**Exhibit
      10.5**





**AMENDMENT
      TO REIMBURSEMENT AGREEMENT**





THIS
      AMENDMENT TO REIMBURSEMENT AGREEMENT (this “ Amendment ”), effective
      as of February 20, 2008, is made and entered into by and between Smart Online,
      Inc., a Delaware corporation (the “ Company ”),
      and
      Atlas Capital SA, a Swiss business organization ****** (“ Atlas ”).




W
      I T N E
      S S E T H:





WHEREAS,
      in connection with that certain Loan Agreement between the Company and Wachovia
      Bank, NA (“ Wachovia ”)
      dated
      as of November 10, 2006 (the “ Wachovia
      Loan Agreement ”),
      Atlas
      directed HSBC Private Bank (Suisse) SA, a Swiss business organization (the
      “ Letter
      of Credit Provider ”),
      to
      issue an irrevocable, direct-pay letter of credit to Wachovia (the “ Wachovia
      Letter of Credit ”)
      as
      security under the Wachovia Loan Agreement; and




WHEREAS,
      the Company and Atlas entered into a Reimbursement Agreement dated as of
      November 10, 2006 (the “ Reimbursement
      Agreement ”),
      pursuant to which the Company agreed to reimburse Atlas in the event any amount
      was drawn and paid under the Wachovia Letter of Credit; and




WHEREAS,
      the Company has terminated the Wachovia Loan Agreement and indefeasibly paid
      in
      full all obligations thereunder, and Wachovia has released the Wachovia Letter
      of Credit; and




WHEREAS,
      pursuant to a Commercial Note dated as of the effective date hereof (as the
      same
      may be amended pursuant to its terms from time to time, the “ Paragon
      Loan Agreement ”)
      between the Company and Paragon Commercial Bank, a North Carolina bank
      (“ Paragon ”),
      Paragon will make available to the Company a revolving line of credit in a
      maximum principal amount of $2,470,000.00 (the “ Paragon
      Revolving Line ”);
      and




WHEREAS,
      to induce Paragon to enter into the Paragon Loan Agreement and make the Paragon
      Revolving Line available to the Company, and to provide security under the
      Paragon Loan Agreement for the payment of the Paragon Revolving Line, the
      Company has requested that Atlas direct the Letter of Credit Provider to issue
      an irrevocable, direct-pay letter of credit to Paragon substantially in the
      form
      of Exhibit
      A attached
      hereto (as the same may be amended from time to time, the “ Paragon
      Letter of Credit ”);
      and




WHEREAS,
      Atlas is willing to direct the Letter of Credit Provider to issue the Paragon
      Letter of Credit, subject to the Company and Atlas amending the Reimbursement
      Agreement to provide for reimbursement by the Company in the event any amount
      is
      drawn and paid under the Paragon Letter of Credit.





NOW,
      THEREFORE, in
      consideration of the foregoing premises and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto hereby agree as follows :





Section 1 .  Amendments
      to Reimbursement Agreement *.*





(a)  The
      first
      Recital of the Reimbursement Agreement is amended and restated in its
      entirety to read
      as follows:





“ WHEREAS,
      pursuant to a Commercial Note dated as of February 20, 2008 (as the same may
      be
      amended pursuant to its terms from time to time, the “ Loan
      Agreement ”)
      between the Company and Paragon Commercial Bank, a North Carolina bank (the
      “ Bank ”),
      the
      Bank will make available to the Company a revolving line of credit in a maximum
      principal amount of $2,470,000.00 (the “ Revolving
      Line ”);
      and”




(b)  Section
      2.1(a) of the Reimbursement Agreement is amended and restated in its
      entirety to read
      as follows:








“(a)  Atlas
      shall direct the Letter of Credit Provider to issue the Letter of Credit on
      February 20, 2008. The Letter of Credit shall be issued in an amount equal
      to
      $2,470,000.00. The term of the Letter of Credit shall end on February 18, 2010.”




(c)  Section
      2.3 of the Reimbursement Agreement is deleted in its entirety .





(d)  Exhibit
      A to the
      Reimbursement Agreement is deleted in its entirety and
      replaced with Exhibit
      A to
      this
      Amendment.





Section
      2.  Reference
      to and Effect on the Reimbursement Agreement *.*





( a )  Each
      reference in the Reimbursement Agreement to “this Agreement”, “hereunder”,
“hereof” or words of like import referring to the Reimbursement Agreement, and
      each reference to the “Reimbursement Agreement”, “thereunder”, “thereof” or
      words of like import referring to the Reimbursement Agreement as amended hereby,
      shall mean and be a reference to the Reimbursement Agreement as amended
      hereby.





( b )  Except
      as
      specifically amended above, the Reimbursement Agreement shall continue to be
      in
      full force and effect and is hereby in all respects ratified and
      confirmed.





Section
      3.  Controlling
      Law .
      This
      Amendment has been executed, delivered and accepted at, and shall be deemed
      to
      have been made in, the State of Delaware and shall be interpreted in accordance
      with the internal laws (as opposed to conflicts of laws provisions) of the
      State
      of Delaware, without regard to principles of conflicts of laws.





Section
      4.  Counterparts .
      This
      Amendment may be executed in several counterparts, each of which shall be an
      original and all of which together shall constitute but one and the
      same.


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*[Signature
      Page to Amendment to Reimbursement Agreement]*




IN
      WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
      executed and delivered as of the date first above written.





**SMART
                ONLINE, INC.**By:
            /s/
                David E. ColburnName:
            David
                E. ColburnTitle:
            President
                and Chief Executive Officer





**ATLAS
                CAPITAL, S.A.**By:
            /s/
                Avy LugassyName:
            Avy
                LugassyTitle:
            Member
                of the Management


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