof,  but the  failure  to so notify  Itec shall not  relieve  Itec from any
liability  which  it may  have  otherwise  than on  account  of  this  indemnity
agreement.  In case of any such notice, Itec shall be entitled to participate at
its expense in the defense,  or if it so elects  within a reasonable  time after
receipt of such notice, to assume the defense of any suit brought to enforce any
such claim;  but if it so elects to assume the defense,  such  defense  shall be
conducted by counsel chosen by it and approved by the  Holder-Underwriter(s) and
other  defendant or defendants,  if any, in any suit so brought,  which approval
shall not be unreasonably  withheld. In the event that Itec elects to assume the
defense of any such suit and retain such counsel, the  Holder-Underwriter(s) and
other  defendant  or  defendants,  if any, in the suit,  shall bear the fees and
expenses  of any  additional  counsel  thereafter  retained  by them;  provided,
however,  that Itec  shall  bear the


                                       5
<PAGE>

expense  of   independent   counsel   for  the   Holder-Underwriter(s)   if  the
Holder-Underwriter(s)  reasonably  determines that representation of it and Itec
by the same counsel would be inappropriate due to actual or potential  conflicts
of interest.

     (b) Each Holder severally,  and not jointly,  agrees that it will indemnify
and hold harmless Itec, each officer and director of Itec, each person,  if any,
who controls Itec within the meaning of the Act, each underwriter of Registrable
Securities included in any registration statement which has been filed under the
Act  pursuant  to this  Article  7,  each  person,  if any,  who  controls  such
underwriter within the meaning of the Act, each other Holder, each of such other
Holder's  partners,  officers and directors,  and each person  controlling  such
other holder within the meaning of the Act against any and all loss,  liability,
claim,  damage  and  expense  described  in  clauses  (a)(i)  through  (a)(iii),
inclusive,  of this  paragraph  7.06,  but only with  respect to  statements  or
omissions,  or  alleged  statements  or  omissions  made  in  such  registration
statement (or any amendment thereto) or any preliminary prospectus or prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written  information  furnished to Itec by such Holder expressly for use in such
registration statement (or any amendment thereto) or such preliminary prospectus
or prospectus (or any amendment or supplement thereto). In case any action shall
be brought against Itec or any person so indemnified  pursuant to the provisions
of this subparagraph (b) and in respect of which indemnity may be sought against
any Holder,  the Holders from whom indemnity is sought shall have the rights and
duties given to Itec, and Itec and the other persons so  indemnified  shall have
the rights and duties given to the persons  entitled to  indemnification  by the
provisions of subparagraph (a) of this paragraph 7.06.

     The obligations of Itec and Holders under this paragraph 7.06 shall survive
the  completion  of any offering of  Registrable  Securities  in a  registration
statement under this Article 7, and otherwise.

     7.07 Information by Holder. The Holder or Holders of Registrable Securities
included in any registration  shall furnish to Itec such  information  regarding
such Holder or Holders, and the distribution proposed by such Holder or Holders,
as Itec may request in writing and as shall be required in  connection  with any
registration, qualification or compliance referred to in this Article 7.

     7.08  Sale  Without  Registration.  If at the time of any  transfer  of any
Registrable  Securities,  such  Registrable  Securities  shall not be registered
under the Act, Itec may require, as a condition of allowing such transfer,  that
the Holder or transferee furnish to Itec (a) such information as is necessary in
order to establish that such transfer may be made without registration under the
Act, and (b) (if the transfer is not made in compliance with Rule 144 other than
a  transfer  not  involving  a  change  in  beneficial  ownership  or a pro rata
distribution  by a partnership  to its partners) at the expense of the Holder or
transferee,  an opinion of counsel satisfactory to Itec in form and substance to
the effect that such  transfer may be made without  registration  under the Act;
provided that nothing  contained in this  paragraph 7.08 shall relieve Itec from
complying with any request for registration,  qualification,  or compliance made
pursuant to the other provisions of this Article 7.

     7.09  Rule  144  Reporting.   With  a  view  to  making  available  to  the
Shareholders  the benefits of certain rules and regulations of the SEC which may
permit  the  sale  of  the   Registrable   Securities  to  the  public   without
registration, Itec agrees to use its best efforts to:

     (a)  Make  and keep  public  information  available,  as  those  terms  are
understood  and  defined in SEC Rule 144,  at all times  after  ninety (90) days
after the effective date of the first  registration  statement filed by Itec for
an offering of its securities to the general public;

     (b) File with the SEC in a timely  manner all reports  and other  documents
required of Itec under the Exchange Act; and

     (c) Furnish the Shareholders forthwith upon request (i) a written statement
by Itec as to its compliance  with the public  information  requirements of said
Rule 144 (at any time after  ninety  (90) days after the  effective  date of the
first registration  statement filed by Itec for an offering of its securities to
the general  public),  (ii) a copy of the most recent annual or quarterly report
of Itec,  and (iii)  such  other  reports  and  documents  as may be  reasonably
requested  in availing the  Shareholders  of any rule or  regulation  of the SEC
permitting the sale of any such securities without registration.

     7.10 Transfer of Registration  Rights. The rights to cause Itec to register
securities  granted by Itec under paragraphs 7.01, 7.02 and 7.03 may be assigned
to a transferee  or assignee in  connection  with any transfer or  assignment of
Registrable  Securities by a  Shareholder  provided  that:  (i) such assignee or
transferee  acquires  at least  one  hundred  (100)  shares  of the  Registrable
Securities (as appropriately adjusted from time to time for stock splits and the
like),  (ii)  such  transfer  may  otherwise  be  effected  in  accordance  with
applicable securities laws, (iii) Itec is given written notice by such holder of
Shares or the Conversion  Stock at the time of or within a reasonable time after
said transfer,  stating the name and address of said  transferee or assignee and
identifying  the securities with respect to which such  registration  rights are
being  assigned,   (iv)  immediately   following  such  transfer,   the  further
disposition  of such  securities  by such  transferee  or assignee is restricted
under the Act and (v) such assignee or transferee  agrees in writing to be bound
by the provisions of this Article 7.  Notwithstanding the foregoing,  the rights


                                       6
<PAGE>

to cause Itec to register  securities  may be  assigned,  in  connection  with a
distribution by such Holder, to any partner or former partner without compliance
with item (i) above.

     7.11 Market Stand-off Agreement. The Shareholders, if requested by Itec and
an underwriter of Common Stock (or other securities) of Itec, shall agree not to
sell or otherwise transfer or dispose of any Securities held by the Shareholders
during the ninety (90) day period following the effective date of a registration
statement of Itec filed under the Act provided that:

     such agreement shall only apply to the first such registration statement of
Itec  including  shares of Common Stock (or other  securities) to be sold on its
behalf to the public in an underwritten offering; and

     all Holders holding more than one percent of the outstanding  Common Stock,
all officers and directors of Itec and all other holders of registration  rights
of  Itec  (whether  or not  pursuant  to  this  agreement)  enter  into  similar
agreements.  Such agreement shall be in writing in the form satisfactory to Itec
and such  underwriter.  The Company may impose  stop-transfer  instructions with
respect to the Securities subject to the foregoing  restriction until the end of
the foregoing period.

     7.12  Amendment of  Registration  Rights.  With the written  consent of the
Holders of a majority of the then outstanding  Registrable Securities (including
securities exercisable for or convertible into Registrable Securities), Itec may
amend this Article 7, or enter into an agreement  with any holder or prospective
holder of any  securities  of Itec which would allow such holder or  prospective
holder to include such securities as Registrable  Securities  under this Article
7.

     7.13 Limitations on Subsequent Registration Rights. From and after the date
of this  Agreement,  Itec shall not,  without the prior  written  consent of the
Holders of a majority of the outstanding Registrable Securities,  enter into any
agreement with any holder or  prospective  holder of any securities of Itec that
would allow such holder or prospective  holder (a) to include such securities in
any  registration  filed under paragraph 7.01 hereof,  unless under the terms of
such agreement, such holder or prospective holder may include such securities in
any such  registration  only to the extent that the inclusion of his  securities
will not reduce the amount of the Registrable  Securities of the Holders that is
included,  (b) to  make  a  demand  registration  which  could  result  in  such
registration  statement being declared  effective prior to the earlier of either
of the dates set forth in paragraph  7.01(a)(ii)(B) or within one hundred twenty
(120)  days of the  effective  date of any  registration  effected  pursuant  to
paragraph  7.01 or (c) to include  such  securities  in any  registration  under
paragraph 7.02 hereof  (unless the terms of such  agreement give  preferences to
the Holders hereunder in the event of any cutback by the underwriter).

          Termination of  Registration  Rights.  The rights provided for in this
Article 7 shall expire ten (10) years following the closing of an initial firmly
underwritten  public  offering of Itec's  securities  pursuant to a registration
statement filed by Itec under the Act.

     8.   Miscellaneous.

     8.1  Expenses.  Whether  or not the  transactions  contemplated  hereby are
consummated,  each of the  Parties  hereto  shall  bear all taxes of any  nature
(including,  without limitation,  income, franchise,  transfer, and sales taxes)
and all fees and expenses  relating to or arising from its  compliance  with the
various  provisions of this Agreement and such party's covenants to be performed
hereunder, and except as otherwise specifically provided for herein, each of the
Parties  hereto  agrees  to pay  all of its  own  expenses  (including,  without
limitation,  attorneys and accountants' fees, and printing expenses) incurred in
connection  with this  Agreement,  the  transactions  contemplated  hereby,  the
negotiations leading to the same and the preparations made for carrying the same
into effect,  and all such taxes, fees, and expenses of the Parties hereto shall
be paid prior to Closing.

     8.2 Notices. Any notice, request,  instruction,  or other document required
by the terms of this  Agreement,  or deemed by any of the  Parties  hereto to be
desirable,  to be given to any other party  hereto shall be in writing and shall
be given by  facsimile,  personal  delivery,  overnight  delivery,  or mailed by
registered or certified mail, postage prepaid, with return receipt requested, to
the following addresses:

         To Neotactix:                      NeoTactix, Inc.
                                            Attn: Scott W. Absher
                                            28202 Cabot Road, Ste. 300
                                            Laguna Niguel, CA 92677
                                            Telephone:  949-888-8060
                                            Fax: 949-888-0863

         To Itec:                  Imaging Techologies Corp.
                                            15175 Innovation Drive
                                            San Diego, CA 92128
                                            Attention: Brian Bonar, President


                                       7
<PAGE>

The persons and  addresses set forth above may be changed from time to time by a
notice sent as aforesaid. If notice is given by facsimile, personal delivery, or
overnight  delivery in accordance  with the  provisions  of this  Section,  said
notice  shall be  conclusively  deemed  given at the time of such  delivery.  If
notice is given by mail in accordance with the provisions of this Section,  such
notice shall be  conclusively  deemed given seven days after deposit  thereof in
the United States mail.

     8.3 Entire  Agreement.  This  Agreement,  together  with the  Schedule  and
Exhibits  hereto,  sets  forth the entire  agreement  and  understanding  of the
Parties  hereto  with  respect  to the  transactions  contemplated  hereby,  and
supersedes all prior agreements,  arrangements and understandings related to the
subject matter  hereof.  No  understanding,  promise,  inducement,  statement of
intention,  representation,  warranty,  covenant, or condition, written or oral,
express or implied,  whether by statute or otherwise, has been made by any party
hereto which is not embodied in this Agreement,  or in the schedules or exhibits
hereto or the written  statements,  certificates,  or other documents  delivered
pursuant hereto or in connection with the transactions  contemplated hereby, and
no party  hereto  shall be bound by or  liable  for any  alleged  understanding,
promise, inducement, statement, representation, warranty, covenant, or condition
not so set forth.

     8.4  Survival  of  Representations.   All  statements  of  fact  (including
financial   statements)   contained  in  the   Schedules,   the  exhibits,   the
certificates,  or any other instrument  delivered by or on behalf of the Parties
hereto,  or in connection with the transactions  contemplated  hereby,  shall be
deemed  representations  and warranties by the respective party  hereunder.  All
representations,  warranties,  agreements, and covenants hereunder shall survive
the Closing and remain effective regardless of any investigation or audit at any
time made by or on behalf of the Parties or of any  information a party may have
in respect hereto.  Consummation of the transactions  contemplated  hereby shall
not be deemed or  construed  to be a waiver of any right or remedy  possessed by
any party hereto,  notwithstanding  that such party knew or should have known at
the time of Closing that such right or remedy existed.

     8.5 Incorporated by Reference.  The schedules,  exhibits, and all documents
(including,  without  limitation,  all financial  statements)  delivered as part
hereof or  incident  hereto  are  incorporated  as a part of this  Agreement  by
reference.

     8.6 Remedies  Cumulative.  No remedy herein  conferred  upon the Parties is
intended  to be  exclusive  of any other  remedy and each and every such  remedy
shall be  cumulative  and  shall be in  addition  to every  other  remedy  given
hereunder  or now or  hereafter  existing  at law or in equity or by  statute or
otherwise.

     8.7  Execution  of  Additional  Documents.  Each Party  hereto  shall make,
execute, acknowledge, and deliver such other instruments and documents, and take
all such other actions as may be reasonably  required in order to effectuate the
purposes of this  Agreement  and to  consummate  the  transactions  contemplated
hereby.

     8.8 Finders' and Related Fees.  Each of the Parties  hereto is  responsible
for, and shall  indemnify the other  against,  any claim by any third party to a
fee, commission,  bonus, or other remuneration arising by reason of any services
alleged  to have  been  rendered  to or at the  instance  of said  party to this
Agreement  with  respect  to  this  Agreement  or to  any  of  the  transactions
contemplated hereby.

     8.9 Governing Law. This  Agreement has been  negotiated and executed in the
State of California  and shall be construed and enforced in accordance  with the
laws of such state.

     8.10 Forum. Each of the Parties hereto agrees that any action or suit which
may be brought by any party hereto  against any other party hereto in connection
with this Agreement or the transactions  contemplated hereby may be brought only
in a federal or state court in Orange County, California.

     8.11 Professional  Fees. In the event any Party hereto shall commence legal
proceedings  against the other to enforce the terms hereof, or to declare rights
hereunder,  as the  result  of a breach of any  covenant  or  condition  of this
Agreement,  the  prevailing  party in any such  proceeding  shall be entitled to
recover from the losing party its costs of suit, including reasonable attorneys'
fees, accountants' fees, and experts' fees.

     8.12  Binding  Effect and  Assignment.  This  Agreement  shall inure to the
benefit of and be binding upon the Parties  hereto and their  respective  heirs,
executors, administrators, legal representatives, and assigns.

     8.13  Counterparts;  Facsimile  Signatures.  This Agreement may be executed
simultaneously  in one or more  counterparts,  each of which  shall be deemed an
original,  but  all  of  which  together  shall  constitute  one  and  the  same
instrument.  The Parties agree that facsimile signatures of this Agreement shall
be deemed a valid and binding execution of this Agreement.

     8.14 Mutual  Releases.  Except for the  obligations  to be performed by the
parties hereunder,  each party hereto hereby releases the other party (including
its officers, directors, employees, agents, shareholders, principals, attorneys,
insurers and representatives) and holds it harmless from and against any and all
possible  claims,   liabilities,   suits,   demands,   disputes,   deficiencies,
assessments,  controversies,  actions, judgments, executions, rights, interests,
liens, encumbrances,  and causes of action whatsoever,  including class actions,
whether in law, in equity, in administrative  proceedings, or otherwise, for any
and all  losses,  injuries,  mental  suffering,  emotional  distress,


                                       8
<PAGE>

emotional  suffering,  loss of  consortium,  loss of earnings,  loss of economic
advantage,  punitive damages,  exemplary damages,  compensation and compensatory
damages, other damages, taxes,  penalties,  interest,  contribution,  indemnity,
costs, expenses, sums of money, accounts,  fees,  impairments,  deficiencies and
assessments  that any Releasor has ever had, may now have, or can,  shall or may
have in the  future,  whether  presently  known  or  unknown  or  unanticipated,
suspected  or   unsuspected,   contingent   or   non-contingent,   concealed  or
unconcealed, whether intentionally or negligently caused, directly or indirectly
caused,  asserted or not  asserted,  whether  derivatively  or  representatively
asserted,  with or without malice,  without regard to the discovery of different
or  additional  facts,  whether ill or well  founded in law or in fact,  whether
based on contract,  tort, fraud,  deception,  duress,  statute, tax, breaches of
implied  duties of good faith and fair dealing,  or otherwise,  which in any way
pertain to any matters, facts, occurrences, disclosures, nondisclosures, actions
or omissions  that arose or occurred on or prior to the  effective  date of this
Agreement  and/or  that  in any  manner  involve,  relate  to,  or  concern  the
acquisition  of Source One  (collectively,  the  "Claims").  Each party  further
specifically  and expressly  waives any and all provisions,  rights and benefits
conferred  by any law of the  United  States  (including  California  Civil Code
ss.1542)  and any state or  territory  of the United  States,  as well as by any
principle of common law, which  provides that a general  release does not extend
to claims which the  claimant  does not know or suspect to exist in his favor at
the time of  executing  the  release,  which if known by him  would or must have
materially  affected  his  settlement  with the debtor.  Each of them  expressly
waives the  provisions  of California  Civil Code Section 1542,  and any similar
right under the laws of any other jurisdiction. Section 1542 reads as follows:

          A  GENERAL  RELEASE  DOES NOT  EXTEND  TO  CLAIMS  WHICH THE
          CREDITOR  DOES NOT KNOW OR  SUSPECT TO EXIST IN HIS FAVOR AT
          THE TIME OF  EXECUTING  THE  RELEASE,  WHICH IF KNOWN BY HIM
          MUST  HAVE  MATERIALLY  AFFECTED  HIS  SETTLEMENT  WITH  THE
          DEBTOR.

          The advice of legal  counsel has been obtained by all parties prior to
signing this mutual  general  release.  All parties  execute this mutual general
release  voluntarily,  with full  knowledge  of its  significance,  and with the
express intention of effecting the legal consequences  provided by this release,
i.e., the extinguishment of all obligations.

     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement,  as of
the date first written hereinabove.

                                        ITEC:


                                        Imaging Technologies, Inc.

                                        By:
                                           -------------------------------------
                                                Brian Bonar, President


                                        NEOTACTIX:

                                        NeoTactix, Inc.,

                                        a Delaware corporation

                                        ----------------------------------------
                                        By: Scott W. Absher

                                        Its:  President


                                       9
<PAGE>

                                  EXHIBIT 10(c)
--------------------------------------------------------------------------------

                            STOCK PURCHASE AGREEMENT

     THIS ACQUISITION AGREEMENT ("Agreement"), dated as of November 12, 2001, is
by and among NeoTactix,  Inc., a Nevada corporation ("Buyer"),  SourceOne Group,
Inc., a Delaware  corporation (the  "Company"),  and the persons and/or entities
listed on  Exhibit A hereto  who are the  holders  in the  aggregate  of all the
issued and outstanding capital stock of the Company (referred to collectively as
the  "Seller"  or  "Sellers")  (Buyer,  Company,  and Seller may be  referred to
collectively as the "Parties").

                                 R E C I T A L S

     A. The capital stock of the Company consists of 100,000  authorized  shares
of Common Stock,  $0.001 par value (the "the Company  Shares"),  of which 50,000
are currently issued and outstanding and held by Seller ("Shares").

     B. Upon the terms and  conditions  set forth below,  Seller desires to sell
all of the Shares to Buyer, such that,  following such transaction,  the Company
will be a 100% owned subsidiary of Buyer.

     C. The Company was formed on November 9, 2001, and the Sellers, who are the
sole members of SourceOne Group,  LLC, a Nevada limited  liability  company (the
"LLC"),  contributed 100% of the membership  interests of the LLC to the Company
in  exchange  for the Shares.  The sole asset of the  Company is the  membership
interests of the LLC. Whenever the term "Company" is used, the term includes the
predecessor limited liability company.

     D. It is contemplated that concurrently with the Closing of this Agreement,
Buyer  shall  enter into an  agreement  with a publicly  traded  company  for an
acquisition  whereby  Buyer  and/or  the  Company  will  become a  wholly  owned
subsidiary of the public company.

     NOW,  THEREFORE,  in  consideration  of the mutual  covenants,  agreements,
representations and warranties  contained in this Agreement,  the Parties hereto
agree as follows:

                                    ARTICLE 1
                         SALE AND PURCHASE OF THE SHARES

     1.1 Sale of the  Shares.  Subject  to the terms and  conditions  herein set
forth, and on the basis of the representations, warranties and agreements herein
contained,  Seller  shall sell and  transfer  to Buyer Fifty  Thousand  (50,000)
Shares of the  Company's  common  stock that  constitute  100% of the issued and
outstanding capital stock of the Company.

     1.2 Consideration.  In consideration for this Agreement,  the Parties shall
provide the following:

          1.2.1 Investment at Closing. At the Closing (as defined below),  Buyer
shall  invest into the Company the sum of $250,000 in return for the issuance of
25,000 shares of common  stock.  The Company shall use these funds to pay a debt
owed by the Company to Parvez Gondal, a Seller. As a convenience to the Company,
the Buyer shall direct these funds to Parvez Gondal by wire transfer or delivery
of other immediately available funds in the manner specified by Parvez Gondal.

          1.2.2 Payment Schedule for Payment of Purchase Price. Buyer shall make
the following  payments to the Seller on the following dates,  either in cash by
wire transfer or delivery of other immediately  available funds or in stock of a
publicly traded company ("Public Company"):

       April 1, 2002                   $100,000
       July 1, 2002                    $100,000
       October 1, 2002                 $100,000
       January 1, 2003                 $100,000
       April 1, 2003                   $100,000

          If the Company makes payment in stock  ("Stock") of a Public  Company,
the Stock that is paid to Seller shall meet the following requirements:  (a) the
Stock shall be valued at the best bid price for such security as reported by the
OTC Bulletin  Board,  the Nasdaq Stock Market,  or other  exchange on which such
stock is listed for  trading at the closing of the date that the payment is due;
(b) the Stock shall be registered  under the  Securities Act of 1933, as amended
(the  "Act"),  and  the  securities  laws of the  State  of  California  and the
Commonwealth of Virginia,  pursuant to the "piggy back" registration  rights set
forth in Section 1.4 and thus shall be fully  transferable  under the provisions
of the Act and  applicable  state laws;  (c) the Stock shall be duly and validly
issued,  fully paid, and nonassessable;  (d) a certificate shall be delivered to
the Seller within seven (7) business days after the payment becomes due, and (e)
the Public  Company  shall be part of a  consolidated  group that  includes  the
Company. The consideration payable under section 1.2.2 collectively  constitutes
the "Purchase Price".


                                       1
<PAGE>

     1.3 Remedy for  Failure to Pay.  If the Buyer  fails to make any payment to
Seller when due, then Seller may realize upon and retain all right,  title,  and
interest in and to the Shares and the common stock  purchased in accordance with
Section  1.2.1 in  accordance  with the stock  pledge  agreement  in the form of
Schedule 1 hereto ("Stock Pledge Agreement").  However,  Buyer shall be entitled
to retain all equipment,  furniture,  furnishings, and software purchased by the
Company  after the  Closing  and shall be  entitled  to retain new  clients  and
accounts  developed by the Company  after the Closing.  The Company shall retain
all equipment, furniture, furnishings and software owned by Company prior to the
Closing  and all  clients and  accounts  of the  Company  existing  prior to the
Closing.  The Buyer shall assure that the Company at such time  retains  clients
and  accounts  to  generate  $3,600,000  of gross  revenues  per month  with the
industry standard gross margin for the Richmond,  Virginia, region and that such
business of the Company may be conveniently managed from Richmond, Virginia.

     1.4 Registration Rights.

          1.4.1 Definitions. As used in this Section 1.4:

          (a) The terms "register",  "registered" and "registration"  refer to a
registration  effected  by  preparing  and filing a  registration  statement  in
compliance with the Act and the declaration or ordering of the  effectiveness of
such registration statement.

          (b) The term  "Registrable  Securities"  means (i) the Stock issued or
issuable  pursuant  to  section  1.2.2 and (ii) any  common  stock of the Public
Company  issued or issuable  in respect of such  common  stock or upon any stock
split,  stock  dividend,  recapitalization,  or similar  event.  Notwithstanding
anything set forth above, the above-described securities shall not be treated as
Registrable Securities if and so long as they (A) have been sold to or through a
broker or dealer or underwriter in a public  distribution or a public securities
transaction,  or (B) have been sold (or are available for sale in the opinion of
counsel to the Public  Company and market  conditions  would  permit the sale of
such  shares  within a 90 day period)  pursuant to Rule 144(k) in a  transaction
exempt from the registration and prospectus delivery  requirements of the Act so
that all transfer  restrictions and restrictive legends with respect thereto are
removed upon the consummation of such sale.

          (c) The term "SEC" means the Securities and Exchange Commission or any
successor agency thereto.

          1.4.2 Public Company Registration.

          (a) If at any time,  or from time to time,  the Public  Company  shall
determine to register any of its securities,  other than a registration relating
solely to employee  benefit plans, or a registration on Form S-4 relating solely
to an SEC Rule 145 transaction,  or a registration on any other form (other than
Form S-1,  S-3,  SB-1 or SB-2)  which does not  include  substantially  the same
information  as would be required to be  included  in a  registration  statement
covering the sale of Registrable Securities, the Public Company will:

               (i) promptly give to each Seller written notice thereof; and

               (ii) include in such registration (and any related  qualification
     under blue sky laws or other compliance),  and in any underwriting involved
     therein, all the Registrable Securities specified in any written request or
     requests by a Seller received by the Public Company within twenty (20) days
     after such written  notice is given on the same terms and conditions as the
     common stock, if any,  otherwise being sold through the underwriter in such
     registration.

          (b) If the  registration  of which the Public  Company gives notice is
for a registered public offering  involving an underwriting,  the Public Company
shall so advise the Sellers as a part of the written  notice  given  pursuant to
paragraph  1.4.2(a).  In such  event  the right of any  Seller  to  registration
pursuant  to this  paragraph  1.4.2  shall be  conditioned  upon  such  Seller's
participation   in  such   underwriting  and  the  inclusion  of  such  Seller's
Registrable  Securities in the underwriting to the extent provided  herein.  All
Sellers proposing to distribute their securities through such  underwriting,  if
any, (together with the Public Company and the other Sellers  distributing their
securities through such underwriting) shall enter into an underwriting agreement
in  customary  form  with the  underwriter  or  underwriters  selected  for such
underwriting by the Public Company.

          (c)  Notwithstanding  any other provision of this paragraph  1.4.2, if
the underwriter  determines  that marketing  factors require a limitation of the
number of shares to be  underwritten,  the underwriter may limit the Registrable
Securities or other securities to be included in the registration. Any reduction
by the underwriter of the number of Registrable  Securities or other  securities
to be  included  in such  registration  shall be made in the  following  manner:
initially,  the Public  Company shall so advise all Sellers  distributing  their
securities  through such  underwriting  and the number of shares of  Registrable
Securities that may be included in the registration  and  underwriting  shall be
allocated among the Sellers thereof in proportion, as nearly as practicable,  to
the  respective  amounts of  Registrable  Securities  contractually  entitled to
registration with the offering held by such Sellers at the time of filing of the
Registration  Statement.  To facilitate  the  allocation of shares in accordance
with the above  provisions,  the Public  Company  may round the number of shares
allocated  to any Seller to the  nearest 100 shares.  The Public  Company  shall
advise all Sellers which would otherwise be registered and underwritten pursuant
hereto  of any  such  limitations,


                                       2
<PAGE>

and the number of shares of Registrable  Securities  that may be included in the
registration.  If any Seller  disapproves of the terms of any such underwriting,
such  Seller may elect to  withdraw  therefrom  by written  notice to the Public
Company and the  underwriter.  Any  securities  excluded or withdrawn  from such
underwriting  shall not be transferred in a public  distribution prior to ninety
(90) days  after  the  effective  date of the  registration  statement  relating
thereto, or such shorter period of time as the underwriters may require.

          (d) The Public  Company  shall have the right to terminate or withdraw
any  registration  initiated  by it  under  this  paragraph  1.4.2  prior to the
effectiveness  of such  registration  whether or not any  Seller has  elected to
register securities in such registration.

          1.4.3 Expenses of  Registration.  All expenses  incurred in connection
with any registration, qualification or compliance pursuant to this Section 1.4,
including, without limitation, all registration,  filing and qualification fees,
printing expenses, escrow fees, fees and disbursements of counsel for the Public
Company,  accounting  fees and  expenses,  and  expenses of any  special  audits
incidental  to or  required by such  registration,  shall be borne by the Public
Company; provided, however, that the Public Company shall not be required to pay
stock transfer taxes or underwriters' fees, discounts or commissions relating to
Registrable Securities, or fees of counsel for the selling shareholder.

          1.4.4 Registration  Procedures.  If and whenever the Public Company is
required by the provisions of this Section 1.4 to use its best efforts to effect
the registration of any of the Registrable  Securities under the Act, the Public
Company will, as expeditiously as possible:

          (a)  Prepare  and file  with  the SEC a  registration  statement  with
respect to such  securities and use its best efforts to cause such  registration
statement to become and remain  effective for such period as may be necessary to
permit the successful marketing of such securities but not exceeding one hundred
twenty (120) days or until the Seller or Sellers have completed the distribution
described  in the  registration  statement  relating  thereto,  whichever  first
occurs.

          (b) Prepare and file with the SEC such  amendments and  supplements to
such registration  statement and the prospectus used in connection  therewith as
may be  necessary  to comply with the  provisions  of the Act;  and to keep such
registration  statement effective for that period of time specified in paragraph
1.4.4(a).

          (c)  Furnish to each Seller  participating  in the  registration  such
number of  prospectuses  and  preliminary  prospectuses  in conformity  with the
requirements  of the Act, and such other documents as such Seller may reasonably
request in order to  facilitate  the  public  sale or other  disposition  of the
Registrable Securities being sold by such Seller;

          (d) Use its best  efforts  to  register  or  qualify  the  Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of  California  and  Virginia  and do any and all  other  acts and
things which may be  necessary or desirable to enable such Seller to  consummate
the public sale or other  disposition  in such  jurisdictions  provided that the
Public  Company shall not be required in connection  therewith or as a condition
thereto  to  qualify  to do  business  or file a general  consent  to service of
process in any such jurisdictions.

          (e)  Notify  each  Seller of  Registrable  Securities  covered by such
registration  statement  at any  time  when a  prospectus  relating  thereto  is
required to be delivered under the Act of the happening of any event as a result
of which the  prospectus  included in such  registration  statement,  as then in
effect,  includes  an untrue  statement  of a material  fact or omits to state a
material fact required to be stated  therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.

          1.4.5 Indemnification.

          (a) The Public  Company  agrees to indemnify  and hold  harmless  each
Seller of Registrable  Securities with respect to which a registration statement
has been filed under the Act pursuant to this Section 1.4, each of such Seller's
partners,  officers and directors,  each  underwriter of any of the  Registrable
Securities included in such registration statement, and each person, if any, who
controls  any  such  Seller  or  underwriter  within  the  meaning  of  the  Act
(hereinafter collectively referred to as the "Seller-Underwriters"), as follows:

               (i)  against  any and all  loss,  liability,  claim,  damage  and
expense  whatsoever  arising  out of any  untrue  statement  or  alleged  untrue
statement of a material fact  contained in such  registration  statement (or any
amendment thereto),  or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the  statements  therein
not  misleading,  or arising  out of any  untrue  statement  or  alleged  untrue
statement  of a  material  fact  contained  in  any  preliminary  prospectus  or
prospectus (or any amendment or supplement thereto),  or the omission or alleged
omission  therefrom of a material fact necessary in order to make the statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading,  unless such untrue  statement  or omission or such  alleged  untrue
statement or omission was made in reliance upon and in  conformity  with written
information furnished to the Public Company by any Seller-Underwriter  expressly
for use in  such  registration  statement  (or any  amendment  thereto)  or such
preliminary prospectus or prospectus (or any amendment or supplement thereto);


                                       3
<PAGE>

               (ii)  against  any and all loss,  liability,  claim,  damage  and
expense  whatsoever to the extent of the aggregate  amount paid in settlement of
any litigation,  commenced or threatened,  or of any claim whatsoever based upon
any such untrue  statement or omission or any such alleged  untrue  statement or
omission,  if such settlement is effected with the written consent of the Public
Company (which consent shall not be unreasonably withheld); and

               (iii)  against any and all  expense  (including  attorneys  fees)
whatsoever reasonably incurred in investigating,  preparing,  settling (with the
consent of the Public Company, which consent shall not be unreasonably withheld)
or  defending  against any  litigation,  commenced or  threatened,  or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue  statement or  omission,  to the extent that any such expense is not paid
under  (i) or (ii)  above;  provided,  however,  that  the  foregoing  indemnity
agreement  in  paragraphs  (i),  (ii) and (iii) of this  paragraph  1.4.5(a)  is
subject  to the  condition  that,  insofar  as it  relates  to any  such  untrue
statement,  alleged  untrue  statement,  omission or alleged  omission made in a
preliminary  prospectus but eliminated or remedied in the amended  prospectus on
file with the SEC at the time the registration  statement becomes effective,  or
in the amended prospectus filed with the SEC pursuant to Rule 424(b) (the "Final
Prospectus"),  such  indemnity  agreement  shall not inure to the benefit of any
underwriter,  or any  Seller,  if there is no  underwriter,  or if a copy of the
Final  Prospectus was not furnished to the person or entity  asserting the loss,
liability,  claim or damage at or prior to the time such  action is  required by
the Act.

                    In no case  shall the Public  Company  be liable  under this
indemnity  agreement  with  respect  to any loss,  liability,  claim,  damage or
expense with respect to any claim made against any Seller-Underwriter unless the
Public  Company shall be notified in writing of the nature of the claim within a
reasonable  time after the assertion  thereof,  but the failure to so notify the
Public Company shall not relieve the Public Company from any liability  which it
may have otherwise than on account of this indemnity  agreement.  In case of any
such notice,  the Public Company shall be entitled to participate at its expense
in the defense,  or if it so elects  within a reasonable  time after  receipt of
such  notice,  to assume  the  defense of any suit  brought to enforce  any such
claim;  but if it so  elects  to  assume  the  defense,  such  defense  shall be
conducted by counsel chosen by it and approved by the  Seller-Underwriter(s) and
other  defendant or defendants,  if any, in any suit so brought,  which approval
shall not be unreasonably  withheld. In the event that the Public Company elects
to  assume  the  defense  of  any  such  suit  and  retain  such  counsel,   the
Seller-Underwriter(s)  and other  defendant or defendants,  if any, in the suit,
shall bear the fees and expenses of any additional counsel  thereafter  retained
by them;  provided,  however,  that the Public Company shall bear the expense of
independent counsel for the  Seller-Underwriter(s) if the  Seller-Underwriter(s)
reasonably  determines that  representation  of it and the Public Company by the
same counsel  would be  inappropriate  due to actual or  potential  conflicts of
interest.

          (b)  Each  Seller  severally,  and not  jointly,  agrees  that it will
indemnify and hold harmless the Public Company, each officer and director of the
Public Company,  each person, if any, who controls the Public Company within the
meaning of the Act, each underwriter of Registrable  Securities  included in any
registration  statement  which has been  filed  under the Act  pursuant  to this
Section 1.4,  each person,  if any, who  controls  such  underwriter  within the
meaning of the Act, each other  Seller,  each of such other  Seller's  partners,
officers and directors, and each person controlling such other Seller within the
meaning  of the Act  against  any and all loss,  liability,  claim,  damage  and
expense  described  in  clauses  (a)(i)  through  (a)(iii),  inclusive,  of this
paragraph  1.4.5,  but only with respect to statements or omissions,  or alleged
statements or omissions  made in such  registration  statement (or any amendment
thereto) or any  preliminary  prospectus  or  prospectus  (or any  amendment  or
supplement  thereto) in reliance upon and in conformity with written information
furnished  to the  Public  Company  by  such  Seller  expressly  for use in such
registration statement (or any amendment thereto) or such preliminary prospectus
or prospectus (or any amendment or supplement thereto). In case any action shall
be brought  against the Public Company or any person so indemnified  pursuant to
the provisions of this subparagraph (b) and in respect of which indemnity may be
sought against any Seller,  the Sellers from whom indemnity is sought shall have
the rights and duties given to the Public  Company,  and the Public  Company and
the other persons so  indemnified  shall have the rights and duties given to the
persons  entitled to  indemnification  by the provisions of subparagraph  (a) of
this paragraph 1.4.5.

          The obligations of the Public Company and Sellers under this paragraph
1.4.5 shall survive the completion of any offering of Registrable  Securities in
a registration statement under this Section 1.4, and otherwise.

          1.4.6  Information  by Seller.  The  Seller or Sellers of  Registrable
Securities included in any registration shall furnish to the Public Company such
information  regarding such Seller or Sellers, and the distribution  proposed by
such  Seller or  Sellers,  as the Public  Company  may request in writing and as
shall  be  required  in  connection  with  any  registration,  qualification  or
compliance referred to in this Section 1.4.

          1.4.7 Sale Without Registration. If at the time of any transfer of any
Registrable  Securities,  such  Registrable  Securities  shall not be registered
under the Act, the Public  Company may require,  as a condition of allowing such
transfer,  that the Seller or transferee  furnish to the Public Company (a) such
information as is necessary in order to establish that such transfer may be made
without  registration  under the Act,  and (b) (if the  transfer  is not made in
compliance  with  Rule 144  other  than a  transfer  not  involving  a change in
beneficial  ownership  or a  pro  rata  distribution  by a  partnership  to  its
partners)  at the  expense  of the Seller or  transferee,  an opinion of


                                       4
<PAGE>

counsel  satisfactory  to the Public Company in form and substance to the effect
that such transfer may be made without registration under the Act; provided that
nothing  contained in this paragraph 1.4.7 shall relieve the Public Company from
complying with any request for registration,  qualification,  or compliance made
pursuant to the other provisions of this Section 1.4.

          1.4.8  Rule 144  Reporting.  With a view to  making  available  to the
Sellers the benefits of certain rules and regulations of the SEC that may permit
the sale of the Registrable  Securities to the public without registration,  the
Public Company agrees to use its best efforts to:

          (a) Make and keep  public  information  available,  as those terms are
understood  and  defined in SEC Rule 144,  at all times  after  ninety (90) days
after the effective date of the first registration statement filed by the Public
Company for an offering of its securities to the general public;

          (b)  File  with the SEC in a  timely  manner  all  reports  and  other
documents  required of the Public Company under the  Securities  Exchange Act of
1934, as amended; and

          (c) Furnish the Sellers forthwith upon request (i) a written statement
by  the  Public  Company  as to  its  compliance  with  the  public  information
requirements  of said Rule 144 (at any time  after  ninety  (90) days  after the
effective date of the first  registration  statement filed by the Public Company
for an offering of its  securities  to the general  public),  (ii) a copy of the
most recent  annual or quarterly  report of the Public  Company,  and (iii) such
other  reports and  documents  as may be  reasonably  requested  in availing the
Sellers of any rule or  regulation  of the SEC  permitting  the sale of any such
securities without registration.

          1.4.9 Market  Stand-off  Agreement.  The Sellers,  if requested by the
Public Company and an  underwriter of common stock (or other  securities) of the
Public Company,  shall agree not to sell or otherwise transfer or dispose of any
Stock  held by the  Sellers  during the ninety  (90) day  period  following  the
effective date of a registration statement of the Public Company filed under the
Act provided that:

          (a) such  agreement  shall only  apply to the first such  registration
statement  of the  Public  Company  including  shares of common  stock (or other
securities) to be sold on its behalf to the public in an underwritten  offering;
and

          (b) all  Sellers  holding  more than one  percent  of the  outstanding
common  stock,  all officers and  directors of the Public  Company and all other
Sellers of registration rights of the Public Company (whether or not pursuant to
this  agreement)  enter into  similar  agreements.  Such  agreement  shall be in
writing in the form satisfactory to the Public Company and such underwriter. The
Public Company may impose  stop-transfer  instructions with respect to the Stock
subject to the foregoing restriction until the end of the foregoing period.

          1.4.10 Amendment of Registration  Rights.  With the written consent of
the  Sellers  of a  majority  of the  then  outstanding  Registrable  Securities
(including   securities   exercisable  for  or  convertible   into   Registrable
Securities),  the Public  Company may amend this  Section  1.4, or enter into an
agreement with any Seller or prospective  Seller of any securities of the Public
Company  which  would allow such Seller or  prospective  Seller to include  such
securities as Registrable Securities under this Section 1.4.

                                    ARTICLE 2
                         REPRESENTATIONS AND WARRANTIES

          For purposes of this  Agreement,  the term "Material  Adverse  Effect"
means any  change or effect  that is or is  reasonably  likely to be  materially
adverse  to  the  business,   assets  (including  tangible  assets),   financial
condition,  or results of  operations  of the entity.  Except as  disclosed in a
document referring  specifically to the  representations  and warranties in this
Agreement that  identifies by section number the section and subsection to which
such disclosure relates and is delivered by the Party making the representations
and  warranties  to the others  prior to the  execution of this  Agreement  (the
"Disclosure Schedules"), the Parties represent and warrant as of the date hereof
and as of the Closing, as follows:

          2.1  Representations  and  Warranties of Buyer.  Buyer  represents and
warrants to the Seller that:

               2.1.1 Organization,  Standing, Power. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the state of
Nevada. It has all requisite corporate power, franchises, licenses, permits, and
authority  to own its  properties  and assets and to carry on its business as it
has been and is being conducted. Buyer is duly qualified and in good standing to
do business in each  jurisdiction  in which a failure to so qualify would have a
Material Adverse Effect on Buyer.

               2.1.2 Authority.  The Buyer has all requisite power and authority
to enter into this  Agreement and to consummate  the  transactions  contemplated
hereby.  The  execution  and  delivery  by the Buyer of this  Agreement  and the
consummation of the transactions  contemplated  hereby have been duly authorized
by all necessary action on the parts of the Buyer, including the approval of the
Board of  Directors  of the Buyer.  This  Agreement  has been duly  executed and
delivered  by the  Buyer to the  Seller  and  constitutes  a valid  and  binding
obligation of the Buyer  enforceable in accordance  with its terms,  except that
such   enforceability   may  be   subject   to:  (a)   bankruptcy,   insolvency,
reorganization,  or other  similar laws  relating to  enforcement  of creditors'
rights  generally; and


                                       5
<PAGE>

(b) general equitable principles.  Subject to the satisfaction of the conditions
set forth in Article 3 below,  the execution  and delivery of this  Agreement do
not, and the  consummation  of the  transactions  contemplated  hereby will not,
conflict with or result in any violation of, or default (with or without  notice
or lapse  of  time,  or both)  under,  or give  rise to a right of  termination,
cancellation,  or  acceleration  of any  obligation,  or to loss  of a  material
benefit under, or the creation of a lien, pledge, security interest,  charge, or
other  encumbrance  on any  assets of either  the  Company  or Seller  (any such
conflict,  violation, default, right, loss, or creation being referred to herein
as a "Violation") pursuant to: (i) any provision of the organizational documents
of the  Buyer;  or (ii) any loan or  credit  agreement,  note,  bond,  mortgage,
indenture,   contract,  lease,  or  other  agreement,  or  instrument,   permit,
concession,   franchise,   license,   judgment,  order,  decree,  statute,  law,
ordinance,  rule, or regulation  applicable to Buyer's respective  properties or
assets,  other than in the case of any such Violation  which  individually or in
the aggregate would not have a Material Adverse Effect on the Buyer.

               2.1.3  Investment  and  Purchase  Experience.  The  Buyer  is not
acquiring the Shares or the Company  Shares with a view to any  distribution  or
resale thereof  within the meaning of the Act and any applicable  state or other
securities laws. The Buyer  acknowledges  that all documents,  records and books
pertaining  to the  Company  and the  acquisition  of the Shares and the Company
Shares which the Buyer has requested have been made available by the Company and
the Seller and their respective attorney(s),  accountant(s), or other adviser(s)
for  inspection by the Buyer.  The Buyer and the Buyer's  advisor(s)  have had a
reasonable  opportunity to ask questions of and receive answers from a person or
persons  acting on behalf of the Company and the Seller  concerning the purchase
of the Shares. The Buyer has such knowledge and experience in financial, tax and
business  matters  so as to enable  the Buyer to utilize  the  information  made
available  to the Buyer in  connection  with the  purchase of the Shares and the
Company  Shares to evaluate the merits and risks of such purchase and to make an
informed decision with respect thereto.

          2.2 Representations and Warranties of the Company and Seller.  Company
and Seller represent and warrant to the Buyer that:

               2.2.1 Organization, Standing, Power. The Company is a corporation
duly  organized,  validly  existing,  and in good standing under the laws of the
state of Delaware. It has all requisite corporate power,  franchises,  licenses,
permits,  and  authority  to own its  properties  and assets and to carry on its
business as it has been and is being  conducted.  The Company is duly  qualified
and in good standing to do business in each  jurisdiction  in which a failure to
so qualify would have a Material Adverse Effect on the Company.  For purposes of
this paragraph, the term "Company" does not include the LLC.

               2.2.2 Authority. The Company and Sellers have all requisite power
and authority to enter into this  Agreement and to consummate  the  transactions
contemplated  hereby.  The  execution and delivery by the Company and Sellers of
this Agreement and the consummation of the transactions contemplated hereby have
been duly  authorized  by all  necessary  action on the parts of the Company and
Sellers,  including the approval of the Board of Directors of the Company.  This
Agreement  has been duly  executed  and  delivered by the Company and Sellers to
Buyer and constitutes a valid and binding  obligation of the Company and Sellers
enforceable in accordance with its terms, except that such enforceability may be
subject to: (a) bankruptcy,  insolvency,  reorganization,  or other similar laws
relating  to  enforcement  of  creditors'  rights  generally;  and  (b)  general
equitable principles.

               2.2.3 Capitalization of the Company.

                     (a) The capital  stock of the  Company  consists of 100,000
authorized  shares of common  stock,  $0.001  par  value,  of which  50,000  are
currently issued and outstanding and held by Seller.

                     (b) Except as set forth on the Disclosure Schedules,  there
are no options, warrants, rights, calls, commitments, plans, contracts, or other
agreements  of any  character  granted or issued by the Company or Seller  which
provide for the purchase,  issuance, or transfer of any additional shares of the
capital stock of the Company,  nor are there any outstanding  securities granted
or issued by either the Company or Seller that are  convertible  into any shares
of the equity  securities of the Company,  and none is  authorized.  Neither the
Company  nor  Seller has  outstanding  any bonds,  debentures,  notes,  or other
indebtedness  the  holders  of which have the right to vote (or  convertible  or
exercisable  into  securities  having  the right to vote)  with  holders  of the
Company's capital stock on any matter.

                     (c)  Except  as  set  forth  on the  Disclosure  Schedules,
neither  the  Company  nor  Seller is a party or  subject  to any  agreement  or
understanding,  and, to the best of their  knowledge,  there is no  agreement or
understanding  between any persons and/or entities,  which affects or relates to
the voting or giving of written  consents  with  respect to any security or by a
shareholder or director of the Company.

                     (d)  Except  as  set  forth  on the  Disclosure  Schedules,
neither the  Company nor Seller has granted or agreed to grant any  registration
rights, including piggyback rights, to any person or entity.


                                       6
<PAGE>

          2.3  Representations  and  Warranties  of  the  Company.  The  Company
represents and warrants to Buyer that:

               2.3.1  Subsidiaries.  "Subsidiary"  or  "Subsidiaries"  means all
corporations,  trusts,  partnerships,  associations,  joint  ventures,  or other
Person of which the Company or any  Subsidiary of the Company owns not less than
twenty  percent  (20%) of the voting  securities or other equity or of which the
Company or any Subsidiary of the Company possesses,  directly or indirectly, the
power to direct or cause the direction of the management  and policies,  whether
through ownership of voting shares, management contracts, or otherwise. Prior to
the Closing of this  Agreement,  there are no  Subsidiaries of the Company other
than as disclosed herein or disclosed on the Disclosure Schedules.

               2.3.2 No Defaults.  The Company has not  received  notice that it
would be,  with the  passage  of time,  in  default  or  violation  of any term,
condition,  or provision of: (i) their Articles of Incorporation or Bylaws; (ii)
any judgment,  decree, or order applicable to the Company;  or (iii) any loan or
credit agreement, note, bond, mortgage,  indenture,  contract, agreement, lease,
license,  or other instrument to which the Company is now a party or by which it
or any of its  properties  or  assets  may be bound,  except  for  defaults  and
violations  which,  individually or in the aggregate,  would not have a Material
Adverse Effect on the Company.

               2.3.3 Financial Statements.  The Company has furnished Buyer with
a true and complete  copy of its internal  financial  statements  for the period
ending September 30, 2001, (the "Financial Statements"), which comply as to form
in all material  respects with all applicable  accounting  requirements,  namely
GAAP, with respect thereto and have been prepared  internally and fairly present
the  financial  positions and known  liabilities  of the Company as at 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, recurring audit
adjustments  not  material in scope or amount).  There has been no change in the
Company's  accounting policies or the methods of making accounting  estimates or
changes in estimates  that are material to the Financial  Statements,  except as
described in the notes thereto.

               2.3.4  Absence of  Undisclosed  Liabilities.  The  Company has no
liabilities or obligations  (whether absolute,  accrued,  or contingent) except:
(i) liabilities that are accrued or fully and completely reserved against in its
Balance Sheets; or (ii) additional  liabilities reserved against since September
30, 2001 that have arisen in the  ordinary  course of  business,  are accrued or
reserved against its books and records, and amount in the aggregate to less than
$25,000.

               2.3.5 Absence of Changes.  Since  September 30, 2001, the Company
has  conducted its business in the ordinary  course and there has not been:  (i)
any Material Adverse Effect on the business,  financial condition,  liabilities,
or assets of the Company or any  development or combination of  developments  of
which  management  of the Company has knowledge  which is  reasonably  likely to
result in such an effect; (ii) any damage,  destruction, or loss, whether or not
covered by insurance, having a Material Adverse Effect on the Company; (iii) any
declaration,  setting  aside or payment of any  dividend  or other  distribution
(whether in cash,  stock,  or property) with respect to the capital stock of the
Company;  (iv) any increase or change in the compensation or benefits payable or
to become payable by the Company to any of its employees, except in the ordinary
course  of  business  consistent  with  past  practice;  (v)  any  sale,  lease,
assignment,  disposition, or abandonment of a material amount of property of the
Company,  except  in the  ordinary  course of  business;  (vi) any  increase  or
modification in any bonus, pension,  insurance,  or other employee benefit plan,
payment, or arrangement made to, for, or with any of their employees;  (vii) the
granting  of stock  options,  restricted  stock  awards,  stock  bonuses,  stock
appreciation rights, and similar equity based awards;  (viii) any resignation or
termination  of employment  of any officer of the Company;  and the Company does
not know of the impending  resignation  or termination of employment of any such
officer,  other  than  as  provided  in  this  Agreement;  (ix)  any  merger  or
consolidation  with another entity, or acquisition of assets from another entity
except  in the  ordinary  course of  business;  (x) any loan or  advance  by the
Company to any  person or  entity,  or  guaranty  by the  Company of any loan or
advance;  (xi) any  amendment or  termination  of any  contract,  agreement,  or
license  to which  the  Company  is a party,  except in the  ordinary  course of
business;  (xii) any mortgage,  pledge, or other encumbrance of any asset of the
Company;  (xiii) any  waiver or  release  of any right or claim of the  Company,
except in the ordinary course of business;  (xiv) any write off as uncollectible
any note or account receivable or portion thereof;  or (xv) any agreement by the
Company to do any of the things described in this Section 2.3.5.

               2.3.6 Patents and  Trademarks.  The Company has sufficient  title
and  ownership  of  all  patents,   trademarks,   service  marks,  trade  names,
copyrights,  trade  secrets,  information,  proprietary  rights,  and  processes
(collectively,  "Intellectual  Property")  necessary  for its  businesses as now
conducted without any conflict with or infringement of the rights of others. The
Intellectual  Property  owned  by  the  Company  is  listed  in  the  Disclosure
Schedules. There are no outstanding options, licenses, or agreements of any kind
relating to the Intellectual Property, nor is the Company bound by or a party to
any  options,   licenses,  or  agreements  of  any  kind  with  respect  to  the
Intellectual  Property  of any  other  person or  entity.  The  Company  has not
received any communications  alleging that it has violated or, by conducting its
business as  proposed,  would  violate any of the  Intellectual  Property of any
other  person or entity.  The  Company  is not aware  that any of the  Company's
employees is obligated under any contract  (including  licenses,  covenants,  or
commitments  of any  nature) or other  agreement,  or  subject to any  judgment,
decree,  or order of any court or  administrative  agency,  that would interfere
with the use of his or her best efforts to


                                       7
<PAGE>

promote the  interests of the Company or that would  conflict with the Company's
business as proposed to be conducted.  Neither the execution or delivery of this
Agreement,  nor the carrying on of the Company's business by its employees,  nor
the conduct of the  Company's  business as  proposed,  will,  to the best of the
Seller's  and  Company'  knowledge,  conflict  with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant, or instrument under which any of such employees is now obligated.  The
Company does  believe that it is or will be necessary to utilize any  inventions
of any of the Company's  employees (or people it currently intends to hire) made
prior to their employment by the Company.

               2.3.7  Compliance with Other  Instruments.  The Company is not in
violation or default of any provision of its  certificate  of  incorporation  or
bylaws,  or of any instrument,  judgment,  order,  writ,  decree, or contract to
which it is a party or by which it is bound,  or of any provision of any federal
or state statute, rule, or regulation which may be applicable to Company.

               Subject  to the  satisfaction  of the  conditions  set  forth  in
Article 3 below,  the execution  and delivery of this  Agreement do not, and the
consummation of the transactions  contemplated hereby will not, conflict with or
result in any violation of, or default (with or without notice or lapse of time,
or  both)  under,  or  give  rise  to  a  right  of  termination,  cancellation,
revocation,  nonrenewal or  acceleration  of any  obligation,  material  permit,
license,  and  authorization  or to loss of a  material  benefit  under,  or the
creation of a lien, pledge,  security interest,  charge, or other encumbrance on
any  assets of either  the  Company  or Seller  (any such  conflict,  violation,
default,  right,  loss, or creation  being  referred to herein as a "Violation")
pursuant to: (i) any provision of the  organizational  documents of the Company;
or (ii) any loan or credit agreement, note, bond, mortgage, indenture, contract,
lease,  or  other  agreement,  or  instrument,  permit,  concession,  franchise,
license,  judgment, order, decree, statute, law, ordinance,  rule, or regulation
applicable to each of the Company and Seller's respective  properties or assets,
other  than in the  case of any  such  Violation  which  individually  or in the
aggregate would not have a Material  Adverse Effect on either the Company or the
Sellers.

               2.3.8  Employee   Benefit  Plans.   All  employee  benefit  plans
(including  without  limitation all plans which  authorize the granting of stock
options, restricted stock, stock bonuses, or other equity based awards) covering
active,  former,  or  returned  employees  of  the  Company  are  listed  in the
Disclosure Schedules.

               2.3.9  Other  Personal  Property.  The books and  records  of the
Company contain a complete and accurate  description,  and specify the location,
of all trucks, automobiles, machinery, equipment, furniture, supplies, and other
tangible  personal  property  owned  by,  in the  possession  of, or used by the
Company in connection  with its business.  Except as set forth in the Disclosure
Schedules,  no  personal  property  used by the Company in  connection  with its
business  is  held  under  any  lease,  security  agreement,  conditional  sales
contract, or other title retention or security arrangement.

               2.3.10 Properties and Liens. Except as reflected in the Financial
Statements or as set forth in the Disclosure Schedules, and except for statutory
mechanics' and materialmen's  liens, liens for current taxes not yet delinquent,
and liens  that,  individually  or in the  aggregate,  would not have a Material
Adverse  Effect on the Company,  the Company owns,  free and clear of any liens,
claims,  charges,  options,  or  other  encumbrances,  all of its  tangible  and
intangible  property,  real  and  personal,  whether  or  not  reflected  in the
Financial  Statements (except that sold or disposed of in the ordinary course of
business since the date of such statements) and all such property acquired since
the date of such statements. All real property and tangible personal property of
the Company is in good  operating  condition and repair,  ordinary wear and tear
excepted.

               2.3.11  Inventory.  The  inventories  of the Company shown on the
Financial  Statements and  inventories  acquired by it subsequent to the date of
the  Financial  Statements  consist  solely of items of a quality  and  quantity
usable and  salable in the normal  course of  business,  with the  exception  of
obsolete materials and materials below standard quality,  all of which have been
written down in the books of the Company to net realizable  market value or have
been  provided for by adequate  reserves.  Except for sales made in the ordinary
course of business,  all inventory is the property of the Company.  No items are
subject to security interests,  except as set forth in the Disclosure Schedules.
The value of the inventories has been determined on a first-in,  first-out basis
consistent with prior years.

               2.3.12  Major  Contracts.  Except as  otherwise  disclosed in the
Disclosure Schedules, the Company is not a party or subject to:

                       (a) Any union  contract,  or any  employment  contract or
arrangement  providing  for  future  compensation,  written  or  oral,  with any
officer,  consultant,  director,  or  employee  which is not  terminable  by the
Company  on 30 days'  notice or less  without  penalty  or  obligations  to make
payments related to such termination;

                       (b) Any joint venture contract,  partnership agreement or
arrangement or any other  agreement which has involved or is expected to involve
a sharing of revenues with other persons or a joint development of products with
other persons;

                       (c) Any  manufacture,  production,  distribution,  sales,
franchise,  marketing, or license agreement, or arrangement by which products or
services of the Company are developed, sold, or distributed;


                                       8
<PAGE>

                       (d) Any material agreement,  license, franchise,  permit,
indenture,  or  authorization  which has not been terminated or performed in its
entirety and not renewed  which may be, by its terms,  accelerated,  terminated,
impaired, or adversely affected by reason of the execution of this Agreement, or
the consummation of the transactions contemplated hereby or thereby;

                       (e) Any material agreement,  contract, or commitment that
requires  the  consent  of  another  person  for the  Company  to enter  into or
consummate the transactions contemplated by this Agreement;

                       (f) Except for object  code  license  agreements  for the
Company executed in the ordinary course of business,  any indemnification by the
Company with respect to infringements of proprietary rights; or

                       (g)  Any  contract  containing  covenants  purporting  to
materially limit the Company's freedom to compete in any line of business in any
geographic area.

               2.3.13  Questionable  Payments.   Neither  the  Company  nor  any
director,  officer, employee, or agent of the Company, has: (i) made any payment
or provided services or other favors in the United States or any foreign country
in order to obtain  preferential  treatment or consideration by any Governmental
Entity with respect to any aspect of the  business of the Company;  or (ii) made
any  political  contributions  that  would not be  lawful  under the laws of the
United States, any foreign country or any jurisdiction  within the United States
or any foreign country. Neither the Company nor any director, officer, employee,
or agent of the Company,  has been or is the subject of any investigation by any
Governmental Entity in connection with any such payment,  provision of services,
or contribution.

               2.3.14 Leases in Effect.  All real property  leases and subleases
as to which the Company is a party and any amendments or  modifications  thereof
(each a "Lease" and,  collectively,  the "Leases") are listed in the  Disclosure
Schedules and are valid, in full force and effect and enforceable, and there are
no existing defaults on the part of the Company and the Company has received nor
given notice of default or claimed  default  with  respect to any Lease,  nor is
there any event that with notice or lapse of time, or both,  would  constitute a
default thereunder.  Except as set forth on the Disclosure Schedules, no consent
is required from the Company under any Lease in connection  with the  completion
of the  transactions  contemplated  by this  Agreement,  and the Company has not
received  notice that any party to any Lease  intends to cancel,  terminate,  or
refuse to renew the same or to exercise  any option or other  right  thereunder,
except where the failure to receive such  consent,  or where such  cancellation,
termination, or refusal would not have a Material Adverse Effect on the Company.

               2.3.15 Environmental.

                      (a) (i) The business as  presently or formerly  engaged in
by the  Company is and has been  conducted  in  compliance  with all  applicable
Environmental  Laws (as defined in subparagraph  (b) below),  including  without
limitation,   having   all   permits,   licenses,   and  other   approvals   and
authorizations, during the time it engaged in such businesses; (ii) there are no
civil, criminal, or administrative  actions, suits, demands,  claims,  hearings,
investigations,  or proceedings pending or threatened against it relating to any
violation,  or alleged violation, of any Environmental Law; and (iii) it has not
incurred,  and none of the properties presently or formerly owned or operated by
it are  presently  subject to, any material  liabilities  (fixed or  contingent)
relating to any suit, settlement,  court order,  administrative order, judgment,
or claim asserted or arising under any Environmental Law.

                      (b) "Environmental Law" means any federal, state, foreign,
and local law, statute,  ordinance,  rule,  regulation,  code, license,  permit,
authorization,  approval,  consent,  legal doctrine,  order,  judgment,  decree,
injunction,  requirement, or agreement with any governmental entity relating to:
(i) the protection,  preservation, or restoration of the environment (including,
without limitation,  air, water,  vapor,  surface water,  groundwater,  drinking
water supply, surface land, subsurface land, plant and animal life, or any other
natural  resource),  to human health or safety;  or (ii) the exposure to, or the
use, storage,  recycling,  treatment,  generation,  transportation,  processing,
handling, labeling, production, release, or disposal of hazardous substances, in
each case as amended and as now or hereafter in effect.

               2.3.16 Taxes.  Except as set forth elsewhere in this Agreement or
in the Disclosure Schedules:

                      (a) All taxes, assessments, fees, penalties, interest, and
other governmental charges with respect to the Company which have become due and
payable by the September 30, 2001, have been paid in full or adequately reserved
against by the Company, and all taxes, assessments,  fees, penalties,  interest,
and other  governmental  charges which have become due and payable subsequent to
September 30, 2001 have been paid in full or adequately  reserved against on its
books of account  and such books are  sufficient  for the  payment of all unpaid
federal,   state,  local,  foreign,  and  other  taxes,  fees,  and  assessments
(including without limitation,  income, property, sales, use, franchise, capital
stock, excise, added value, employees' income withholding,  social security, and
unemployment  taxes), and all interest and penalties thereon with respect to the
periods then ended and for all periods prior thereto;


                                       9
<PAGE>

                      (b)   There   are  no   agreements,   waivers,   or  other
arrangements  providing for an extension of time with respect to the  assessment
of any tax or deficiency against the Company, nor are there any actions,  suits,
proceedings,  investigations,  or claims  now  pending  against  the  Company in
respect of any tax or  assessment,  or any  matters  under  discussion  with any
federal,   state,   local,  or  foreign  authority  relating  to  any  taxes  or
assessments,  or any claims for additional taxes or assessments  asserted by any
such authority; and

                      (c) There are no liens  for taxes  upon the  assets of the
Company except for taxes that are not yet payable.  The Company has withheld all
taxes required to be withheld in respect of wages,  salaries, and other payments
to all  employees,  officers,  and  directors  and timely paid all such  amounts
withheld to the proper taxing authority.

               2.3.17  Disputes  and  Litigation.  Except  as  disclosed  in the
Disclosure Schedules, there is no suit, claim, action, litigation, or proceeding
pending or threatened against or affecting the Company or any of its properties,
assets,  or business or to which the Company is a party,  in any court or before
any arbitrator of any kind or before or by any Governmental Entity, which would,
if  adversely  determined,  individually  or in the  aggregate,  have a Material
Adverse Effect on the Company,  nor is there any judgment,  decree,  injunction,
rule, or order of any Governmental Entity or arbitrator  outstanding against the
Company,  respectively,  and  having,  or which,  insofar as  reasonably  can be
foreseen,  in the future could have, any such effect.  There is no investigation
pending or threatened  against any of the Company  before any foreign,  federal,
state, municipal, or other governmental department,  commission,  board, bureau,
agency, instrumentality, or other Governmental Entity.

               2.3.18   Compliance  with  Laws.  Except  as  set  forth  in  the
Disclosure  Schedules the Company's business is not being conducted in violation
of, or in a manner which could cause  liability  under any applicable law, rule,
or regulation, judgment, decree, or order of any Governmental Entity, except for
any violations or practices,  which,  individually or in the aggregate, have not
had and will not have a Material Adverse Effect on the Company.  The Company has
all franchises,  permits,  licenses, and any similar authority necessary for the
conduct of its  business as now being  conducted  by it, the lack of which could
materially  and  adversely  affect  the  business,  properties,   prospects,  or
financial  condition  of the Company and believes it can obtain,  without  undue
burden or expense,  any similar  authority for the conduct of its business as it
is  planned to be  conducted.  The  Company  is not in  default in any  material
respect  under  any of such  franchises,  permits,  licenses,  or other  similar
authority.  A true  and  complete  list of all  such  franchises,  permits,  and
licenses held by the Company is set forth in the Disclosure Schedules.

               2.3.19  Insurance.  The  Company  has or  shall  obtain  fire and
casualty  insurance  policies,  with  extended  coverage,  sufficient  in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be  damaged  or  destroyed  within 45 days of the  execution  of this
Agreement.  The  Company  shall  have in  effect  and in good  standing  current
Worker's Compensation coverage with its current carrier at the time of Closing.

               2.3.20 Minute Books.  The minute books of the Company provided to
Buyer contain a complete  summary of all meetings of directors and  shareholders
since the time of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.

               2.3.21 Governmental Consents. Any consents, approvals, orders, or
authorizations of or registrations,  qualifications, designations, declarations,
or  filings  with  or  exemptions  by  (collectively  "Consents"),   any  court,
administrative  agency,  or  commission,  or  other  federal,  state,  or  local
governmental  authority or instrumentality,  whether domestic or foreign (each a
"Governmental Entity"),  which may be required by or with respect to the Company
in  connection  with  the  execution  and  delivery  of  this  Agreement  or the
consummation by the Company of the transactions  contemplated hereby, except for
such  Consents  which if not obtained or made would not have a Material  Adverse
Effect on the Company for the transactions  contemplated by this Agreement,  are
the  responsibility  of the Company.  The Company hereby represents and warrants
that such Consents have been obtained by them.

               2.3.22 Certain Agreements.  Neither the execution and delivery of
this Agreement nor the  consummation  of the  transactions  contemplated  hereby
will:  (i) result in any  payment  (including,  without  limitation,  severance,
unemployment compensation, parachute payment, bonus, or otherwise), becoming due
to any director,  employee,  or independent  contractor of the Company, from any
other Person under any  agreement or  otherwise;  (ii)  materially  increase any
benefits  otherwise  payable  under  any  agreement;  or  (iii)  result  in  the
acceleration of the time of payment or vesting of any such benefits.

               2.3.23 Recent Transactions. Neither the Company nor any director,
officer,  employee, or agent of the Company, is participating in any discussions
or  intends  to engage in any  discussion:  (i) with any  representative  of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such  corporation or  corporations;  (ii) with any corporation,
partnership,  association,  or other business entity or any individual regarding
the sale,  conveyance,  or disposition of all or substantially all of the assets
of the Company or a transaction or series of related  transactions in which more
than fifty  percent  (50%) of the voting power of the Company is disposed of; or
(iii)  regarding any other form of  acquisition,  liquidation,  dissolution,  or
winding up of the Company.


                                       10
<PAGE>

               2.3.24  Related  Party  Transactions.  No employee,  officer,  or
director of the Company nor member of his or her immediate family is indebted to
the Company,  nor is the Company  indebted (or committed to make loans or extend
or  guarantee  credit) to any of them.  None of such  persons  has any direct or
indirect ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation that competes with the Company, except that employees,  officers, or
directors of the Company and members of their  immediate  families may own stock
in publicly traded companies that may compete with the Company. No member of the
immediate  family of any  officer or  director  of the  Company is  directly  or
indirectly interested in any material contract with the Company.

               2.3.25 Disclosure. To the extent it would have a Material Adverse
Effect, no representation or warranty made by the Company in this Agreement, nor
any document, written information,  statement, financial statement, certificate,
or exhibit prepared and furnished or to be prepared and furnished by the Company
or its  representatives  pursuant hereto or in connection with the  transactions
contemplated  hereby,  when taken together,  contains any untrue  statement of a
material  fact,  or  omits  to  state a  material  fact  necessary  to make  the
statements or facts  contained  herein or therein not misleading in light of the
circumstances under which it were furnished.

          2.4 Reliance. The foregoing representations and warranties are made by
each Party with the  knowledge  and  expectation  that the  Parties  are placing
reliance thereon.

                                    ARTICLE 3
                              CONDITIONS PRECEDENT

          3.1 Conditions to Each Party's Obligations. The respective obligations
of each Party hereunder shall be subject to the satisfaction  prior to or at the
Closing of the following conditions:

              (a) No Restraints. No statute, rule, regulation, order, decree, or
injunction  shall have been enacted,  entered,  promulgated,  or enforced by any
court or  Governmental  Entity  of  competent  jurisdiction,  which  enjoins  or
prohibits the consummation of this Agreement and shall be in effect.

              (b) Legal  Action.  There  shall not be pending or  threatened  in
writing  any  action,  proceeding,  or other  application  before  any  court or
Governmental   Entity  challenging  or  seeking  to  restrain  or  prohibit  the
consummation of the transactions  contemplated by this Agreement,  or seeking to
obtain  any  material  damages  or  that  would  cause  any of the  transactions
contemplated by this Agreement to be rescinded following consummation.

              (c) Governmental Approvals.  All Consents of Governmental Entities
legally  required  by the  Parties  for the  transactions  contemplated  by this
Agreement  shall have been filed,  occurred,  or been obtained,  other than such
Consents,  the  failure  of which to obtain  would not have a  Material  Adverse
Effect on the consummation of the transactions contemplated by this Agreement.

              (d)  Consents  of Other  Third  Parties.  The  Parties  shall have
received and delivered to the  appropriate  other Parties or Party all requisite
consents and  approvals of all lenders,  lessors,  and other third parties whose
consent or  approval is  required  in order for the  Parties to  consummate  the
transactions  contemplated  by  this  Agreement,  or  in  order  to  permit  the
continuation after the Closing of the business  activities of the Company in the
manner  such  business  is  presently  carried on by it.  Each Party  shall have
received  copies of any necessary  written  consent(s) to this Agreement and the
transactions contemplated herein.

          3.2 Conditions to Seller's  Obligations.  The  obligations  of Seller
shall be subject to the satisfaction prior to or at the Closing of the following
conditions unless waived by Seller:

              (a)  Representations  and Warranties of Buyer. The representations
and warranties of Buyer set forth in this Agreement shall be true and correct as
of the date of this  Agreement and as of the Closing as though made on and as of
the Closing, except: (i) as otherwise contemplated by this Agreement; or (ii) in
respects  that do not have a Material  Adverse  Effect on the  Parties or on the
benefits of the transactions  provided for in this Agreement.  Seller shall have
received a certificate  signed on behalf of Buyer by the Chief Executive Officer
of Buyer to such effect on the Closing.

              (b)  Performance  of  Obligations  of  Buyer.   Buyer  shall  have
performed all agreements and covenants required to be performed by it under this
Agreement prior to the Closing,  except for breaches that do not have a Material
Adverse  Effect on the Parties or on the benefits of the  transactions  provided
for in this Agreement. Seller shall have received a certificate signed on behalf
of Buyer by the Chief Executive Officer of Buyer to such effect on the Closing.

          3.3 Conditions to Buyer's Obligations.  The obligations of Buyer shall
be  subject to the  satisfaction  prior to or at the  Closing  of the  following
conditions unless waived by Buyer:

              (a) Representations and Warranties of Seller and the Company.  The
representations  and  warranties  of Seller  and the  Company  set forth in this
Agreement  shall be true and correct as of the date of this  Agreement and as of
the Closing as though made on and as of the  Closing,  except:  (i) as otherwise
contemplated by this Agreement;  or (ii) in respects that do not have a Material
Adverse  Effect on the Parties or on the benefits of the


                                       11
<PAGE>

transactions  provided  for  in  this  Agreement.   Buyer  shall  have  received
certificates  signed  by  Seller  and on  behalf  of the  Company  by the  Chief
Executive Officer or President of the Company to such effect on the Closing.

              (b)  Performance of Obligations of Seller and the Company.  Seller
and the Company shall have performed all agreements and covenants required to be
performed by them under this Agreement prior to the Closing, except for breaches
that do not have a Material  Adverse Effect on the Parties or on the benefits of
the  transactions  provided  for in this  Agreement.  Buyer shall have  received
certificates  signed by Seller on behalf of the  Company by the Chief  Executive
Officer or President of the Company to such effect on the Closing.

              (c) Resignations.  The officers and directors of the Company shall
have submitted their resignations effective upon the Closing.

              (d) Banking  Relationships.  The  officers  and  directors  of the
Company shall execute a letter(s) or other a document(s) acceptable to the Buyer
informing all banks or other financial  institutions of the change in control of
the Company and that the Company will inform such financial  institutions of the
officers  who will  act on  behalf  of the  Company  with  respects  to  Company
accounts.

              (e)  Material  Adverse  Change.  Since the date hereof and through
Closing, there shall not have occurred any change,  occurrence,  or circumstance
in Seller or the Company having or reasonably likely to have, individually or in
the aggregate, in the reasonable judgment of Buyer, a Material Adverse Effect on
the Parties or on the transactions contemplated by this Agreement.

                                    ARTICLE 4
                        CLOSING AND DELIVERY OF DOCUMENTS

          4.1 Time and Place.  The closing of the  transactions  contemplated by
this Agreement shall take place at the offices of Buyer's Legal Counsel, located
in Los Angeles  County,  CA, no later than  November 12, 2001,  or at such other
time and place as the  Parties  mutually  agree upon in writing  (which time and
place are hereinafter referred to as the "Closing" or the "Closing Date").

          4.2 Deliveries by Seller. At Closing,  Seller shall make the following
deliveries to Buyer:

              (a) A stock certificate or certificates representing the Shares as
set forth in Section 1.1 above;

              (b) A  certificate  executed by Seller  certifying  that:  (i) all
Seller's  representations and warranties under this Agreement are true as of the
Closing, as though each of those representations and warranties had been made on
that date; and (ii) Seller has performed all  agreements and covenants  required
to be performed  by it under this  Agreement  prior to the  Closing,  except for
breaches  that do not have a Material  Adverse  Effect on the  Parties or on the
benefits of the transactions provided for in this Agreement;

              (c) Originals of the resignations of the officers and directors of
the Company;

              (d)  Originals of letters to banks and financial  institutions  in
the form acceptable to the Buyer;

              (e) The executed Stock Pledge Agreement.

          4.3 Deliveries by the Company. At Closing,  the Company shall make the
following deliveries to Buyer:

              (a) A certificate executed by the Company certifying that: (i) all
of the Company's representations and warranties under this Agreement are true as
of the Closing, as though each of those  representations and warranties had been
made on that  date;  and (ii) the  Company  has  performed  all  agreements  and
covenants  required  to be  performed  by it under this  Agreement  prior to the
Closing,  except for breaches that do not have a Material  Adverse Effect on the
Parties or on the benefits of the  transactions  provided for in this Agreement;
and

              (b)  Certified  resolutions  of  the  Board  of  Directors  of the
Company,  in form  satisfactory to counsel for Buyer,  authorizing the execution
and performance of this Agreement;

              (c) The minute book and corporate records of the Company, and

              (d) A stock  certificate  of the  Company in the name of the Buyer
for 25,000 shares of common stock.

          4.4  Deliveries by Buyer.  At Closing,  Buyer shall make the following
deliveries to Seller:

              (a) A certificate  executed by Buyer  certifying that: (i) Buyer's
representations  and warranties under this Agreement are true as of the Closing,
as though each of those  representations  and  warranties  had been made on that
date; and (ii) Buyer has performed all  agreements and covenants  required to be
performed by it under this Agreement  prior to the Closing,  except for breaches
that do not have a Material  Adverse Effect on the Parties or on the benefits of
the transactions provided for in this Agreement;


                                       12
<PAGE>

              (b)  Certified  resolutions  of the Board of Directors of Buyer in
form  satisfactory  to  counsel  for  Seller,   authorizing  the  execution  and
performance of this Agreement;

              (c) The executed  Stock Pledge  Agreement  (with the  certificates
representing  the  stock  covered  by the Stock  Pledge  Agreement,  along  with
executed stock powers covering the same being delivered to Counsel for the Buyer
to be held in accordance with the Stock Pledge Agreement).

          4.5  Deliveries  by Buyer on Behalf of the  Company.  At Closing,  the
Buyer shall,  on behalf of the  Company,  deliver  $250,000 to Parvez  Gondal in
accordance with Section 1.2.1.

                                    ARTICLE 5
                                 INDEMNIFICATION

          5.1 Seller and the Company's Indemnity Obligations.

              (a) Upon receipt of notice  thereof  (provided that such notice is
received  within the survival  period set forth in Section 7.4, if  applicable),
Seller and the Company shall, jointly and severally, indemnify, defend, and hold
harmless  Buyer  from  any  and  all  claims,  demands,  liabilities,   damages,
deficiencies,  losses, obligations,  costs and expenses, including attorney fees
and any costs of  investigation  that Buyer shall  incur or suffer,  that arise,
result from or relate to: (i) any breach of, or failure by Seller or the Company
to perform, any of their representations,  warranties,  covenants, or agreements
in this Agreement or in any schedule, certificate,  exhibit, or other instrument
furnished or to be furnished by Seller and/or the Company under this  Agreement;
and (ii) the employment of any of the Company's  employees which is in violation
of any law, regulation, or ordinance of any Governmental Entity either under the
conduct of its business as SourceOne or arising from the transfer of assets from
its acquisition of Payroll Services of Virginia.

              (b) If liabilities or claims that arise, result from, or relate to
the items set forth in Section  5.1(a)(i)  or (ii)  become  known and claims are
made upon the  Company  and/or the Seller  for  occurrences  prior to October 1,
2001,  Buyer shall have the right to offset the  liabilities  and claims against
the unpaid balance of the Purchase  Price owing to Sellers,  or to seek recourse
against the Company,  at the election of the Buyer.  Neither  Seller nor Company
shall have a right of subrogation or contribution against the other.

              (c) Buyer  shall  notify  promptly  Seller and the  Company of the
existence  of any  claim,  demand,  or  other  matter  to which  Seller  and the
Company's indemnification obligations would apply, and shall give each of them a
reasonable  opportunity (but in any event not less than 15 days after receipt of
notice) to assume the defense of the same at their own expense and with  counsel
of their own  selection,  provided  that Buyer  shall at all times also have the
right to  retain  separate  co-counsel  at its sole cost and  expense  and fully
participate in the defense, provided further that the Buyer shall not consent to
the entry of any  judgment  or enter into any  settlement  with  respect to such
claim,  demand, or other matter without the prior written consent of the Seller.
If Seller and the Company,  within a reasonable time after this notice, fails to
defend,  Buyer shall have the right,  but not the  obligation,  to undertake the
defense  of,  and,  with the  written  consent  of Seller  and the  Company,  to
compromise  or settle  the claim,  demand,  or other  matter on behalf,  for the
account, and at the risk, of Seller and the Company.

              (d)  Notwithstanding  anything in this  Agreement to the contrary,
the liability,  if any, of the Seller for  indemnification  under this Agreement
shall be  limited to the amount of the  unpaid  balance of the  Purchase  Price.
Except for the unpaid  balance of the Purchase  Price,  the Seller shall have no
personal liability under this section 5.1, and any indemnification obligation of
Seller  hereunder  shall be satisfied,  if at all, solely via offset against the
unpaid balance of the Purchase Price.

              (e)  Notwithstanding  other  provisions of this Section 5.1 (other
than Section 5.1(d)), if Buyer owns the Shares at the time any claim may be made
against the Company and Seller,  the Buyer may make the claim solely against the
Seller.  Seller shall have no right of contribution,  indemnity,  or subrogation
against the Company.

          5.2 Buyer's Indemnity Obligations.

              (a) Upon receipt of notice  thereof  (provided that such notice is
received  within the survival  period set forth in Section 7.4, if  applicable),
Buyer shall indemnify, defend, and hold harmless Seller and the Company from any
and  all  claims,   demands,   liabilities,   damages,   deficiencies,   losses,
obligations,  costs,  and  expenses,  including  attorney  fees and any costs of
investigation  that  Seller or the Company  shall  incur or suffer,  that arise,
result  from or relate to any breach  of, or failure by Buyer to perform  any of
its representations,  warranties,  covenants, or agreements in this Agreement or
in any schedule,  certificate,  exhibit, or other instrument  furnished or to be
furnished by Buyer under this Agreement.

              (b) Upon receipt of notice thereof, Buyer shall indemnify, defend,
and hold harmless Seller from any and all claims, demands, liabilities, damages,
deficiencies,  losses, obligations, costs, and expenses, including attorney fees
and any costs of  investigation  that Seller shall incur or suffer,  that arise,
result from or relate to the  conduct of the  business of the Company or Payroll
Services of Virginia,  Inc.,  prior to on, or  subsequent  to the  Closing.  The
indemnification  in favor of Sellers hereunder is in addition to and not in lieu
of any statutory or other contractual rights of indemnification.


                                       13
<PAGE>

              (c) Seller and/or the Company shall notify  promptly  Buyer of the
existence of any claim, demand or other matter to which Buyer's  indemnification
obligations  would apply,  and shall give it a reasonable  opportunity to defend
the same at its own expense and with counsel of its own selection, provided that
Seller  and the  Company  shall  at all  times  also  have  the  right  to fully
participate  in the  defense.  If Buyer,  within a  reasonable  time  after this
notice,  fails to defend,  Seller and the Company shall have the right,  but not
the  obligation,  to undertake the defense of, and, with the written  consent of
Buyer,  to  compromise  or settle the claim or other  matter on behalf,  for the
account, and at the risk, of Buyer.

                                    ARTICLE 6
                          DEFAULT, AMENDMENT AND WAIVER

          6.1 Default.  Upon a breach or default under this  Agreement by any of
the Parties  (following the cure period  provided  herein),  the  non-defaulting
party shall have all rights and  remedies  given  hereunder  or now or hereafter
existing at law or in equity or by statute or otherwise; provided, however, that
Section 5.1 sets forth the sole and exclusive remedy of any Party against Seller
for a breach or default under this Agreement or for any claim, demand, or matter
which arises,  results from, or relates to the  Agreement.  Notwithstanding  the
foregoing,  in the  event of a breach  or  default  by any  Party  hereto in the
observance  or in the timely  performance  of any of its  obligations  hereunder
which is not waived by the  non-defaulting  Party,  such defaulting  Party shall
have the right to cure such  default  within 15 days after  receipt of notice in
writing of such breach or default.

          6.2   Waiver   and   Amendment.   Any   term,   provision,   covenant,
representation, warranty, or condition of this Agreement may be waived, but only
by a written  instrument  signed by the party entitled to the benefits  thereof.
The failure or delay of any party at any time or times to require performance of
any  provision  hereof or to exercise its rights with  respect to any  provision
hereof shall in no manner operate as a waiver of or affect such party's right at
a later time to enforce the same. No waiver by any party of any condition, or of
the  breach  of any  term,  provision,  covenant,  representation,  or  warranty
contained in this Agreement, in any one or more instances, shall be deemed to be
or construed as a further or continuing  waiver of any such  condition or breach
or waiver of any other condition or of the breach of any other term,  provision,
covenant,  representation,  or warranty.  No  modification  or amendment of this
Agreement  shall be valid and binding  unless it be in writing and signed by all
Parties hereto.

                                    ARTICLE 7
                                  MISCELLANEOUS

          7.1 Expenses.  Whether or not the transactions contemplated hereby are
consummated,  each of the  Parties  hereto  shall  bear all taxes of any  nature
(including,  without limitation,  income, franchise,  transfer, and sales taxes)
and all fees and expenses  relating to or arising from its  compliance  with the
various  provisions of this Agreement and such party's covenants to be performed
hereunder, and except as otherwise specifically provided for herein, each of the
Parties  hereto  agrees  to pay  all of its  own  expenses  (including,  without
limitation,  attorneys and accountants' fees, and printing expenses) incurred in
connection  with this  Agreement,  the  transactions  contemplated  hereby,  the
negotiations leading to the same and the preparations made for carrying the same
into effect,  and all such taxes, fees, and expenses of the Parties hereto shall
be paid prior to Closing.

          7.2  Notices.  Any notice,  request,  instruction,  or other  document
required by the terms of this Agreement,  or deemed by any of the Parties hereto
to be  desirable,  to be given to any other party hereto shall be in writing and
shall be given by facsimile, personal delivery, overnight delivery, or mailed by
registered or certified mail, postage prepaid, with return receipt requested, to
the following addresses:

               To Buyer:                   NeoTactix, Inc.
                                           Attn: Scott W. Absher
                                           28202 Cabot Road, Ste. 300
                                           Laguna Niguel, CA 92677
                                           Telephone:  949-888-8060
                                           Fax: 949-888-0863

               With a copy to:    Russell M. Frandsen, Esq.
                                           Radcliff Frandsen Dongell &
                                           Lawrence LLP 707 Wilshire
                                           Boulevard 45th Floor Los
                                           Angeles, CA 90017 Fax:
                                           213-489-9263

               To the Company:    SourceOne Group, Inc.
                                           Attn: Parvez Gondal


                                       14
<PAGE>

                                           10710 Midlothian Parkway, St. 101
                                           Richmond, VA 23235
                                           Telephone: 804-379-1223
                                           Fax: 804-379-4537

               To the Sellers:             Parvez Gondal
                                           12069 Jefferson Boulevard
                                           Culver City, CA 90230
                                           Fax:  301-306-9999

                                           Thomas J. Vipperman 10710
                                           Midlothian Turnpike Suite
                                           101 Richmond, VA 23235 Ph
                                           804-379-1223 Fax:
                                           804-379-7126

                                           Janet Russell 10710
                                           Midlothian Turnpike Suite
                                           101 Richmond, VA 23235 Ph
                                           804-379-1223 Fax:
                                           804-379-7126

               With Copy to:               David Lay, Esq.
                                           LeClair Ryan, a Professional
                                           Corporation
                                           707 East Main Street
                                           11th Floor
                                           Richmond, VA 23219
                                           Direct Dial: (804) 343-4174
                                           Direct Fax:  (804) 783-7674
                                           dlay@leclairryan.com

The persons and  addresses set forth above may be changed from time to time by a
notice sent as aforesaid. If notice is given by facsimile, personal delivery, or
overnight  delivery in accordance  with the  provisions  of this  Section,  said
notice  shall be  conclusively  deemed  given at the time of such  delivery.  If
notice is given by mail in accordance with the provisions of this Section,  such
notice shall be  conclusively  deemed given seven days after deposit  thereof in
the United States mail.

          7.3 Entire Agreement.  This Agreement,  together with the Stock Pledge
Agreement, the Schedules or the Exhibits hereto, and Contract In Lieu Of Payment
with   accompanying   Promissory  Note  sets  forth  the  entire  agreement  and
understanding   of  the  Parties   hereto  with  respect  to  the   transactions
contemplated  hereby,  and supersedes  all prior  agreements,  arrangements  and
understandings related to the subject matter hereof. No understanding,  promise,
inducement,  statement of  intention,  representation,  warranty,  covenant,  or
condition, written or oral, express or implied, whether by statute or otherwise,
has been made by any party hereto which is not embodied in this Agreement, Stock
Pledge  Agreement,  schedules  or  exhibits  hereto or the  written  statements,
certificates,  Contract In Lieu Of Payment with accompanying  Promissory Note or
other documents delivered pursuant hereto or in connection with the transactions
contemplated  hereby,  and no party  hereto  shall be bound by or liable for any
alleged understanding, promise, inducement, statement, representation, warranty,
covenant, or condition not so set forth.

          7.4 Survival of  Representations.  All  statements of fact  (including
financial statements) contained in the schedules, exhibits, the certificates, or
any other  instrument  delivered  by or on behalf of the Parties  hereto,  or in
connection  with  the  transactions   contemplated   hereby,   shall  be  deemed
representations   and  warranties  by  the  respective  party   hereunder.   All
representations,  warranties,  agreements, and covenants hereunder shall survive
the Closing and remain effective regardless of any investigation or audit at any
time made by or on behalf of the Parties or of any  information a party may have
in respect hereto; provided, however, that the representations and warranties of
the Parties shall remain  effective only for a period of two years following the
Closing.  Consummation  of the  transactions  contemplated  hereby  shall not be
deemed or construed to be a waiver of any right or remedy possessed by any party
hereto, notwithstanding that such party knew or should have known at the time of
Closing that such right or remedy  existed,  except in  accordance  with section
6.1.

          7.5  Incorporated  by  Reference.  The  schedules,  exhibits,  and all
documents (including, without limitation, all financial statements) delivered as
part hereof or incident  hereto are  incorporated as a part of this Agreement by
reference.


                                       15
<PAGE>

          7.6 Remedies  Cumulative.  Except as otherwise noted, no remedy herein
conferred  upon the Parties is intended to be  exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise.

          7.7 Execution of Additional  Documents.  Each Party hereto shall make,
execute, acknowledge, and deliver such other instruments and documents, and take
all such other actions as may be reasonably  required in order to effectuate the
purposes of this  Agreement  and to  consummate  the  transactions  contemplated
hereby.

          7.8  Finders'  and  Related  Fees.  Each  of  the  Parties  hereto  is
responsible  for, and shall indemnify the other against,  any claim by any third
party to a fee,  commission,  bonus, or other remuneration  arising by reason of
any services  alleged to have been  rendered to or at the instance of said party
to this Agreement  with respect to this Agreement or to any of the  transactions
contemplated hereby.

          7.9 Governing Law. This Agreement has been  negotiated and executed in
the State of California  and shall be construed and enforced in accordance  with
the laws of such state.

          7.10 Forum.  Each of the Parties hereto agrees that any action or suit
which may be brought  by any party  hereto  against  any other  party  hereto in
connection with this Agreement or the  transactions  contemplated  hereby may be
brought only in a federal or state court in Orange County, California.

          7.11  Professional  Fees. In the event any Party hereto shall commence
legal  proceedings  against the other to enforce the terms hereof, or to declare
rights hereunder, as the result of a breach of any covenant or condition of this
Agreement,  the  prevailing  party in any such  proceeding  shall be entitled to
recover from the losing party its costs of suit, including reasonable attorneys'
fees, accountants' fees, and experts' fees.

          7.12 Binding Effect and Assignment.  This Agreement shall inure to the
benefit of and be binding upon the Parties  hereto and their  respective  heirs,
executors, administrators, legal representatives, and assigns.

          7.13  Counterparts;   Facsimile  Signatures.  This  Agreement  may  be
executed  simultaneously  in one or more  counterparts,  each of which  shall be
deemed an original,  but all of which together shall constitute one and the same
instrument.  The Parties agree that facsimile  signatures of this Agreement when
transmitted  by one party to another  party  shall be deemed a valid and binding
execution of this Agreement by the sending party.

          7.14 Representation. All Parties to this Agreement have been given the
opportunity to consult with counsel of their choice regarding their rights under
this Agreement.

          IN WITNESS  WHEREOF,  the Parties hereto have executed this Agreement,
as of the date first written hereinabove.

                                        BUYER:

                                        NeoTactix, Inc.,
                                        a Nevada corporation

                                        ----------------------------------------
                                        By: Scott W. Absher
                                        Its:  President


                                        THE COMPANY:

                                        SourceOne Group, Inc.,
                                        a Delaware Corporation


                                        ----------------------------------------
                                        By: Parvez Gondal
                                        Its: President


                                        SELLER:


                                       16
<PAGE>

                                        ----------------------------------------
                                        By: Parvez Gondal , an individual


                                        ----------------------------------------
                                        By: Janet Russell, an individual


                                        ----------------------------------------
                                        By: Thomas J. Vipperman, an individual


                                       17
<PAGE>

                                    EXHIBIT A
                      SHAREHOLDERS OF SOURCEONE GROUP, INC.

Name                                             Number of Shares Held
----                                             ---------------------

Parvez Gondal                                    33,333 1/3
Janet Russell                                    8,333 1/3
Thomas J. Vipperman                              8,333 1/3



                                       18
<PAGE>

                       NEOTACTIX, INC. DISCLOSURE SCHEDULE

The items set forth below are exceptions to the  representations  and warranties
of NeoTactix, Inc. ("Buyer") set forth in Section 2 of the Agreement. Any matter
set forth herein as an exception to a section of the  Agreement  shall be deemed
to constitute an exception to all other  applicable  sections of the  Agreement.
Capitalized  terms not otherwise  defined herein shall have the meaning ascribed
to them in the Agreement.

Section           Exception
-------           ---------

None              None



                                       19
<PAGE>

                    SOURCEONE GROUP, INC. DISCLOSURE SCHEDULE

The items set forth below are exceptions to the  representations  and warranties
of  SourceOne  Group,  Inc.  ("the  Company")  set  forth  in  Section  2 of the
Agreement.  Any  matter  set forth  herein as an  exception  to a section of the
Agreement  shall be deemed to  constitute  an exception to all other  applicable
sections of the Agreement.  Capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Agreement.

Section           Exception
-------           ---------

      2.2.1       Organization;  Standing;  Power. The Company is a newly formed
                  entity and has not obtained any licenses,  permits, or similar
                  authorizations.  Neither the Company nor the LLC are qualified
                  to transact business as a foreign entity in any jurisdiction.

      2.2.2       Authority. Mr. Bruce Alden, a broker in Atlanta, GA. currently
                  has a broker agreement. That agreement may entitle

                  Mr. Alden to terminate  his  relationship  with the Company in
                  the event of a change of control.

      2.3.1       Subsidiaries.  The  Company  is  the  sole  owner  of  Payroll
                  Services of Virginia, Inc., a Virginia corporation,  and there
                  is no  power  possessed  by this  Subsidiary  to  affect  this
                  transaction.

      2.3.2       No Defaults.  The Company has received notice, or soon expects
                  to receive  notice from the following  with regard to default:
                  (a)  Pizza  Hut/KFC  is the  Company's  current  landlord  via
                  sublease  agreement.  As  of  this  date,  the  Company  is in
                  arrearage  approximately  $20,000 due to non-payment of rents.
                  Although  the  Company  has  received  no  official  notice of
                  delinquency,  should the Company fail to bring this current, a
                  default likely will be issued and litigation could follow. (b)
                  A notice  of  cancellation  has been  received  from  Illinois
                  Agents  Finance  Company for failure to pay the premium on the
                  Company's professional liability policy. As of this date, this
                  premium has been paid,  although  the Company has not received
                  notice of continued coverage. (c) A notice of cancellation has
                  been received from Coverage  Dynamics Group for failure to pay
                  the  premium on the  Company's  workers'  compensation  policy
                  effective at 12:01am  November 9, 2001.  The Company  contends
                  that all premiums  have been paid and only the "loss"  reserve
                  fund requires a payment of $250,000.  The Company  understands
                  that this amount  will be funded by the Buyer at Closing.  (d)
                  Cavalier  Telephone,  the Company's  telephone  provider,  has
                  issued several  disconnect  notices due to non-payment of long
                  distance charges.  The Company disputes the outstanding amount
                  of $6,000.

      2.3.3       Financial Statements.  See notes accompanying internal interim
                  financial  statements,  as well as  memorandum  to the Owners,
                  dated November 1, 2001,  stating  substantial  doubt about the
                  Company's  ability  to  continue  as  a  going  concern  (both
                  attached and incorporated herein by reference).

      2.3.4       Absence  of  Undisclosed  Liabilities.  As of this  date,  the
                  Company has approximately $30,000 of unrecorded payables,  all
                  of which  are a  result  of  normal  business  operations.  In
                  addition,  an unknown  amount of legal costs  associated  with
                  this transaction are being incurred.

      2.3.5       Absence of Changes.  The Company  took a write-off  during the
                  month of October 2001 in the amount of $15,616.34. The Company
                  is involved in legal proceedings with respect to $12,335.84 of
                  this  amount and has  obtained a  personal  guaranty  from the
                  owner of the  creditor.  The  aggregate  amount  is from  four
                  separate  client  accounts:   (a)  payment  was  returned  NSF
                  ($12,335.84),  (b) a C.O.D.  client whose  direct  deposit was
                  issued before payment was received  ($2,415.15),  (c) a client
                  who  deducted a balance from our invoice for fees owed to them
                  by the  Company  ($865.34),  and  (d) a one  penny  adjustment
                  ($.01).  One additional top ten client which  represented 2.4%
                  of Gross Client Revenue has  terminated as of 10-19-01.  Also,
                  an advance  was  issued  early  October  2001 in the amount of
                  $7,500 to Thomas  Vipperman,  which will be reduced  following
                  submission of  outstanding  expenses.  The Company also lost a
                  group  of  clients  in the  North  Carolina  market  with  the
                  departure of a salaried  salesperson  working on behalf of the
                  Company. The former clients were moved to a competitor company
                  with effective dates predominantly before October 1, 2001. The
                  Company's  monthly  net income loss is  approximately  $6,000.
                  Additionally, the Company terminated a salesperson in Colorado
                  around the same time and suffered minimal losses as a result.

      2.3.8       Employee  Benefit  Plans.  The  following are a listing of all
                  Employee benefit plans currently  offered through the Company.
                  This list also  includes  benefits  offered  to the  Company's
                  leased employees. (a) Fortis Voluntary Dental, (b) Fortis LTD,
                  (c) Trigon  Blue Cross Blue  Shield,  (d)  HealthKeepers  Blue
                  Cross Blue Shield, (e) Kaiser - only in California,  (f) Aetna
                  group  Dental - notice of  non-


                                       20
<PAGE>

                  renewal   effective  January  31,  2002  -  affecting  only  7
                  employees,  (g)  Employers  Mutual,  (h)  Union  Central  Life
                  Insurance,   (i)  Transamerica  401(k)  retirement  plan,  (j)
                  Richmond Federal Credit Union membership, (k) section 125 plan
                  options  including  premium  conversion,  dependent  care, and
                  medical  reimbursement,  (l) EyeMed  vision  plans,  (m) Delta
                  group dental, (n) vacation,  sick and holiday time, (o) use of
                  corporate credit cards for senior  management,  (p) travel and
                  expense  advances  where  appropriate  as well as  travel  and
                  expense   reimbursement   for  pre-approved   Company  related
                  expenses,  (q)  mileage  reimbursement  for  use  of  personal
                  vehicles at $.315/miles, (r) approved job-related trade and/or
                  seminar attendance including  reimbursement,  (s) in-house job
                  training and cross training.

      2.3.9       Other  Personal  Property.  The Company  currently  leases the
                  following equipment:  (a) Tektronix Phaser 850 (color printer)
                  on a  month-to-month  lease with  Xerox of $78.38  billed to a
                  credit card if less than 4,000  copies  printed for the month.
                  This lease expires  November 6, 2003 at which time the Company
                  will own the printer.  (b) The Company has two storage  spaces
                  from Mt.  Vernon Self Storage that are  currently  billed to a
                  credit  card each month of approx.  $420.00.  (c) The  Company
                  leases from Pitney  Bowes a postage  machine and scale,  which
                  expires  April 29,  2003.  Payment is $88.00  per  month.  (d)
                  ThinkWare  ASP/DarwiNet.  (e) The  Company  has a  lease  with
                  SunCom for cell phone  service for five  employees  which will
                  expire July 2002.

      2.3.12      Major Contracts.

                    (a)  The    Company    has     contacts     with     certain
                         individuals/groups   to  produce   leads/clients  on  a
                         commission basis. There is no provision for commissions
                         to end with 30 days notice as these  individuals/groups
                         receive compensation as long as the client remains with
                         the company.

                    (b)  The Company currently has a relationship with Mr. Bruce
                         Alden of Atlanta,  Georgia, to locate, quote, sell, and
                         service  prospects  and clients for the  Company.  This
                         agreement  provides for a 50/50 split on administrative
                         fees charged on all business produced by Mr. Alden.

                    (c)  In addition to (a) and (b) above in this  section,  the
                         Company  has  contracted   with  ThinkWare  to  provide
                         web-based   services  to  the  Company's   clients  and
                         employees.  The Company also  utilizes  ThinkWare as an
                         ASP  provider  and as such the  Company  believes  this
                         service  to be  economical  and  more  flexible  than a
                         traditional on-site application.

      2.3.14      Leases in Effect. The Company currently has the following real
                  property lease in effect:  office space in Richmond,  Virginia
                  where the Company is currently  headquartered.  The lease is a
                  sub-lease from PizzaHut/KFC and expires June 30, 2002.

      2.3.15      Environmental. The Company believes it has limited exposure to
                  environmental hazards,  including relating to toner cartridges
                  and/or  other minor office  supplies  such as  batteries.  The
                  Company  believes  that its  handling  of these  items has not
                  posed  any  undo  risk to the  Company  as of this  date.  The
                  Company  has  some  exposure,   though  the  Company  believes
                  unlikely, for the environmental exposures possessed by some of
                  the  Company's  client  worksites.   Such  exposure  would  be
                  realized most likely under a workers'  compensation  risk. The
                  Company's service agreement  provides for on-site  inspections
                  of   these    locations   in   order   to   limit    potential
                  injuries/illnesses caused by unsafe acts of our clients.

      2.3.16      Taxes. An  insufficient  cash balance  necessitated  deferring
                  payment  of SUTA  taxes,  due  October  31,  2001.  The amount
                  deferred plus penalty and interest is estimated to be $55,000.

      2.3.18      Compliance  with  Laws.  (a) An  application  for a  Financial
                  Security Bond has been submitted for the State of Georgia. The
                  states  of  South  Carolina,  Texas,  Florida,  Tennessee  and
                  Nebraska  do  not  recognize   non-licensed/registered   PEOs;
                  consequently,  additional  security  bonds may be  required in
                  these  states.  (b)  Neither  the  Company  nor  the  LLC  are
                  registered  to transact  business  as a foreign  entity in any
                  jurisdiction,  including Virginia. (c) Also, Virginia may seek
                  to have the  Company  register  as a MEWA  (Multiple  Employer
                  Welfare  Arrangement)  due to the nature of the business.  The
                  MEWA designation  should not present a Material Adverse Effect
                  on the Company's  operations  within Virginia.  The Company is
                  reviewing the  requirements  as of this date.  (d)  Concerning
                  software licenses,  the Company believes that a "site" license
                  agreement  will  need to be  purchased  in the near  future as
                  there are insufficient  licenses at this time. (e) The Company
                  has all licenses  required by  Chesterfield  County,  Virginia
                  necessary to conduct business therein.

      2.3.19      Insurance.  The  workers'  compensation  coverage as stated in
                  2.3.2 (d) is in jeopardy  if payment is not made.  The Company
                  currently  has  $1,000,000 in  commercial  general  liability;
                  $50,000 fire damage legal  liability;  $5,000 premises medical
                  payments;  $1,000,000 non-owned & hired automobile  liability;
                  $2,000,000 umbrella liability.


                                       21
<PAGE>

             SOURCEONE GROUP, INC. SHAREHOLDERS DISCLOSURE SCHEDULE

The items set forth below are exceptions to the  representations  and warranties
of the Shareholders of SourceOne Group,  Inc.  ("Seller") set forth in Section 2
of the  Agreement.  Any matter set forth  herein as an exception to a section of
the Agreement shall be deemed to constitute an exception to all other applicable
sections of the Agreement.  Capitalized terms not otherwise defined herein shall
have the meaning ascribed to them in the Agreement.

Section           Exception
-------           ---------

     2.2.1        Organization;  Standing;  Power. The Company is a newly formed
                  entity and has not obtained any licenses,  permits, or similar
                  authorizations.  Neither the Company nor the LLC are qualified
                  to transact business as a foreign entity in any jurisdiction.

     2.2.2        Authority. Mr. Bruce Alden, a broker in Atlanta, GA. currently
                  has a broker agreement.  That agreement may entitle ----------
                  Mr. Alden to terminate  his  relationship  with the Company in
                  the event of a change of control.


SCHEDULE 1 - STOCK PLEDGE AGREEMENT

SCHEDULE 2 - MANAGEMENT AND CONSULTING AGREEMENT


                                       22