Exhibit 10.5

                      FORM OF SECURITIES PURCHASE AGREEMENT

      Securities  Purchase  Agreement  (together with the schedules and exhibits
hereto, this "Agreement"), dated as of December 31, 2004, by and between Advance
Nanotech, Inc., a Colorado corporation (the "Company"),  and each of the Persons
(as defined below) who has executed a signature  page to this Agreement  (each a
"Purchaser," and together, the "Purchasers").


                              W I T N E S S E T H:

      WHEREAS, the Company desires to issue and sell to the Purchasers,  and the
Purchasers desire to purchase from the Company,  the Securities (as such term is
defined below) as set forth below.

      NOW, THEREFORE,  in consideration of the foregoing premises and the mutual
covenants and agreements hereinafter contained,  and for other good and valuable
consideration,  the receipt and  sufficiency  of which are hereby  acknowledged,
intending to be legally bound, the parties hereto hereby agree as follows:

      1. Offer and Sale of Securities.

      1.1 The  Offering.  The Company is offering for sale in this offering (the
"Offering") up to 7,000,000 shares (the "Maximum Offering") of its common stock,
par value $0.001 per share (the "Common Stock").  Notwithstanding the foregoing,
the Company, in its sole discretion,  may increase the Maximum Offering,  at any
time during the Offering and without prior notice,  by up to ten percent  (10%).
There is no  minimum  offering,  and the  Company  may  accept  and  close  upon
subscriptions  from  time to time in its sole  discretion  during  the  offering
period referred to in this Agreement.  In addition to the shares of Common Stock
being  offered  hereby  (the  "Shares"),  for every  two  Shares  acquired  by a
Purchaser  at an  applicable  Closing  (as  such  term is  hereinafter  defined)
pursuant  to this  Agreement,  the  Company  shall  deliver to such  Purchaser a
warrant (the  "Warrant")  to purchase one share of Common  Stock.  The Warrants,
which shall not be  transferable,  shall  initially be  exercisable at $3.00 per
share of Common Stock, subject to adjustment, and be exercisable for a period of
three (3) years  after  issuance  or until the date which is ten (10) days after
the Company furnishes written notice to the Warrant holder that the market price
of the Common Stock has been at least 400% of the then applicable exercise price
of the  Warrant  for a period of at least  thirty  (30)  days,  and the  average
trading  volume of the  Common  Stock has been at least  100,000  shares per day
during the preceding  thirty (30) days.  The shares of Common Stock which may be
acquired upon exercise of a Warrant are sometimes hereinafter referred to as the
"Warrant  Shares").  The  Shares  and the  Warrants  are  sometimes  hereinafter
referred to as the "Securities". The Purchasers of the Securities shall have the
benefit of certain  registration rights in respect of the Shares and the Warrant
Shares on the terms and conditions of a Registration  Rights  Agreement,  in the
form of Exhibit A hereto (the "Registration  Rights Agreement").  The Company is
offering the  Securities  only to  individuals,  entities or groups,  including,
without  limitation,  corporations,  limited  liability  companies,  limited  or
general  partnerships,  joint  ventures,  associations,  joint stock  companies,
trusts,  unincorporated  organizations,   or  governments  or  any  agencies  or
political subdivisions thereof (each, a "Person") who are "accredited investors"
(as  defined  herein).  The  Company is making the  Offering  of the  Securities
directly  through  certain of its officers and its  directors,  but may engage a
placement  agent (the  "Placement  Agent") and other  registered  broker-dealers
("Other Participating Agents") may also place Securities.  If the Company should
engage a Placement Agent or any Other Participating Agent, the Company presently
intends to pay to the Placement Agent and to Other Participating Agents, if any,
commissions  equal to up to 10% of the gross  sales  price of the Shares sold in
the offering by the applicable  Placement Agent or Other Participating Agent. In
addition,  the Company presently intends to issue to any such Placement Agent or
Other Participating Agent, if any, at the final Closing warrants (the "Placement
Agent  Warrants")  granting to such person warrant  coverage equal to 10% on the
number of Shares  (but not Warrant  Shares)  sold in the  Offering to  investors
introduced by that person (without duplication of introduction). The Placement

<PAGE>

Agent  Warrants  shall  initially  be  exercisable  at $2.00 per share of Common
Stock, subject to adjustment, commencing one year after the date of issuance and
continuing for five (5) years  thereafter,  and,  unlike the Warrants  issued to
Purchasers,  shall contain a cashless  exercise  provision.  The Placement Agent
Warrants shall be  transferable  by the Placement  Agent or Other  Participating
Agent receiving the same to its officers, directors, shareholders and employees,
as well as by such persons to their  immediate  family  affiliates in connection
with estate planning,  provided that no such transfer or disposition may be made
other  than  in  compliance  with  applicable  securities  laws  and  furnishing
satisfactory  evidence of such  compliance  to the  Company.  The  Company  will
indemnify  the  Placement  Agent and any  Other  Participating  Agents,  if any,
against certain liabilities. The Company will pay its own costs of the Offering.
The Company will also pay a  non-accountable  expense fee to the Placement Agent
equal to 3% of the gross sales price of the Shares (but not any Warrant  Shares)
sold in the Offering to investors  introduced  by the Placement  Agent  (without
duplication of introduction),  such 3% amount being sometimes hereafter referred
to as the "Non-Accountable Expense Allowance. Notwithstanding the foregoing, the
Non-Accountable  Expense Allowance shall be reduced on a dollar-for-dollar basis
by the fees and expenses of the Company's  counsel for preparing and  furnishing
the  opinion  letter  referred  to in  Section  3.4(d)  of this  Agreement.  All
subscription  proceeds in the Offering will be paid at Closing to the account or
accounts  specified  in or pursuant to Section  1.2  herein,  provided  that the
Company will  utilize an escrow agent (the "Escrow  Agent") for receipt of funds
if required under applicable law. All references in this Agreement to the Escrow
Agent shall be deemed to be references to the Company in the event that there is
no third party Escrow Agent.

      1.2  Subscription.  Subject to the terms and  conditions  hereinafter  set
forth in this Agreement, each Purchaser hereby offers to purchase, at a price of
$2.00 per Share, the number of Shares  (together with one  accompanying  Warrant
for  every 2  Shares)  set  forth  beneath  each  such  Purchaser's  name on the
signature  pages  of  this  Agreement,  for an  aggregate  purchase  price  (the
"Purchase  Price") to be paid by such  Purchaser  in the amount set forth on the
signature  page  beneath  such  Purchaser's  name to such account as the Company
shall indicate by written notice to the Purchaser.

      1.3 Subscription Procedures.  To submit this Subscription,  each Purchaser
must deliver (i) this  Agreement,  including,  without  limitation,  the related
Purchaser  Questionnaire,  both duly completed and executed and (ii) an executed
Registration Rights Agreement to the following address, unless otherwise advised
by the Company:

         Advance Nanotech, Inc.
         712 Fifth Avenue, 19th Floor
         New York, NY, 10019

         Attention:  Magnus Gittins

         with any questions to be raised with Magnus Gittins at (646) 723 8962.

      The Company may accept or reject  subscriptions,  in whole or in part,  or
accept subscriptions for less than the $50,000 minimum subscription, in its sole
discretion.  The Company shall notify each Purchaser of the portion,  if any, of
such Purchaser's subscription which has been accepted,  payment instructions for
the Purchase Price,  including wire transfer  instructions  and instructions for
delivery  of  payment  by  checks,  if  applicable,  and the date upon which the
applicable  Closing shall be held and payment must be made.  At each  applicable
Closing,  each Purchaser acquiring  Securities at such Closing shall deliver and
pay the applicable  purchase price in full for the Securities being purchased by
such Purchaser at such Closing,  in the amount of $2.00 for each Share for which
such Purchaser's subscription has been accepted, in U.S. dollars, in immediately
available  funds, in accordance with the payment  instructions  contained in the
notification to such Purchaser by the Company.

                                      -2-
<PAGE>

      2.  Closing.  Upon  acceptance of  subscriptions  for  Securities  offered
hereby,  the Company shall hold one or more closings of the purchase and sale of
such Securities (each one, a "Closing"; the final closing, the "Final Closing").
Each Closing  shall be held at such location as the Company may  determine.  The
Final  Closing  will take place on the earlier to occur of (i) December 31, 2004
or (ii) the sale of all of the Securities being offered hereby, unless this date
is extended,  without notice to investors, by the Company in its sole discretion
for up to an  additional  30 days  (the  "Termination  Date").  The date of each
Closing  will be  referred  to as a  "Closing  Date"  and the date of the  Final
Closing is referred to as the "Final  Closing Date." At the Closing with respect
to the subscription by each Purchaser, to the extent the same is accepted by the
Company,  the  Company  will  register in the name of each such  Purchaser  that
number of Securities  being  purchased by such Purchaser in accordance  with the
information on the applicable signature page of this Agreement.

      2.1 Escrow.  In the event that the Company  engages a Placement  Agent for
this  Offering,  which the  Company  may not  choose to do,  and the  Company is
required under  applicable  law to arrange for  applicable  funds to be received
into an escrow  account,  then, and only in such case,  pending each Closing all
funds paid in respect of this  Agreement  with regard to such  Closing  shall be
deposited in an escrow account (the "Escrow  Account")  maintained by the Escrow
Agent in accordance with Rule 15c2-4 under the Exchange Act (as defined herein).
The Escrow Account shall not be interest bearing. In such a case, if the Company
accepts subscriptions for the Securities at or prior to the Initial Closing Date
or the Final Closing Date,  as the case may be, then all  subscription  proceeds
received for  subscriptions  accepted by the Company  prior to such Closing Date
shall be paid over to the Company at each Closing,  net of the  Placement  Agent
fees,  if  any,  and  other  offering  expenses,  which  shall  be  paid  to the
appropriate parties at each such Closing. In any event, if the Company shall not
have received and accepted each Purchaser's subscription, then that subscription
shall be void and all funds paid  hereunder  by such  Purchaser  with respect to
such unaccepted  subscription,  without deduction therefrom or interest thereon,
shall be promptly returned to such Purchaser.

      2.2. Return of Funds.  Each Purchaser  hereby  authorizes and directs both
the Company and the Escrow Agent,  if any,  jointly and severally,  to return or
direct  the  return  of any  funds  from the  Escrow  Account,  if any,  without
deduction  therefrom  or interest  thereon,  to the same  account from which the
funds were originally drawn, to the extent that such Purchaser's subscription is
not accepted prior to the termination of the Offering.

      3. Conditions to the Obligations of each Purchaser at Closing.

      The  obligation  of each  Purchaser  to  purchase  and pay for the  Shares
subscribed  for by such  Purchaser at the  applicable  Closing is subject to the
satisfaction  on or prior to the  applicable  Closing Date or the Final  Closing
Date,  as the case may be,  of the  following  conditions,  each of which may be
waived by the applicable Purchaser:

      3.1 Representations and Warranties.  The representations and warranties of
the Company  contained in this  Agreement  which are qualified as to materiality
must be true and correct in all respects, and the representations and warranties
of the  Company  contained  in this  Agreement  which  are not  qualified  as to
materiality must be true and correct in all material  respects,  in each case as
of the applicable Closing Date except to the extent that the representations and
warranties  relate to a  different  date in which case the  representations  and
warranties  must be true and  correct  as  written  or true and  correct  in all
material respects, as the case may be, as of the different date.

                                      -3-
<PAGE>

      3.2 Performance of Covenants. The Company shall have performed or complied
with in all  material  respects  all  covenants  and  agreements  required to be
performed  by it on  or  prior  to  the  applicable  Closing  pursuant  to  this
Agreement,   including,   without  limitation,   the  delivery  of  certificates
evidencing the Securities issued to the Purchasers at the Closing.

      3.3 No  Injunctions;  etc. No court or governmental  injunction,  order or
decree  prohibiting  the  purchase  and  sale of the  Securities  or  securities
underlying  the  Securities  will be in effect.  There will not be in effect any
law, rule or regulation  prohibiting  or  restricting  the sale or requiring any
consent or approval  of any Person that has not been  obtained to issue and sell
the Securities or securities underlying the Securities to the Purchasers.

      3.4 Closing Documents.  At each Closing,  the Company shall have delivered
to each applicable Purchaser the following:

      (a) a  certificate  of the  President of the Company  certifying  that the
conditions in Sections 3.1 and 3.2 have been satisfied;

      (b) A  certificate  of the  Secretary  of the  Company,  dated  as of that
Closing  Date,  certifying  (i)  the  attached  copies  of  the  Certificate  of
Incorporation  and By-laws of the Company,  (ii) the resolutions of the Board of
Directors of the Company (the "Board")  authorizing the execution,  delivery and
performance  of  this  Agreement  and the  issuance  of the  Securities  and the
securities  underlying  the  Securities  (including,  but not  limited  to,  for
purposes of Section 203 of the Colorado  General  Corporation Law) and (iii) the
incumbency  of the officers duly  authorized  to execute this  Agreement and the
other documents contemplated by this Agreement;

      (c) a  certificate  of the  Secretary  of State of the State of  Colorado,
dated as of a recent  date (but no more than five  business  days)  prior to the
date of the  applicable  Closing,  to the  effect  that the  Company  is in good
standing in the State of Colorado and that all annual reports, if any, have been
filed as  required  and that all taxes  and fees  have  been paid in  connection
therewith;

      (d) an opinion of Company counsel,  substantially in the form of Exhibit B
to this Agreement;

      (e) a certificate or certificates  evidencing the Securities  purchased by
such Purchaser; and

      (f) a Registration Rights Agreement duly executed by the Company.

      3.5 Waivers and Consents.  The Company will have obtained all consents and
waivers  necessary  to  execute  and  deliver  this  Agreement  and all  related
documents  and  agreements  and to issue and  deliver  the  Securities,  and all
consents and waivers will be in full force and effect.

      4. Conditions to the Obligations of the Company at Closing.

      The  obligation  of the  Company to issue and sell the  Securities  to any
Purchaser is subject to the satisfaction on or prior to each Closing Date of the
following conditions, each of which may be waived by the Company:

      4.1 Receipt of Purchase Price.  The Company shall have received payment in
full in immediately  available  funds in U.S.  dollars of the Purchase Price for
the Shares with respect to which the Company has accepted the Subscription  made
by such Purchaser by means of this Agreement.

                                      -4-
<PAGE>

      4.2 Representations and Warranties.  The representations and warranties of
the Purchaser  contained in this Agreement which are qualified as to materiality
must be true and correct in all respects and the  representations and warranties
of the  Purchaser  contained  in this  Agreement  which are not  qualified as to
materiality must be true and correct in all material  respects,  in each case as
of the applicable Closing Date except to the extent that the representations and
warranties  relate to a  different  date in which case the  representations  and
warranties must be true and correct as of the different date..

      4.3  Performance  of  Covenants.  The  Purchaser  will have  performed  or
complied with in all material respects all covenants and agreements  required to
be  performed  by the  Purchaser  on or prior to the  Closing  pursuant  to this
Agreement.

      4.4  Purchaser  Questionnaire.  All of the  information  furnished by such
Purchaser  in  the  confidential  purchaser   questionnaire   accompanying  this
Agreement (the "Purchaser  Questionnaire") shall have been accurate and complete
in all material respects.

      4.5 No Injunctions.  No court or governmental injunction,  order or decree
prohibiting the purchase or sale of the Securities or the securities  underlying
the Securities will be in effect.

      4.6 Closing Documents.  The Purchaser will have delivered to the Company a
Registration  Rights  Agreement  duly executed by the  Purchasers and such other
closing documents as the Company may reasonably request, if any.

      5. Representations and Warranties of each Purchaser.

      Each Purchaser,  in order to induce the Company to perform this Agreement,
hereby represents and warrants, severally and not jointly, as follows:

      5.1 Due Authorization. Each Purchaser represents for such Purchaser to the
Company  that such  Purchaser  has full  power and  authority  and has taken all
action  necessary to authorize  such  Purchaser to execute,  deliver and perform
such Purchaser's obligations under this Agreement.  This Agreement is the legal,
valid and binding obligation of such Purchaser in accordance with its terms.

      5.2 Accredited Investor.  Each Purchaser represents that such Purchaser is
an Accredited Investor as that term is defined in Regulation D promulgated under
the Securities Act of 1933, as amended (the "Securities Act").

      5.3  No   Investment   Advice.   The   Company  has  not  made  any  other
representations  or warranties to such Purchaser  other than as set forth herein
or incorporated  herein by reference with respect to the Company or rendered any
investment advice.

      5.4 Investment  Experience.  Each Purchaser represents that such Purchaser
has not authorized any Person to act as such Purchaser's Representative (as that
term is defined in Regulation D of the General Rules and  Regulations  under the
Securities  Act) in connection  with this  transaction.  Such Purchaser has such
knowledge and experience in financial, investment and business matters that such
Purchaser  is capable  of  evaluating  the  merits and risks of the  prospective
investment in the  securities of the Company.  Such Purchaser has consulted with
such  independent  legal counsel or other  advisers as such Purchaser has deemed
appropriate to assist such  Purchaser in evaluating  the proposed  investment in
the Company.

                                      -5-
<PAGE>

      5.5 Adequate  Means.  Each Purchaser  represents as to such Purchaser that
such Purchaser (i) has adequate means of providing for such Purchaser's  current
financial  needs and  possible  contingencies;  and (ii) can  afford (a) to hold
unregistered  securities for an indefinite  period of time as required;  and (b)
sustain a complete loss of the entire amount of the subscription.

      5.6 Access to Information.  Each Purchaser  represents that such Purchaser
has been afforded the  opportunity to ask questions of, and receive answers from
the officers and/or directors of the Company acting on its behalf concerning the
terms  and  conditions  of  this   transaction  and  to  obtain  any  additional
information,  to the extent that the Company  possesses such  information or can
acquire it  without  unreasonable  effort or  expense,  necessary  to verify the
accuracy  of the  information  furnished;  and has had such  opportunity  to the
extent such Purchaser considers appropriate in order to permit such Purchaser to
evaluate the merits and risks of an investment in the Company.  It is understood
that all documents,  records and books  pertaining to this  investment have been
made  available  for  inspection,  and that the books and records of the Company
will be available  upon  reasonable  notice for  inspection by investors  during
reasonable  business  hours at its  principal  place of business.  The foregoing
shall in no way be deemed to limit the ability of each  Purchaser to rely on the
representations  and  warranties  set  forth  herein or  incorporated  herein by
reference.

      5.7 No Endorsement. Each Purchaser further acknowledges that the offer and
sale of the Securities or the securities  underlying the Securities has not been
passed upon or the merits  thereof  endorsed or approved by any state or federal
authorities.

      5.8 Non-Registered  Securities.  Each Purchaser  acknowledges that neither
the offer and sale of the Securities or the securities underlying the Securities
have not been registered  under the Securities Act or any state  securities laws
and  the  Securities  and  any  underlying  securities  may be  resold  only  if
registered  pursuant  to  the  provisions  thereunder  or if an  exemption  from
registration is available and if otherwise  permitted by law and contract.  Each
Purchaser  understands  that  the  offer  and  sale  of the  Securities  and the
securities  underlying the Securities is intended to be exempt from registration
under the Securities Act, based, in part, upon the  representations,  warranties
and agreements of such Purchaser contained in this Agreement.

      5.9 No  Resale.  Each  Purchaser  represents  that  the  Securities  being
subscribed  for,  and the  securities  underlying  the  subscription,  are being
acquired  solely  for  the  account  of  such  Purchaser  for  such  Purchaser's
investment  and not  with a view to,  or for  resale  in  connection  with,  any
distribution  in any  jurisdiction  where  such  sale or  distribution  would be
precluded.  By such  representation,  such Purchaser  means that,  other than as
disclosed on both the  signature  page of this  Agreement  and in the  Purchaser
Questionnaire,  no other Person has a beneficial  interest in the  Securities or
the  securities  underlying  the  subscription,  and  that no other  Person  has
furnished or will furnish  directly or indirectly,  any part of or guarantee the
payment of any part of the  consideration  to be paid by such  Purchaser  to the
Company in connection  therewith.  Such  Purchaser does not intend to dispose of
all or any part of the Securities or the securities  underlying the subscription
except in compliance  with the  provisions of the  Securities Act and applicable
state  securities  laws, and understands  that the Securities and the securities
underlying the subscription  are being offered pursuant to a specific  exemption
under the provisions of the Securities Act, which  exemption(s)  depends,  among
other things, upon the compliance with the provisions of the Securities Act.

      5.10  Legend.  Each  Purchaser  hereby  acknowledges  and agrees  that the
Company  may  insert  the  following  or  similar  legend  on  the  face  of the
certificates  evidencing  the  Securities  purchased by such  Purchaser  and the
underlying securities, if any, as the case may be, if the Company deems the same
to be necessary or appropriate:

                                      -6-
<PAGE>

      "These  securities  have not been  registered  under the Securities Act of
      1933, as amended (the "Securities  Act"), or any state securities laws and
      may not be sold or otherwise transferred or disposed of except pursuant to
      an  effective  registration  statement  under the  Securities  Act and any
      applicable state securities laws, or an opinion of counsel satisfactory to
      counsel  to the  issuer  that an  exemption  from  registration  under the
      Securities Act and any applicable state securities laws is available."

In addition, the Company may insert a legend to the effect that the Warrants are
non-transferable.

      5.11 Broker's or Finder's Commissions.  Other than the Placement Agent (as
placement agent on behalf of the Company) or any Other  Participating  Agent, if
any, no finder,  broker, agent, financial person or other intermediary has acted
on behalf of any Purchaser in connection  with the sale of the Securities by the
Company  or the  consummation  of  this  Agreement  or  any of the  transactions
contemplated hereby.

      Each Purchaser  certifies that each of the foregoing  representations  and
warranties by such Purchaser set forth in this Section 5 are true as of the date
hereof and shall survive such date.

      6. Representations and Warranties of the Company.

      The Company represents and warrants to the Purchasers that:

      6.1  Organization,  Good  Standing  and  Qualification.  The  Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of  Colorado.  The Company and each  subsidiary  of the Company has
full corporate power and authority to own and hold its properties and to conduct
its business. The Company and each subsidiary of the Company is duly licensed or
qualified to do business,  and in good standing,  in each  jurisdiction in which
the nature of its business requires  licensing,  qualification or good standing,
except for any failure to be so licensed or qualified or in good  standing  that
would not have a material  adverse effect on the Company or any such subsidiary,
taken as a consolidated whole, or its results of operations, assets or financial
condition,  taken as a  consolidated  whole,  or on its  ability to perform  its
obligations under this Agreement or to issue the Securities (a "Material Adverse
Effect").

      6.2 Capitalization. As of the date hereof, the authorized capital stock of
the Company consists of 100,000,000 shares of Common Stock, par value $0.001 per
share.  Except as set forth in this  Section  6.2,  as of the date  hereof,  (i)
21,973,446 shares of Common Stock were issued and outstanding, (ii) there are no
outstanding  options and no shares of Common  Stock were  reserved  for issuance
upon  exercise of options,  (iii) the Company has reserved  3,000,000  shares of
Common Stock for issuance upon exercise of options which may be issued  pursuant
to an option plan  covering the  Company's  officers,  directors,  employees and
consultants,  but no options have been granted to date under such plan,  (iv) no
shares  of  Common  Stock  were  reserved  for  issuance  upon the  exercise  of
outstanding  warrants  other than  6,666,666  warrants  (the  "Jano  Warrants"),
exercisable  at $2.00 per  share,  issued  to Jano  Holdings  Ltd.,  and (v) the
Company  is  offering  up to  7,000,000  shares of its Common  Stock,  and up to
3,500,000  Warrants to purchase  Warrant  Shares,  subject to an additional  10%
overallotment  in the Company's sole discretion.  All the outstanding  shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable  and free of preemptive  rights created by or through the Company,
and have been issued in compliance with all federal and state  securities  laws,
and were not issued in violation of any  preemptive  rights or similar rights to
subscribe for or purchase  securities.  Except as set forth in this Section 6.2,
as of the date hereof there are no other options, warrants or other rights,

                                      -7-
<PAGE>

convertible  debt,  agreements,  arrangements  or  commitments  of any character
obligating  the Company to issue or sell any shares of capital stock of or other
equity  interests  in the  Company.  The Company has not adopted a  stockholders
rights plan, poison pill or similar arrangement.  As used in this Agreement, the
term "Commission Documents shall mean all reports,  schedules, forms, statements
and other documents  filed by the Company with the United States  Securities and
Exchange  Commission  (the  "Commission" or the "SEC") pursuant to the reporting
requirements  of the Securities  Exchange Act of 1934, as amended (the "Exchange
Act"),  including all exhibits  included  therein and financial  statements  and
schedules  thereto  and  documents  or  instruments  incorporated  by  reference
therein.

      6.3 Corporate Power, Authorization;  Enforceability.  The Company has full
corporate  power and authority to execute,  deliver and perform this  Agreement,
the  Warrants,  and  the  Registration  Rights  Agreement   (collectively,   the
"Transaction Documents") and to consummate the transactions  contemplated hereby
and  thereby.  All  action  on  the  part  of  the  Company,  its  directors  or
stockholders  necessary  for  (i) the  authorization,  execution,  delivery  and
performance of the Transaction Documents by the Company, (ii) the authorization,
sale, issuance and delivery of the Common Stock and Warrants contemplated hereby
(iii) the  reservation  of shares of Common Stock for issuance  upon exercise of
the Warrants and (iv) the performance of the Company's obligations hereunder and
thereunder  has been taken.  The  Securities to be purchased on each the Closing
Date and the  underlying  Warrant  Shares have been duly  authorized  and,  when
issued in accordance  with this  Agreement or the Warrants,  as the case may be,
will be validly issued,  fully paid and nonassessable and will be free and clear
of any mortgage, deed of trust, pledge, hypothecation,  assignment, encumbrance,
lien  (statutory  or other) or  preference,  priority,  right or other  security
interest  or  preferential   arrangement  of  any  kind  or  nature   whatsoever
(collectively,   "Liens")   imposed  by  or  through  the  Company   other  than
restrictions  imposed by this  Agreement,  the  Warrants,  and the  Registration
Rights  Agreement,  as the case  may be,  and  applicable  securities  laws.  No
preemptive or other rights to subscribe for or purchase equity securities of the
Company  exists with respect to the issuance and sale of the  Securities  or the
Warrant Shares. The Transaction  Documents have been duly executed and delivered
by the Company,  and constitute the legal, valid and binding  obligations of the
Company,  enforceable against the Company in accordance with their terms, except
as  enforceability  may  be  limited  by  applicable   bankruptcy,   insolvency,
reorganization,  fraudulent  conveyance or transfer,  moratorium or similar laws
affecting  the  enforcement  of  creditors'  rights  generally  and  by  general
principles  of  equity  relating  to   enforceability   (regardless  of  whether
considered in a proceeding at law or in equity).

      6.4 No Conflict;  Governmental Consents. (a) The execution and delivery by
the  Company  of this  Agreement,  the  Warrants,  and the  Registration  Rights
Agreement  and the  consummation  of the  transactions  contemplated  hereby and
thereby will not (i) result in the violation of any provision of the Certificate
of Incorporation or By-laws or other organizational  documents of the Company or
any subsidiary of the Company,  (ii) result in any violation of  Requirements of
Law to or by which the Company or any  subsidiary  of the  Company is bound,  or
(iii)  conflict with, or result in a breach or violation of, any of the terms or
provisions  of,  or  constitute  (with  due  notice  or lapse of time or both) a
default under, any bond, debenture,  note or other evidence of indebtedness,  or
any  material  lease,  contract,  indenture,   mortgage,  deed  of  trust,  loan
agreement,  joint venture or other  agreement or instrument to which the Company
or any  subsidiary  of the Company is a party or by which it or its  property is
bound,  nor result in the  creation  or  imposition  of any Lien upon any of the
properties or assets of the Company, except for, in the case of clauses (ii) and
(iii) of this  subsection  6.7(a),  any violation,  conflict,  breach or default
which would not have a Material Adverse Effect.  For purposes of this Agreement,
"Requirements of Law" means, as to any Person, any law, statute,  treaty,  rule,
regulation,   right,   privilege,   qualification,   license  or   franchise  or
determination  of an  arbitrator  or a court or other  government of any nation,
state,  city,  locality  or other  political  subdivision  thereof,  any  entity
exercising  executive,  legislative,   judicial,  regulatory  or  administrative
functions of or pertaining to government, and any corporation or other entity

                                      -8-
<PAGE>

owned or controlled,  through stock or capital ownership or otherwise, by any of
the foregoing (each, a "Governmental Authority") or stock exchange, in each case
applicable  or binding  upon such Person or any of its property or to which such
Person or any of its  property  is  subject or  pertaining  to any or all of the
transactions contemplated or referred to herein.

      (b) No material consent, approval, license, permit, order or authorization
of, or  registration,  declaration  or filing  with,  any court,  administrative
agency or commission or other Governmental  Authority or Person, and no lapse of
any waiting  period under any  Requirements  of Law,  remains to be obtained (or
lapsed) or is otherwise required to be obtained by the Company or any subsidiary
of the Company in connection with the  authorization,  execution and delivery of
this  Agreement,  the  Warrants,  or the  Registration  Rights  Agreement or the
consummation  of the  transactions  contemplated  hereby or thereby,  including,
without  limitation  the issue and sale of the  Securities  as disclosed in this
Agreement,  and except  filings,  if any,  as may be  required to be made by the
Company  after  each  Closing  with  (i)  the  Commission,   (ii)  the  National
Association of Securities Dealers, Inc. ("NASD"), (iii) the Nasdaq Stock Market,
Inc. and (iv) state blue sky or other securities regulatory authorities.

      6.5 Litigation.  There are no claims,  actions,  suits,  investigations or
proceedings  pending  or, to the  Company's  knowledge,  threatened  against the
Company or any subsidiary of the Company or its respective  assets, at law or in
equity, by or before any Governmental Authority, or by or on behalf of any third
party,  except for any claim,  action,  suit,  investigation or proceeding which
would not have a Material  Adverse  Effect nor does the Company  have  knowledge
that  there is any  reasonable  basis  for any of the  foregoing.  There  are no
claims,  actions,  suits,  investigations  or  proceedings  pending  or,  to the
Company's  knowledge,   threatened   proceedings  against  the  Company  or  any
subsidiary  of the Company  contesting  the right of the  Company to use,  sell,
import,  license,  or make  available to any Person any of the  Company's or any
subsidiary's  products  or  services  currently  or  previously  sold,  offered,
licensed or made  available  to any Person or used by the Company or opposing or
attempting to cancel any of the Company's Intellectual Property (as such term is
hereafter defined) rights, except for any claim, action, suit,  investigation or
proceeding which would not have a Material Adverse Effect.

      6.6 Compliance with Laws; No Default or Violation;  Contracts. The Company
and each  subsidiary of the Company is in  compliance  in all material  respects
with all  Requirements of Law and all orders issued by any court or Governmental
Authority  against  the  Company  in all  material  respects.  To the  Company's
knowledge,  there is no existing or currently proposed  Requirement of Law which
could  reasonably  be  expected  to  prohibit  or  restrict  the  Company or any
subsidiary  from, or otherwise  materially  adversely  affect the Company or any
subsidiary  in,  conducting  its  business in any  jurisdiction  in which it now
conducts or proposes to conduct such business.  The Company and each  subsidiary
of the Company have all  licenses,  permits and  approvals  of any  Governmental
Authority  (collectively,  "Permits")  that are necessary for the conduct of the
business of the Company and each subsidiary of the Company,  respectively;  (ii)
such Permits are in full force and effect;  and (iii) no violations  are or have
been recorded in respect of any Permit, in each case except such as would not be
reasonably  expected to have a Material Adverse Effect. No material  expenditure
is presently required by the Company to comply with any existing Requirements of
Law or order.  Except as would not be  reasonably  expected  to have a  Material
Adverse Effect,  neither the Company nor any subsidiary of the Company is (i) in
default under or in violation of any indenture,  loan or credit agreement or any
other  agreement or  instrument  to which it is a party of by which it or any of
its properties is bound or (ii) in violation of any order, decree or judgment of
any court, arbitrator or other Governmental  Authority.  The contracts described
in the  Commission  Documents  or  incorporated  by  reference  therein that are
material to the Company  (collectively,  the "Contractual  Obligations")  are in
full  force and  effect on the date  hereof,  and  neither  the  Company  or any
subsidiary's nor, to the Company's knowledge,  any other party to such contracts
is in breach of or default  under any of such  contracts  nor, to the  Company's
knowledge, does any condition exist that with notice or lapse of time or both

                                      -9-
<PAGE>

would constitute a default by such other party  thereunder,  in each case except
such as would not be  reasonably  expected  to have a Material  Adverse  Effect.
Neither the Company nor any subsidiary of the Company has not received notice of
a default  and is not in default  under,  or with  respect  to, any  Contractual
Obligation nor, to the Company's  knowledge,  does any condition exist that with
notice or lapse of time or both would constitute a default  thereunder,  in each
case except such as would not be reasonably  expected to have a Material Adverse
Effect. All of such Contractual Obligations are valid, subsisting, in full force
and effect and  binding  upon the  Company  or each  subsidiary  that is a party
thereto and, to the  Company's  knowledge,  the other parties  thereto,  and the
Company has paid in full or accrued all amounts due thereunder and has satisfied
in full or provided for all of its liabilities and obligations thereunder.

      6.7 Environmental  Matters. The Company and each subsidiary of the Company
is in compliance,  in all material respects,  with all applicable  Environmental
Laws. There is no civil,  criminal or  administrative  judgment,  action,  suit,
demand, claim, hearing, notice of violation,  investigation,  proceeding, notice
or demand letter pending or, to the Company's knowledge,  threatened against the
Company pursuant to Environmental Laws. To the Company's knowledge, there are no
past  or  present  events,  conditions,  circumstances,  activities,  practices,
incidents,  agreements,  actions or plans which could  reasonably be expected to
prevent  compliance  with,  or which  have  given  rise to or will  give rise to
liability which would have a Material Adverse Effect,  under Environmental Laws.
For purposes of the foregoing,  "Environmental Laws" means federal, state, local
and foreign laws, principles of common laws, civil laws, regulations, and codes,
as well as orders,  decrees,  judgments  or  injunctions,  issued,  promulgated,
approved  or  entered  thereunder  relating  to  pollution,  protection  of  the
environment or public health and safety.

      6.8 Taxes.  The Company and each  subsidiary  of the Company has filed all
required  Tax  returns  and has paid or  caused to be paid,  or has  established
reserves in  accordance  with GAAP for all Tax  liabilities  applicable  to such
entity except as would not have a Material  Adverse  Effect.  No additional  Tax
assessment against the Company or its subsidiaries has been heretofore  proposed
or, to the Company's  knowledge,  threatened by any  Governmental  Authority for
which provision has not been made on its balance sheet.

      No  tax  audit  is  currently  in  progress  and  there  is no  unassessed
deficiency  proposed  or, to the  Company's  knowledge,  threatened  against the
Company or any  subsidiary.  The Company has no  knowledge  of any change in the
rates or basis of assessment of any Tax (other than federal  income tax), of the
Company or any subsidiary  which would reasonably be expected to have a Material
Adverse  Effect.  The  Company  has not  agreed  to or is  required  to make any
adjustments  under  section 481 of the Code by reason of a change of  accounting
method or  otherwise.  None of the assets of the  Company or any  subsidiary  is
required to be treated as being  owned by any Person,  other than the Company or
any of its  subsidiaries,  pursuant to the "safe harbor"  leasing  provisions of
Section 168(f)(8) of the Code. The company is not a "United States real property
holding  corporation" (a "USRPHC") as that term is defined in Section  897(c)(2)
of the Code and the regulations promulgated thereunder.

      For purposes of this Agreement,  "Code" means the Internal Revenue Code of
1986, as amended,  and "Taxes"  means any federal,  state,  provincial,  county,
local, foreign and other taxes (including,  without limitation, income, profits,
windfall profits,  alternative,  minimum, accumulated earnings, personal holding
company, capital stock, premium, estimated, excise, sales, use, occupancy, gross
receipts, franchise, ad valorem, severance, capital levy, production,  transfer,
withholding,  employment, unemployment compensation, payroll and property taxes,
import duties and other  governmental  charges and assessments),  whether or not
measured  in  whole  or in  part  by net  income,  and  including  deficiencies,
interest,  additions to tax or interest, and penalties with respect thereto, and
including expenses  associated with contesting any proposed  adjustments related
to any of the foregoing.

                                      -10-
<PAGE>

      6.9 Intellectual Property.

      (a)  "Intellectual  Property"  shall mean all of the following as they are
necessary in connection with the business of the Company or its  subsidiaries as
presently conducted and as they exist in all jurisdictions throughout the world,
in  each  case,  to the  extent  owned  by or  licensed  to the  Company  or its
subsidiaries:  (i) patents,  patent  applications  and  inventions,  designs and
improvements  described and claimed  therein,  patentable  inventions  and other
patent rights  (including any divisions,  continuations,  continuations-in-part,
reissues,  reexaminations,  or interferences thereof, whether or not patents are
issued on any such  applications  and whether or not any such  applications  are
modified,  withdrawn,  or resubmitted)  ("Patents");  (ii)  trademarks,  service
marks,  trade dress,  trade names,  brand names,  designs,  logos,  or corporate
names,   whether   registered  or  unregistered,   and  all   registrations  and
applications for registration thereof ("Trademarks");  (iii) copyrights and mask
works,  including all renewals and extensions thereof,  copyright  registrations
and  applications  for  registration  thereof,  and  non-registered   copyrights
("Copyrights");  (iv) trade secrets,  inventions,  know-how, process technology,
databases, confidential business information, customer lists, technical data and
other  proprietary  information  and  rights  ("Trade  Secrets");  (v)  computer
software programs,  including, without limitation, all source code, object code,
and documentation related thereto ("Software");  (vi) Internet addresses, domain
names, web sites,  web pages and similar rights and items  ("Internet  Assets");
and  (vii)  all  licenses,  sublicenses  and  other  agreements  or  permissions
including the right to receive royalties,  or any other consideration related to
the property  described in (i)-(vi).  The Intellectual  Property contains all of
the  intellectual  property  necessary to operate the business of the Company as
currently conducted.

      (b) The Company or its subsidiaries exclusively own (or otherwise have the
right to use the Intellectual  Property pursuant to a valid license,  sublicense
or other agreement), free and clear of all Liens, and has the unrestricted right
(subject to any such license terms,  if applicable)  to use, sell,  license,  or
sublicense all Intellectual Property.

      (c) All products and  materials  made,  used or sold by the Company or its
subsidiaries  containing  Trademarks bear the proper federal registration notice
where permitted by law.

      (d) All works encompassed by the Copyrights and used by the Company or its
subsidiaries have been marked with the proper copyright notice.

      (e) To the Company's knowledge, upon reasonable inquiry in accordance with
sound business practice and business  judgment,  all the Company's  Intellectual
Property rights are valid and enforceable.  The Company has taken all reasonably
necessary  actions to maintain  and protect each item of  Intellectual  Property
owned by the Company or its subsidiaries.

      (f)  The  Company  and  each  subsidiary  of the  Company  has  taken  all
reasonable precautions to protect the secrecy, confidentiality, and value of its
Trade Secrets and the proprietary nature and value of its Intellectual Property.
To the best of the Company's knowledge, none of the Trade Secrets, wherever

                                      -11-
<PAGE>

located,  the value of which is contingent upon  maintenance of  confidentiality
thereof,  have been  disclosed to any employee,  representative  or agent of the
Company or any other  person not  obligated  to  maintain  such Trade  Secret in
confidence  pursuant  to a  confidentiality  agreement  entered  into  with  the
Company,  except as required  pursuant to the filing of a patent  application by
the Company.

      (g)  The  Company  or a  subsidiary  of the  Company,  as  applicable,  is
diligently  prosecuting  all Patent  applications it has filed, as instructed by
patent counsel.  The Company or a subsidiary of the Company,  as applicable,  is
diligently  filing and preparing to file Patent  applications for all inventions
in  a  manner  and  within  a   sufficient   time  period  to  avoid   statutory
disqualification of any potential Patent application.

      (h) To the knowledge of the Company, upon reasonable inquiry in accordance
with sound business  practice and business  judgment,  none of the  Intellectual
Property,  products  or  services  owned,  used,  developed,  provided,  sold or
licensed by the Company, or made for, used or sold by or licensed to the Company
by any person  infringes upon or otherwise  violates any  Intellectual  Property
rights of others.

      (i) To the knowledge of the Company, upon reasonable inquiry in accordance
with sound business practice and business judgment, no Person is infringing upon
or otherwise violating the Intellectual Property rights of the Company.

      6.10 Employee Benefit Plans.

      (a)  Neither  the  Company  nor any  entity  which is or was under  common
control  within  the  meaning  of Section  414(b),  (c),  (m) or (o) of the Code
maintains or contributes to, or has within the preceding six years maintained or
contributed  to, or may have any liability with respect to any employee  benefit
plan subject to Title IV of Employee  Retirement Income Security Act of 1974, as
amended  ("ERISA"),  or Section 412 of the Code or any "multiple  employer plan"
within  the  meaning  of  the  Code  or  ERISA.   Each  employee  benefit  plan,
arrangement,   policy,  program,  agreement  or  commitment  which  the  Company
maintains,  contributes  to or may have any  liability  in respect  to (each,  a
"Plan") has been  established and administered in accordance with its terms, and
complies in form and in operation with the applicable requirements of ERISA, the
Code and other  applicable  Requirements  of Law.  No claim with  respect to the
administration  or the  investment of the assets of any Plan (other than routine
claims for benefits) is pending.  No event has occurred in connection with which
the  Company  or any Plan,  directly  or  indirectly,  could be  subject  to any
material  liability  under  ERISA,  the Code or any  other  law,  regulation  or
governmental  order applicable to any Plan, or under any agreement,  instrument,
statute,  rule of law or  regulation  pursuant to or under which the Company has
agreed to  indemnify  any person  against  liability  incurred  under,  or for a
violation or failure to satisfy the requirement of, any such statute, regulation
or  order.  The  Company  has no  liability,  whether  absolute  or  contingent,
including any obligations under any Plan, with respect to any  misclassification
of any person as an independent contractor rather than as an employee.

      (b)  Neither  the  Company  nor  any  subsidiary  of the  Company  has any
obligations to provide or any direct or indirect  liability,  whether contingent
or otherwise, with respect to the provision of health or death benefits to or in
respect of any former  employee,  except as may be required  pursuant to Section
4980B of the  Code and the  corresponding  provisions  of ERISA  and the cost of
which are fully paid by such former employees.

                                      -12-
<PAGE>

      (c) There are no unfunded  obligations  under any Plan which are not fully
reflected on the Financial Statements.

      (d) The  consummation of the  transactions  contemplated by this Agreement
will not (i) entitle any Company (or  subsidiary)  employee to severance  pay or
(ii) accelerate the time of payment or vesting or trigger any payment or funding
(though a  grantor  trust or  otherwise)  of  compensation  or  benefits  under,
increase the amount payable or trigger any other material  obligations  pursuant
to, any Plan.

      6.11 Investment Company.  The Company is not an "investment company" or an
"affiliated  person"  of,  or  "promoter"  or  "principal  underwriter"  for  an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.

      6.12 Compliance.  The Common Stock is registered pursuant to Section 12(g)
of the Exchange  Act and the Common  Stock is listed on the OTC  Bulletin  Board
under the symbol  AVNA.OB,  and the Company has taken no action  designed to, or
likely to have the effect of,  terminating the  registration of the Common Stock
under the Exchange  Act. The Company has not taken and will not, in violation of
applicable law, take any action designed to or that might reasonably be expected
to cause or result in unlawful  manipulation of the price of the Common Stock to
facilitate the sale or resale of the Securities.

      6.13  Private   Offerings.   Assuming   the  truth  of  each   Purchaser's
representations and acknowledgments  contained in Section 5 hereof,  neither the
Company nor any Person  acting on its behalf (other than the  Purchasers,  as to
whom the Company makes no representations) has offered or sold the Securities by
means of any general  solicitation or general  advertising within the meaning of
Rule 502(c) under the Securities Act. The Company has not sold the Securities to
anyone other than the  subscribers to this  Agreement.  Each Security shall bear
substantially the same legend set forth in Section 8 hereof for at least so long
as required by the Securities Act.

      6.14 Broker's or Finder's  Commissions.  Other than the Company's officers
and directors,  if at all, and the Placement Agent (as placement agent on behalf
of the  Company)  or any Other  Participating  Agent,  if any are engaged by the
Company, no finder,  broker,  agent,  financial person or other intermediary has
acted on behalf of the Company in connection  with the sale of the Securities by
the Company or the  consummation  of this  Agreement or any of the  transactions
contemplated hereby. The Company has not had any direct or indirect contact with
any other investment banking firm (or similar firm) with respect to the offer of
the Securities by the Company to the Purchasers or the Purchasers' subscriptions
for the Securities.

      6.15  Disclosure.  The  Transaction  Documents  do not  contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make  the  statements  contained  herein  or  therein,  in the  light  of the
circumstances  under which they were made, not misleading.  The Company does not
have any  knowledge  of any fact that has  specific  application  to the Company
(other than general economic or industry  conditions) and that can reasonably be
foreseen to cause a Material  Adverse  Effect that has not been set forth in the
Transaction Documents or the Commission Documents.

The Company certifies that each of the foregoing  representations and warranties
by the Company  sets forth in this  Section 6 are true as of the date hereof and
such  representations  and warranties shall survive the Closing pursuant to this
Agreement as contemplated in Section 7.1.

      6.16 Commission Documents.

                                      -13-
<PAGE>

      The Company has filed all Commission  Documents required to be filed by it
with the Commission  pursuant to the reporting  requirements of the Exchange Act
prior to the date hereof. Upon filing, each such Commission Document complied in
all material  respects with the  requirements  of the Exchange Act and the rules
and regulations of the SEC promulgated  thereunder  applicable to the Commission
Document,  and none of the  Commission  Documents,  at the time  they  were most
recently filed with the SEC,  contained any untrue  statement of a material fact
or omitted to state a material fact  required to be stated  therein or necessary
in order to make the statements  therein,  in light of the  circumstances  under
which they were made, not misleading.

      6.17 Insurance.

      The Company maintains and will continue to maintain insurance of the types
and in the amounts  that the  Company  reasonably  believes is adequate  for its
business,  including,  but not  limited  to,  insurance  covering  all  real and
personal  property  owned  or  leased  by the  Company  against  theft,  damage,
destruction,  acts of vandalism and all other risks customarily  insured against
by similarly  situated  companies,  all of which  insurance is in full force and
effect.

      6.18 Registration Rights.

      Except as provided in the Registration  Rights  Agreement,  the Company is
not  under  any  contractual  obligation  to  register  any of  its  outstanding
securities  except for  7,000,000  shares of Common Stock to be  registered on a
pari passu basis with the Shares,  and the shares of Common Stock underlying the
Jano Warrants (which,  however, are not required to be registered with the first
registration of the Shares).

      7. Indemnification.

      7.1 (a) The Company agrees to indemnify and hold harmless the  Purchasers,
their affiliates and each of their respective directors,  officers,  general and
limited partners,  principals, agents and attorneys from and against any and all
losses,  claims,  damages,  liabilities,  costs (including reasonable attorneys'
fees) and expenses (collectively,  "Losses") to which any such Person may become
subject,  insofar as such  Losses  arise out of, in any way relate to, or result
from (i) any  breach  of any  representation  or  warranty  made by the  Company
contained  in or made  pursuant  to  Article  6 of this  Agreement,  or (ii) the
failure of the Company to fulfill any agreement or covenant contained in or made
pursuant to this Agreement.  In no event,  however,  shall the Company be liable
for indirect, incidental or consequential or special damages of any kind. All of
the  representations and warranties of the Company made herein shall survive the
execution  and  delivery of this  Agreement  until the date that is one (1) year
after the date of this  Agreement,  except for (a) Sections  6.1  (Organization,
Good Standing and Qualification),  6.2  (Capitalization),  6.3 (Corporate Power,
Authorization;  Enforceability),  6.13 (Private Offerings) and 6.14 (Broker's or
Finder's  Commission),   which  representations  and  warranties  shall  survive
indefinitely  (or if  indefinite  survival is not permitted by law, then for the
maximum  period  permitted by applicable  law),  (b) Section 6.8 (Taxes),  which
representation  and warranty  shall  survive until the later to occur of (i) the
lapse of the statute of limitations with respect to the assessment of any tax to
which such  representation  and warranty  relates  (including  any extensions or
waivers  thereof)  and (ii) sixty (60) days  after the final  administrative  or
judicial  determination of the Taxes to which such  representation  and warranty
relates,  and no claim with  respect to Section 6.8 may be  asserted  thereafter
with the exception of claims  arising out of any fact,  circumstance,  action or
proceeding  to which the party  asserting  such claim shall have given notice to
the other parties to this Agreement  prior to the  termination of such period of
reasonable  belief that a tax liability will subsequently  arise therefrom,  and
(c) Section 6.7 (Environmental Matters), which representation and warranty shall
survive until the lapse of the applicable statute of limitations.  Except as set
forth herein,  all of the covenants,  agreements and  obligations of the Company
shall survive the Final Closing  indefinitely (or if indefinite  survival is not
permitted by law, then for the maximum period permitted by applicable law).

                                      -14-
<PAGE>

      (b) Each  Purchaser  severally,  and not jointly,  agrees to indemnify and
hold  harmless  the  Company,  its  affiliates  and  each  of  their  respective
directors,  officers,  general  and  limited  partners,  principals,  agents and
attorneys  from and  against  any and all  Losses to which any such  Person  may
become  subject,  insofar as such Losses  arise out of, in any way relate to, or
result  from (i) any  breach  of any  representation  or  warranty  made by such
Purchaser contained in or made pursuant to Article 5 of this Agreement,  or (ii)
the failure of such Person to fulfill any agreement or covenant  contained in or
made pursuant to this Agreement.  In no event,  however,  shall any Purchaser be
liable for indirect, incidental or consequential or special damages of any kind.
All of the  representations  and  warranties of each Purchaser made herein shall
survive the  execution  and delivery of this  Agreement  for the maximum  period
permitted  by  applicable  law  with  respect  to  the  statute  of  limitations
applicable to survival of contractual claims for indemnification.  Except as set
forth herein, all of the covenants, agreements and obligations of the Purchasers
shall survive the Final Closing for the maximum  period  permitted by applicable
law with  respect to the  statute  of  limitations  applicable  to  survival  of
contractual  claims  for  indemnification.  Furthermore,  in no event  shall any
Purchaser be required to make indemnification pursuant to this Section in excess
of the gross Purchase Price of the Securities  acquired by such Purchaser in the
Offering.

      7.2 Promptly after receipt by any Person entitled to seek  indemnification
under Section 7.1 of this Agreement  (individually,  an "Indemnified  Party" and
collectively,  the  "Indemnified  Parties")  of  notice of any claim as to which
indemnity may be sought, including,  without limitation, the commencement of any
action or proceeding,  the Indemnified Party will, if a claim in respect thereof
may be made against a Person required to provide  indemnification  under Section
7.1 of this Agreement  (individually,  an "Indemnifying Party" and collectively,
the "Indemnifying  Parties"),  promptly notify the Indemnifying Party in writing
of the commencement thereof;  provided that the failure of the Indemnified Party
to so notify the Indemnifying Party will not relieve the Indemnifying Party from
its  obligations  under this Section  unless,  and only to the extent that, such
omission results in the Indemnifying Party's forfeiture of substantive rights or
defenses or being materially  prejudiced by the Indemnified  Person's failure to
give such  notice.  In case any  action or  proceeding  is brought  against  any
Indemnified  Party, and it notifies the  Indemnifying  Party of the commencement
thereof,  the Indemnifying Party shall be entitled to assume the defense thereof
at its own expense,  with counsel  reasonably  satisfactory to such  Indemnified
Party, which approval will not be unreasonably withheld or delayed unreasonably;
provided,  however,  that any Indemnified Party may, at its own expense,  retain
separate counsel to participate in such defense at its own expense. After notice
from the  Indemnifying  Party to the  Indemnified  Party of its  election  to so
assume the defense  thereof,  the  Indemnifying  Party will not be liable to the
Indemnified  Party  under  that  Section 7 for any  legal or any other  expenses
subsequently  incurred by the  Indemnified  Party in connection with the defense
thereof (other than reasonable  costs of  investigation)  unless incurred at the
written  request of the  Indemnifying  Party.  Notwithstanding  the  above,  the
Indemnified Party will have the right to employ counsel of its own choice in any
action  or  proceeding  (and be  reimbursed  by the  Indemnifying  Party for the
reasonable  fees and expenses of the counsel and other  reasonable  costs of the
defense)  if,  in the  written  opinion  of such  Indemnified  Party's  counsel,
representation  of  the  Indemnified  Party  by  the  counsel  retained  by  the
Indemnifying  Party would be inappropriate due to actual or potential  differing
interests  or  conflicts  between  the  Indemnified  Party and any  other  party
represented  by  the  counsel  in  the  action;  provided,   however,  that  the
Indemnifying  Party will not in connection  with any one action or proceeding or
separate but  substantially  similar  actions or proceedings  arising out of the
same general allegations, be liable for the reasonable fees and expenses of more
than one separate  firm of attorneys  at any time for all  Indemnified  Parties,
except to the extent that local  counsel,  in addition  to regular  counsel,  is
required in order to effectively  defend  against the action or  proceeding.  An
Indemnifying  Party  will  not  be  liable  to any  Indemnified  Party  for  any
settlement or entry of judgment

                                      -15-
<PAGE>

concerning  any  action  or  proceeding  effected  without  the  consent  of the
Indemnifying  Party,  which  consent  shall not be  unreasonably  withheld.  The
Indemnifying Party agrees that it will not, without the prior written consent of
the  Indemnified  Party,  settle,  compromise  or  consent  to the  entry of any
judgment in any pending or threatened claim relating to the matters contemplated
hereby  (if any  Indemnified  Party  is a party  thereto  or has  been  actually
threatened to be made a party  thereto)  unless such  settlement,  compromise or
consent  includes an unconditional  release of each  Indemnified  Party from all
liability arising or that may arise out of such claim. The rights accorded to an
Indemnified  Party  hereunder  shall  be in  addition  to any  rights  that  any
Indemnified  Party may have at common law, by separate  agreement or  otherwise;
provided,  however,  that  notwithstanding  the  foregoing  or  anything  to the
contrary  contained  in this  Agreement,  (a)  nothing  in this  Section 7 shall
restrict  or limit  any  rights  that  any  Indemnified  Party  may have to seek
equitable  relief and (b) this Section 7 shall be the sole remedy for any breach
of the Company's  representations and warranties contained in this Agreement and
for any breach of any Purchaser's  representations  and warranties  contained in
this  Agreement  except,  in either case,  with respect to claims arising out of
fraud or willful misconduct.

      8. Covenants.

      8.1 Use of Proceeds.  The Company will use the proceeds from this Offering
for general corporate purposes, and working capital.

      8.2 Conduct of the  Company's  Business.  Except as  contemplated  by this
Agreement,  during the period  from the date  hereof to the  Closing  Date,  the
Company  and  its  subsidiaries  will  conduct  their  respective  business  and
operations  solely in the  ordinary  course  of  business  consistent  with past
practice and each shall use reasonable  commercial efforts to keep available the
services of its officers and  employees  and preserve its current  relationships
with  customers,  suppliers,  licensors,  creditors and others  having  business
dealings with it, except as would not be reasonably  expected to have a Material
Adverse Effect.

      8.3 Reasonable  Best Efforts.  Subject to the terms and conditions of this
Agreement,  each of the parties hereto will use its  reasonable  best efforts to
take,  or cause to be taken,  all actions,  and to do, or cause to be done,  all
things  necessary,  proper or advisable under applicable laws and regulations to
consummate  the  transactions  contemplated  by this  Agreement  at the earliest
practicable date.

      8.4 Tax Matters.

      (a) The Company covenants that it will use commercially reasonable efforts
not to  become  a  USRPHC  at any  time  while  any  Purchaser  owns  any of the
Securities.

      (b) In the event that a Purchaser desires to sell or dispose of any of the
Securities  or  underlying  securities  as permitted  under this  Agreement  and
applicable law, and upon demand by such Purchaser, the Company agrees to deliver
to  such  Purchaser  a  letter  (the  "Letter")  which  complies  with  Sections
1.1445-2(c)(3)  and  1.897-2(h) of the Treasury  Regulations,  addressed to such
Purchaser,  stating whether or not the Company is a USRPHC.  The Letter shall be
delivered  to the  Purchaser  one business day prior to the close of any sale or
disposition  of  the  Securities  or  Conversion  Stock  by the  Purchaser  (the
"Delivery  Date").  The Letter shall be dated as of the Delivery Date and signed
by a corporate  officer  who must verify  under  penalties  of perjury  that the
statement is correct to his knowledge and belief pursuant to Section  1.897-2(h)
of the Treasury Regulations.

                                      -16-
<PAGE>

      8.5 Independent Public Accountant.

      The Company shall retain a national public accounting firm approved by the
Public Company Accounting Oversight Board to serve as its independent auditor.

      9. FOR RESIDENTS OF ALL STATES:  NEITHER THE SECURITIES  OFFERED HEREBY OR
THE UNDERLYING SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED,  OR THE SECURITIES  LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS  FROM THE  REGISTRATION  REQUIREMENTS  OF SAID ACT AND
SUCH LAWS. THE SECURITIES ARE SUBJECT TO  RESTRICTIONS  ON  TRANSFERABILITY  AND
RESALE AND MAY NOT BE TRANSFERRED  OR RESOLD EXCEPT AS PERMITTED  UNDER SAID ACT
AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.  INVESTORS SHOULD
BE  AWARE  THAT  THEY  WILL BE  REQUIRED  TO BEAR  THE  FINANCIAL  RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE WARRANTS ARE NON-TRANSFERABLE.

      10. No Waiver.

      Notwithstanding any of the representations, warranties, acknowledgments or
agreements  made herein by the  Purchasers,  the Purchasers do not thereby or in
any manner waive any rights  granted to the  Purchasers  under  federal or state
securities laws.

      11. Miscellaneous.

      11.1 Notices.  Any notice or other  communication  given  hereunder by any
party  hereto  to any other  party  hereto  shall be in  writing  and  delivered
personally or by facsimile  transmission or sent by registered or certified mail
or by any express mail or overnight courier service, postage or fees prepaid:

                  If to the Company:

                           Advance Nanotech, Inc.
                           712 Fifth Avenue, 19th Floor
                           New York, New York  10019
                           Attention:  Magnus Gittins
                           Telephone:  (646) 723 8962
                           Facsimile:  (212) 581 1922

                  If to the Purchasers:

                           To each Purchaser at such Purchaser's name and
                           address set forth on the signature page to this
                           Agreement.

      Any notice that is delivered  personally or by facsimile  transmission  in
the manner  provided herein shall be deemed to have been duly given to the party
to whom it is  directed  upon  actual  receipt by such  party or its agent.  Any
notice that is addressed  and mailed,  postage  prepaid for most rapid method of
delivery, or sent by courier in the manner herein provided shall be conclusively
presumed  to have been duly given to the party to which it is  addressed  at the
close of business, local time of the recipient, on the fourth business day after
the day it is so placed in the mail or, if earlier,  the date and time of actual
receipt.

                                      -17-
<PAGE>

      11.2 Successors and Assigns. This Agreement will be binding upon and inure
to the  benefit of the  parties  hereto  and to their  respective  heirs,  legal
representatives, successors and assigns, provided, that no party may assign this
Agreement without the prior written consent of the other party, such consent not
to be unreasonably withheld;  provided that any transfer of Securities or shares
of Common  Stock  underlying  such  Securities  must be in  compliance  with the
Transaction Documents and all applicable law.

      11.3 Entire Agreement.  This Agreement sets forth the entire agreement and
understanding  among the parties as to the subject  matter hereof and merges and
supersedes all prior discussions, agreements and understandings of any and every
nature  among them;  provided  that any  confidentiality  agreement  between the
Company and any Purchaser shall remain in effect.  This Agreement may be amended
only by mutual  written  agreement  of the Company and a majority in interest of
the Purchasers, and the Company may take any action herein prohibited or omit to
take any action  herein  required to be  performed  by it, and any breach of any
covenant,  agreement,  warranty  or  representation  may be waived,  only if the
Company has obtained the written consent or waiver of the Purchasers  purchasing
a majority of the Shares offered hereby.

      11.4 Governing  Law. This Agreement  shall be governed by and construed in
accordance with the laws of the State of New York with respect to contracts made
and to be fully  performed  therein,  without  regard to the  conflicts  of laws
principles thereof.  The parties hereto hereby agree that any suit or proceeding
arising under this  Agreement,  or in connection  with the  consummation  of the
transactions  contemplated hereby, shall be brought solely in a federal or state
court  located in the County of New York and State of New York. By its execution
hereof,  both the  Company and the  Purchasers  hereby  consent and  irrevocably
submit to the in personam  jurisdiction  of the federal and state courts located
in the  County of New York and State of New York and agree  that any  process in
any suit or  proceeding  commenced  in such courts under this  Agreement  may be
served upon it  personally or by certified or registered  mail,  return  receipt
requested,  or by Federal Express or other courier service,  with the same force
and effect as if personally  served upon the applicable party in New York and in
the city or county in which such other court is located. The parties hereto each
waive any claim that any such  jurisdiction  is not a  convenient  forum for any
such suit or proceeding and any defense of lack of in personam jurisdiction with
respect thereto.

      11.5  Severability.  The holding of any provision of this  Agreement to be
invalid or  unenforceable by a court of competent  jurisdiction  will not affect
any other  provision  of this  Agreement,  which  will  remain in full force and
effect.  If any provision of this  Agreement is declared by a court of competent
jurisdiction  to be invalid,  illegal or incapable of being enforced in whole or
in part, the provision  will be  interpreted so as to remain  enforceable to the
maximum  extent  permissible  consistent  with  applicable law and the remaining
conditions and provisions or portions thereof will  nevertheless  remain in full
force and  effect  and  enforceable  to the  extent  they are  valid,  legal and
enforceable,  and no provisions will be deemed dependent upon any other covenant
or provision unless so expressed herein.

      11.6 No Waiver.  A waiver by either party of a breach of any  provision of
this Agreement will not operate, or be construed,  as a waiver of any subsequent
breach by that same party.

      11.7  Further  Assurances.  The  parties  agree to execute and deliver all
further documents,  agreements and instruments and take further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.

      11.8  Counterparts.  This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of which will be deemed an  original,  but all of which will
together constitute the same instrument.

                                      -18-
<PAGE>

      11.9 No Third Party  Beneficiaries.  Nothing in this Agreement  creates in
any Person not a party to this Agreement any legal or equitable right, remedy or
claim under this Agreement,  and this Agreement is for the exclusive  benefit of
the parties hereto.  The parties expressly  recognize that this Agreement is not
intended to create a  partnership,  joint venture or other  similar  arrangement
between any of the parties or their respective affiliates.

      11.10 Headings.  The headings in this Agreement are solely for convenience
of reference and shall be given no effect in the construction or  interpretation
of this Agreement.

      11.11  Securities Laws  Disclosure;  Publicity  Restrictions.  The Company
shall  issue a press  release  by 8:30  a.m.  Eastern  time on the  trading  day
following  each  applicable  Closing,  or file a  Current  Report  on  Form  8-K
disclosing the consummation of the  transactions  consummated on such Closing by
8:30 a.m.  Eastern time on the fourth day  following  each  applicable  Closing.
Except as may be required by applicable Requirements of Law, none of the parties
hereto shall issue a publicity release or public  announcement or otherwise make
any disclosure concerning this Agreement,  the transactions  contemplated hereby
without prior  approval by the other party hereto;  provided that each Purchaser
may disclose on its worldwide web pages and its offering materials,  if any, the
name of the Company,  the name of the Chief Executive Officer of the Company,  a
brief description of the business of the Company  consistent with the Commission
Documents  or the  Company's  press  releases or other  public  statements,  the
Company's logo and the aggregate  amount of such  Purchaser's  investment in the
Company.  If any  announcement is required by applicable law or the rules of any
securities exchange or market on which such shares of Common Stock are traded to
be made by any party hereto,  prior to making such  announcement such party will
deliver a draft of such  announcement  to the other  parties  and shall give the
other parties  reasonable  opportunity to comment thereon.  The parties agree to
attribute and otherwise  indicate  ownership of the other party's trademarks and
logos.

      11.12 Certification. Each Purchaser certifies that such Purchaser has read
this entire Agreement and that every statement on such Purchaser's part made and
set forth herein is true and complete.



                  [Remainder of page intentionally left blank.]


                                      -19-
<PAGE>

IN WITNESS  WHEREOF,  the  undersigned  has executed  this  Securities  Purchase
Agreement on the date his signature has been subscribed and sworn to below.

The shares of Common Stock and Warrants are to be issued in:


<TABLE>
<S>                                                          <C>

                                                             ----------------------------------------------------
                                                             Print Name of Investor

                                                             ___________________ shares of Common Stock subscribed
____ individual name                                         for (which number must be an even number), with 1
                                                             Warrant also being issued for every 2 shares of Common
                                                             Stock purchased. Subscription price paid herewith:
                                                             $__________________ (being $2.00 x the number of shares
____ tenants in the entirety                                 of Common Stock listed above)


                                                             ----------------------------------------------------
____ corporation (an officer must sign)                      Print Name of Joint Investor
                                                             (if applicable)

                                                             ----------------------------------------------------
____ partnership (all general partners must sign)            Signature of Investor


                                                             ----------------------------------------------------
____ trust                                                   Signature of Joint Investor


                                                             ----------------------------------------------------
____ limited liability company
                                                             ----------------------------------------------------
                                                             (with a copy to:)

                                                             ----------------------------------------------------
                                                             Address of Investor

</TABLE>

Accepted as of the 20th day of  January,  2005 as to  _______________  shares of
Common Stock  (which  number must be an even  number),  it being agreed that the
Company  also shall  deliver 1 Warrant for every two shares of Common  Stock for
which  this  Subscription  is  accepted;   Subscription   price  accepted  being
$______________,  being $2.00 x the number of shares of Common Stock as to which
this Subscription is accepted:

ADVANCE NANOTECH, INC.


By:      /s/ Magnus Gittins
         ------------------------------------------
Name:    Magnus Gittins
Title:   Chief Executive Officer

                                      -20-