SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB


               Quarterly Report Under Section 13 or 15(d) of
                  The Securities and Exchange Act of 1934

 For the quarter ended . . . . . . . . . . . . . . . . .   December 31, 2001
Commission file number. . . . . . . . . . . . . . . . . . . . . . . . . .0-9347

                            ALANCO TECHNOLOGIES, INC.
                            ------------------------
              (Exact name of registrant as specified in its charter)
        (Formerly reporting as Alanco Environmental Resources Corporation)

                              Arizona 86-0220694
                (State or other jurisdiction (I.R.S. Employer
              of incorporation or organization) Identification No.)

        15900 North 78th Street, Suite 101, Scottsdale, Arizona 85260
        -------------------------------------------------------------
       (Address of principal executive offices)             (Zip Code)

                                 (408) 607-1010
                 (Registrant's telephone number, including area code)

Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
                                     YES XX NO
                                        ----  ----

         As of February 12, 2002 there were 10,212,600 shares of common stock
outstanding.


<PAGE>



<TABLE>
<CAPTION>
                            ALANCO TECHNOLOGIES, INC.
                                      INDEX

Page Number
<S>      <c>       <c>                                                  <C>
PART I.  FINANCIAL INFORMATION

         Item 1.   Financial Statements

                    Consolidated Balance Sheets
                       December 31, 2001 and June 30, 2001  .............3

                     Consolidated Statements of Operations
                       For the three months ended December 31,
                           2001 and 2000.................................4

                     Consolidated Statements of Operations
                       For the six months ended December 31,
                           2001 and 2000.................................5

                     Consolidated Statements of Cash Flows
                       For the six months ended December 31,
                          2001 and 2000..................................6

                      Notes to Consolidated Financial Statements ........7
                           Note A - Basis of Presentation
                           Note B - Inventories
                           Note C - Loss per Share
                           Note D - Sale of Common Shares
                           Note E - Acquisition and Business Development

         Item 2.   Management's Discussion and Analysis of Financial
                          Condition and Results of Operations ...........8


PART II. OTHER INFORMATION

         Item 6.   Exhibits ............................................10

                   Signature ...........................................10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

               ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                   AS OF DECEMBER 31 AND JUNE 30, 2001
<S>                                        <c>                  <c>
ASSETS
                                            Dec 31, 2001         June 30, 2001
                                           --------------       --------------
                                            (Unaudited)
CURRENT ASSETS
  Cash                                      $    748,000          $    81,000
  Accounts receivable, net                     1,267,600            1,209,400
  Subscriptions receivable                        50,000              563,500
  Notes receivable, net                          783,700              677,500
  Inventories                                  1,362,500            1,218,500
  Prepaid expenses                                69,300               35,000
                                           --------------      ---------------
     Total current assets                      4,281,100            3,784,900
                                           --------------      ---------------

PROPERTY, PLANT AND EQUIPMENT, NET               371,800              496,000
                                           --------------      ---------------

OTHER ASSETS
  Intangible assets, net                       1,582,800            1,420,400
  Notes Receivable, net                          450,000              966,100
  Investment at cost                           2,475,200            2,475,200
  Net assets held for sale                       593,600              603,300
  Other assets                                    32,600               35,500
                                           --------------      ---------------
     Total other assets                        5,134,200            5,500,500
                                           --------------      ---------------
TOTAL ASSETS                                $  9,787,100         $  9,781,400
                                           ==============      ===============

CURRENT LIABILITIES
  Accounts payable & accruals               $  1,553,200         $  1,010,600
  Bank line                                    1,273,900              885,600
  Notes payable, current                           --                 248,600
  Deferred gain, pollution control products      589,700              589,700
                                           --------------      ---------------
     Total Current Liabilities                 3,416,800            2,734,500

LONG TERM LIABILITIES
  Deferred gain, pollution control products      378,000              378,000
                                           --------------      ---------------

TOTAL LIABILITIES                              3,794,800            3,112,500
                                           --------------      ---------------

SHAREHOLDERS' EQUITY
  Preferred Stock:
    Class A, cumulative convertible
    preferred stock; 5,000,000 shares
    authorized, of which none are                  --                    --
    issued and outstanding at 12/31/01.
    Class B, cumulative preferred stock:
    2,000,000 authorized and none outstanding      --                    --
  Common Stock, no par value, 100,000,000 shares
    authorized 9,691,600 and 8,720,300
    shares issued, respectively               58,122,900           57,653,000
  Treasury Stock                                   --                 (40,000)

     Accumulated deficit                     (52,130,600)         (50,944,100)
                                           --------------      ---------------
     Total shareholders' equity                5,992,300            6,668,900
                                           --------------      ---------------

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY    $  9,787,100         $  9,781,400
                                           ==============      ===============

</table>
 <PAGE>
<TABLE>
<CAPTION>
               ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                 FOR THE THREE MONTHS ENDED DECEMBER 31,
<S>                                          <C>                 <C>
                                                  2001                 2000
                                             --------------     ---------------

NET SALES                                      $ 1,475,400         $ 2,562,700

  Cost of goods sold                               938,800           1,559,500
                                             --------------     ---------------

GROSS MARGIN                                       536,600           1,003,200

  Selling, general and administrative            1,341,100           1,797,400
                                             --------------     ---------------

OPERATING LOSS                                    (804,500)           (794,200)

  Other income (expense), net                      (12,900)             23,000
                                             --------------     ---------------

LOSS - CONTINUING OPERATIONS                      (817,400)           (771,200)

  Preferred stock dividend                           --                (56,500)
                                             --------------     ---------------

LOSS - CONTINUING OPERATIONS ATTRIBUTABLE
       TO COMMON SHAREHOLDERS                     (817,400)           (827,700)
                                             --------------     ---------------

  Operating income (loss) - disc. operations        12,000             (30,500)
  Gain - sale of pollution control products          --                252,000
                                             --------------     ---------------

INCOME - DISCONTINUED OPERATIONS                    12,000             221,500
                                             --------------     ---------------


NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS   $  (805,400)        $  (606,200)
                                             ==============     ===============

EARNINGS (LOSS) PER SHARE-BASIC AND DILUTED
         - Continuing Operations               $     (0.09)        $     (0.12)
                                             ==============     ===============
         - Discontinued Operations             $      0.00         $      0.03
                                             ==============     ===============
         - Net Loss                            $     (0.09)        $     (0.09)
                                             ==============     ===============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING       8,738,733           6,777,900
                                             ==============     ===============

 </TABLE>
<PAGE>
<TABLE>
<CAPTION>
               ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                 FOR THE SIX MONTHS ENDED DECEMBER 31,

                                          <C>                 <c>
                                                   2001                2000
                                             --------------      --------------

NET SALES                                      $ 3,614,000         $ 5,309,100

  Cost of goods sold                             2,186,200           3,135,300
                                             --------------      --------------

GROSS MARGIN                                     1,427,800           2,173,800

  Selling, general and administrative            2,614,700           3,264,700
                                             --------------      --------------

OPERATING LOSS                                  (1,186,900)         (1,090,900)

  Other income (expense), net                      (10,300)             15,200
                                             --------------      --------------

LOSS - CONTINUING OPERATIONS                    (1,197,200)         (1,075,700)

  Preferred stock dividend                          --                 (56,500)
                                             --------------      --------------

LOSS - CONTINUING OPERATIONS ATTRIBUTABLE
       TO COMMON SHAREHOLDERS                   (1,197,200)         (1,132,200)

  Operating income (loss)-disc. operations          10,600               6,500
  Gain - sale of pollution control products          --                252,000
                                             --------------      --------------

INCOME - DISCONTINUED OPERATIONS                    10,600             258,500
                                             --------------      --------------


NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS   $(1,186,600)         $ (873,700)
                                             ==============      ==============

EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED

           - Continuing Operations             $     (0.14)       $      (0.17)
                                             ==============      ==============
           - Discontinued Operations           $      0.00        $       0.04
                                             ==============      ==============
           - Net Loss                          $     (0.14)       $      (0.13)
                                             ==============      ==============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING       8,738,733           6,772,400
                                             ==============      ==============


 </TABLE>
<PAGE>
<TABLE>
<CAPTION>
                   ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
                     FOR THE SIX MONTHS ENDED DECEMBER 31,

                                                 <c>           <c>
                                                         2001         2000
                                                    ------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss from continuing operations               $ (1,197,200) $ (1,075,700)
  Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                       131,500       197,700
     Stock issued for services                            26,000         3,300
     Other                                                 2,900         --

  (Increase) decrease in:
     Accounts receivable                                 455,300      (966,400)
     Inventory                                           (28,800)     (208,900)
     Net assets of disposed operations                     9,700       153,900
     Prepaid expenses and other assets                   (34,300)      (37,100)
   Increase (decrease) in:
     Accounts payable and accrued expenses               542,600       213,800
                                                    ------------- -------------
       Net cash used in continuing operations            (92,300)   (1,719,400)
     Income from discontinued operations                  10,600       258,500
                                                    ------------- -------------
       Net cash used in operating activities             (81,700)   (1,460,900)
                                                    ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Collection of notes receivable                         358,900     1,587,300
  Purchase of property, plant and equipment             (122,200)      (59,300)
  Intangible Assets, related to acquisitions            (162,700)       (6,100)
  Deferred Gain                                            --          967,700
  Investments                                              --            --
  Purchase of treasury stock                             (24,000)       (7,800)
                                                    ------------- -------------
     Net cash provided by investing activities            50,000     2,481,800
                                                    ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Advances from borrowings                             1,215,000         --
  Repayment on borrowings                             (1,075,300)   (1,028,300)
  Issuance of Stock                                      578,300         --
  Proceeds from sale of preferred stock                    --           96,500
  Nasdaq listing fee                                     (19,300)        --
  Dividends on preferred stock                             --          (56,500)
  Proceeds from exercise of options                        --           11,000
                                                    ------------- -------------
    Net cash provided by (used in) financing
        activities                                       698,700      (977,300)
                                                    ------------- -------------
NET INCREASE IN CASH                                $    667,000  $     43,600

CASH, beginning of period                           $     81,000  $    176,700
                                                    ------------- -------------

CASH, end of period                                 $    748,000  $    220,300
                                                    ============= =============

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION

  Cash paid for interest                            $     42,700  $     32,100
                                                    ============= =============

  Stock issued for services                         $     26,000  $      3,300
                                                    ============= =============

  Computer equipment transferred from PP&E to
     Inventory                                      $    115,200  $      --
                                                    ============= =============

  Note receivable repaid through surrender of
     options                                        $     51,000  $      --
                                                    ============= =============

</TABLE>
<PAGE>



                   ALANCO TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     FOR SIX MONTHS ENDED DECEMBER 31, 2001

Note A - Basis of Presentation

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with Generally Accepted Accounting Principles for interim
financial information and in accordance with the instructions to Form 10-QSB.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with Generally Accepted Accounting
Principles have been condensed or omitted. These interim consolidated financial
statements should be read in conjunction with the Company's June 30, 2001,
Annual Report on Form 10-KSB. In the opinion of management, the accompanying
consolidated financial statements include all adjustments consisting of normal
recurring accruals necessary to present fairly the financial position, results
of operations and statements of cash flows as of December 31, 2001, and for all
periods presented. The results of operations for the six months ending
December 31, 2001, are not necessarily indicative of the operating results to be
expected for an entire year.

         All significant intercompany balances, transactions and stock holdings
have been eliminated from the accompanying interim financial statements.

Note B - Inventories

         Inventories have been recorded at the lower of cost or market. The
composition of inventories as of December 31, 2001, and June 30, 2001, is listed
below:

                                      December 31, 2001      June 30, 2001

         Finished goods                  $  860,300            $   824,200
         Work-in-process                    114,300                109,500
             Raw material                   387,900                284,800
                                         -----------            -----------
                                         $1,362,500             $1,218,500
                                         ===========            ===========
Note C - Loss per Share

         Basic loss per share of common stock was computed by dividing net
loss by the weighted average number of shares outstanding of common stock.

        Diluted earnings per share were computed based on the weighted average
number of shares of common stock and dilutive securities outstanding during the
period.  Dilutive securities are options and warrants that are freely
exercisable into common stock at less than the prevailing market price.
Dilutive securities are not included in the weighted average number of shares
when inclusion would increase the earnings per share or decrease the loss per
share.

Note D - Sale of Common Shares

         During  December  2001 and  January  2002,  the  company  raised a
total of $925,000 through the sale, to accredited  investors,  of common stock
at a price of $.625 per share.  As of December 31, 2001 the Company had raised
$600,000 and had incurred  expenses related to the stock issuance of $21,700.
The purchasers of the  restricted  common  shares were also issued 3 year
warrants to purchase shares of common  stock.  The  Company  issued,  with
respect  to the full fund raising through  January,  warrants to purchase
805,000 shares of the Company's common stock at a price of $1.00 per share.

Note E - Acquisition and Business Development

         Continuing the Company's acquisition strategy, the Company announced in
December 2001, an agreement to acquire Technology Systems International, Inc.
("TSI"), a Scottsdale, Arizona based developer of proprietary, wireless RF
(radio frequency) identification, location and tracking technology utilized for
area security management and information systems primarily focusing on the
correctional market. The acquisition, which is anticipated to be effected by the
Company purchasing substantially all the assets of TSI, is conditional on final
structuring and shareholder approval of both companies. The basic structure of
the acquisition will consist of an initial payment of Alanco common stock at the
close with additional future stock payments based upon financial performance.

         Alanco believes the addition of the TSI patented technology (named the
TSI PRISM (TM) System) significantly enhances the Company's proprietary
intellectual property and represents a strategic expansion of the Company's
information technology activities. TSI recently completed both a seven-year
development program, investing over $14 million in the patented technology, and
two successful pilot projects, one in Texas and one in California. Currently,
TSI is completing an installation of the system at a correctional facility in
Michigan.

         In November 2001, the Company's Excel/Meridian Data, Inc., Dallas,
Texas based subsidiary announced the commercial availability of its new SecurNAS
7200 Network Attached Storage (NAS) filer. The SecurNAS 7200 is a fault
tolerant, 4U Rack Mount filer with a powerful, low overhead, Linux-based
operating system coupled with hardware RAID backplane and controller. It can be
installed and configured in less than 15 minutes and offers a very affordable
fault tolerant data storage solution, readily scalable from 30 GB to 1 TB with
cost-effective IDE hard drives.

Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

Except for historical information, the statements contained herein are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed or implied by those
statements. These risks and uncertainties include, but are not limited to, the
following factors: general economic and market conditions; reduced demand for
information technology equipment; competitive pricing and difficulty managing
product costs; development of new technologies which make the Company's products
obsolete; rapid industry changes; failure by the Company's suppliers to meet
quality or delivery requirements; the inability to attract, hire and retain key
personnel; failure of an acquired business to further the Company's strategies;
the difficulty of integrating an acquired business; undetected problems in the
Company's products; the failure of the Company's intellectual property to be
adequately protected; unforeseen litigation; the ability to maintain sufficient
liquidity in order to support operations; the ability to maintain satisfactory
relationships with lenders and to remain in compliance with financial loan
covenants and other requirements under current banking agreements; and the
ability to maintain satisfactory relationships with suppliers.

1.   Results of Operations

     In accordance with Generally Accepted Accounting Principles, the Company
has limited its reported consolidated revenues to revenues from its Computer
Data Storage segment, the only operation classified as a continuing operation.
To maintain comparability, certain balances from the Consolidated Statement of
Operations and Consolidated Statement of Cash Flows for the comparable period
of the prior year may have been restated.

(A)      Three months ended 12/31/2001 versus 12/31/2000

     Consolidated revenue for the quarter ended December 31, 2001 was
$1,475,400, compared to $2,562,700 for the comparable quarter of the previous
year, a decrease of $1,087,300 or 42.4%. The net loss attributable to common
stockholders for the quarter was $805,400, or $.09 per share, compared to a loss
of $606,200, or $.09 per share, for the same quarter of the prior year. The
reduction in revenues was attributed to recent unfavorable economic conditions
that have resulted in deferred and cancelled purchase orders.   Alanco's
business in recent quarters. If the economic conditions in the United States
worsen, Alanco may experience a material adverse impact on its operating
results and business conditions.

     The Company reported a net loss from continuing operations for the current
quarter of $817,400, or $.09 per share, compared to $827,700, or $.12 per share,
for the comparable quarter in the prior fiscal year. The comparable prior year
quarter reflected a $56,500 charge for dividends on preferred stock that were
converted to common stock during the final quarter of the fiscal year ended June
30, 2001. The net loss from continuing operations for the quarter ended December
31, 2001 was attributable primarily to reductions in revenues related to current
economic conditions, offset by reduced overhead expenses and investment related
to the implementation of the SanOne Storage Area Network (SAN) market
development initiative.

   Operating results for the quarter reflected a gain from discontinued
operations of $12,000, or nil per share, compared to income from discontinued
operations of $221,500, or $.03 per share, for the comparable quarter in 2000.
The results from discontinued operations for the quarter ended December 31, 2000
included a gain on sale of pollution control products of $252,000.

          Selling, general and administrative expenses for the current quarter
decreased to $1,341,100, compared to $1,797,400 incurred in the comparable
quarter of 2000. The decrease of $456,300, or 25.4%, was attributable primarily
to reduction in sales commissions, costs associated with the SanOne Storage Area
Network (SAN) market development initiative and general overhead.

(B)      Six months ended 12/31/2001 versus 12/31/2000

     Consolidated revenue for the six months ended December 31, 2001 was
$3,614,000, compared to $5,309,100 for the comparable period of the previous
year, a decrease of $1,695,100 or 31.9%. The net loss attributable to common
stockholders for the six-month period was $1,186,600, or $.14 per share,
compared to a loss of $873,700, or $.13 per share, for the same period of the
prior year. The reduction in revenues and increase in losses were attributed to
recent unfavorable economic conditions that have resulted in deferred and
cancelled purchase orders. Recent unfavorable economic conditions and reduced
capital spending have adversely affected Alanco's business in recent quarters.
If the economic conditions in the United States worsen, Alanco may experience
continued adverse impact on its operating results and business conditions.

     The Company reported a net loss from continuing operations for the current
six months of $1,197,200, or $.13 per share, compared to $1,132,200, or $.17 per
share, for the comparable period in the prior fiscal year. The comparable period
for the prior fiscal year included a $56,500 charge for dividends on preferred
stock. The preferred stock was converted to common stock during the final
quarter of fiscal year ended June 30, 2001. The net loss from continuing
operations for the six-months ended December 31, 2001 was attributable primarily
to reductions in revenues related to current economic conditions, offset by
reduction in expenses, including sales commissions and investment related to the
implementation of the SanOne Storage Area Network (SAN) market development
initiative.

   Income from discontinued operations for the six-month period reflects a gain
from discontinued operations of $10,600, or nil per share, compared to income
from discontinued operations of $258,500, or $.04 per share, for same period in
2000. The results from discontinued operations for the prior year period
included a gain on sale of pollution control products of $252,000.

         Gross profit for the six-months ended December 31, 2001 amounted to
$1,427,800, or 39.5%, compared to $2,173,800, or 40.9%, for the comparable
six-month period a year earlier. The decrease in gross profit percentage
resulted from a change in product mix that the Company believes is temporary.
The decrease in gross profit dollars resulted from the reduction in sales
related to current economic conditions.

          Selling, general and administrative expenses for the current six-month
period decreased to $2,614,700, compared to $3,264,700 incurred in the
comparable six-month period of 2000. The decrease of $650,000, or 19.9%, was
attributable primarily to reduction in sales commissions, market development
costs and general overhead costs.

         A significant element of the Company's future growth plan will continue
to be strategic acquisitions. Company management believes that the present
technology slowdown has resulted in a unique opportunity for potential
acquisitions at attractive terms among the numerous private information
technologies companies in the under $25 million sales revenue range. The
Company's acquisition program focuses on two complementary objectives: (1) to
consolidate acquired company product lines and/or distribution channels with
current subsidiary company operations; and (2) to identify companies with
proprietary intellectual property complementary to that of existing
subsidiaries. The Company currently anticipates that the purchase price of any
additional acquisitions will be payable primarily in the form of shares of the
Company's Common Stock. While the Company has a number of acquisitions under
serious consideration,completion of acquisitions and successful post-acquisition
operation of the acquired business are subject to uncertainties and risks,
including among others those mentioned in the "safe harbor" statement at the
beginning of this Management's Discussion and Analysis.

2.   Liquidity and Capital Resources

         The Company's current assets at December 31, 2001 exceeded current
liabilities by $864,300, or a current ratio of 1.25 to 1, compared to a current
ratio of 1.38 to 1 at Fiscal Year End June 30, 2001. The decrease in current
ratio resulted primarily from the loss for the quarter.

         The Company's cash position at December 31, 2001 had increased to
$748,000, compared to the $81,000 at June 30, 2001, due to cash collected
immediately prior to December 31, 2001 related to an equity offering that is
discussed below. Collection of notes receivable during the period amounted to
$358,900, compared to $1,587,300 for the previous year. The significant decrease
was due to significant collections of notes receivable in the prior year related
to the sale of pollution control assets.

         Cash used in operating activities for the six-month period ended
December 31, 2001 was $81,700, a decrease of $1,379,200 when compared to cash
used in operating activities of $1,460,900 for the comparable period in the
prior year. The decrease in cash used in operating activities was due primarily
to decreases in receivables resulting from the collection during the period of
subscription receivables recorded at June 30, 2001, and increases in accounts
payable and accrued expenses.

         During the six-month period the Company purchased approximately
$122,200 of additional equipment and transferred excess interoperability lab
equipment, with a net book value of approximately $115,000, to inventory.
Repayment on borrowing during the quarter amounted to $1,075,300, while advances
from borrowing amounted to $1,215,000. The Company recorded goodwill of $160,000
during the current period related to the acquisition of the assets and
technology of Microtest Inc.'s FileZerver network attached storage (NAS)
business.

         The Company's bank line of credit agreement expired in December of 2001
and a new $1.25 million formula-based revolving bank line of credit agreement
(the "Agreement") was executed in January 2002. At December 31, 2001, the
Company had an outstanding balance of $1,175,600, which had been drawn under the
previous line of credit agreement and was transferred to the new line of credit.
The new line of credit formula is based upon accounts receivables and inventory
asset values and is used to finance acquisitions and working capital. The new
line of credit arrangement carries an interest rate of prime plus 2.0%;
contains loan covenants related to net worth and debt to equity; and
expires on June 30, 2002. While the Company believes that it will be able to
negotiate an extension of the Agreement prior to its June 30, 2002 expiration
date, there can be no assurance that an extension will be obtained on
satisfactory terms, or at all. If the Company is unable to obtain an extension,
the Company likely will need to raise additional funds through public or private
debt or equity financing. There can be no assurance that additional financing
will be available on terms acceptable to the Company, or at all. If adequate
funds are not available or are not available on acceptable terms, the Company's
business, operating results and financial condition could be materially
adversely affected. The Company believes the new bank Agreement, projected cash
flow from operations and existing cash resources will be sufficient to meet its
capital needs through fiscal year 2002.

         During the period December 2001 and continuing into January 2002, the
Company raised a total of $925,000 by issuing common shares to accredited
investors at a price of $.625 per share. At December 31, 2001 the Company had
raised $600,000 through the capital raising activity with the balance of
$325,000 raised in January 2002. The purchasers of the restricted common shares
were also issued stock warrants giving the holders the right to purchase 805,000
shares at a price of $1.00 per share.

PART II.  OTHER INFORMATION

Item 2.  CHANGES IN SECURITIES

           During the six-month period ended December 31, 2001, the company
issued 26,000 shares of common stock for consultant services rendered and 12,000
shares for settlement of accounts payable balances. In addition, the company
purchased 23,900 shares of common stock during the quarter at a price of
approximately $24,000. All shares purchased, as well as treasury shares held at
June 30, 2001, were cancelled prior to September 30, 2001. Also during the
period the company raised $578,300 net of $21,700 of expenses, through the
sale of common stock, to accredited investors, at a price of $.625 per share.

Item 6.  EXHIBITS 10.9

                      Exhibit A - Bank Loan Agreement dated January 24, 2002


SIGNATURE

         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 thereunder duly authorized.

                           ALANCO TECHNOLOGIES, INC.
                                  (Registrant)

                                               /s/ John A. Carlson
                                               --------------------
                                               John A. Carlson
                                               Chief Financial Officer


Date: February 14, 2001



Comerica         Amended and Restated Loan and Security Agreement
                            (Accounts and Inventory)

THIS AGREEMENT is entered into on January 24, 2002, between Comerica
Bank-California, a California banking corporation ("Bank") as secured party,
whose headquarters office is 333 West Santa Clara Street, San Jose, California,
95113 and Alanco Technologies, Inc. ("ATI"), an Arizona corporation ("Borrower
1"); Arraid, Inc., ("Al"), an Arizona corporation, ("Borrower 2");
Excel/Meridian Data, Inc. ("EMD"), an Arizona corporation ("Borrower 3");
Sanone, Inc. ("SOI"), an Arizona Corporation ("Borrower 4"); and Netzerver,
Inc., an Arizona corporation ("Borrower 5," and together with Borrower 1,
Borrower 2, Borrower 3, and Borrower 4, jointly and severally, individually and
collectively, "Borrower")

WHEREAS, Borrower 1, Borrower 2, Borrower 3, and Borrower 4, and Imperial Bank
previously entered into that certain Amended and Restated Credit Agreement,
dated December 27, 2000 (as amended, restated, modified, supplemented or revised
from time to time, the "Prior Agreement"); and

WHEREAS, Borrowers and Bank wish to amend and restate the terms and conditions
of the Prior Agreement in accordance with the terms and conditions of this
Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and conditions hereof,
the parties agree as follows:

1.DEFINITIONS.

1.1  'Accounts'  shall mean and includes all  presently  existing and  hereafter
     arising  accounts,  including without  limitation all accounts  receivable,
     contract   rights  and  other  forms  of  right  to  payment  for  monetary
     obligations  or  receivables  for  property  sold  or to be  sold,  leased,
     licensed, assigned or otherwise disposed of, or for services rendered or to
     be  rendered   (including  without  limitation  all   health-care-insurance
     receivables)  owing to Borrower,  and any  supporting  obligations,  credit
     insurance,  guaranties or security therefor,  irrespective ofwhether earned
     by performance.

1.2  'Agreement'  shall mean and includes  this  Amended and  Restated  Loan and
     Security Agreement  (Accounts and Inventory),  any concurrent or subsequent
     rider to this Amended and Restated  Loan and Security  Agreement  (Accounts
     and Inventory) and any extensions, supplements, amendments or modifications
     to this Loan and Security Agreement  (Accounts and Inventory) and/or to any
     such rider.

1.3  'Bank Expenses' shall mean and includes:  all costs or expenses required to
     be paid by  Borrower  under this  Agreement  which are paid or  advanced by
     Bank;  taxes and  insurance  premiums of every  nature and kind of Borrower
     paid by Bank;  filing,  recording,  publication and search fees,  appraiser
     fees, auditor fees and costs, and title insurance premiums paid or incurred
     by Bank in connection  with Bank's  transactions  with Borrower;  costs and
     expenses incurred by Bank in collecting the Accounts (with or without suit)
     to correct any default or enforce any  provision of this  Agreement,  or in
     gaining  possession  of,  maintaining,   handling,   preserving,   storing,
     shipping,  selling,  disposing of, preparing for sale and/or advertising to
     sell  the  Collateral,  whether  or not a sale is  consummated;  costs  and
     expenses of suit incurred by Bank in enforcing or defending  this Agreement
     or any portion hereof,  including, but not limited to, expenses incurred by
     Bank in  attempting  to obtain  relief  from any stay,  restraining  order,
     injunction or similar  process which  prohibits Bank from exercising any of
     its  rights  or  remedies;  and  reasonable  attorneys'  fees and  expenses
     incurred by Bank in advising,  structuring,  drafting, reviewing, amending,
     terminating,  enforcing,  defending or concerning  this  Agreement,  or any
     portion  hereof or any  agreement  related  hereto,  whether or not suit is
     brought.  Bank Expenses shall include Bank's  in-house legal charges in the
     amount of $1,000.00.

1.4  'Base Rate' shall mean that  variable rate of interest so announced by Bank
     at its headquarters office in San Jose,  California as its "Base Rate' from
     time to time and which  serves as the basis upon which  effective  rates of
     interest are calculated for those loans making reference thereto.

1.5  'Borrowers  Books'  shall mean and  includes  all of  Borrower's  books and
     records  including  but not  limited  to  minute  books;  ledgers;  records
     indicating, summarizing or evidencing Borrower's assets (including, without
     limitation,  the Accounts),  liabilities,  business operations or financial
     condition,  and  all  information  relating  thereto,   computer  programs,
     computer disk or tape files;  computer printouts;  computer runs; and other
     computer  prepared  information  and equipment of any kind.

1.6  'Borrowing Base' shall mean the sum of: (1) eighty percent (80%) of the net
     amount  of  Eligible  Accounts  after  deducting  therefrom  all  payments,
     adjustments and credits applicable thereto;  and (2) the amount, if any, of
     the advances against  Inventory agreed to be made pursuant to any Inventory
     Rider, or other rider,  amendment or  modification to this Agreement,  that
     may now or hereafter be entered into by Bank and Borrower.

1.7  'Cash Flow' shall mean, for any  applicable  period of  determination,  the
     NetIncome (after deduction for income taxes and other taxes of such Person,
     or its  subsidiaries,  determined by reference to income or profits of such
     Person, or its subsidiaries) for such period,  plus, to the extent deducted
     in  computation  of  such  Net  Income,  the  amount  of  depreciation  and
     amortization  expense and the amount of deferred tax liability  during such
     period, all as determined in accordance with GAAP.

1.8  'Cash Flow  Coverage  Ratio'  shall mean the  ratio,  as of any  applicable
     period  of  determination,  the  numerator  of  which  Is Net  Income  plus
     depreciation  plus  amortization plus (or minus) the increase (or decrease)
     in the deferred tax liability  minus  dividends and, to the extent that and
     so long as Borrower is an entity  that is not  directly  subject to Federal
     income taxation with respect to which any earnings are attributable ratably
     to  each  Person  with  an  ownership  interest  in  Borrower,   minus  any
     distributions  to each such Person in an amount  necessary to pay each such
     Person's income tax resulting from such ownership interest,  at the greater
     of actual  draws or net income  times the highest  prevailing  personal tax
     rate, and the denominator of which is the current portion of long term debt
     plus the current  portion of capital lease  payments for the same period of
     determination.

1.9  'Collateral'shall mean and  includes  all  personal  property of  Borrower,
     including without  limitation each and all of the following:  the Accounts;
     the  Inventory;   the  General  Intangibles;   the  Negotiable  Collateral;
     Borrower's Books; all Borrower's deposit accounts;all Borrower's investment
     property   (including   without   limitation   securities   and  securities
     entitlements); all goods, Instruments, documents, policies and certificates
     of insurance,  deposits,  money or other  personal  property of Borrower in
     which Bank  receives a security  interest  and which now or later come into
     the possession,  custody or control of Bank,  all Borrower's equipment and
     fixtures;  all additions,  accessions,  attachments,  parts,  replacements,
     substitutions,  renewals, interest,  dividends,  distributions or rights of
     any kind for or with  respect to any of the  foregoing  (including  without
     limitation any stock splits,  stock rights,  voting rights and preferential
     rights);  any  supporting  obligations  for any of the  foregoing;  and the
     products and proceeds of any of the  foregoing  including,  but not limited
     to,  proceeds  of  insurance  covering  the  Collateral,  and  any  and all
     Accounts, General Intangibles, Negotiable Collateral, Inventory, equipment,
     money, deposit accounts,  investment property, equipment, fixtures or other
     tangible and  intangible  property of Borrower  resulting  from the sale or
     other  disposition  of the  Collateral  and the  proceeds  thereof  and any
     supporting  obligations  or  security  therefor  and any  right to  payment
     thereunder, and including, without limitation, cash or other property which
     were proceeds and are  recovered by a bankruptcy  trustee or otherwise as a
     preferential transfer by Borrower. Notwithstanding anything to the contrary
     contained herein, Collateral shall not include any waste or other materials
     which have been or may be designated as toxic or hazardous by Bank,

1.10 'Credit'  shall mean all  Indebtedness,  except that  Indebtedness  arising
     pursuant  to any  other  separate  contract,  instrument,  note,  or  other
     separate  agreement which, by its terms,  provides for a specified interest
     rate and term
 .
1.11 'Credit  Limit' shall mean,  for Credit 1, Seven Hundred and Fifty Thousand
     Dollars  ($750,000.00);  for  Credit  2,  Three  Hundred  Thousand  Dollars
     ($300,000.00); and for Credit 3, Two Hundred Thousand Dollars ($200,000).

1.12 'Current  Assets'  shall  mean,  in  respect  of a  Person  and  as of  any
     applicable date of  determination;  all (a) unrestricted  cash,  marketable
     securities,   or  certificates  of  deposit;  (b)  non-affiliated  accounts
     receivable, (c) United States government securities; (d) claims against the
     United  States  government;  and  (e)  inventories  (held  for  sale in the
     ordinary course of business) of such Person.

1.13'Current  Liabilities'  shall  mean,  in  respect  of a Person and as of any
     applicable date of  determination,  (a) all liabilities of such Person that
     should be classified as current in accordance with GAAP, including, without
     limitation,  any portion of the  principal of the  Indebtedness  under this
     Agreement  classified  as  current,  plus (b) to the extent  not  otherwise
     included,  all liabilities of Borrower to any of its affiliates  (including
     officers,   directors,   shareholders,   subsidiaries   and  commonly  held
     companies) whether or not classified as current in accordance with GAAP.

1.14 "Daily  Balance"  shall mean the amount  determined by taking the amount of
     the Credit  owed at the  beginning  of a given  day,  adding any new Credit
     advanced  or  incurred  on such  date,  and  subtracting  any  payments  or
     collections  which  are  deemed  to be  paid  and  are  applied  by Bank in
     reduction of the Credit on that date under the provisions of this
     Agreement.

1.15 'Debt' shall mean, as of any applicable date of determination, all items of
     indebtedness,  obligation  or  liability  of a Person,  whether  matured or
     unmatured,  liquidated  or  unliquidated,  direct or indirect,  absolute or
     contingent,  joint or several,  that should be classified as liabilities in
     accordance  with  GAAP.  In the case of  Borrower,  the term  'Debt'  shall
     include, without limitation,  the Indebtedness.

1.16'Debt-to-worth  Ratio'  shall  mean,  in  respect  of a Person and as of any
     applicable date of  determination,  the ratio of (a) the total Debt of such
     Person at such time, to (b) the Tangible Effective Net Worth of such Person
     at such  time.

1.17'Eligible Accounts' shall mean and includes those Accounts of Borrower which
     are due and  payable  within  ninety (90) days,  or less,  from the date of
     invoice, have been validly assigned to Bank and strictly comply with all of
     Borrower's warranties and  representations  to Bank; but Eligible  Accounts
     shall not include the  following:  (a)  Accounts  with respect to which the
     account debtor is an officer, employee, partner, joint venturer or agent of
     Borrower;   (b)  Accounts  with  respect  to  which  goods  are  placed  on
     consignment,  guaranteed sale or other terms by reason of which the payment
     by the account  debtor may be  conditional;  (c)  Accounts  with respect to
     which the  account  debtor is not a resident  of the United  States  unless
     insured by an insurance company  acceptable to Banker covered by letters of
     credit issued or confirmed by a bank acceptable to Bank.  Bank, in its sole
     and  absolute  discretion,  may deem as  eligible  amounts  due from major,
     publicly  owned foreign  companies;  (d) Accounts with respect to which the
     account  debtor is a subsidiary  of,  related to,  affiliated or has common
     shareholders,  officers or directors  with  Borrower,  (e)  Accounts  with
     respect to which Borrower is or may become liable to the account debtor for
     goods sold or  services  rendered by the account  debtor to  Borrower;  (f)
     Accounts  not paid by an account  debtor  within  ninety (90) days from the
     date of the invoice;  (g) Accounts  with respect to which  account  debtors
     dispute  liability  or make any  claim,  or have any  defense,  crossclaim,
     counterclaim,  or offset; (h) Accounts with respect to which any Insolvency
     Proceeding  is filed by or against  the  account  debtor,  or if an account
     debtor becomes insolvent,  falls or goes out of business;  and (i) Accounts
     owed by any single  account debtor which exceed twenty percent (20%) of all
     of the Eligible Accounts; and (j) Accounts with a particular account debtor
     on which over  twenty-five  percent (25%) of the aggregate  amount owing is
     greater than ninety (90) days from the date of the Invoice.

1.18 "Event of  Default"  shall mean one or more of those  events  described  in
     Section 7 contained herein below.

1.19 'GAAP' shall mean,  as  of  any  applicable  period,   generally  accepted
     accounting   principles   in  affect   during  such  period.

1.20 'General Intangibles' shall mean and includes all of Borrower's present and
     future general  intangibles and other personal property  (including without
     limitation all payment  intangibles,  electronic  chattel  paper,  contract
     rights, rights arising under common law, statutes,  or regulations,  choses
     or  things  in  action,   goodwill,   patents,  trade  names,   trademarks,
     servicemarks,    copyrights,   blueprints,   drawings,   plans,   diagrams,
     schematics, purchase orders, customer lists, monies due or recoverable from
     pension  funds,   route  lists,   rights  to  payment   (including  without
     limitation,  rights to payment  evidenced  by chattel  paper,  documents or
     instruments)  and other rights  under any royalty or licensing  agreements,
     infringement  claims,  software  (including without limitation any computer
     program  that is  embedded  in goods that  consist  solely of the medium in
     which the program is embedded),  information contained on computer disks or
     tapes,  literature,  reports,  catalogs,  insurance  premium  rebates,  tax
     refunds,  and tax refund claims),  other than goods,  Accounts,  Inventory,
     Negotiable Collateral,  and Borrower's Books.

1.21 'Indebtedness' shall  mean  and  includes  any  and  all  loans,  advances,
     overdrafts, debts, liabilities (including,  without limitation, any and all
     amounts  charged to  Borrower's  loan  account  pursuant  to any  agreement
     authorizing  Bank to charge  Borrower's loan account),  obligations,  lease
     payments, guaranties, covenants and duties owing by Borrower to Bank of any
     kind and  description  whether  advanced  pursuant to or  evidenced by this
     Agreement;  by any note or other  Instrument;  or by any  other  agreement
     between  Bank and  Borrower  and  whether or not for the  payment of money,
     whether direct or indirect,  absolute or contingent,  due or to become due
     now existing or  hereafter  arising,  including,  without  limitation,  any
     interest, fees, expenses, costs and other amounts owed to Bank that but for
     the  provisions  of the United  States  Bankruptcy  Code would have accrued
     after the commencement of any Insolvency Proceeding, and including, without
     limitation,  any debt,  liability,  or  obligations  owing from Borrower to
     others which Bank may have obtained by assignment,  participation, purchase
     or otherwise, and further including,  without limitation,  all interest not
     paid when due, and all Bank Expenses  which  Borrower is required to pay or
     reimburse  by  this  Agreement,  by  law,  or  otherwise.

1.22 "Insolvency  Proceeding"  shall mean and  includes any  proceeding  or case
     commenced  by  or  against   Borrower,  or  any   guarantor  of  Borrower's
     Indebtedness, or any of Borrower's account debtors, under any provisions of
     the Bankruptcy Code, as amended, or any other bankruptcy or insolvency law,
     including,  but not limited to  assignments  for the benefit of  creditors,
     formal or informal moratoriums,  composition or extensions with some or all
     creditors,  any  proceeding  seeking a  reorganization,  arrangement or any
     other relief under the Bankruptcy Code, as amended, or any other bankruptcy
     or insolvency law.

1.23'Inventory'  shall mean and  includes  all present and future  inventory  in
     which Borrower has any interest,  including, but not limited to, goods held
     by  Borrower  for sale or  lease or to be  furnished  under a  contract  of
     service and all of  Borrower's  present and future raw  materials,  work in
     process,  finished goods (including without limitation any computer program
     embedded  in any of the  foregoing  goods  and any  supporting  information
     provided in connection  therewith that (i) is associated  with the goods in
     such a manner that the program  customarily is considered part of the goods
     or that (ii) by becoming the owner of the goods, a person  acquires a right
     to use the  program  in  connection  with  the  goods),  together  with any
     advertising materials and packing and shipping materials,  wherever located
     and  any  documents  of  title  representing  any of  the  above,  and  any
     equipment,  fixtures  or  other  property  used  in  the  storing,  moving,
     preserving,  identifying,  accounting for and shipping or preparing for the
     shipping of inventory,  and any and all other items  hereafter  acquired by
     Borrower  by way of  substitution,  replacement,  return,  repossession  or
     otherwise,  and all additions  and  accessions  thereto,  and the resulting
     product or mass, and any documents of title respecting any of the above.

1.24 "Maturity Date" shall mean June 30, 2002.

1.25 'Net Income' shall mean the net income (or loss) of a person for any period
     of  determination,  determined in accordance with GAAP but excluding in any
     event: a. any gains or losses on the sale or other disposition,  not in the
     ordinary course of business, of investments or fixed or capital assets, and
     any  taxes on the  excluded  gains and any tax  deductions  or  credits  on
     account  on any  excluded  losses;  and b.  in the  case of  Borrower,  net
     earnings of any Person in which Borrower has an ownership interest,  unless
     such net earnings shall have actually been received by Borrower in the form
     of cash distributions.

1.26 'Negotiable  Collateral'  shall mean and include all of Borrower's  present
     and future letters of credit, advises of credit,  letter-of-credit  rights,
     certificates of deposit, notes, drafts, money, documents (including without
     limitation  all  negotiable  documents),   instruments  (including  without
     limitation  all  promissory  notes),  tangible  chattel  paper or any other
     similar property.

1.27 'New Capital'  shall mean any funds  generated  from the sale of Borrower's
     common or preferred stock  subsequent to December 28, 2001 and added to the
     Borrower's  consolidated  balance  sheet,  as  equity,  on  a  GAAP  basis.

1.28 'Judicial  Officer  or  Assignee'  shall  mean and  includes  any  trustee,
     receiver,  controller,  custodian, assignee for the benefit of creditors or
     any other person or entity  having  powers or duties like or similar to the
     powers and duties of trustee, receiver,  controller,  custodian or assignee
     for the benefit of creditors.

1.29 'Person' or 'person' shall mean and includes any  individual,  corporation,
     partnership,  joint  venture,  firm,  association,   trust,  unincorporated
     association,  joint  stock  company,  government,  municipality,  political
     subdivision or agency or other entity.


1.30 'Quick  Assets' shall mean,  as of any  applicable  date of  determination,
     unrestricted cash, certificates of deposit or marketable securities and net
     accounts receivable arising from the sale of goods and services, and United
     States  government  securities  and/or  claims  against  the United  States
     government of Borrower and its subsidiaries.

1.31 'Subordinated  Debt' shall mean  indebtedness  of Borrower to third parties
     which has been subordinated to the Indebtedness pursuant to a subordination
     agreement in form and content satisfactory to Bank.

1.32 'Subordination  Agreement' shall  mean a  subordination  agreement  in form
     satisfactory to Bank.

1.33 'Tangible  Effective Net Worth' shall mean,  with respect to any Person and
     as of any  applicable  date  of  determination,  Tangible  Net  Worth  plus
     Subordinated Debt.

1.34 'Tangible Net Worth' shall mean, with respect to any Person and as of any
     applicable date of determination, the excess of:

a.   the net book value of all assets of such Person (excluding affiliate
receivables, patents, patent rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, and all other Intangible assets of such Person)
after all appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization), over

b.   all Debt of such Person at such time.

1.35 'Working Capital' shall mean, as of any applicable date of determination,
     Current Assets less Current Liabilities.

Any and all terms used in the foregoing definitions and elsewhere in this
Agreement shall be construed and defined in accordance with the meaning and
definition of such terms under and pursuant to the California Uniform
Commercial Code (hereinafter referred to as the 'Uniform Commercial Code') as
amended, revised or replaced from time to time. Notwithstanding the foregoing,
the parties intend that the terms used herein which are defined in the Uniform
Commercial Code have at all times the broadest and most inclusive meanings
possible. Accordingly, if the Uniform Commercial Code shall in the future be
amended or held by a court to define any term used herein more broadly or
inclusively than the Uniform Commercial Code in effect on the date of this
Agreement, then such term, as used herein, shall be given such broadened
meaning. If the Uniform Commercial Code shall in the future be amended
or held by a court to define any term used herein more narrowly, or less
inclusively, than the Uniform Commercial Code in effect on the date of this
Agreement, such amendment or holding shall be disregarded in defining terms used
in this Agreement.

2.       LOAN AND TERMS OF PAYMENT.
         --------------------------

For value received, Borrower promises to pay to the order of Bank such amount,
as provided for below, together with interest, as provided for below.

2.1  Upon the request of Borrower, made at any time and from time to time during
     the term  hereof,  and so long as no Event of Default  has  occurred,  Bank
     shall  lend to  Borrower 1 ("Credit  1") an amount  equal to the  Borrowing
     Base; provided, however, that the Daily Balance shall not exceed the lesser
     of either the Credit Limit or the  Borrowing  Base.  If at any time for any
     reason,  the amount of  Indebtedness  owed by Borrower to Bank  pursuant to
     this Section 2.1 of this  Agreement is greater  than the  aggregate  amount
     available to be drawn under this Section 2.1,  Borrower  shall  immediately
     pay to Bank,  in cash,  the  amount of such  excess.

2.2  Upon the request of Borrower, made at any time and from time to time during
     the term  hereof,  and so long as no Event of Default  has  occurred,  Bank
     shall lend to Borrower 2, Borrower 3, and Borrower 5 ('Credit 2') an amount
     equal to the  Borrowing  Base;  provided,  however,  that the Daily Balance
     shall not exceed the  lesser of either  the Credit  Limit or the  Borrowing
     Base.  If at any time for any reason,  the amount of  Indebtedness  owed by
     Borrower to Bank pursuant to this Section 2.2 of this  Agreement is greater
     than the  aggregate  amount  available  to be drawn under this Section 2.2,
     Borrower shall immediately pay to Bank, in cash, the amount of such excess.

2.3  Upon the request of Borrower, made at any time and from time to time during
     the term  hereof,  and so long as no Event of Default  has  occurred,  Bank
     shall  lend to  Borrower 4 ("Credit  3") an amount  equal to the  Borrowing
     Base; provided, however, that the Daily Balance shall not exceed the lesser
     of either the Credit Limit or the  Borrowing  Base.  If at any time for any
     reason,  the amount of  Indebtedness  owed by Borrower to Bank  pursuant to
     this Section 2.3 of this  Agreement is greater  than the  aggregate  amount
     available to be drawn under this Section 2.3,  Borrower  shall  immediately
     pay to Bank, in cash, the amount of such excess.

2.4  Except as hereinbelow  provided,  the Credits shall bear  interest,  on the
     Daily Balance  owing,  at a fluctuating  rate of interest equal to the Base
     Rate plus two (2%)  percentage  points per annum.

     All interest chargeable under this Agreement that is based upon a per annum
calculation  shall be computed on the basis of a three  hundred  sixty (360) day
year for actual days elapsed.  The Base Rate as of the date of this Agreement is
Four and Three  Quarters  (4.75%)  per  annum.  In the event  that the Base Rate
announced is, from time to time hereafter,  changed, adjustment in the Base Rate
shall be made and based on the Base  Rate in effect on the date of such  change.
The Base Rate,  as  adjusted,  shall apply to the Credit  until the Base Rate is
adjusted again.

     All interest  payable by Borrower under the Credit shall be due and
payable on the first day of each calendar month during the term of this
Agreement. A late payment charge equal to five percent (5%) of each late payment
may be charged on any payment not received by Bank within ten (10) calendar days
after the payment due date, but acceptance of payment of this charge shall not
waive any Event of Default under this Agreement. Upon the occurrence of an Event
of Default hereunder, and without constituting a waiver of any such Event of
Default, then during the continuation thereof, at Bank's option, the Credit
shall bear interest, on the Daily Balance owing, at a rate equal to three
percent (3%) per year in excess of the rate applicable immediately prior to the
occurrence of the Event of Default, and such rate of interest shall fluctuate
thereafter from time to time at the same time and in the same amount as any
fluctuation in the rate of interest applicable immediately prior to any such
occurrence.


     2.5 In  addition  to any  other  amounts  due or to become  due under  this
Agreement  concurrent with the execution hereof,  Borrower shall pay to Bank the
following fees:

3.TERM.
  ----

3.1  This  Agreement  shall  remain in full force and effect until June 30, 2002
     (the 'Maturity Date'), or until terminated by notice by Borrower. Notice of
     such  termination  by  Borrower  shall  be  effectuated  by  mailing  of  a
     registered or certified  letter not less than thirty (30) days prior to the
     effective  date of such  termination,  addressed to Bank at the address set
     forth herein and the termination shall be effective as of the date so fixed
     in such notice.

     a. In connection with the termination of this Agreement at any time
prior to the Maturity Date, upon the effective date of termination of this
Agreement for any reason, Borrower shall pay to Bank (in addition to the then
outstanding principal, accrued interest and other charges owing under the terms
of this Agreement and any of the other Loan Documents) as liquidated damages for
the loss of the bargain and not as a penalty, an amount equal to (a) five
percent (5%) of the Credit Limit. If such repayment or termination occurs (1) at
any time on or after the first anniversary of this Agreement as a result of
Bank's decision not to consent to an increase to the Credit Limit to permit
Borrower to utilize any availability under the Borrowing Base in excess of the
Credit Limit, or (ii) on the Maturity Date, no prepayment charge shall be
payable.

     b. Notwithstanding the foregoing, should Borrower be in default of
one or more of the provisions of this Agreement, Bank may terminate this
Agreement at any time without notice. Notwithstanding the foregoing, should
either Bank or Borrower become insolvent or unable to meet its debts as they
mature, or fall, suspend, or go out of business, the other party shall have the
right to terminate this Agreement at any time without notice. On the date of
termination all Indebtedness shall become immediately due and payable without
notice or demand; no notice of termination by Borrower shall be effective until
Borrower shall have paid all Indebtedness to Bank in full. Notwithstanding
termination, until all Indebtedness has been fully satisfied, Bank shall retain
its security interest in all existing Collateral and Collateral arising
thereafter, and Borrower shall continue to perform all of its obligations.

3.2  After  termination and when Bank has received payment in full of Borrower's
     Indebtedness  to Bank,  Bank shall reassign to Borrower all Collateral held
     by Bank,  and shall execute a termination  of all security  agreements  and
     security  interests  given  by  Borrower  to  Bank.

4.0  CREATION  OF  SECURITY INTEREST.
     -------------------------------

4.1  Borrower  hereby  grants  to Bank a  continuing  security  interest  in all
     presently  existing and  hereafter  arising  Collateral  in order to secure
     prompt repayment of any and all  Indebtedness  owed by Borrower to Bank and
     in order to secure  prompt  performance  by Borrower of each and all of its
     covenants and  obligations  under this  Agreement  and  otherwise  created.
     Bank's security  interest in the Collateral  shall attach to all Collateral
     without further act on the part of Bank or Borrower.  In the event that any
     Collateral,  including proceeds,  is evidenced by or consists of Negotiable
     Collateral,  Borrower,  immediately  upon the  request  of Bank,  shall (a)
     endorse or assign such  Negotiable  Collateral to Bank,  (b) deliver actual
     physical  possession of such  Negotiable  Collateral to Bank,  and (c) mark
     conspicuously all of its records  pertaining to such Negotiable  Collateral
     with a legend, in form and substance  satisfactory to Bank (and in the case
     of Negotiable Collateral consisting of tangible chattel paper,  immediately
     mark all such tangible chattel paper with a conspicuous  legend in form and
     substance satisfactory to Bank),  indicating that the Negotiable Collateral
     is subject to the security interest granted to Bank hereunder.

4.2  Bank's  security  interest in the  Accounts  shall  attach to all  Accounts
     without  further act on the part of Bank or  Borrower.  Upon  request  from
     Bank,  Borrower shall provide Bank with  schedules  describing all Accounts
     created or  acquired  by  Borrower  (including  without  limitation  agings
     listing the names and  addresses  of, and amounts  owing by date by account
     debtors), and shall execute and deliver written assignments of all Accounts
     to Bank all in a form  acceptable to Bank;  provided,  however,  Borrower's
     failure to execute and deliver such schedules and/or  assignments shall not
     affect or limit  Bank's  security  interest  and other rights in and to the
     Accounts.  Together with each  schedule,  Borrower  shall furnish Bank with
     copies of Borrower's  customers'  invoices or the equivalent,  and original
     shipping  or delivery  receipts  for all  merchandise  sold,  and  Borrower
     warrants  the  genuineness  thereof.  Upon  the  occurrence  of an Event of
     Default, Bank or Bank's designee may notify customers or account debtors of
     Bank's  security  interest in the  Collateral  and direct such customers or
     account  debtors to make  payments  directly to Bank,  but unless and until
     Bank does so or gives Borrower other written  instructions,  Borrower shall
     collect all  Accounts for Bank,  receive in trust all  payments  thereon as
     Bank's  trustee,  and, if so requested to do so from Bank,  Borrower  shall
     immediately  deliver  said  payments  to Bank  in  their  original  form as
     received  from the  account  debtor and all  letters of credit,  advices of
     credit,  instruments,  documents,  chattel  paper or any  similar  property
     evidencing  or  constituting  Collateral.  Notwithstanding  anything to the
     contrary  contained  herein,  if sales  of  Inventory  are  made for  cash,
     Borrower  shall  immediately  deliver to Bank, in identical  form, all such
     cash,  checks,  or other  forms of payment  which  Borrower  receives.  The
     receipt  of any  check  or  other  item of  payment  by Bank  shall  not be
     considered  a payment on account  until such check or other item of payment
     is honored when presented for payment,  in which event, said check or other
     item of payment  shall be deemed to have been paid to Bank two (2) calendar
     days  after the date Bank  actually  receives  such  check or other item of
     payment.

4.3  Bank's security interest in Inventory shall attach to all Inventory without
     further act on the part of Bank or  Borrower.  Borrower  will at  Borrowers
     expense  pledge,  assemble and deliver such Inventory to Bank or to a third
     party as Bank's  bailee;  or hold the same in trust for  Bank's  account or
     store the same in a warehouse in Bank's name; or deliver to Bank  documents
     of title  representing  said  Inventory;  or  evidence  of Bank's  security
     interest  in some  other  manner  acceptable  to Bank.  Until a default  by
     Borrower under this Agreement or any other Agreement  between  Borrower and
     Bank,  Borrower  may,  subject  to the  provisions  hereof  and  consistent
     herewith, sell the Inventory, but only in the ordinary course of Borrower's
     business. A sale of Inventory in Borrower's ordinary course of business
     does not include an exchange or a transfer in partial or total
     satisfaction of a debt owing by Borrower.

4.4  Concurrently with Borrower's  execution of this Agreement,  and at any time
     or times  hereafter at the request of Bank,  Borrower shall (a) execute and
     deliver to Bank security agreements, mortgages,  assignments,  certificates
     of title, affidavits,  reports, notices,  schedules of accounts, letters of
     authority and all other documents that Bank may reasonably request, in form
     satisfactory  to Bank, to perfect and maintain  perfected  Bank's  security
     interest  in the  Collateral  and in order to fully  consummate  all of the
     transactions  contemplated under this Agreement, (b) cooperate with Bank in
     obtaining a control  agreement in form and substance  satisfactory  to Bank
     with respect to all deposit accounts,  electronic chattel paper, investment
     property,  and  letter-of-credit  rights,  and (c) in the  event  that  any
     Collateral is in the possession of a third party,  Borrower shall join with
     Bank in  notifying  such  third  party  of  Bank's  security  interest  and
     obtaining an  acknowledgment  from such third party that it is holding such
     Collateral for the benefit of Bank. By  authenticating or becoming bound by
     this  Agreement,  Borrower  authorizes  the  filing  of  initial  financing
     statement(s),  and any amendment(s)  covering the Collateral to perfect and
     maintain  perfected  Bank's security  interest in the Collateral.  Upon the
     occurrence  of an Event of  Default,  Borrower  hereby  irrevocably  makes,
     constitutes  and appoints  Bank (and any of Bank's  officers,  employees or
     agents  designated by Bank) as Borrower's true and lawful  attorney-in-fact
     with  power  to  sign  the  name of  Borrower  on any  security  agreement,
     mortgage, assignment, certificate of title, affidavit, letter of authority,
     notice of other similar  documents  which must be executed  and/or filed in
     order to perfect or  continue  perfected  Bank's  security  interest in the
     Collateral,  and to take such actions in its own name or in Borrower's name
     as  Bank,  in its  sole  discretion,  deems  necessary  or  appropriate  to
     establish  exclusive  possession  or control  (as  defined  in the  Uniform
     Commercial  Code) over any  Collateral  of such nature that  perfection  of
     Bank's security interest may be accomplished by possession or control.

4.5  Borrower  shall make  appropriate  entries in Borrower's  Books  disclosing
     Bank's  security  interest  in  the  Accounts.  Bank  (through  any  of its
     officers,  employees  or agents)  shall have the right at any time or times
     hereafter,  provided that reasonable notice is provided,  during Borrower's
     usual business hours, or during the usual business hours of any third party
     having  control  over the  records  of  Borrower,  to  inspect  and  verify
     Borrower's  Books in order to verify  the  amount or  condition  of, or any
     other  matter,  relating  to,  said  Collateral  and  Borrower's  financial
     condition.

4.6  Effective  only  upon  the  occurrence  of an  Event of  Default,
     Borrower  appoints  Bank or any other  person  whom Bank may  designate  as
     Borrowers  attorney-in-fact,  with power: to endorse  Borrowers name on any
     checks, notes,  acceptances,  money order, drafts or other forms of payment
     or security that may come into Bank's possession; to sign Borrowers name on
     any invoice or bill of lading  relating to any Accounts,  on drafts against
     account debtors, on schedules and assignments of Accounts, on verifications
     of  Accounts  and on notices to account  debtors;  to  establish a lock box
     arrangement  and/or to notify  the post  office  authorities  to change the
     address for delivery of Borrower's mail addressed to Borrower to an address
     designated by Bank, to receive and open all mail addressed to Borrower, and
     to retain all mail relating to the Collateral and forward all other mail to
     Borrower;  to send,  whether  in  writing  or by  telephone,  requests  for
     verification of Accounts;  and to do all things necessary to carry out this
     Agreement. Borrower ratifies and approves all acts of the attorney-in-fact.
     Neither  Bank  nor its  attorney-in-fact  will be  liable  for any  acts or
     omissions  or for any error of  judgement  or mistake of fact or law.  This
     power  being  coupled  with  an  interest,  is  irrevocable  so long as any
     Accounts in which Bank has a security  interest remain unpaid and until the
     Indebtedness has been fully satisfied.

4.7  In order to protect or perfect any security interest which Bank is granted
     hereinunder, Bank may, in its sole discretion, discharge any lien or
     encumbrance or bond the same, pay any insurance, maintain guards,
     warehousemen, or any personnel to protect the Collateral, pay any service
     bureau, or obtain any records, and all costs for the same shall be added to
     the indebtedness and shall be payable on demand.

4.8  Borrower agrees that Bank may provide information relating to this
     agreement or relating to Borrower to Bank's parent, affiliates,
     subsidiaries, and service providers.

5.   CONDITIONS PRECEDENT.
     --------------------
5.1  Conditions  precedent  to the making of the loans and the  extension of the
     financial accommodations hereunder,  Borrower shall execute, or cause to be
     executed,  and deliver to Bank, in form and substance  satisfactory to Bank
     and its counsel, the following:

     a.  This Agreement and other documents, instruments and agreements
required by Bank;

     b.  Certified  copies of all actions  taken by  Borrower,  any grantor of a
security interest to Bank to secure the  Indebtedness,  and any guarantor of the
Indebtedness,  authorizing  the  execution,  delivery  and  performance  of this
Agreement and any other  documents,  instruments  or agreements  entered into in
connection  herewith,  and authorizing  specific officers to execute and deliver
any such documents,  instruments and agreements;

     c.  Certificate of good standing  showing that Borrower is in good standing
under the laws of the state of its  incorporation  or formation and certificates
indicating  that  Borrower  is  qualified  to transact  business  and is in good
standing in any other state in which it conducts business;

     d.  UCC  searches  and  financing  statements,  notices  or  other  similar
documents which Bank may require and in such form as Bank may require,  in order
to reflect,  perfect or protect Bank's first priority  security  interest in the
Collateral and in order to fully consummate all of the transactions contemplated
under this  Agreement;

     e.  Evidence  that  Borrower has obtained  insurance and acceptable
endorsements;

6.   WARRANTIES. REPRESENTATIONS AND COVENANTS.
     ------------------------------------------

6.1  If so requested by Bank,  Borrower shall,  at such intervals  designated by
     Bank,  during the term  hereof  execute  and  deliver a Report of  Accounts
     Receivable  or  similar  report,  in form  customarily  used by  Bank.  The
     aggregate   amount  of  the   Borrowing   Base  at  all  times  during  the
     effectiveness  of this  Agreement  shall not be less than the advances made
     hereunder.  Bank shall have the right to recompute  the  Borrowing  Base in
     conformity with this Agreement.

6.2  If any warranty is breached as to any  Account,  or any Account is not paid
     in full by an  account  debtor  within  ninety  (90)  days from the date of
     invoice,  or an account debtor  disputes  liability or makes any claim with
     respect  thereto,  or a petition in  bankruptcy  or other  application  for
     relief under the Bankruptcy Code or any other insolvency law is filed by or
     against an account debtor, or an account debtor makes an assignment for the
     benefit of  creditors,  becomes  insolvent,  fails or goes out of business,
     then Bank may deem  ineligible  any and all Accounts  owing by that account
     debtor,  and reduce the Borrowing  Base by the amount  thereof.  Bank shall
     retain  its  security  interest  in  all  Accounts,   whether  eligible  or
     ineligible,  until all  Indebtedness  has been  fully  paid and  satisfied.
     Returns and allowances, if any, as between Borrower and its customers, will
     be on the same basis and in accordance with the usual  customary  practices
     of Borrower,  as they exist at this time. Any merchandise which is returned
     by an account debtor or otherwise recovered shall be set aside, marked with
     Bank's name, and Bank shall retain a security  interest  therein.  Borrower
     shall promptly  notify Bank of all disputes and claims and settle or adjust
     them on terms  approved by Bank.  After default by Borrower  hereunder,  no
     discount,  credit or  allowance  shall be granted to any account  debtor by
     Borrower and no return of merchandise shall be accepted by Borrower without
     Bank's  consent.  Bank may,  after  default by  Borrower,  settle or adjust
     disputes  and claims  directly  with  account  debtors for amounts and upon
     terms which Bank  considers  advisable,  and in such cases Bank will credit
     Borrower's  loan  account  with only the net  amounts  received  by Bank in
     payment of the  Accounts,  after  deducting all Bank Expenses in connection
     therewith.

6.3  Borrower warrants, represents, covenants and agrees that:

     a. Borrower has good and marketable  title to the Collateral.  Bank has and
shall continue to have a first priority  perfected  security  interest in and to
the Collateral.  The Collateral  shall at all times remain free and clear of all
liens,  encumbrances and security  Interests (except those in favor of Bank);

     b. All Accounts are and will, at all times pertinent  hereto,  be bona fide
existing  obligations  created by the sale and  delivery of  merchandise  or the
rendition  of services to account  debtors in the  ordinary  course of business,
free of liens,  claims,  encumbrances and security  interests (except as held by
Bank  and  except  as  may be  consented  to,  in  writing,  by  Bank)  and  are
unconditionally   owed  to  Borrower   without   defenses,   disputes,   offsets
counterclaims,  rights  of return  or  cancellation,  and  Borrower  shall  have
received no notice of actual or imminent bankruptcy or insolvency of any account
debtor at the time an Account due from such account  debtor is assigned to Bank;
and

     c. At the time each Account is assigned to Bank,  all property  giving rise
to such Account shall have been  delivered to the account debtor or to the agent
for the account debtor for immediate  shipment to, and unconditional  acceptance
by, the account debtor. Borrower shall deliver to Bank, as Bank may from time to
time  require,   delivery   receipts,   customers   purchase  orders,   shipping
instructions,  bills of lading and any other evidence of shipping  arrangements.
Absent such a request by Bank, copies of all such documentation shall be held by
Borrower as custodian for Bank.

6.4  At the time each  eligible  Account is assigned to Bank,  all such Eligible
     Accounts  will be due and payable on terms set forth in Section 1.17, or on
     such other terms  approved in writing by Bank in advance of the creation of
     such  Accounts  and  which  are  expressly  set  forth  on the  face of all
     invoices,  copies of which shall be held by Borrower as custodian for Bank,
     and no such Eligible Account will then be past due.

6.5  Borrower  shall keep the Inventory only at the following  locations:  15900
     North 78 Street, Suite 101, Scottsdale, AZ 85260.

     a. Borrower,  immediately upon demand by Bank therefor,  shall now and from
time to time hereafter,  at such intervals as are reasonably  requested by Bank,
deliver  to  Bank,  designations  of  Inventory  specifying  Borrower's  cost of
Inventory,  the  wholesale  market  value  thereof  and such other  matters  and
information  relating  to the  Inventory  as Bank  may  request;

     b. All of the Inventory is and shall remain free from all purchase money or
other security interests, liens or encumbrances, except as held by Bank;

     c. Borrower does now keep and hereafter at all times shall keep correct and
accurate records  itemizing and describing the kind, type,  quality and quantity
of the  Inventory,  its cost therefor and selling price  thereof,  and the daily
withdrawals  therefrom  and  additions  thereto,  all of which  records shall be
available  upon  demand to any of Bank's  officers,  agents  and  employees  for
inspection and copying;

     d. All  Inventory,  now and  hereafter  at all times,  shall be of good and
merchantable  quality free from material  defects;

     e. Inventory  is not now and shall not at any time or times  hereafter  be
located or stored  with a bailee,  warehouseman  or other  third  party  without
Bank's prior written  consent,  and, in such event,  Borrower will  concurrently
therewith cause any such bailee,  warehouseman or other third party to issue and
deliver to Bank,  warehouse  receipts in Bank's name  evidencing  the storage of
Inventory and/or an  acknowledgment by such bailee of Bank's prior rights in the
Inventory, in each case in form and substance ,acceptable to Bank. In any event,
Borrower  shall  instruct any third party to hold all such  Inventory for Bank's
account subject to Bank's security interests and its instructions; and

     f. Bank shall have the right upon demand now and/or at all times hereafter,
during Borrower's usual business hours,  after reasonable notice, to inspect and
examine the  Inventory  and to check and test the same as to quality,  quantity,
value and condition and Borrower agrees to reimburse Bank for Bank's  reasonable
costs and expenses in so doing.

     g.  Borrower shall raise New Capital in the amount of $500,000.

6.6  Borrower  represents,  warrants and covenants  with Bank that Borrower will
     not, without Bank's prior written consent:

     a. Grant a security interest in or permit a lien, claim or encumbrance upon
any of the Collateral to any person, association,  firm, corporation,  entity or
governmental  agency or  instrumentality;

     b. Permit any levy, attachment or restraint to be made affecting any of
Borrower's assets;

     c.  Permit any  Judicial  Officer or Assignee  to be  appointed  or to take
possession of any or all of Borrower's  assets;

     d. Other than  sales of  Inventory  in the  ordinary  course of  Borrower's
business, to sell, lease, or otherwise dispose of, move, or transfer, whether by
sale or otherwise, any of Borrower's assets;

     e.  Change its name,  the  location  of its sole place of  business,  chief
executive  office  or  residence,  business  structure,  corporate  identity  or
structure,  form of  organization  or the  state in which it has been  formed or
organized; add any new fictitious names, liquidate, merge or consolidate with or
into any other business organization;

     f. Move or relocate any Collateral except in the ordinary course of
business;

     g. Acquire any other business organization;

     h.  Make any  change in  Borrower's  financial  structure  or in any of its
business  objectives,  purposes or operations which would  materially  adversely
affect the ability of Borrower to repay Borrower's Indebtedness;

     i. Incur any debts  outside  the  ordinary  course of  Borrower's  business
except renewals or extensions of existing debts and interest thereon;

     j.  Make loans, advances or extensions of credit to any Person, except in
the ordinary course of business;

     k. Guarantee or otherwise, directly or indirectly, in any way be
or become responsible for obligations of any other Person, whether by agreement
to purchase the indebtedness of any other Person, agreement for the furnishing
of funds to any other Person through the furnishing of goods, supplies or
services, by way of stock purchase, capital contribution, advance or loan, for
the purpose of paying or discharging (or causing the payment or discharge of the
indebtedness of any other Person, or otherwise, except for the endorsement of
negotiable instruments by Borrower in the ordinary course of business for
deposit or collection;

     1. Make any payment on account of any Subordinated Debt except
for regularly scheduled payments of interest and principal in accordance with
the provisions of any Subordination Agreement executed by Bank and the
subordinated debt holder, or amend any provision contained in any documentation
relating to any such Subordinated Debt without Bank's prior written consent;

     m. (a) Sell, lease, transfer or otherwise dispose of properties
and assets having an aggregate book value of more than Fifty Thousand Dollars
($50,000.00) (whether in one transaction or in a series of transactions) except
as to the sale of Inventory in the ordinary course of business; (b) change its
name, consolidate with or merge into any other corporation, permit another
corporation to merge into it, acquire all or substantially all the properties or
assets of any other Person, enter into any reorganization or recapitalization or
reclassify its capital stock, or (c) enter into any sale-leaseback transaction;

     n. Except for existing holdings as of the effective date of this
Agreement, purchase or hold beneficially any stock or other securities of, or
make any investment or acquire any securities or other interest whatsoever in,
any other Person, except for the common stock of the Subsidiaries owned by
Borrower on the date of this Agreement and except for certificates of deposit
with maturities of one year or less of United States commercial banks with
capital, surplus and undivided profits in excess of One Hundred Million Dollars
($100,000,000) and the securities or other direct obligations of the United
States Government maturing within one year from the date of acquisition thereof;
and
     o. Allow any fact, condition or event to occur or exist with
respect to any employee pension or profit sharing plans established or
maintained by it which might constitute grounds for termination of any such plan
or for the court appointment of a trustee to administer any such plan.

6.7  Borrower is not a merchant  whose  sales for resale of goods for  personal,
     family or household purposes exceeded  seventy-five percent (75%) in dollar
     volume of its total  sales of all  goods  during  the  twelve  (12)  months
     preceding  the  filing  by Bank of a  financing  statement  describing  the
     Collateral.  At no time hereafter shall  Borrower's  sales for resale goods
     for personal,  family or household  purposes  exceed  seventy-five  percent
     (75%) in dollar volume of its total sales.

6.8  Borrower represents, warrants, covenants and agrees that:

     a.  Borrower's  true  and  correct  legal  name is that  set  forth  on the
signature page to this  Agreement.  Except as disclosed in writing to Bank on or
before the date of this Agreement, Borrower has not done business under any name
other than that set forth on the signature page to this Agreement;

     b. If Borrower is an individual,  the location (as  determined  pursuant to
the Uniform Commercial Code) of Borrower's principal residence is that set forth
following Borrower's name on the signature page to this Agreement;

     c. If Borrower is a registered  organization  that is  organized  under the
laws of any one of the states  comprising  the United States (e.g.  corporation,
limited  partnership,   registered  limited  liability  partnership  or  limited
liability  company),  and is located  (as  determined  pursuant  to the  Uniform
Commercial  Code)  in the  state  under  the  laws of  which  it was  organized,
Borrower's form of organization and the state in which it has been organized are
those set forth immediately  following  Borrower's name on the signature page to
this Agreement;

     d. If Borrower is a registered organization organized under the laws of the
United  States,  and  Borrower  is located in the state that  United  States law
designates  as its  location  or, if United  States law  authorizes  Borrower to
designate the state for its location,  the state  designated by Borrower,  or if
neither of the  foregoing are  applicable,  at the District of Columbia (in each
case as determined in accordance with the Uniform  Commercial Code),  Borrower's
form of organization  and the state or district in which it is located are those
set forth  immediately  following  Borrower's name on the signature page to this
Agreement;

     e.  If  Borrower  is a  domestic  organization  that  is  not a  registered
organization  under the laws of the  United  States or any state  thereof  (e.g.
general partnership,  joint venture, trust, estate or association), and Borrower
is located (as determined  pursuant to the Uniform  Commercial Code) at its sole
place of business  or, if it has more than one place of  business,  at its chief
executive  office,  Borrower's  form of  organization  and the  address  of that
location are those set forth on the signature page to this Agreement; and

     f. If Borrower is a foreign individual or foreign  organization or a branch
or agency of a bank that is not organized under the laws of the United States or
a state  thereof,  Borrower  is located (as  determined  pursuant to the Uniform
Commercial  Code) at the  address  set forth  following  Borrower's  name on the
signature page to this Agreement.

6.9  If Borrower is a corporation, Borrower represents, warrants and covenants
     as follows:

     a.  Borrower  will not make any  distribution  or  declare  or pay any cash
dividend  to any  shareholder  or on any of its  capital  stock,  of any  class,
whether now or hereafter  outstanding,  or  purchase,  acquire,  repurchase,  or
redeem or retire any such capital stock;

     b.  Borrower  is and shall at all times  hereafter  be a  corporation  duly
organized  and  existing  in good  standing  under  the laws of the state of its
incorporation  and  qualified  and licensed to do business in  California or any
other state in which it conducts its business;

     c.  Borrower has the right and power and is duly  authorized  to enter into
this Agreement; and

     d. The  execution  by Borrower of this  Agreement  shall not  constitute  a
breach of any provision  contained in Borrower's  articles of  incorporation  or
by-laws.

6.10 The  execution  of and  performance  by  Borrower  of all of the  terms and
     provisions  contained in this Agreement  shall not result in a breach of or
     constitute an event of default under any agreement to which Borrower is now
     or hereafter becomes a party.

6.11 Borrower  shall  promptly  notify  Bank in  writing of its  acquisition  by
     purchase,  lease or  otherwise of any after  acquired  property of the type
     included in the Collateral, with the exception of purchases of Inventory in
     the ordinary course of business.

6.12 All  assessments  and taxes,  whether real,  personal or otherwise,  due or
     payable by, or imposed, levied or assessed against,  Borrower or any of its
     property  have been  paid,  and  shall  hereafter  be paid in full,  before
     delinquency.  Borrower  shall make due and timely payment or deposit of all
     federal, state and local taxes,  assessments or contributions;  required of
     it by law,  and will  execute and deliver to Bank,  on demand,  appropriate
     certificates  attesting to the payment or deposit  thereof.  Borrower  will
     make timely  payment or deposit of all F.I.C.A.  payments  and  withholding
     taxes required of it by applicable laws, and will upon request furnish Bank
     with proof  satisfactory  to it that  Borrower  has made such  payments  or
     deposit. If Borrower fails to pay any such assessment,  tax,  contribution,
     or make such deposit,  or furnish the required proof, Bank may, in its sole
     and absolute discretion and without notice to Borrower, (i) make payment of
     the same or any part  thereof,  or (ii) set up such  reserves in  Borrowers
     loan account as Bank deems necessary to satisfy the liability therefor,  or
     both.  Bank may  conclusively  rely on the usual  statements  of the amount
     owing or other official  statements issued by the appropriate  governmental
     agency.  Each amount so paid or deposited  by Bank shall  constitute a Bank
     Expense and an additional advance to Borrower.

6.13 There are no actions or proceedings  pending by or against  Borrower or any
     guarantor  of  Borrower  before  any  court or  administrative  agency  and
     Borrower  has  no  knowledge  of  any  pending,   threatened   or  imminent
     litigation,  governmental investigations or claims, complaints,  actions or
     prosecutions  involving  Borrower or any  guarantor of Borrower,  except as
     heretofore  specifically  disclosed  in  writing  to  Bank.  If  any of the
     foregoing   arise  during  the  term  of  the  Agreement,   Borrower  shall
     immediately notify Bank in writing.

6.14 Insurance.
     a. Borrower, at its expense, shall keep and maintain its assets
insured against loss or damage by fire, theft, explosion, sprinklers and all
other hazards and risks ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value thereof. Borrower
shall also keep and maintain business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral and its other assets. All such policies of insurance shall be
in such form, with such companies, and in such amounts as may be satisfactory to
Bank. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bank showing Bank as a
loss payee thereof, with a waiver of warranties satisfactory to Bank, and all
proceeds payable thereunder shall be payable to Bank and, upon receipt by Bank,
shall be applied on account of the Indebtedness owing to Bank. To secure the
payment of the Indebtedness, Borrower grants Bank a security interest in and to
all such policies of insurance (except those of public liability and property
damage) and the proceeds thereof, and Borrower shall direct all insurers under
such policies of insurance to pay all proceeds thereof directly to Bank.

     b. Borrower hereby  irrevocably  appoints Bank (and any of Bank's officers,
employees or agents  designated by Bank) as Borrower's  attorney for the purpose
of making,  selling and  adjusting  claims  under such  policies  of  insurance,
endorsing the name of Borrower on any check, draft,  instrument or other item of
payment  for the  proceeds  of such  policies  of  insurance  and for making all
determinations  and  decisions  with  respect  to such  policies  of  Insurance.
Borrower  will not cancel any of such  policies  without  Bank's  prior  written
consent.  Each  such  insurer  shall  agree by  endorsement  upon the  policy or
policies  of  insurance  issued  by it to  Borrower  as  required  above,  or by
independent  instruments  furnished to Bank, that it will give Bank at least ten
(10) days written  notice before any such policy or policies of insurance  shall
be altered or  canceled,  and that no act or default of  Borrower,  or any other
person,  shall affect the right of Bank to recover under such policy or policies
of insurance  required  above or to pay any premium in whole or in part relating
thereto.  Bank,  without  waiving or releasing any  Indebtedness or any Event of
Default,  may, but shall have no  obligation  to do so, obtain and maintain such
policies  of  insurance  and pay such  premiums  and take any other  action with
respect to such policies  which Bank deems  advisable.  All sums so disbursed by
Bank, as well as reasonable attorneys' fees incurred by Bank, whether in-house
or outside  counsel is used,  court  costs,  expenses  and other  charges
relating thereto, shall constitute Bank Expenses and are payable on demand.

6.15 All financial  statements and  information  relating to Borrower which have
     been or may hereafter be delivered by Borrower to Bank are true and correct
     and have been prepared in  accordance  with GAAP  consistently  applied and
     there has been no material  adverse  change in the  financial  condition of
     Borrower since the submission of such financial information to Bank.

6.16  Financial Reporting.

     a.  Borrower at all times  hereafter  shall  maintain a standard and modern
system of accounting in accordance  with GAAP  consistently  applied with ledger
and account cards and/or computer tapes and computer disks,  computer  printouts
and computer records  pertaining to the Collateral which contain  information as
may from time to time be requested  by Bank,  not modify or change its method of
accounting or enter into, modify or terminate any agreement  presently existing,
or at any time  hereafter  entered  into with any third  party  accounting  firm
and/or  service  bureau  for  the  preparation   and/or  storage  of  Borrower's
accounting  records  without  the  written  consent of Bank first  obtained  and
without  said   accounting  firm  and/or  service  bureau  agreeing  to  provide
information  regarding  the  Accounts and  Inventory  and  Borrower's  financial
condition  to Bank;  permit Bank and any of its  employees,  officers or agents,
upon demand, during  Borrower's usual business hours, or the usual business hour
of third persons  having control  thereof,  to have access to and examine all of
Borrower's  Books relating to the Collateral,  Borrower's  Indebtedness to Bank,
Borrower's  financial condition and the results of Borrower's  operations and in
connection therewith, permit Bank or any of its agents, employees or officers to
copy and make  extracts  therefrom.

     b. Borrower  shall deliver to Bank within thirty (30) days after the end of
each month and  forty-five  (45) days after the end of each  fiscal  quarter,  a
company prepared balance sheet and profit and loss statement covering Borrower's
operations  and deliver to Bank  within one hundred and twenty  (120) days after
the end of each of Borrower's  fiscal years an annual  audited  statement of the
financial  condition of Borrower for each such fiscal  year,  including  but not
limited to, a balance sheet, profit and loss statement, statement of cash flows,
and any other  report  requested  by Bank  relating  to the  Collateral  and the
financial condition of Borrower.

     c. In addition to the financial statements requested above, Borrower
agrees to provide Bank with the following schedules:

     (1) Borrowing Base Certificate on a monthly basis, including Accounts
         Receivable and Accounts Payable agings and listings, all due within 30
         days of each month end.

     (2) Compliance Certification on a monthly basis due within 30 days of each
         month end and 45 days of each fiscal quarter end, signed by the CEO,
         President, or Chief Financial Officer of Borrower stating that there
         exists on the date of delivery to Bank no condition or event which
         constitutes a breach or Event of Default under this Agreement.

     (3) Copies of all filings with the SEC, including 10-K and 10-Q financial
         reports.

6.17 Borrower shall maintain the following  financial  ratios and covenants on a
     consolidated  and  non-consolidated  basis,  which shall be  monitored on a
     monthly basis, except as noted below:

     a.  Tangible  Effective  Net  Worth in an amount  not less than  $3,800,000
through January 31, 2002 increasing to $4,300,000 thereafter;

     b. a Debt-to-Worth Ratio of less than .90;

     c. maintain on a consolidated basis net profit after taxes of at least
$1.00 on a quarterly basis.

All financial covenants shall be computed in accordance with GAAP consistently
applied except as otherwise specifically set forth in this Agreement. All monies
due from affiliates (including officers, directors and shareholders) shall be
excluded from Borrower's assets for all purposes hereunder.

6.18 Borrower  shall  promptly  supply Bank (and cause any  guarantor  to supply
     Bank) with such other  information  (including tax returns)  concerning its
     financial  affairs (or that of any guarantor) as Bank may request from time
     to time hereafter,  and shall promptly notify Bank of any material  adverse
     change in  Borrower's  financial  condition  and of any  condition or event
     which  constitutes  a breach of or an event which  constitutes  an Event of
     Default under this Agreement.

6.19 Borrower is now and shall be at all times hereafter solvent and able to pay
     its debts (including trade debts) as they mature.

6.20 Borrower shall  immediately and without demand  reimburse Bank for all sums
     expended by Bank in connection  with any action  brought by Bank to correct
     any default or enforce any provision of this Agreement,  including all Bank
     Expenses;  Borrower  authorizes  and  approves all advances and payments by
     Bank for items described in this Agreement as Bank Expenses.

6.21 Each  warranty,  representation  and agreement  contained in this Agreement
     shall be  automatically  deemed  repeated  with each  advance  and shall be
     conclusively  presumed  to have been  relied on by Bank  regardless  of any
     investigation  made or  information  possessed  by  Bank.  The  warranties,
     representations  and agreements set forth herein shall be cumulative and in
     addition to any and all other  warranties,  representations  and agreements
     which  Borrower  shall give, or cause to be given,  to Bank,  either now or
     hereafter.

6.22 Borrower  shall keep all of its principal bank accounts with Bank and shall
     notify  Bank  immediately  in  writing of the  existence  of any other bank
     account,  deposit  account,  or any other  account  into which money can be
     deposited.

6.23 Borrower  shall furnish to Bank:  (a) as soon as possible,  but in no event
     later than thirty (30) days after Borrower knows or has reason to know that
     any  reportable  event with respect to any deferred  compensation  plan has
     occurred,  a statement of the chief financial  officer of Borrower  setting
     forth the details  concerning  such  reportable  event and the action which
     Borrower proposes to take with respect thereto, together with a copy of the
     notice of such  reportable  event  given to the  Pension  Benefit  Guaranty
     Corporation,  if a copy  of such  notice  is  available  to  Borrower;  (b)
     promptly after the filing thereof with the United States Secretary of Labor
     or the Pension Benefit Guaranty  Corporation,  copies of each annual report
     with respect to each deferred compensation plan; (c) promptly after receipt
     thereof, a copy of any notice Borrower may receive from the Pension Benefit
     Guaranty  Corporation or the Internal  Revenue  Service with respect to any
     deferred compensation plan; provided,  however, this subparagraph shall not
     apply to notice  of  general  application  issued  by the  Pension  Benefit
     Guaranty Corporation or the Internal Revenue Service; and (d) when the same
     is made available to  participants in the deferred  compensation  plan, all
     notices and other forms of information  from time to time  disseminated  to
     the participants by the administrator of the deferred compensation plan.

6.24 Borrower is now and shall at all times hereafter  remain in compliance with
     all federal,  state and municipal laws, regulations and ordinances relating
     to the  handling,  treatment and disposal of toxic  substances,  wastes and
     hazardous  material and shall  maintain all  necessary  authorizations  and
     permits.

7.   EVENTS OF DEFAULT.
     ------------------

Any one or more of the following events shall constitute an Event of Default
by Borrower under this Agreement:

     a. If Borrower  fails or  neglects  to  perform,  keep or observe any term,
provision,  condition, covenant, agreement, warranty or representation contained
in this  Agreement,  or any other  present  or future  document,  instrument  or
agreement between Borrower and Bank;

     b.  If  any  representation,  statement,  report  or  certificate  made  or
delivered by Borrower,  or any of its  officers,  employees or agents to Bank is
not true and correct;

     c. If  Borrower  fails to pay  when due and  payable  or  declared  due and
payable,  all or any portion of Borrower's Indebtedness  (whether of  principal,
interest, taxes, reimbursement of Bank Expenses, or otherwise);

     d. If there is a material impairment of the prospect of repayment of all or
any portion of Borrower's  Indebtedness or a material impairment of the value or
priority  of Bank's  security  interest in the  Collateral;

     e. If all or any of Borrower's  assets are attached,  seized,  subject to a
writ or distress warrant, or are levied upon, or come into the possession of any
Judicial Officer or Assignee and the same are not released, discharged or bonded
against  within ten (10) days  thereafter,

     f. If any  Insolvency  Proceeding  is  filed  or  commenced  by or  against
Borrower without being dismissed within ten (10) days thereafter;

     g. If any  proceeding is filed or commenced by or against  Borrower for its
dissolution or liquidation;

     h. If Borrower is  enjoined,  restrained  or in any way  prevented by court
order  from  continuing  to conduct  all or any  material  part of its  business
affairs;

     i. If a notice of lien,  levy or assessment is filed of record with respect
to any or all of  Borrower's  assets by the  United  States  Government,  or any
department,  agency  or  instrumentality  thereof,  or  by  any  state,  county,
municipal or other government  agency or if any taxes or debts owing at any time
hereafter to any one or more of such entities  becomes a lien,  whether inchoate
or  otherwise,  upon any or all of Borrower's assets and the same is not paid on
the payment date thereof;

     j. If a judgment or other claim becomes a lien or  encumbrance  upon any or
all of  Borrower's assets  and the same is not  satisfied,  dismissed  or bonded
against within ten (10) days thereafter;

     k. If  Borrower's records  are  prepared  and kept by an  outside  computer
service  bureau at the time this Agreement is entered into or during the term of
this Agreement such an agreement with an outside service bureau is entered into,
and at any time thereafter, without first obtaining the written consent of Bank,
Borrower terminates,  modifies,  amends or changes its contractual  relationship
with said  computer  service  bureau or said  computer  service  bureau fails to
provide Bank with any  requested  information  or financial  data  pertaining to
Bank's Collateral,  Borrower's financial  condition or the results of Borrower's
operations;

     1. If  Borrower  permits  a  default  in any  material  agreement  to which
Borrower is a party with third parties so as to result in an acceleration of the
maturity of  Borrowers  indebtedness  to others,  whether  under any  indenture,
agreement or otherwise;

     m. If Borrower makes any payment on account of indebtedness  which has been
subordinated to Borrower's  Indebtedness  to Bank except as otherwise  permitted
under the terms of this Agreement;

     n. If any  misrepresentation  exists now or  thereafter  in any warranty or
representation  made to Bank by any officer or director of  Borrower,  or if any
such warranty or representation is withdrawn by any officer or director;

     o. If any party subordinating its claims to that of Bank's or any guarantor
of Borrower's  indebtedness  dies,  terminates  its  subordination  or guaranty,
violates the terms of the subordination or guaranty,  becomes  insolvent,  or an
Insolvency Proceeding is commenced by or against any such subordinating party or
guarantor;

     p. If Borrower is an individual  and Borrower  dies;

     q. If any reportable event, which Bank determines  constitutes  grounds for
the  termination  of any  deferred  compensation  plan  by the  Pension  Benefit
Guaranty  Corporation or for the  appointment by the  appropriate  United States
District Court of a trustee to administer any such plan, shall have occurred and
be continuing thirty (30) days after written notice of such determination  shall
have been given to Borrower by Bank, or any such Plan shall be terminated within
the  meaning  of Title  IV of the  Employment  Retirement  Income  Security  Act
("ERISA"),  or a trustee  shall be appointed by the  appropriate  United  States
District  Court to  administer  any such plan, or the Pension  Benefit  Guaranty
Corporation shall institute proceedings to terminate any plan and in case of any
event described in this Section 7, the aggregate amount of Borrower's  liability
to the Pension Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of
ERISA shall exceed five percent (5%) of Borrower's Tangible Effective Net Worth.

Notwithstanding anything contained in Section 7 to the contrary, Bank shall
refrain from exercising its rights and remedies and Event of Default shall
thereafter not be deemed to have occurred by reason of the occurrence of any of
the events set forth in Sections 7.e, 7.f or 7.j of this Agreement if, within
ten (10) days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event is the
institution of Insolvency Proceedings against Borrower, Bank shall not be
obligated to make advances to Borrower during such cure period.

8.  BANKS RIGHTS AND REMEDIES.
------------------------------

8.1  Upon  the  occurrence  of an  Event  of  Default  by  Borrower  under  this
     Agreement,  Bank may, at its election,  without  notice of its election and
     without  demand,  do any one or more of the  following,  all of  which  are
     authorized by Borrower:

     a. Declare  Borrower's  Indebtedness,  whether evidenced by this Agreement,
installment  notes,  demand notes or otherwise,  immediately  due and payable to
Bank;

     b.  Cease  advancing  money or  extending  credit to or for the  benefit of
Borrower under this Agreement, or any other agreement between Borrower and Bank;

     c.  Terminate  this  Agreement as to any future  liability or obligation of
Bank,  but  without  affecting  Bank's  rights  and  security  Interests  in the
Collateral, and the Indebtedness of Borrower to Bank;

     d. Without  notice to or demand upon Borrower or any  guarantor,  make such
payments and do such acts as Bank  considers  necessary or reasonable to protect
its  security  interest  in the  Collateral.  Borrower  agrees to  assemble  the
Collateral if Bank so requires and to make the  Collateral  available to Bank as
Bank may  designate.  Borrower  authorizes  Bank to enter the premises where the
Collateral is located,  take and maintain  possession of the  Collateral and the
premises  (at no charge to Bank),  or any part  thereof,  and to pay,  purchase,
contest or compromise  any  encumbrance,  charge or lien which in the opinion of
Bank  appears to be prior or superior to its  security  interest  and to pay all
expenses Incurred in connection therewith;

     e. Without  limiting  Bank's  rights under any security  interest,  Bank is
hereby  granted a  license  or other  right to use,  without  charge,  Borrowers
labels,  patents,  copyrights,  rights of use of any name, trade secrets,  trade
names, trademarks and advertising matter, or any property or a similar nature as
it pertains to the Collateral, in completing production of, advertising for sale
and selling any  Collateral  and  Borrower's  rights  under all licenses and all
franchise agreement shall inure to Bank's benefit, and Bank shall have the night
and power to enter into  sublicense  agreements  with respect to all such rights
with third parties on terms acceptable to Bank;

     f. Ship, reclaim,  recover,  store, finish,  maintain,  repair, prepare for
sale,  advertise  for sales and sell (in the manner  provided  for  herein)  the
Inventory;

     g. Sell or dispose the  Collateral  at either a public or private  sale, or
both, by way of one or more contracts or transactions,  for cash or on terms, in
such  manner  and  at  such  places  (including   Borrower's   premises)  as  is
commercially  reasonable in the opinion of Bank.  It is not  necessary  that the
Collateral be present at any such sale. At any sale or other  disposition of the
Collateral  pursuant to this Section,  Bank disclaims all warranties which would
otherwise  be  given  under  the  Uniform  Commercial  Code,  including  without
limitation a disclaimer  of any warranty  relating to title,  possession,  quiet
enjoyment or the like, and Bank may communicate these disclaimers to a purchaser
at such  disposition.  This  disclaimer of  warranties  will not render the sale
commercially unreasonable;

     h. Bank shall give notice of the disposition of the Collateral as follows:

       (1) Bank shall give Borrower and each holder of a security interest in
           the Collateral who has filed with Bank a written request for notice,
           a notice in writing of the time and place of public sale, or, if the
           sale is a private sale or some disposition other than a public sale
           is to be made of the Collateral, the time on or after which the
           private sale or other disposition is to be made;

       (2) The notice shall be personally delivered or mailed, postage prepaid,
           to Borrower's address appearing in this Agreement, at least ten (10)
           calendar days before the date fixed for the sale, or at least ten
           (10) calendar days before the date on or after which the private
           sale or other disposition is to be made, unless the Collateral is
           perishable or threatens to decline speedily in value. Notice to
           persons other than Borrower claiming an interest in the Collateral
           shall be sent to such addresses as have been furnished to Bank or as
           otherwise determined in accordance with Section 9611 of the Uniform
           Commercial Code; and

       (3) If the sale is to be a public sale, Bank shall also give notice of
           the time and place by publishing a notice one time at least ten (10)
           calendar days before the date of the sale in a newspaper of general
           circulation in the county in which the sale is to be held; and

       (4) Bank may credit bid and purchase at any public sale.

     i. Borrower shall pay all Bank Expenses  incurred in connection with Bank's
enforcement  and exercise of any of its rights and remedies as herein  provided,
whether or not suit is commenced by Bank;

     j. Any  deficiency  which exists after  disposition  of the  Collateral  as
provided  above  will  be paid  immediately  by  Borrower.  Any  excess  will be
returned,  without  interest  and  subject  to the rights of third  parries,  to
Borrower by Bank, or, in Bank's discretion,  to any party who Bank believes,  in
good faith, is entitled to the excess;

     k. Without  constituting  a retention of Collateral in  satisfaction  of an
obligation  within the  meaning  of 9620 of the  Uniform  Commercial  Code or an
action under  California  Code of Civil Procedure 726, apply any and all amounts
maintained  by Borrower as deposit  accounts (as that term is defined under 9102
of the Uniform  Commercial Code) or other accounts that Borrower  maintains with
Bank against the Indebtedness;

     1. The proceeds of any sale or other  disposition of Collateral  authorized
by this Agreement shall be applied by Bank first upon all expenses authorized by
the Uniform Commercial Code and all reasonable  attorney fees and legal expenses
incurred by Bank,  whether  in-house or outside  counsel is used, the balance of
the proceeds of the sale or other disposition shall be applied in the payment of
the  Indebtedness,  first to  interest,  then to  principal,  then to  remaining
Indebtedness and the surplus,  if any, shall be paid over to Borrower or to such
other person(s) as may be entitled to it under  applicable  law.  Borrower shall
remain liable for any deficiency,  which it shall pay to Bank  immediately  upon
demand.  Borrower  agrees that Bank shall be under no  obligation  to accept any
noncash proceeds in connection with any sale or disposition of Collateral unless
failure to do so would be commercially unreasonable.  If Bank agrees in its sole
discretion  to accept  noncash  proceeds  (unless the failure to so so would be
commercially  unreasonable),  Bank may ascribe any commercially reasonable value
to such proceeds.  Without  limiting the foregoing,  Bank may apply any discount
factor in determining the present value of proceeds to be received in the future
or may elect to apply  proceeds  to be  received  in the future only as and when
such proceeds are actually received in cash by Bank; and

     m. The following shall be the basis for any finder of fact's  determination
of the value of any  Collateral  which is the  subject  matter of a  disposition
giving rise to a calculation  of any surplus or deficiency  under Section 9615f
of the Uniform  Commercial  Code: (i) The Collateral which is the subject matter
of the disposition shall be valued in an 'as is' condition as of the date of the
disposition,  without any assumption or expectation that such Collateral will be
repaired or improved in any manner;  (ii) the valuation  shall be based upon an
assumption  that the  transferee  of such  Collateral  desires  a resale  of the
Collateral  for  cash  promptly  (but no  later  than  30  days)  following  the
disposition;  (iii) all reasonable closing costs customarily borne by the seller
in commercial sales transactions relating to property similar to such Collateral
shall be deducted including,  without  limitation,  brokerage  commissions,  tax
prorations,  attorney's  fees,  whether in-house or outside counsel is used, and
marketing costs; (iv) the value of the Collateral which is the subject matter of
the disposition shall be further discounted to account for any estimated holding
costs associated with  maintaining  such Collateral  pending sale (to the extent
not  accounted  for in (iii)  above),  and other  maintenance,  operational  and
ownership expenses;  and (v) any expert opinion testimony given or considered in
connection with a determination of the value of such Collateral must be given by
persons having at least 5 years experience in appraising property similar to the
Collateral and who have conducted and prepared a complete  written  appraisal of
such  Collateral  taking into  consideration  the factors set forth  above.  The
"value" of any such  Collateral  shall be a factor in determining  the amount of
proceeds which would have been realized in a disposition  to a transferee  other
than a secured party, a person related to a secured party or a secondary obligor
under Section 9615(f) of the Uniform Commercial Code.

8.2  In  addition to any and all other  rights and  remedies  available  to Bank
     under or pursuant to this Agreement or any other  documents,  instrument or
     agreement contemplated hereby, Borrower acknowledges and agrees that (i) at
     any time following the  occurrence and during the  continuance of any Event
     of Default,  and/or (ii) termination of Bank's  commitment or obligation to
     make  loans  or  advances  or  otherwise  extent  credit  to or in favor of
     Borrower  hereinunder,  together  with any and all  other  Indebtedness  of
     Borrower to Bank remaining unpaid,  and Borrower pledges to Bank and grants
     to  Bank a  continuing  first  priority  security  interest  in  such  cash
     collateral so delivered to Bank.

8.3  Bank's rights and remedies  under this  Agreement and all other  agreements
     shall be  cumulative.  Bank shall have all other  rights and  remedies  not
     inconsistent  herewith as provided by law or in equity. No exercise by Bank
     of one right or remedy shall be deemed an  election,  and no waiver by Bank
     of any default on Borrower's part shall be deemed a continuing  waiver.  No
     delay by Bank shall constitute a waiver, election or acquiescence by Bank.

9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY.
   -------------------------------------------------
If Borrower fails to pay promptly when due to another  person or entity,  monies
which Borrower is required to pay by reason of any provision in this  Agreement,
Bank  may,  but need  not,  pay the  same and  charge  Borrower's  loan  account
therefor, and Borrower shall promptly reimburse Bank. All such sums shall become
additional  indebtedness  owing  to  Bank,  shall  bear  interest  at  the  rate
hereinabove provided, and shall be secured by all Collateral.  Any payments made
by Bank shall not constitute (i) an agreement by it to make similar  payments in
the future,  or (ii) a waiver by Bank of any default under this Agreement.  Bank
need not  inquire as to, or contest  the  validity  of, any such  expense,  tax,
security  interest,  encumbrance  or lien and the receipt of the usual  official
notice of the payment  thereof  shall be  conclusive  evidence that the same was
validly  due and  owing.  Such  payments  shall  constitute  Bank  Expenses  and
additional advances to Borrower.

10.  WAIVERS.
     -------
10.1 Borrower  agrees  that  checks and other  instruments  received  by Bank in
     payment  or  on  account  of  Borrower's   Indebtedness   constitute   only
     conditional payment until such items are actually paid to Bank and Borrower
     waives the right to direct the  application  of any and all payments at any
     time  or  times  hereafter  received  by  Bank  on  account  of  Borrower's
     Indebtedness  and  Borrower  agrees  that Bank  shall  have the  continuing
     exclusive  right to apply and reapply  such  payments in any manner as Bank
     may deem advisable, notwithstanding any entry by Bank upon its books.

10.2 Borrower waives demand,  protest,  notice of protest,  notice of default or
     dishonor,  notice  of  payment  and  nonpayment,  notice  of  any  default,
     nonpayment  at  maturity,  release,  compromise,  settlement,  extension or
     renewal of any or all commercial paper, accounts,  documents,  instruments,
     chattel  paper,  and  guarantees at any time held by Bank on which Borrower
     may in any way be liable.

10.3 Bank  shall not in any way or manner be liable or  responsible  for (a) the
     safekeeping of the Inventory;  (b) any loss or damage thereto occurring or
     arising in any manner or fashion from any cause;  (c) any diminution in the
     value  thereof,  or (d) any act or  default of any  carrier,  warehouseman,
     bailee,  forwarding  agency or other person  whomsoever.  All risk of loss,
     damage or destruction of Inventory shall be borne by Borrower.

10.4 Borrower   waives  the  right  and  the  right  to  assert  a  confidential
     relationship,  if any,  it may have with any  accountant,  accounting  firm
     and/or  service  bureau or consultant in  connection  with any  information
     requested by Bank pursuant to or in  accordance  with this  Agreement,  and
     agrees that a Bank may contact  directly  any such  accountant,  accounting
     firm  and/or   service  bureau  or  consultant  in  order  to  obtain  such
     information.

10.5 THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS
     A  CONSTITUTIONAL  ONE,  BUT  THAT  IT MAY BE  WAIVED.  EACH  PARTY,  AFTER
     CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
     CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY
     RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
     OR  ENFORCEMENT  OF,  OR IN ANY  WAY  RELATED  TO,  THIS  AGREEMENT  OR THE
     INDEBTEDNESS.

10.6 In the event that Bank elects to waive any rights or remedies hereunder, or
     compliance  with any of the terms  hereof,  or delays or fails to pursue or
     enforce any term, such waiver,  delay or failure to pursue or enforce shall
     only be  effective  with  respect  to that  single  act  and  shall  not be
     construed to affect any  subsequent  transactions  or Bank's right to later
     pursue such rights and remedies.

11. ONE CONTINUING LOAN TRANSACTION.
    -------------------------------
     All  loans and advances  heretofore,  now or at any time or times
     hereafter made by Bank to Borrower  under this  Agreement or any other
     agreement  between Bank and Borrower,  shall  constitute  one loan secured
     by Bank's  security  interests in the  Collateral and by all other
     security  interests, liens, encumbrances  heretofore,  now or from time to
     time  hereafter  granted  by Borrower to Bank.

Notwithstanding the above, (i) to the extent that any portion of the
Indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security Interest in Borrower's principal
dwelling which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if Borrower
(or any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Indebtedness of Borrower (or any of them), unless expressly
provided to the contrary in another place.

12.  NOTICES.
     -------
     Unless otherwise provided in this Agreement, all notices or demands by
     either party on the other relating to this Agreement shall be in writing
     and sent by regular United States mail, postage prepaid, property
     addressed to Borrower or to Bank at the addresses stated in this Agreement,
     or to such other addresses as Borrower or Bank may from time to time
     specify to the other in writing. Requests to Borrower by Bank hereunder
     may be made orally.

13. AUTHORIZATION TO DISBURSE.
    -------------------------
     Bank is hereby authorized to make loans and advances hereunder upon
     telephonic or other instructions received from anyone purporting to be an
     officer, employee, or representative of Borrower, or at the discretion of
     Bank if said loans and advances are necessary to meet any Indebtedness of
     Borrower to Bank. Bank shall have no duty to make inquiry or verify the
     authority of any such party, and Borrower shall hold Bank harmless from
     any damage, claims or liability by reason of Bank's honor of, or failure
     to honor, any such instructions.

14.  PAYMENTS.
     --------
     Borrower hereby authorizes Bank to deduct the full amount of any interest,
     fees, costs, or Bank Expenses due under this Agreement and not paid or
     collected when due in accordance with the terms and conditions hereof
     from any account maintained by Borrower with Bank. Should there be
     insufficient funds in any such account to pay all such sums when due, the
     full amount of such deficiency shall be immediately due and payable by
     Borrower; provided, however, that Bank shall not be obligated to advance
     funds to cover any such payment.

15.  DESTRUCTION OF BORROWER'S DOCUMENTS.
     ------------------------------------
     Any documents, schedules, invoices or other papers delivered to Bank, may
     be destroyed or otherwise disposed of by Bank six (6) months after they
     are delivered to or received by Bank, unless Borrower requests, in writing,
     the return of the said documents, schedules, invoices or other papers and
     makes arrangements, at Borrower's expense, for their return.


16.  CHOICE OF LAW.
     --------------
     The validity of this Agreement, its construction, interpretation and
     enforcement, and the rights of the parties hereunder and concerning the
     Collateral, shall be determined according to the laws of the State of
     California. The parties agree that all actions or proceedings arising
     in connection with this Agreement shall be tried and litigated only in the
     state and federal courts in the Northern District of California or the
     County of Santa Clara.

17.  GENERAL PROVISIONS.
     -------------------
17.1 This  Agreement  shall be binding  and deemed  effective  when  executed by
     Borrower and accepted and executed by Bank at its headquarters office.

17.2 This  Agreement  shall  bind and  inure to the  benefit  of the  respective
     successors  and assigns of each of the  parties;  provided,  however,  that
     Borrower  may not assign this  Agreement  or any rights  hereunder  without
     Bank's  prior  written  consent  and any  prohibited  assignment  shall  be
     absolutely void. No consent to an assignment by Bank shall release Borrower
     or any  guarantor  from their  obligations  to Bank.  Bank may assign  this
     Agreement and its rights and duties  hereunder.  Bank reserves the right to
     sell,  assign,  transfer,  negotiate or grant  participations in all or any
     part of, or any  interest  in Bank's  rights  and  benefits  hereunder.  In
     connection therewith, Bank may disclose all documents and information which
     Bank now or hereafter may have relating to Borrower or Borrower's business.

17.3 Paragraph  headings  and  paragraph  numbers have been set forth herein for
     convenience  only;  unless  the  contrary  is  compelled  by  the  context,
     everything  contained  in each  paragraph  applies  equally to this  entire
     Agreement. Unless the context of this Agreement clearly requires otherwise,
     references to the plural  include the singular,  references to the singular
     include the plural,  and the term  'including'  is not limiting.  The words
     'hereof,'  'herein,'  'hereby,'  'hereunder,'  and  similar  terms  in this
     Agreement  refer to this  Agreement  as a whole  and not to any  particular
     provision of this Agreement.

17.4 Neither this  Agreement nor any  uncertainty  or ambiguity  herein shall be
     construed or resolved  against Bank or Borrower,  whether under any rule of
     construction  or  otherwise;  on the  contrary,  this  Agreement  has  been
     reviewed by all parties and shall be construed and interpreted according to
     the  ordinary  meaning  of the words  used so as to fairly  accomplish  the
     purposes and intentions of all parties hereto.

17.5 Each  provision  of this  Agreement  shall be  severable  from every  other
     provision  of this  Agreement  for the  purpose  of  determining  the legal
     enforceability  of any specific  provision.

17.6 This  Agreement  cannot be changed or  terminated  orally.  This  Agreement
     contains the entire  agreement  of the parties  hereto and  supersedes  all
     prior   agreements,   understandings,   representations,   warranties   and
     negotiations, if any, related to the subject matter hereof, and none of the
     parties shall be bound by anything not expressed in writing.

17.7 The parties intend and agree that their respective rights,  duties, powers,
     liabilities,  obligations and discretions  shall be performed,  carded out,
     discharged and exercised reasonably and in good faith.

17.8 In  addition,  if this  Agreement is secured by a deed of trust or mortgage
     covering real property, then the trustor or mortgagor shall not mortgage or
     pledge the  mortgaged  premises as security for any other  indebtedness  or
     obligations.  This Agreement,  together with all other indebtedness secured
     by  said  deed  of  trust  or  mortgage,   shall  become  due  and  payable
     immediately,  without notice, at the option of Bank, (a) if said trustor or
     mortgagor  shall  mortgage or pledge the  mortgaged  premises for any other
     indebtedness  or  obligations  or shall  convey,  assign  or  transfer  the
     mortgaged premises by deed,  installment sale contract or other instrument;
     (b) if the title to the mortgaged premises shall become vested in any other
     person  or  party  in  any  manner  whatsoever,  or  (c)  if  there  is any
     disposition (through one or more transactions) of legal or beneficial title
     to a controlling interest of said trustor or mortgagor.

17.9 Each  undersigned  Borrower hereby agrees that it is jointly and severally,
     directly,  and primarily liable to Bank for payment and performance in full
     of all duties,  obligations and  liabilities  under this Agreement and each
     other document,  instrument and agreement  entered into by Borrower with or
     in  favor  of Bank in  connection  herewith,  and that  such  liability  is
     independent  of the  duties,  obligations  and  liabilities  of  any  other
     Borrower or any other guarantor of the  Indebtedness,  as applicable.  Each
     reference  herein to  Borrower  shall  mean each and every  Borrower  party
     hereto, individually and collectively, jointly and severally.

17.10Counterparts;  Entire  Agreement.  This  Agreement  may be  executed by the
     parties hereto in several counterparts, each of which shall be deemed to be
     an original and all of which shall constitute together but one and the same
     agreement.   This  Agreement,   together  with  the  other  Loan  Documents
     constitute the entire  understanding  among the parties hereto with respect
     to the subject matter hereof and supersedes any prior  agreements,  written
     or oral, with respect thereto.

                          [Signature page follows.]


IN WITNESS WHEREOF, the parties hereto have caused this Loan and Security
executed as of the date first hereinabove written.

Accepted and effective as of: _________________ at Bank's Headquarters Office
COMERICA BANK-CALIFORNIA, a California banking corporation

By:  /s/ Clifford A. Payson
     ----------------------
Name:  Clifford A. Payson
Title: Senior Vice President

BORROWERS:

'Borrower l'
Alanco Technologies, Inc., an Arizona Corporation

By: /s/ J.A. Carlson
   ------------------
    John A. Carlson, CFO

'Borrower 2'
Arraid, Inc., an Arizona corporation

By: /s/ J. A. Carlson
    -----------------
    John A. Carlson, CFO

'Borrower 3'
Excel/Meridian Data, an Arizona corporation

By: /s/ J.A. Carlson
    -----------------
    John A. Carlson, CFO

'Borrower 4'
Sanone, Inc., an Arizona corporation

By: /s/ J.A. Carlson
    ----------------
    John A. Carlson, CFO

'Borrower 5'
Netzerver, Inc., an Arizona corporation

By: /s/ J.A. Carlson
    ----------------
    John A. Carlson, CFO






Address for Notices:
333 West Santa Clara Street San Jose, California, 95113

Address for Notices:
15900 North 78th Street Scottsdale, Az. 85260


                                               SURETYSHIP RIDER

Borrowers: Alanco Technologies, Inc. ('Borrower 1'); Arraid, Inc., ('Borrower
2'); Excel/Meridian Data, Inc. ('Borrower 3'); Sanone, Inc. ('Borrower 4');
and Netzerver, Inc.,('Borrower 5').

Each of the undersigned Borrowers has entered into a certain Amended and
Restated Loan & Security Agreement (Accounts And Inventory) (hereinafter
referred to as the 'Agreement'),dated January 24, 2002, with Comerica
Bank-California, a California banking corporation ('Bank') as secured party.
This SURETYSHIP RIDER (hereinafter this `Rider'), dated January 24, 2002, is
hereby made a part of and incorporated into that Agreement. Unless otherwise
defined, all initially capitalized terms in this Rider shall be as defined in
the Agreement.

The parties to the Agreement hereby agree as follows:

Each Borrower agrees that it is jointly and severally, directly, and primarily
liable to Bank for payment in full of the Indebtedness and that such liability
is independent of the duties, obligations and liabilities of the other Borrower.
The Agreement and each other document, instrument and agreement entered into by
any one or more of the Borrowers in connection therewith (collectively,
hereinafter, the 'Loan Documents') are a primary and original obligation of each
Borrower, are not the creation of a surety relationship, and are an absolute,
unconditional, and continuing promise of payment and performance which shall
remain in full force and effect without respect to future changes in conditions,
including any change of law or any invalidity or irregularity with respect to
the Loan Documents. Each Borrower acknowledges that the obligations of such
Borrower undertaken herein might be construed to consist, at least in part, of
the guaranty of obligations of persons or entities other than such Borrower
(including any other Borrower party hereto) and, in full recognition of that
fact, each Borrower consents and agrees that Bank may, at any time and from time
to time, without notice or demand, whether before or after any actual or
purported termination, repudiation, or revocation of the Agreement and the other
Loan Documents by any one or more Borrowers, and without affecting the
enforceability or continuing effectiveness hereof as to each Borrower: (a)
supplement, restate, modify, amend, increase, decrease, extend, renew,
accelerate, or otherwise change the time for payment or the terms of the
Indebtedness or any part thereof, including any increase or decrease of the
rate(s) of interest thereon; (b) supplement restate, modify, amend, increase,
decrease or waive, or enter into or give any agreement, approval, or consent
with respect to, the Indebtedness or any part thereof, or any of the Loan
Documents or any additional security or guaranties, or any condition covenant,
default, remedy, right, representation or term thereof or thereunder; (c) accept
new or additional instruments, documents or agreements in exchange for or
relative to any of the Loan Documents or the Indebtedness or any part thereof;
(d) accept partial payments on the Indebtedness; (e) receive and hold additional
security or guaranties for the Indebtedness or any part thereof; (f) release,
reconvey, terminate, waive, abandon, fail to perfect, subordinate, exchange,
substitute, transfer, or enforce any security or guaranties, and apply any
security and direct the order or manner of sale thereof as Bank in its sole and
absolute discretion may determine; (g) release any Person from any personal
liability with respect to the Indebtedness or any part thereof; (h) settle,
release on terms satisfactory to Bank or by operation of applicable laws, or
otherwise liquidate or enforce any Indebtedness and any security therefor or
guaranty thereof in any manner, consent to the transfer of any security and bid
and purchase at any sale; or (i) consent to the merger, change, or any other
restructuring or termination of the corporate or partnership existence of any
Borrower or any other Person, and correspondingly restructure the Indebtedness,
and any such merger, change, restructuring, or termination shall not affect the
liability of any Borrower or the continuing effectiveness hereof, or the
enforceability hereof with respect to all or any part of the Indebtedness.

Upon the occurrence and during the continuance of any Event of Default, Bank may
enforce the Agreement and the other Loan Documents independently as to each
Borrower and independently of any other remedy or security Bank at any time may
have or hold in connection with the Indebtedness, and it shall not be necessary
for Bank to marshal assets in favor of any Borrower or any other Person or to
proceed upon or against or exhaust any security or remedy before proceeding to
enforce the Agreement and the other Loan Documents. Each Borrower expressly
waives any right to require Bank to marshal assets in favor of any Borrower or
any other Person or to proceed against any other Borrower or any Collateral
provided by any Person, and agrees that Bank may proceed against Borrowers or
any Collateral in such order as it shall determine in its sole and absolute
discretion.

Bank may file a separate action or actions against any Borrower,
whether action is brought or prosecuted with respect to any security or against
any other person, or whether any other person is joined in any such action or
actions. Each Borrower agrees that Bank and any Borrower and any affiliate of
any Borrower may deal with each other in connection with the Indebtedness or
otherwise, or alter any contracts or agreements now or hereafter existing
between any of them, in any manner whatsoever, all without in any way altering
or affecting the continuing efficacy of the Agreement or the other Loan
Documents.

Bank's rights under the Loan Documents shall be reinstated and revived, and the
enforceability of the Agreement and the other Loan Documents shall continue,
with respect to any amount at any time paid on account of the Indebtedness which
thereafter shall be required to be restored or returned by Bank, all as though
such amount had not been paid. The rights of Bank created or granted herein and
the enforceability of the Agreement and the other Loan Documents at all times
shall remain effective to cover the full amount of all the Indebtedness even
though the Indebtedness, including any part thereof or any other security or
guaranty therefor, may be or hereafter may become invalid or otherwise
unenforceable as against any Borrower and whether or not any other Borrower
shall have any personal liability with respect thereto.

To the maximum extent permitted by applicable law and to the extent that a
Borrower is deemed a guarantor, each Borrower expressly waives any and all
defenses now or hereafter arising or asserted by reason of (a) any disability or
other defense of any other Borrower with respect to the Indebtedness, (b) the
unenforceability or invalidity of any security or guaranty for the Indebtedness
or lack of perfection or continuing perfection or failure of priority of any
security for the Indebtedness, (c) the cessation for any cause whatsoever of the
liability of any other Borrower (other than by reason of the full payment and
performance of all Indebtedness), (d) any failure of the to marshal assets in
favor Bank of any Borrower or any other person, (e) any failure of Bank to give
notice of sale or other disposition of collateral to any Borrower or any other
Person or any defect in any notice that may be given in connection with any sale
or disposition of collateral, (f) any failure of Bank to comply with applicable
law in connection with the sale or other disposition of any collateral or other
security for any Obligation, including any failure of Bank to conduct a
commercially reasonable sale or other disposition of any collateral or other
security for any Obligation, (g) any act or omission of Bank or others that
directly or indirectly results in or aids the discharge or release of any
Borrower or the Indebtedness or any security or guaranty therefor by operation
of law or otherwise, (h) any law which provides that the obligation of a surety
or guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety's or guarantors
obligation in proportion to the principal obligation, (i) any failure of Bank to
file or enforce a claim in any bankruptcy or other proceeding with respect to
any Person, (j) the election by Bank of the application or non-application of
Section 1111(b)(2) of the United States Bankruptcy Code, (k) any extension of
credit or the grant of any lien under Section 364 of the United States
Bankruptcy Code, (l) any use of cash collateral under Section 363 of the United
States Bankruptcy Code, (m) any agreement or stipulation with respect to the
provision of adequate protection in any bankruptcy proceeding of any Person,
(n) the avoidance of any lien in favor of Bank for any reason, or (o) any
action taken by Bank that is authorized by theAgreement or any other provision
of any Loan Document. Until such time as all of the Indebtedness have been
fully, finally, and indefeasibly paid in full in cash: (i) each Borrower hereby
waives and postpones any right of subrogation it has or may have as against
any other Borrower respect to the Indebtedness; and (ii) in addition, each
borrower also hereby waives and postpones any right to proceed or to seek
recourse against or with respect to any property or asset of any other Borrower.
Each Borrower expressly waives all setoffs and counterclaims and all
presentments, demands for payment or performance, notices of nonpayment
or nonperformance, protests, notices of protest, notices of dishonor and all
other notices or demands of any kind or nature whatsoever with respect to the
Indebtedness, and all notices of acceptance of the Agreement or the other Loan
Documents or of the existence, creation or incurring of new or additional
Indebtedness.

In the event that all or any part of the Indebtedness at any time are secured by
any one or more deeds of trust or mortgages or other instruments creating or
granting liens on any interests in real property, each Borrower authorizes Bank,
upon the occurrence of and during the continuance of any Event of Default, at
its sole option, without notice or demand and without affecting the obligations
of any Borrower, the enforceability of the Agreement and the other Loan
Documents, or the validity or enforceability of any liens of Bank, to foreclose
any or all of such deeds of trust or mortgages or other instruments by judicial
or nonjudicial sale.

Without limiting the generality of any other waiver or other provision set
forth in this Rider, each Borrower waives all rights and defenses that such
Borrower may have because the Indebtedness are secured by real property.
This means, among other things:

     Bank may collect from any Borrower without first foreclosing on any real
or personal property pledged as Collateral by any other Borrower to secure the
Indebtedness.

     If Bank forecloses on any real property pledged as Collateral by
any Borrower.

     a. the amount of the debt may be  reduced  only by the price for which that
Collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price.

     b. Bank may collect from any Borrower even if Bank, by  foreclosing  on the
real property  pledged as Collateral,  has destroyed any right that Borrower may
have to collect from any other Borrower.

This is an unconditional and irrevocable  waiver of any rights and defenses each
Borrower may have because the Indebtedness  are secured by Real Property.  These
rights and  defenses  include,  but are not  limited  to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure.

To the fullest extent permitted by applicable law, to the extent that a
Borrower is deemed a guarantor, each Borrower expressly waives any defenses to
the enforcement of the Agreement and the other Loan Documents or any rights of
Bank created or granted hereby or to the recovery by Bank against any Borrower
or any other Person liable therefor of any deficiency after a judicial or
nonjudicial foreclosure or sale, even though such a foreclosure or sale may
impair the subrogation rights of Borrowers and may preclude Borrowers from
obtaining reimbursement or contribution from other Borrowers. To the fullest
extent permitted by applicable law, each Borrower expressly waives any
suretyship defenses or benefits that it otherwise might or would have under
applicable law. WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS RIDER, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, EACH BORROWER WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF
REMEDIES BY LENDER, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL
FORECLOSURE WITH RESPECT TO SECURITY FOR THE INDEBTEDNESS, HAS DESTROYED SUCH
BORROWER'S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE OTHER BORROWERS
BY THE OPERATION LAW, INCLUDING BUT NOT LIMITED TO SECTION 580d OF THE CODE OF
CIVIL PROCEDURE, OR OTHERWISE.

Each of the undersigned  Borrowers  warrants and agrees that each of the
waivers  and  consents  set forth  herein  are made after consultation  with
legal counsel and with full knowledge of their significance and consequences,
with the understanding that events giving rise to any defense or right waived
may diminish,  destroy or otherwise adversely affect rights which Borrower
otherwise may have  against  any other  Borrower,  Bank or  others,  or against
Collateral.  If  any  of  the  waivers  or  consents  herein  are determined to
be contrary to any applicable law or public policy, such  waivers  and  consents
shall be  effective  to the maximum extent permitted by law.


IN WITNESS WHEREOF, the parties hereto have caused this Loan and Security
executed as of the date first hereinabove written.

Accepted and effective as of: _________________ at Bank's Headquarters Office
COMERICA BANK-CALIFORNIA, a California banking corporation

By:  /s/ Clifford A. Payson
     ----------------------
Name:  Clifford A. Payson
Title: Senior Vice President

BORROWERS:
'Borrower l'
Alanco Technologies, Inc., an Arizona Corporation

By: /s/ J.A. Carlson
   ------------------
    John A. Carlson, CFO

'Borrower 2'
Arraid, Inc., an Arizona corporation

By: /s/ J. A. Carlson
    -----------------
    John A. Carlson, CFO

'Borrower 3'
Excel/Meridian Data, an Arizona corporation

By: /s/ J.A. Carlson
    -----------------
    John A. Carlson, CFO

'Borrower 4'
Sanone, Inc., an Arizona corporation

By: /s/ J.A. Carlson
    ----------------
    John A. Carlson, CFO

'Borrower 5'
Netzerver, Inc., an Arizona corporation

By: /s/ J.A. Carlson
    ----------------
    John A. Carlson, CFO


Address for Notices:
333 West Santa Clara Street San Jose, California, 95113

Address for Notices:
15900 North 78th Street Scottsdale, Az. 85260


                  INVENTORY RIDER REVOLVING ADVANCE
                  ---------------------------------

Borrower(s):        Alanco Technologies, Inc. ('Borrower l'); Arraid, Inc.,
('Borrower 2'); Excel/Meridian Data, Inc. ('Borrower 3'); Sanone, Inc.
('Borrower 4'); and Netzerver,Inc., ('Borrower 5').

Borrower has entered into a certain Amended and Restated Revolving Credit and
Security Agreement (Accounts and Inventory) (hereinafter referred to as
('Agreement') dated January 24, 2002 with Bank (Secured Party). This INVENTORY
RIDER (hereinafter referred to as this Rider) dated January 24, 2002 is hereby
made a part of and incorporated into that Agreement. Unless otherwise defined,
all initially capitalized terms in this Rider shall be as defined in the
Agreement

1.   At the request of  Borrower,  made at any time and from time to time during
     the term of the  Agreement,  and so long as no event of  default  under the
     Agreement  has  occurred  and  Borrower  is in full,  faithful  and  timely
     compliance with each and all of the covenants,  conditions,  warranties and
     representations  contained  in the  Agreement,  this Rider and/or any other
     agreement  between  Bank and  Borrower,  Bank  agrees to lend  Borrower  to
     borrower as follows:
     a.) The advances  against  Eligible  Inventory  shall directly  correlate
     to the amount of new  capital  raised by  Borrower  as stated below.
     b.) In the event that Borrower  raises less than $500,000 in New Capital,
      no advances against Eligible Inventory shall be made.
     c.) For amounts of New Capital raised by Borrower in excess of $500,000,
     Bank will lend the equivalent amount against Eligible Inventory,  less
     cumulative net operating  losses,  up to a maximum advance  outstanding at
     any one time of Two  Hundred  and  Fifty  Thousand  Dollars  ($250,000),
     upon  Borrower's  concurrent execution and delivery to Bank of a
     Designation of Inventory, or Certification of Borrowing Base, in form
     customarily used by Bank.

     All advances made and to be made pursuant to this Rider are solely and
     exclusively to enable Borrower to acquire rights in and purchase new
     Inventory, and Borrower represents and warrants that all advances by Bank
     pursuant to this Rider will be used solely and exclusively for such
     purpose; and since such advances will be used for the foregoing purposes,
     Bank's security interest in Borrower's Inventory is and shall be at all
     times a purchase money security interest as that term is described in
     Section 9103 of the California Uniform Commercial Code.

2.  Advances made by Bank to Borrower pursuant to this Rider shall be included
    as part of the Indebtedness of Borrower to Bank as the term 'Indebtedness'
    is defined in the Agreement; and at Bank's option, advances pursuant to this
    Rider may be evidenced by promissory note(s), in form and on terms
    satisfactory to Bank. All such advances shall bear interest at the rate and
    be payable in the manner specified in said promissory note(s) in the event
    Bank exercises the aforementioned option, and in the event Bank does not,
    such advances shall bear interest at the rate and be payable in the manner
    specified in the Agreement.

3.  All of the terms, covenants, warranties, conditions, agreements and
    representations of the Agreement are incorporated herein as though set forth
    in their entirety and are hereby reaffirmed by Borrower and Bank as though
    fully set forth herein.

Accepted and effective as of: ________________ at Bank's Headquarters Office
COMERICA BANK-CALIFORNIA, a California banking corporation
By:  /s/ Clifford A. Payson

Name:  Clifford A. Payson

Title:  Senior Vice President
BORROWERS:
'Borrower l'
Alanco Technologies, Inc., an Arizona Corporation

By: /s/ J.A. Carlson
   ------------------
    John A. Carlson, CFO

'Borrower 2'
Arraid, Inc., an Arizona corporation

By: /s/ J. A. Carlson
    -----------------
    John A. Carlson, CFO

'Borrower 3'
Excel/Meridian Data, an Arizona corporation

By: /s/ J.A. Carlson
    -----------------
    John A. Carlson, CFO

'Borrower 4'
Sanone, Inc., an Arizona corporation

By: /s/ J.A. Carlson
    ----------------
    John A. Carlson, CFO

'Borrower 5'
Netzerver, Inc., an Arizona corporation

By: /s/ J.A. Carlson
    ----------------
    John A. Carlson, CFO


Address for Notices:
333 West Santa Clara Street San Jose, California, 95113

Address for Notices:
15900 North 78th Street Scottsdale, Az. 85260