Exhibit 10.1

                          SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT (this  "Agreement"),  dated as of August
10, 2005, by and among CITY NETWORK, INC., a Nevada corporation (the "COMPANY"),
and the Buyers listed on Schedule I attached hereto (individually,  a "BUYER" or
collectively "BUYERS").

                                   WITNESSETH:

     WHEREAS,  the Company and the Buyer(s) are  executing and  delivering  this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("REGULATION  D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT");

     WHEREAS,  the  parties  desire  that,  upon the  terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Buyer(s),
as provided  herein,  and the Buyer(s) shall purchase Two Hundred Fifty Thousand
Dollars   ($250,000)  of  secured   convertible   debentures  (the  "CONVERTIBLE
DEBENTURES"),  which shall be  convertible  into shares of the Company's  common
stock,  par value $0.001 (the "COMMON  STOCK") (as  converted,  the  "CONVERSION
SHARES") of which One Hundred Twenty Five Thousand  Dollars  ($125,000) shall be
funded on the fifth (5th)  business  day  following  the date hereof (the "FIRST
CLOSING")  and One Hundred  Twenty Five  Thousand  Dollars  ($125,000)  shall be
funded two (2) business days prior to the date the  registration  statement (the
"REGISTRATION STATEMENT") is filed, pursuant to the Investor Registration Rights
Agreement dated the date hereof,  with the United States Securities and Exchange
Commission  (the "SEC") (the "SECOND  CLOSING")  (individually  referred to as a
"CLOSING"  collectively  referred to as the  "CLOSINGS"),  for a total  purchase
price of Two Hundred Fifty Thousand Dollars  ($250,000),  (the "PURCHASE PRICE")
in the  respective  amounts set forth  opposite each Buyer(s) name on Schedule I
(the "SUBSCRIPTION AMOUNT"); and

     WHEREAS,   contemporaneously  with  the  execution  and  delivery  of  this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement  substantially in the form attached hereto as EXHIBIT A (the "INVESTOR
REGISTRATION  RIGHTS  AGREEMENT")  pursuant  to which the  Company has agreed to
provide certain  registration  rights under the Securities Act and the rules and
regulations promulgated there under, and applicable state securities laws; and

     WHEREAS,  the aggregate proceeds of the sale of the Convertible  Debentures
contemplated  hereby shall be held in escrow  pursuant to the terms of an escrow
agreement  substantially in the form of the Escrow Agreement  attached hereto as
EXHIBIT B.

     WHEREAS,   contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties hereto are executing and delivering  Security Agreements
substantially   in  the  form  attached  hereto  as  EXHIBIT  C  (the  "SECURITY
AGREEMENTS")  pursuant to which the Company  and its wholly  owned  subsidiaries
have agreed to provide the Buyer a security  interest in Pledged  Collateral (as
this  term is  defined  in the  Security  Agreements)  to secure  the  Company's
obligations  under this  Agreement,  the  Convertible  Debenture,  the  Investor
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Registration Rights Agreement, the Irrevocable Transfer Agent Instructions,  the
Security Agreement,  the Pledge and Escrow Agreement or any other obligations of
the Company to the Buyer;

     WHEREAS,   contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties  hereto are executing and delivering a Pledge and Escrow
Agreement  substantially  in the form attached  hereto as EXHIBIT D (the "PLEDGE
AND ESCROW  AGREEMENT")  pursuant to which the Company has agreed to provide the
Buyer a security  interest in the Pledged Shares (as this term is defined in the
Pledge and Escrow  Agreement)  to secure the  Company's  obligations  under this
Agreement,   the  Convertible   Debenture,   the  Investor  Registration  Rights
Agreement, the Irrevocable Transfer Agent Instructions,  the Security Agreement,
the Pledge and Escrow  Agreement or any other  obligations of the Company to the
Buyer; and

     WHEREAS,   contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties hereto are executing and delivering Irrevocable Transfer
Agent  Instructions  substantially in the form attached hereto as EXHIBIT E (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS")

     NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  and  other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:

     1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

     (a) PURCHASE OF CONVERTIBLE  DEBENTURES.  Subject to the  satisfaction  (or
waiver)  of the terms and  conditions  of this  Agreement,  each  Buyer  agrees,
severally and not jointly,  to purchase at Closing (as defined herein below) and
the Company  agrees to sell and issue to each Buyer,  severally and not jointly,
at each  Closing,  Convertible  Debentures  in  amounts  corresponding  with the
Subscription  Amount set forth  opposite each Buyer's name on Schedule I hereto.
Upon execution hereof by a Buyer, the Buyer shall wire transfer the Subscription
Amount set forth  opposite  his name on Schedule I in same-day  funds or a check
payable to "David Gonzalez, Esq., as Escrow Agent for City Network, Inc./Cornell
Capital  Partners,  LP",  which  Subscription  Amount  shall  be held in  escrow
pursuant  to the terms of the Escrow  Agreement  (as  hereinafter  defined)  and
disbursed in accordance therewith.

     (b)  CLOSING  DATE.  The  First  Closing  of the  purchase  and sale of the
Convertible  Debentures  shall take place at 10:00 a.m. Eastern Standard Time on
the fifth (5th) business day following the date hereof,  subject to notification
of  satisfaction  of the conditions to the First Closing set forth herein and in
Sections  6 and 7 below  (or such  later  date as is  mutually  agreed to by the
Company and the Buyer(s))  (the "FIRST  CLOSING DATE") and the Second Closing of
the purchase and sale of the  Convertible  Debentures  shall take place at 10:00
a.m.  Eastern  Standard  Time  two (2)  business  days  prior  to the  date  the
Registration  Statement  is filed  with  the SEC,  subject  to  notification  of
satisfaction  of the  conditions  to the Second  Closing set forth herein and in
Sections  6 and 7 below  (or such  later  date as is  mutually  agreed to by the
Company and the Buyer(s)) (the "SECOND CLOSING DATE") (collectively  referred to
a the "CLOSING DATES").  The Closing shall occur on the respective Closing Dates
at the offices of  Yorkville  Advisors,  LLC,  3700 Hudson  Street,  Suite 3700,
Jersey City,  New Jersey 07302 (or such other place as is mutually  agreed to by
the Company and the Buyer(s)).

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     (c) ESCROW ARRANGEMENTS; FORM OF PAYMENT. Upon execution hereof by Buyer(s)
and pending the Closings,  the aggregate proceeds of the sale of the Convertible
Debentures  to Buyer(s)  pursuant  hereto shall be  deposited in a  non-interest
bearing escrow account with David  Gonzalez,  Esq., as escrow agent (the "ESCROW
AGENT"),  pursuant to the terms of an escrow agreement between the Company,  the
Buyer(s)  and the  Escrow  Agent in the form  attached  hereto as EXHIBIT B (the
"ESCROW AGREEMENT").  Subject to the satisfaction of the terms and conditions of
this Agreement,  on the Closing Dates, (i) the Escrow Agent shall deliver to the
Company in  accordance  with the terms of the Escrow  Agreement  such  aggregate
proceeds for the Convertible  Debentures to be issued and sold to such Buyer(s),
minus the unpaid structuring fees and expenses of Yorkville Advisors Management,
LLC not to exceed Ten Thousand Dollars  ($10,000),  the due diligence fee not to
exceed Two Thousand Five Hundred Dollars ($2,500), and the legal fees, expenses,
and legal retainer to Loeb & Loeb LLP of Fifty Thousand Dollars ($50,000), which
shall be paid  directly  from the  gross  proceeds  held in  escrow of the First
Closing and (ii) the Company shall deliver to each Buyer, Convertible Debentures
which such Buyer(s) is  purchasing  at the First and Second  Closings in amounts
indicated  opposite  such Buyer's name on Schedule I, duly executed on behalf of
the Company.

     2. BUYER'S REPRESENTATIONS AND WARRANTIES.

     Each Buyer represents and warrants, severally and not jointly, that:

     (a) INVESTMENT PURPOSE. Each Buyer is acquiring the Convertible  Debentures
and,  upon  conversion  of  Convertible  Debentures,  the Buyer will acquire the
Conversion Shares then issuable, for its own account for investment only and not
with a view  towards,  or for resale in  connection  with,  the  public  sale or
distribution thereof,  except pursuant to sales registered or exempted under the
Securities Act; provided,  however,  that by making the representations  herein,
such Buyer reserves the right to dispose of the Conversion Shares at any time in
accordance with or pursuant to an effective registration statement covering such
Conversion Shares or an available exemption under the Securities Act.

     (b) ACCREDITED INVESTOR STATUS.  Each Buyer is an "ACCREDITED  INVESTOR" as
that term is defined in Rule 501(a)(3) of Regulation D.

     (c) RELIANCE ON EXEMPTIONS.  Each Buyer  understands  that the  Convertible
Debentures  are being offered and sold to it in reliance on specific  exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's  compliance  with,  the  representations,  warranties,  agreements,
acknowledgments  and  understandings  of such Buyer set forth herein in order to
determine the  availability of such exemptions and the eligibility of such Buyer
to acquire such securities.

     (d) INFORMATION.  Each Buyer and its advisors (and his or, its counsel), if
any, have been furnished with all materials  relating to the business,  finances
and operations of the Company and  information  he deemed  material to making an
informed   investment   decision  regarding  his  purchase  of  the  Convertible
Debentures and the Conversion  Shares,  which have been requested by such Buyer.
Each Buyer and its advisors,  if any, have been afforded the  opportunity to ask
questions  of the Company and its  management.  Neither such  inquiries  nor any

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other due diligence  investigations  conducted by such Buyer or its advisors, if
any, or its representatives  shall modify, amend or affect such Buyer's right to
rely on the  Company's  representations  and  warranties  contained in Section 3
below. Each Buyer understands that its investment in the Convertible  Debentures
and the  Conversion  Shares  involves a high degree of risk.  Each Buyer is in a
position   regarding  the  Company,   which,   based  upon  employment,   family
relationship  or economic  bargaining  power,  enabled and enables such Buyer to
obtain information from the Company in order to evaluate the merits and risks of
this investment. Each Buyer has sought such accounting, legal and tax advice, as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Convertible Debentures and the Conversion Shares.

     (e) NO GOVERNMENTAL  REVIEW.  Each Buyer  understands that no United States
federal  or state  agency or any other  government  or  governmental  agency has
passed  on  or  made  any  recommendation  or  endorsement  of  the  Convertible
Debentures  or the  Conversion  Shares,  or the fairness or  suitability  of the
investment in the Convertible Debentures or the Conversion Shares, nor have such
authorities  passed  upon  or  endorsed  the  merits  of  the  offering  of  the
Convertible Debentures or the Conversion Shares.

     (f) TRANSFER OR RESALE.  Each Buyer  understands that except as provided in
the Investor Registration Rights Agreement:  (i) the Convertible Debentures have
not been and are not  being  registered  under the  Securities  Act or any state
securities laws, and may not be offered for sale, sold,  assigned or transferred
unless (A)  subsequently  registered  thereunder,  or (B) such Buyer  shall have
delivered to the Company an opinion of counsel, in a generally  acceptable form,
to the effect that such  securities to be sold,  assigned or transferred  may be
sold,  assigned or transferred  pursuant to an exemption from such  registration
requirements;  (ii) any sale of such  securities  made in  reliance  on Rule 144
under the Securities Act (or a successor rule thereto)  ("RULE 144") may be made
only in  accordance  with the terms of Rule 144 and further,  if Rule 144 is not
applicable,  any  resale of such  securities  under  circumstances  in which the
seller  (or the  person  through  whom the sale is made)  may be deemed to be an
underwriter  (as  that  term is  defined  in the  Securities  Act)  may  require
compliance  with some other  exemption under the Securities Act or the rules and
regulations of the SEC  thereunder;  and (iii) neither the Company nor any other
person is under any obligation to register such securities  under the Securities
Act or any state  securities  laws or to comply with the terms and conditions of
any exemption thereunder.  The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.

     (g)  LEGENDS.  Each  Buyer  understands  that  the  certificates  or  other
instruments representing the Convertible Debentures and or the Conversion Shares
shall bear a restrictive  legend in substantially the following form (and a stop
transfer order may be placed against transfer of such stock certificates):

      THE  SECURITIES  REPRESENTED  BY THIS  CERTIFICATE  HAVE NOT BEEN
      REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS  AMENDED,  OR
      APPLICABLE  STATE  SECURITIES  LAWS.  THE  SECURITIES  HAVE  BEEN
      ACQUIRED  SOLELY  FOR  INVESTMENT  PURPOSES  AND NOT  WITH A VIEW

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      TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,  TRANSFERRED
      OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
      FOR THE SECURITIES  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
      OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN
      A GENERALLY  ACCEPTABLE  FORM, THAT  REGISTRATION IS NOT REQUIRED
      UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

The  legend set forth  above  shall be removed  and the  Company  within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion  Shares upon which it is stamped,  if, unless  otherwise  required by
state securities laws, (i) in connection with a sale  transaction,  provided the
Conversion  Shares are registered under the Securities Act or (ii) in connection
with a sale transaction,  after such holder provides the Company with an opinion
of counsel,  which opinion shall be in form,  substance and scope  customary for
opinions  of counsel in  comparable  transactions,  to the effect  that a public
sale,  assignment  or  transfer  of the  Conversion  Shares may be made  without
registration under the Securities Act.

     (h)  AUTHORIZATION,  ENFORCEMENT.  This Agreement has been duly and validly
authorized,  executed  and  delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with its terms, except
as such  enforceability  may be  limited  by  general  principles  of  equity or
applicable bankruptcy, insolvency,  reorganization,  moratorium, liquidation and
other  similar laws  relating to, or affecting  generally,  the  enforcement  of
applicable creditors' rights and remedies.

     (i) RECEIPT OF  DOCUMENTS.  Each Buyer and his or its counsel has  received
and read in their entirety: (i) this Agreement and each representation, warranty
and covenant set forth herein, the Security Agreement, the Investor Registration
Rights  Agreement,   the  Escrow  Agreement,   the  Irrevocable  Transfer  Agent
Agreement, and the Pledge and Escrow Agreement; (ii) all due diligence and other
information   necessary  to  verify  the  accuracy  and   completeness  of  such
representations,  warranties and covenants;  (iii) the Company's Form 10-KSB for
the fiscal year ended December 31, 2004;  (iv) the Company's Form 10-QSB for the
fiscal  quarter ended March 31, 2005 and (v) answers to all questions each Buyer
submitted to the Company regarding an investment in the Company;  and each Buyer
has relied on the information  contained  therein and has not been furnished any
other  documents,  literature,  memorandum or  prospectus.

     (j) DUE  FORMATION  OF  CORPORATE  AND OTHER  BUYERS.  If the Buyer(s) is a
corporation,  trust,  partnership  or  other  entity  that is not an  individual
person, it has been formed and validly exists and has not been organized for the
specific purpose of purchasing the Convertible  Debentures and is not prohibited
from doing so.

     (k) NO LEGAL ADVICE FROM THE COMPANY. Each Buyer acknowledges,  that it had
the  opportunity to review this Agreement and the  transactions  contemplated by
this  Agreement  with  his or its  own  legal  counsel  and  investment  and tax
advisors.  Each Buyer is relying  solely on such counsel and advisors and not on
any statements or representations  of the Company or any of its  representatives
or agents for legal,  tax or investment  advice with respect to this investment,

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the  transactions  contemplated  by this Agreement or the securities laws of any
jurisdiction.

     3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

     The Company  represents and warrants to each of the Buyers that,  except as
set forth in the SEC Documents (as defined herein):

     (a)  ORGANIZATION AND  QUALIFICATION.  The Company and its subsidiaries are
corporations duly organized and validly existing in good standing under the laws
of the  jurisdiction  in which  they are  incorporated,  and have the  requisite
corporate  power to own their  properties  and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the  business  conducted  by it makes such  qualification
necessary,  except to the extent  that the failure to be so  qualified  or be in
good standing  would not have a material  adverse  effect on the Company and its
subsidiaries taken as a whole.

     (b) AUTHORIZATION,  ENFORCEMENT, COMPLIANCE WITH OTHER INSTRUMENTS. (i) The
Company  has the  requisite  corporate  power and  authority  to enter  into and
perform this Agreement, the Security Agreement, the Investor Registration Rights
Agreement,  the Irrevocable Transfer Agent Agreement,  the Escrow Agreement, the
Pledge  and Escrow  Agreement,  and any  related  agreements  (collectively  the
"TRANSACTION  DOCUMENTS")  and to  issue  the  Convertible  Debentures  and  the
Conversion  Shares in  accordance  with the terms hereof and  thereof,  (ii) the
execution  and  delivery  of the  Transaction  Documents  by the Company and the
consummation  by  it  of  the  transactions  contemplated  hereby  and  thereby,
including,  without limitation,  the issuance of the Convertible  Debentures the
Conversion  Shares and the  reservation  for  issuance  and the  issuance of the
Conversion Shares issuable upon conversion or exercise  thereof,  have been duly
authorized  by the  Company's  Board of  Directors  and no  further  consent  or
authorization  is  required  by the  Company,  its  Board  of  Directors  or its
stockholders,  (iii) the  Transaction  Documents  have been  duly  executed  and
delivered by the Company,  (iv) the Transaction  Documents  constitute the valid
and  binding  obligations  of the  Company  enforceable  against  the Company in
accordance  with their terms,  except as such  enforceability  may be limited by
general   principles   of   equity   or   applicable   bankruptcy,   insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally,  the  enforcement of creditors'  rights and remedies.  The
authorized  officer of the Company executing the Transaction  Documents knows of
no reason why the Company  cannot file the  registration  statement  as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.

     (c)  CAPITALIZATION.  As of the date hereof the authorized capital stock of
the Company consists of 100,000,000  shares of Common Stock and 50,000 shares of
preferred  stock,  par value $0.001 per share,  of the Company  (the  "PREFERRED
STOCK") of which 27,500,000  shares of Common Stock and zero shares of Preferred
Stock are issued  and  outstanding.  All of such  outstanding  shares  have been
validly issued and are fully paid and nonassessable.  Except as disclosed in the
SEC  Documents  (as  defined in  Section  3(f)),  no shares of Common  Stock are
subject  to  preemptive  rights  or any  other  similar  rights  or any liens or
encumbrances  suffered or permitted  by the Company.  Except as disclosed in the

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SEC Documents,  as of the date of this  Agreement,  (i) there are no outstanding
options,  warrants,  scrip,  rights to subscribe to, calls or commitments of any
character  whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments,  understandings  or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional  shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character  whatsoever  relating to, or
securities  or rights  convertible  into,  any  shares of  capital  stock of the
Company  or  any  of its  subsidiaries,  (ii)  there  are  no  outstanding  debt
securities  and (iii) there are no  agreements or  arrangements  under which the
Company or any of its  subsidiaries  is obligated to register the sale of any of
their  securities  under the Securities Act (except pursuant to the Registration
Rights Agreement) and (iv) there are no outstanding  registration statements and
there are no outstanding  comment  letters from the SEC or any other  regulatory
agency other than on Form S-8 or as contemplated by this Agreement. There are no
securities or instruments  containing  anti-dilution or similar  provisions that
will be triggered by the issuance of the Convertible  Debentures as described in
this  Agreement.  The Company has furnished to the Buyer true and correct copies
of the Company's  Articles of Incorporation,  as amended and as in effect on the
date hereof (the "ARTICLES OF INCORPORATION"),  and the Company's By-laws, as in
effect on the date  hereof  (the  "BY-LAWS"),  and the  terms of all  securities
convertible  into or exercisable for Common Stock and the material rights of the
holders  thereof in respect thereto other than stock options issued to employees
and consultants.

     (d) ISSUANCE OF SECURITIES.  The Convertible Debentures are duly authorized
and, upon issuance in  accordance  with the terms hereof,  shall be duly issued,
fully paid and  nonassessable,  are free from all taxes,  liens and charges with
respect to the issue thereof.  The Conversion Shares issuable upon conversion of
the Convertible  Debentures have been duly authorized and reserved for issuance.
Upon conversion or exercise in accordance  with the  Convertible  Debentures the
Conversion Shares will be duly issued, fully paid and nonassessable.

     (e) NO CONFLICTS.  Except as disclosed in the SEC Documents, the execution,
delivery and  performance  of the  Transaction  Documents by the Company and the
consummation by the Company of the transactions contemplated hereby will not (i)
result in a violation  of the  Articles of  Incorporation,  any  certificate  of
designations of any outstanding  series of preferred stock of the Company or the
By-laws or (ii)  conflict  with or  constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of  termination,  amendment,  acceleration  or  cancellation  of, any
agreement,  indenture  or  instrument  to  which  the  Company  or  any  of  its
subsidiaries is a party, or result in a violation of any law, rule,  regulation,
order,  judgment  or decree  (including  federal and state  securities  laws and
regulations  and the  rules  and  regulations  of the  American  Stock  Exchange
("AMEX") on which the Common Stock is quoted)  applicable  to the Company or any
of its subsidiaries or by which any material property or asset of the Company or
any of its  subsidiaries  is bound or affected  which would  interfere  with the
ability of the Company to perform its  obligations  under this  Agreement in any
material respect. Except as disclosed in the SEC Documents,  neither the Company
nor its  subsidiaries  is in  violation  of any term of or in default  under its
Articles of Incorporation or By-laws or their organizational charter or by-laws,
respectively,  or any  material  contract,  agreement,  mortgage,  indebtedness,
indenture,  instrument,  judgment,  decree  or  order  or any  statute,  rule or
regulation  applicable to the Company or its  subsidiaries.  The business of the

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Company and its subsidiaries is not being conducted,  and shall not be conducted
in material violation of any law,  ordinance,  or regulation of any governmental
entity.  Except as  specifically  contemplated by this Agreement and as required
under the Securities Act and any applicable  state  securities laws, the Company
is not  required to obtain any consent,  authorization  or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement or the  Registration  Rights  Agreement in  accordance  with the terms
hereof or thereof.  Except as  disclosed  in the SEC  Documents,  all  consents,
authorizations,  orders, filings and registrations which the Company is required
to obtain  pursuant to the preceding  sentence have been obtained or effected on
or prior to the date hereof. The Company and its subsidiaries are unaware of any
facts or circumstance that might give rise to any of the foregoing.

     (f) SEC DOCUMENTS: FINANCIAL STATEMENTS. Since January 1, 2002, the Company
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC under of the Securities  Exchange Act of 1934, as
amended  (the  "EXCHANGE  ACT") (all of the  foregoing  filed  prior to the date
hereof or amended  after the date hereof and all exhibits  included  therein and
financial  statements  and  schedules  thereto  and  documents  incorporated  by
reference therein,  being hereinafter  referred to as the "SEC DOCUMENTS").  The
Company has delivered to the Buyers or their representatives,  or made available
through the SEC's website at  http://www.sec.gov.,  true and complete  copies of
the SEC Documents. As of their respective dates, the financial statements of the
Company disclosed in the SEC Documents (the "FINANCIAL  STATEMENTS") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with generally  accepted  accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise  indicated in such Financial  Statements or the notes  thereto,  or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary  statements) and, fairly present in all
material respects the financial  position of the Company as of the dates thereof
and the  results of its  operations  and cash flows for the  periods  then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments).  No other  information  provided by or on behalf of the Company to
the  Buyer  which  is not  included  in the SEC  Documents,  including,  without
limitation,  information  referred  to in this  Agreement,  contains  any untrue
statement of a material  fact or omits to state any material  fact  necessary in
order to make the statements  therein,  in the light of the circumstances  under
which they were made, not misleading.

     (g)  10(B)-5.  The SEC  Documents do not include any untrue  statements  of
material fact, nor do they omit to state any material fact required to be stated
therein  necessary to make the  statements  made, in light of the  circumstances
under which they were made, not misleading.

     (h) ABSENCE OF LITIGATION.  Except as disclosed in the SEC Documents, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board,  government agency,  self-regulatory  organization or body pending
against or  affecting  the  Company,  the Common  Stock or any of the  Company's
subsidiaries,  wherein an unfavorable decision, ruling or finding would (i) have
a material adverse effect on the transactions contemplated hereby (ii) adversely

                                       8
<PAGE>
affect the  validity or  enforceability  of, or the  authority or ability of the
Company to perform its obligations under, this Agreement or any of the documents
contemplated  herein,  or  (iii)  except  as  expressly  disclosed  in  the  SEC
Documents,  have  a  material  adverse  effect  on  the  business,   operations,
properties,  financial condition or results of operations of the Company and its
subsidiaries taken as a whole.

     (i)   ACKNOWLEDGMENT   REGARDING   BUYER'S   PURCHASE  OF  THE  CONVERTIBLE
DEBENTURES.  The Company  acknowledges  and agrees  that the  Buyer(s) is acting
solely  in the  capacity  of an arm's  length  purchaser  with  respect  to this
Agreement  and  the  transactions   contemplated  hereby.  The  Company  further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar  capacity)  with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective  representatives or agents in connection with this Agreement
and the transactions  contemplated  hereby is merely  incidental to such Buyer's
purchase of the  Convertible  Debentures or the Conversion  Shares.  The Company
further  represents to the Buyer that the Company's  decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.

     (j)  NO  GENERAL  SOLICITATION.   Neither  the  Company,  nor  any  of  its
affiliates,  nor any person  acting on its or their  behalf,  has engaged in any
form of general  solicitation  or general  advertising  (within  the  meaning of
Regulation D under the Securities  Act) in connection  with the offer or sale of
the Convertible Debentures or the Conversion Shares.

     (k) NO INTEGRATED OFFERING. Neither the Company, nor any of its affiliates,
nor any person acting on its or their behalf has,  directly or indirectly,  made
any offers or sales of any security or solicited any offers to buy any security,
under   circumstances  that  would  require   registration  of  the  Convertible
Debentures  or the  Conversion  Shares  under the  Securities  Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the Securities Act.

     (l) EMPLOYEE RELATIONS.  Neither the Company nor any of its subsidiaries is
involved in any labor dispute nor, to the knowledge of the Company or any of its
subsidiaries,  is any such  dispute  threatened.  None of the  Company's  or its
subsidiaries'  employees  is a  member  of a  union  and  the  Company  and  its
subsidiaries believe that their relations with their employees are good.

     (m) INTELLECTUAL  PROPERTY RIGHTS.  The Company and its subsidiaries own or
possess adequate rights or licenses to use all trademarks,  trade names, service
marks,  service mark  registrations,  service  names,  patents,  patent  rights,
copyrights, inventions, licenses, approvals, governmental authorizations,  trade
secrets and rights  necessary  to conduct  their  respective  businesses  as now
conducted,  except  where  would  not  have a  material  adverse  effect  on the
Company's  business.  The Company and its subsidiaries do not have any knowledge
of any infringement by the Company or its subsidiaries of trademark,  trade name
rights, patents, patent rights, copyrights, inventions, licenses, service names,
service marks, service mark registrations,  trade secret or other similar rights
of others,  and, to the  knowledge of the Company  there is no claim,  action or
proceeding being made or brought against, or to the Company's  knowledge,  being
threatened against, the Company or its subsidiaries  regarding trademark,  trade

                                       9
<PAGE>
name, patents,  patent rights,  invention,  copyright,  license,  service names,
service marks,  service mark registrations,  trade secret or other infringement;
and the Company and its  subsidiaries  are unaware of any facts or circumstances
which might give rise to any of the foregoing.

     (n)  ENVIRONMENTAL  LAWS.  The  Company  and  its  subsidiaries  are (i) in
material  compliance  with any and all applicable  foreign,  federal,  state and
local  laws and  regulations  relating  to the  protection  of human  health and
safety,  the environment or hazardous or toxic substances or wastes,  pollutants
or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all material permits,
licenses or other approvals required of them under applicable Environmental Laws
to conduct their  respective  businesses  and (iii) are in  compliance  with all
terms and conditions of any such permit, license or approval.

     (o) TITLE. Any real property and facilities held under lease by the Company
and its  subsidiaries  are held by them under valid,  subsisting and enforceable
leases with such  exceptions as are not material and do not  interfere  with the
use made and proposed to be made of such  property and  buildings by the Company
and its subsidiaries.

     (p)  INSURANCE.  The  Company and each of its  subsidiaries  are insured by
insurers of recognized  financial  responsibility  against such losses and risks
and in such  amounts as  management  of the  Company  believes to be prudent and
customary  in the  businesses  in which the  Company  and its  subsidiaries  are
engaged.  Neither  the  Company  nor any such  subsidiary  has been  refused any
insurance  coverage  sought or applied  for and neither the Company nor any such
subsidiary  has any  reason  to  believe  that it will not be able to renew  its
existing  insurance  coverage  as and when such  coverage  expires  or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise,  or the earnings,  business or operations of the Company
and its subsidiaries, taken as a whole.

     (q)  REGULATORY  PERMITS.  The  Company  and its  subsidiaries  possess all
material  certificates,  authorizations  and permits  issued by the  appropriate
federal,  state or foreign  regulatory  authorities  necessary to conduct  their
respective  businesses,  and neither the  Company  nor any such  subsidiary  has
received any notice of proceedings relating to the revocation or modification of
any such material certificate, authorization or permit.

     (r) INTERNAL ACCOUNTING CONTROLS.  The Company and each of its subsidiaries
maintain  a  system  of  internal  accounting  controls  sufficient  to  provide
reasonable  assurance  that (i)  transactions  are executed in  accordance  with
management's general or specific authorizations,  (ii) transactions are recorded
as necessary to permit  preparation of financial  statements in conformity  with
generally accepted accounting  principles and to maintain asset  accountability,
and (iii) the recorded  amounts for assets is compared with the existing  assets
at  reasonable  intervals  and  appropriate  action is taken with respect to any
differences.

     (s) NO  MATERIAL  ADVERSE  BREACHES,  ETC.  Except  as set forth in the SEC
Documents,  neither the Company  nor any of its  subsidiaries  is subject to any
charter,  corporate or other legal restriction,  or any judgment, decree, order,
rule or  regulation  which in the judgment of the  Company's  officers has or is
expected  in the  future to have a  material  adverse  effect  on the  business,
properties,  operations, financial condition, results of operations or prospects

                                       10
<PAGE>
of the Company or its  subsidiaries.  Except as set forth in the SEC  Documents,
neither the Company nor any of its  subsidiaries is in breach of any contract or
agreement  which breach,  in the judgment of the Company's  officers,  has or is
expected  to  have  a  material  adverse  effect  on the  business,  properties,
operations,  financial  condition,  results of  operations  or  prospects of the
Company or its subsidiaries.

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

     (u) CERTAIN  TRANSACTIONS.  Except as set forth in the SEC  Documents,  and
except  for  arm's  length  transactions  pursuant  to which the  Company  makes
payments in the ordinary  course of business upon terms no less  favorable  than
the Company  could  obtain from third  parties and other than the grant of stock
options  disclosed in the SEC  Documents,  none of the officers,  directors,  or
employees  of the  Company  is  presently  a party to any  transaction  with the
Company  (other  than  for  services  as  employees,  officers  and  directors),
including  any  contract,  agreement  or  other  arrangement  providing  for the
furnishing  of  services  to or by,  providing  for  rental of real or  personal
property to or from,  or  otherwise  requiring  payments to or from any officer,
director or such employee or, to the knowledge of the Company,  any corporation,
partnership,  trust or other entity in which any officer,  director, or any such
employee  has a  substantial  interest  or is an officer,  director,  trustee or
partner.

     (v) FEES AND RIGHTS OF FIRST REFUSAL. The Company is not obligated to offer
the securities  offered hereunder on a right of first refusal basis or otherwise
to  any  third  parties  including,  but  not  limited  to,  current  or  former
shareholders  of the  Company,  underwriters,  brokers,  agents  or other  third
parties.

     4. COVENANTS.

     (a) BEST EFFORTS.  Each party shall use commercially  reasonable efforts to
timely  satisfy  each of the  conditions  to be  satisfied  by it as provided in
Sections 6 and 7 of this Agreement.

     (b)  FORM  D.  The  Company  agrees  to file a Form D with  respect  to the
Conversion  Shares as required under  Regulation D and to provide a copy thereof
to each Buyer  promptly after such filing.  The Company shall,  on or before the
Closing  Date,  take such action as the Company  shall  reasonably  determine is
necessary  to qualify the  Conversion  Shares,  or obtain an  exemption  for the
Conversion  Shares  for  sale to the  Buyers  at the  Closing  pursuant  to this
Agreement  under  applicable  securities or "Blue Sky" laws of the states of the

                                       11
<PAGE>
United  States,  and shall  provide  evidence of any such action so taken to the
Buyers on or prior to the Closing Date.

     (c)  REPORTING  STATUS.  Until the  earlier of (i) the date as of which the
Buyer(s) may sell all of the Conversion Shares without  restriction  pursuant to
Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and
(B)  none of the  Convertible  Debentures  are  outstanding  (the  "REGISTRATION
PERIOD"),  the Company shall file in a timely manner all reports  required to be
filed with the SEC pursuant to the Exchange Act and the  regulations  of the SEC
thereunder, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit such termination.

     (d) USE OF PROCEEDS. The Company will use the proceeds from the sale of the
Convertible Debentures for general corporate and working capital purposes.

     (e)  RESERVATION  OF SHARES.  The Company shall take all action  reasonably
necessary  to at all times have  authorized,  and  reserved  for the  purpose of
issuance,  such number of shares of Common Stock as shall be necessary to effect
the issuance of the Conversion  Shares. If at any time the Company does not have
available  such shares of Common Stock as shall from time to time be  sufficient
to effect the conversion of all of the Conversion Shares, the Company shall call
and hold a special  meeting of the  shareholders  within sixty (60) days of such
occurrence,  for the sole purpose of increasing the number of shares authorized.
The Company's management shall recommend to the shareholders to vote in favor of
increasing  the number of shares of Common Stock  authorized.  Management  shall
also vote all of its  shares in favor of  increasing  the  number of  authorized
shares of Common Stock.

     (f) LISTINGS OR QUOTATION. The Company shall promptly secure the listing or
quotation of the Conversion  Shares upon the AMEX, or other market, if any, upon
which  shares of Common  Stock are then  listed or quoted  (subject  to official
notice of issuance) and shall use commercially  reasonable  efforts to maintain,
so long as any other shares of Common Stock shall be so listed,  such listing of
all  Conversion  Shares  from  time to time  issuable  under  the  terms of this
Agreement. The Company shall maintain the Common Stock's eligibility for listing
on the AMEX.

     (g) FEES AND EXPENSES.  Each of the Company and the Buyer(s)  shall pay all
costs and expenses  incurred by such party in connection  with the  negotiation,
investigation, preparation, execution and delivery of the Transaction Documents,
except:

         (i) The Company shall pay Yorkville Advisors Management LLC a fee equal
to an amount not to exceed ten percent (10%) of the Purchase Price.

         (ii) The Company  shall pay a  structuring  fee to  Yorkville  Advisors
Management,  LLC,  in an amount not to exceed Ten  Thousand  Dollars  ($10,000),
which shall be paid directly from the proceeds of the First Closing.

                                       12
<PAGE>
         (iii) The Company shall pay the Buyers a  non-refundable  due diligence
fee, in an amount not to exceed Two Thousand Five Hundred Dollars ($2,500) which
shall be paid directly from the proceeds of the First Closing.

         (iv) The Company shall issue to the Buyer a warrant to purchase  Twenty
Five  Thousand  (25,000)  shares of the  Company's  Common  Stock (the  "WARRANT
SHARES")  for a period  of three (3) years at an  exercise  price of $0.001  per
share.  The  Warrant  Shares  shall have  "piggy-back"  and demand  registration
rights.

     (h)  CORPORATE  EXISTENCE.  So  long as any of the  Convertible  Debentures
remain outstanding,  the Company shall not directly or indirectly consummate any
merger, reorganization,  restructuring,  reverse stock split consolidation, sale
of all or substantially  all of the Company's assets or any similar  transaction
or related  transactions  (each such transaction,  an  "ORGANIZATIONAL  CHANGE")
unless the Company makes  appropriate  provisions  with respect to such holders'
rights and  interests  to insure that the  provisions  of this Section 4(h) will
thereafter be applicable to the Convertible Debentures.

     (i) TRANSACTIONS WITH AFFILIATES. So long as any Convertible Debentures are
outstanding, the Company shall not, and shall cause each of its subsidiaries not
to, enter into, amend,  modify or supplement,  or permit any subsidiary to enter
into, amend,  modify or supplement any agreement,  transaction,  commitment,  or
arrangement with any of its or any subsidiary's officers,  directors, person who
were  officers  or  directors  at any time  during the  previous  two (2) years,
stockholders who beneficially own five percent (5%) or more of the Common Stock,
or  Affiliates  (as  defined  below) or with any  individual  related  by blood,
marriage,  or  adoption to any such  individual  or with any entity in which any
such entity or individual owns a five percent (5%) or more  beneficial  interest
(each a "RELATED PARTY"),  except for (a) customary employment  arrangements and
benefit programs on reasonable  terms, (b) any investment in an Affiliate of the
Company,  (c) any  agreement,  transaction,  commitment,  or  arrangement  on an
arms-length  basis on terms no less  favorable  than terms which would have been
obtainable  from a person  other than such  Related  Party,  (d) any  agreement,
transaction,  commitment,  or arrangement which is approved by a majority of the
disinterested directors of the Company; for purposes hereof, any director who is
also an officer of the Company or any  subsidiary  of the Company shall not be a
disinterested  director  with  respect  to  any  such  agreement,   transaction,
commitment, or arrangement.  "AFFILIATE" for purposes hereof means, with respect
to any person or entity,  another person or entity that, directly or indirectly,
(i) has a ten percent  (10%) or more  equity  interest in that person or entity,
(ii) has ten percent (10%) or more common  ownership with that person or entity,
(iii)  controls that person or entity,  or (iv) shares common  control with that
person or entity.  "CONTROL"  or  "CONTROLS"  for  purposes  hereof means that a
person or entity has the  power,  direct or  indirect,  to conduct or govern the
policies of another person or entity.

     (j) TRANSFER  AGENT.  The Company  covenants  and agrees that, in the event
that the  Company's  agency  relationship  with the  transfer  agent  should  be
terminated  for any  reason  prior to a date  which is two (2)  years  after the
Closing Date,  the Company shall  immediately  appoint a new transfer  agent and
shall  require that the new transfer  agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).

                                       13
<PAGE>
     (k)  RESTRICTION  ON  ISSUANCE  OF  THE  CAPITAL  STOCK.  So  long  as  any
Convertible Debentures are outstanding, the Company shall not, without the prior
written  consent of the  Buyer(s),  (i) issue or sell shares of Common  Stock or
Preferred Stock without consideration or for a consideration per share less than
the bid price of the Common Stock determined  immediately prior to its issuance,
(ii)  issue any  warrant,  option,  right,  contract,  call,  or other  security
instrument  granting  the  holder  thereof,  the right to acquire  Common  Stock
without  consideration or for a consideration  less than such Common Stock's bid
price  determined  immediately  prior to it's  issuance,  (iii)  enter  into any
security  instrument  granting  the  holder a security  interest  in any and all
assets of the  Company,  or (iv)  file any  registration  statement  on Form S-8
except to  register  up to  4,000,000  shares  of  Common  Stock to be issued to
employees under a bona fide employee stock incentive plan.

     (l)  Neither  the  Buyer(s)  nor any of its  affiliates  have an open short
position in the Common  Stock of the Company,  and the  Buyer(s)  agrees that it
shall not,  and that it will cause its  affiliates  not to,  engage in any short
sales of or hedging  transactions  with respect to any securities of the Company
as long as any Convertible  Debenture or warrants to purchase the Warrant Shares
shall remain outstanding.

     5. TRANSFER AGENT INSTRUCTIONS.

     The Company shall issue the Irrevocable  Transfer Agent Instructions to its
transfer agent  irrevocably  appointing  David  Gonzalez,  Esq. as the Company's
agent for purpose of having certificates  issued,  registered in the name of the
Buyer(s) or its respective  nominee(s),  for the Conversion Shares  representing
such amounts of  Convertible  Debentures  as specified  from time to time by the
Buyer(s) to the Company  upon  conversion  of the  Convertible  Debentures,  for
interest  owed  pursuant  to the  Convertible  Debenture,  and  for  any and all
Liquidated Damages (as this term is defined in the Investor  Registration Rights
Agreement). David Gonzalez, Esq. shall be paid a cash fee of Fifty Dollars ($50)
for  every  occasion  they  act  pursuant  to  the  Irrevocable  Transfer  Agent
Instructions.  The  Company  shall not  change  its  transfer  agent  unless the
subsequent  transfer agent agrees to be bound by the Irrevocable  Transfer Agent
Instructions.   Prior  to  registration  of  the  Conversion  Shares  under  the
Securities  Act,  all  such  certificates  shall  bear  the  restrictive  legend
specified  in Section  2(g) of this  Agreement.  The  Company  warrants  that no
instruction other than the Irrevocable  Transfer Agent Instructions  referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(g)
hereof  (in the case of the  Conversion  Shares  prior to  registration  of such
shares  under the  Securities  Act) will be given by the Company to its transfer
agent and that the Conversion  Shares shall otherwise be freely  transferable on
the books and  records  of the  Company as and to the  extent  provided  in this
Agreement  and the  Investor  Registration  Rights  Agreement.  Nothing  in this
Section 5 shall  affect in any way the  Buyer's  obligations  and  agreement  to
comply with all applicable  securities laws upon resale of Conversion Shares. If
the Buyer(s) provides the Company with an opinion of counsel, in form, scope and
substance  customary for opinions of counsel in comparable  transactions  to the
effect that  registration  of a resale by the Buyer(s) of any of the  Conversion
Shares is not required  under the  Securities  Act, the Company shall within two
(2) business days instruct its transfer agent to issue one or more  certificates
in such name and in such  denominations  as specified by the Buyer.  The Company
acknowledges  that  a  breach  by it of its  obligations  hereunder  will  cause
irreparable  harm to the  Buyer by  vitiating  the  intent  and  purpose  of the
transaction contemplated hereby. Accordingly,  the Company acknowledges that the

                                       14
<PAGE>
remedy  at law for a breach  of its  obligations  under  this  Section 5 will be
inadequate  and  agrees,  in the event of a breach or  threatened  breach by the
Company  of the  provisions  of this  Section  5,  that  the  Buyer(s)  shall be
entitled,  in  addition  to  all  other  available  remedies,  to an  injunction
restraining any breach and requiring  immediate  issuance and transfer,  without
the necessity of showing  economic  loss and without any bond or other  security
being required.

     6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

     The obligation of the Company  hereunder to issue and sell the  Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing  Dates,  of each of the following  conditions,  provided that
these  conditions  are for the  Company's  sole benefit and may be waived by the
Company at any time in its sole discretion:

     (a) Each Buyer shall have executed the Transaction  Documents and delivered
them to the Company.

     (b) The  Buyer(s)  shall have  delivered  to the Escrow  Agent the Purchase
Price for Convertible Debentures in respective amounts as set forth next to each
Buyer as outlined on Schedule I attached  hereto and the Escrow Agent shall have
delivered  the net  proceeds  to the  Company by wire  transfer  of  immediately
available U.S. funds pursuant to the wire instructions provided by the Company.

     (c) The  representations  and  warranties of the Buyer(s) shall be true and
correct in all material  respects as of the date when made and as of the Closing
Dates as though made at that time  (except for  representations  and  warranties
that speak as of a  specific  date),  and the  Buyer(s)  shall  have  performed,
satisfied and complied in all material  respects with the covenants,  agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Buyer(s) at or prior to the Closing Dates.

     7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

     (a) The  obligation of the Buyer(s)  hereunder to Purchase the  Convertible
Debentures at the First Closing is subject to the satisfaction, at or before the
First Closing Date, of each of the following conditions:

         (i) The Company  shall have  executed  the  Transaction  Documents  and
delivered the same to the Buyer(s).

         (ii) The  Common  Stock and the  Conversion  Shares  issuable  upon the
conversion  of the  Convertible  Debentures  shall be approved  and eligible for
quotation  on the AMEX and  trading  in the  Common  Stock  shall  not have been
suspended for any reason

         (iii) The  representations  and warranties of the Company shall be true
and  correct in all  material  respects  (except to the extent  that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such  representations  and warranties  shall be true and
correct  without further  qualification)  as of the date when made and as of the
First Closing Date as though made at that time (except for  representations  and
warranties  that  speak  as of a  specific  date)  and the  Company  shall  have

                                       15
<PAGE>
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or  complied  with by the  Company  at or prior to the First  Closing  Date.  If
requested by the  Buyer(s),  the  Buyer(s)  shall have  received a  certificate,
executed by the President of the Company, dated as of the First Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by the Buyer(s) including,  without limitation an update as of the First Closing
Date regarding the representation contained in Section 3(c) above.

         (iv) The Company  shall have executed and delivered to the Buyer(s) the
Convertible  Debentures  in the  respective  amounts  set  forth  opposite  each
Buyer(s) name on Schedule I attached hereto with respect to the First Closing.

         (v) The Buyer(s)  shall have received an opinion of counsel from Loeb &
Loeb, LLP in a form satisfactory to the Buyer(s).

         (vi) The Company shall have  provided to the Buyer(s) a certificate  of
good standing from the secretary of state from the state in which the company is
incorporated.

         (vii) The Company  shall have filed a form UCC-1 or such other forms as
may be  required to perfect  the  Buyer's  interest  in the Pledged  Property as
detailed in the Security  Agreement  dated the date hereof and provided proof of
such filing to the Buyer(s).

         (viii) The Company shall have delivered to the Escrow Agent the Pledged
Shares as well  executed  and  medallion  guaranteed  stock  powers as  required
pursuant to the Pledge and Escrow Agreement.

         (ix) The Company shall have  provided to the Buyer an  acknowledgement,
to the satisfaction of the Buyer, from the Company's certified public accountant
as to  its  ability  to  provide  all  consents  required  in  order  to  file a
registration statement in connection with this transaction.

         (x) The Company shall have reserved out of its  authorized and unissued
Common  Stock,  solely  for the  purpose  of  effecting  the  conversion  of the
Convertible  Debentures,  shares of Common Stock to effect the conversion of all
of the Conversion Shares then outstanding.

         (xi) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory  to the Buyer,  shall have been  delivered to and  acknowledged  in
writing by the Company's transfer agent.

     (b) The  obligation  of the Buyer(s)  hereunder  to accept the  Convertible
Debentures at the Second  Closing is subject to the  satisfaction,  at or before
the Second Closing Date, of each of the following conditions:

         (i) The Common Stock and all the  Conversion  Shares  issuable upon the
conversion of the  Convertible  Debentures  shall be approved and authorized for

                                       16
<PAGE>
quotation  on the AMEX and  trading  in the  Common  Stock  shall  not have been
suspended for any reason.

         (ii) The  representations  and  warranties of the Company shall be true
and  correct in all  material  respects  (except to the extent  that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such  representations  and warranties  shall be true and
correct  without further  qualification)  as of the date when made and as of the
Second Closing Date as though made at that time (except for  representations and
warranties  that  speak  as of a  specific  date)  and the  Company  shall  have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or  complied  with by the  Company at or prior to the Second  Closing  Date.  If
requested by the  Buyer(s),  the  Buyer(s)  shall have  received a  certificate,
executed by two officers of the Company, dated as of the Second Closing Date, to
the foregoing effect and as to such other matters as may be reasonably requested
by the Buyer(s) including, without limitation an update as of the Second Closing
Date regarding the representation contained in Section 3(c) above.

         (iii) The Company shall have executed and delivered to the Buyer(s) the
Note in the respective amounts set forth opposite each Buyer(s) name on Schedule
I attached hereto with respect to the Second Closing.

         (iv) The Company shall have certified that all conditions to the Second
Closing  have been  satisfied  and that the Company  will file the  Registration
Statement with the SEC in compliance with the rules and regulations  promulgated
by the SEC for filing thereof two (2) business days after the Second Closing. If
requested by the  Buyer(s),  the  Buyer(s)  shall have  received a  certificate,
executed by the two  officers  of the  Company,  dated as of the Second  Closing
Date,  to the  foregoing  effect.  The Buyers have no  obligation to fund at the
Second Closing if the Company has filed the Registration Statement.

     8. INDEMNIFICATION.

     (a)  In  consideration  of the  Buyer's  execution  and  delivery  of  this
Agreement and acquiring the  Convertible  Debentures and the  Conversion  Shares
hereunder,  and in addition to all of the Company's other obligations under this
Agreement,  the Company shall defend,  protect,  indemnify and hold harmless the
Buyer(s), and all of their officers, directors, employees and agents (including,
without   limitation,   those  retained  in  connection  with  the  transactions
contemplated by this Agreement) (collectively, the "BUYER INDEMNITEES") from and
against any and all actions,  causes of action,  suits, claims,  losses,  costs,
penalties,  fees,  liabilities and damages, and expenses in connection therewith
(irrespective  of whether any such Buyer Indemnitee is a party to the action for
which indemnification  hereunder is sought), and including reasonable attorneys'
fees and disbursements  (the "INDEMNIFIED  LIABILITIES"),  incurred by the Buyer
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any  misrepresentation  or breach of any  representation or warranty made by the
Company  in  this  Agreement,   the  Convertible   Debentures  or  the  Investor
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or

                                       17
<PAGE>
obligation  of  the  Company  contained  in  this  Agreement,  or  the  Investor
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated  hereby  or  thereby,  or (c) any  cause of  action,  suit or claim
brought   or  made   against   such   Buyer   Indemnitee   based   on   material
misrepresentations of the Company or due to a material breach of the Company and
arising  out of or  resulting  from  the  execution,  delivery,  performance  or
enforcement  of this  Agreement or any other  instrument,  document or agreement
executed pursuant hereto by the parties hereto. To the extent that the foregoing
undertaking  by the Company  may be  unenforceable  for any reason,  the Company
shall make the maximum  contribution to the payment and  satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.

     (b) In  consideration  of the  Company's  execution  and  delivery  of this
Agreement,  and in addition to all of the Buyer's other  obligations  under this
Agreement,  the Buyer shall  defend,  protect,  indemnify  and hold harmless the
Company and all of its officers,  directors,  employees  and agents  (including,
without   limitation,   those  retained  in  connection  with  the  transactions
contemplated by this Agreement)  (collectively,  the "COMPANY INDEMNITEES") from
and  against  any  and  all  Indemnified  Liabilities  incurred  by the  Company
Indemnitees or any of them as a result of, or arising out of, or relating to (a)
any  misrepresentation  or breach of any  representation or warranty made by the
Buyer(s)  in this  Agreement,  instrument  or  document  contemplated  hereby or
thereby  executed by the Buyer,  (b) any breach of any  covenant,  agreement  or
obligation  of  the  Buyer(s)   contained  in  this   Agreement,   the  Investor
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated  hereby  or  thereby  executed  by the  Buyer,  or (c) any cause of
action,  suit or claim brought or made against such Company  Indemnitee based on
material  misrepresentations  of the  Buyer or due to a  material  breach of the
Buyer and arising out of or resulting from the execution,  delivery, performance
or enforcement of this Agreement,  the Investor Registration Rights Agreement or
any other instrument,  document or agreement  executed pursuant hereto by any of
the parties hereto.  To the extent that the foregoing  undertaking by each Buyer
may be  unenforceable  for  any  reason,  each  Buyer  shall  make  the  maximum
contribution  to the  payment  and  satisfaction  of  each  of  the  Indemnified
Liabilities, which is permissible under applicable law.

     9. GOVERNING LAW: MISCELLANEOUS.

     (a) GOVERNING LAW. This Agreement  shall be governed by and  interpreted in
accordance  with  the laws of the  State of New  Jersey  without  regard  to the
principles  of  conflict  of laws.  The  parties  further  agree that any action
between them shall be heard in Hudson County,  New Jersey, and expressly consent
to the  jurisdiction  and venue of the Superior Court of New Jersey,  sitting in
Hudson  County and the United  States  District  Court for the  District  of New
Jersey sitting in Newark,  New Jersey for the  adjudication  of any civil action
asserted pursuant to this Paragraph.

     (b)  COUNTERPARTS.  This Agreement may be executed in two or more identical
counterparts,  all of which shall be considered  one and the same  agreement and
shall  become  effective  when  counterparts  have been signed by each party and
delivered to the other party.  In the event any  signature  page is delivered by
facsimile transmission,  the party using such means of delivery shall cause four
(4) additional  original executed signature pages to be physically  delivered to
the other party within five (5) days of the execution and delivery hereof.

                                       18
<PAGE>
     (c)  HEADINGS.  The  headings  of this  Agreement  are for  convenience  of
reference  and shall not form part of, or affect  the  interpretation  of,  this
Agreement.

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

     (e) ENTIRE AGREEMENT, AMENDMENTS. This Agreement supersedes all other prior
oral or written agreements between the Buyer(s),  the Company,  their affiliates
and persons acting on their behalf with respect to the matters discussed herein,
and this  Agreement and the  instruments  referenced  herein  contain the entire
understanding  of the parties  with  respect to the matters  covered  herein and
therein and,  except as  specifically  set forth herein or therein,  neither the
Company  nor  any  Buyer  makes  any  representation,   warranty,   covenant  or
undertaking with respect to such matters.  No provision of this Agreement may be
waived or amended other than by an instrument in writing  signed by the party to
be charged with enforcement.

     (f)  NOTICES.  Any  notices,  consents,  waivers,  or other  communications
required or permitted to be given under the terms of this  Agreement  must be in
writing  and will be  deemed  to have  been  delivered  (i) upon  receipt,  when
delivered  personally  or by a  nationally  recognized  overnight  or world wide
courier; (ii) upon confirmation of receipt, when sent by facsimile; or (iii) ten
(10) days after being sent by U.S. certified mail, return receipt requested,  in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:

If to the Company, to:     City Network, Inc
                           6F-3, No.16, Jian Ba Road
                           Jhonghe City, Taipei County, 235
                           Taiwan, ROC F5 235
                           Attention: Mr Tiao-Tsan Lai
                           Telephone: 886-2-8226-5566
                           Facsimile: 886-2-8226-8585

With a copy to:            Loeb & Loeb, LLP
                           345 Park Avenue
                           New York, NY 10154-0037
                           Attention: Mitchell Nussbaum, Esq.
                           Telephone: (212) 407-4159
                           Facsimile: (212) 407.4990

     If to the Buyer(s), to its address and facsimile number on Schedule I, with
copies to the  Buyer's  counsel as set forth on  Schedule  I. Each  party  shall
provide five (5) days' prior written  notice to the other party of any change in
address or facsimile number.

     (g) SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon and inure
to the benefit of the  parties  and their  respective  successors  and  assigns.
Neither the Company nor any Buyer shall  assign this  Agreement or any rights or

                                       19
<PAGE>
obligations  hereunder  without  the prior  written  consent of the other  party
hereto.

     (h) NO THIRD  PARTY  BENEFICIARIES.  This  Agreement  is  intended  for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

     (i) SURVIVAL.  Unless this Agreement is terminated  under Section 9(l), the
representations  and  warranties  of the Company and the  Buyer(s)  contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the  indemnification  provisions  set forth in Section 8, shall  survive the
Closing  for a  period  of two  (2)  years  following  the  date  on  which  the
Convertible  Debentures are converted in full. The Buyer(s) shall be responsible
only  for  its  own  representations,   warranties,   agreements  and  covenants
hereunder.

     (j)  PUBLICITY.  The  Company  and the  Buyer(s)  shall  have the  right to
approve,  before  issuance any press release or any other public  statement with
respect to the  transactions  contemplated  hereby made by any party;  provided,
however,  that the Company shall be entitled,  without the prior approval of the
Buyer(s),  to issue any press release or other public disclosure with respect to
such  transactions  required  under  applicable  securities  or  other  laws  or
regulations  (the Company  shall use its best efforts to consult the Buyer(s) in
connection with any such press release or other public  disclosure  prior to its
release  and  Buyer(s)  shall  be  provided  with a copy  thereof  upon  release
thereof).

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

     (l) TERMINATION. In the event that the Closing shall not have occurred with
respect to the Buyers on or before five (5)  business  days from the date hereof
due to the Company's or the Buyer's  failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the  non-breaching  party's failure to waive such
unsatisfied  condition(s)),  the  non-breaching  party  shall have the option to
terminate this  Agreement  with respect to such breaching  party at the close of
business  on such  date  without  liability  of any  party to any  other  party;
provided,  however, that if this Agreement is terminated by the Company pursuant
to this  Section  9(l),  the Company  shall remain  obligated  to reimburse  the
Buyer(s)  for the  fees and  expenses  of  Yorkville  Advisors  Management,  LLC
described in Section 4(g) above.

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


                    [REMAINDER PAGE INTENTIONALLY LEFT BLANK]

                                       20
<PAGE>
     IN WITNESS WHEREOF,  the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.


                                     COMPANY:
                                     CITY NETWORK, INC.


                                     By: /s/ Tiao-Tsan Lai
                                        ---------------------------------
                                     Name:  Mr Tiao-Tsan Lai
                                     Title: Chief Executive Officer


                                     BUYER
                                     HIGHGATE HOUSE FUNDS, LTD.

                                     By:  Yorkville Advisors, LLC
                                     Its: General Partner


                                     By: /s/ Mark Angelo
                                        ---------------------------------
                                     Name: Mark Angelo
                                     Its:  Portfolio Manager

                                       21
<PAGE>
                                    EXHIBIT A

                 FORM OF INVESTOR REGISTRATION RIGHTS AGREEMENT

<PAGE>
                                    EXHIBIT B

                            FORM OF ESCROW AGREEMENT

<PAGE>
                                    EXHIBIT C

                               SECURITY AGREEMENT

<PAGE>
                                    EXHIBIT D

                           PLEDGE AND ESCROW AGREEMENT

<PAGE>
                                    EXHIBIT E

                     IRREVOCABLE TRANSFER AGENT INSTRUCTIONS

<PAGE>
                                   SCHEDULE I

                               SCHEDULE OF BUYERS


<TABLE>
<CAPTION>

                                  Address/Facsimile                       Amount of
     Name                          Number of Buyer                      Subscription
     ----                          ---------------                      ------------
<S>                         <C>                                 <C>
Highgate House Funds, Ltd.  101 Hudson Street - Suite 3700       First Closing:    $125,000
                            Jersey City, NJ  07303               Second Closing:   $125,000
                                                                                   --------
                            Facsimile: (201) 985-8266            Total             $250,000


With a copy to:             101 Hudson Street - Suite 3700
                            Jersey City, NJ 07302
                            Facsimile:  (201) 985-8266
                            Attention:  David Gonzalez, Esq.
</TABLE>