<PAGE>

EXHIBIT 10.35

                               SECURITY AGREEMENT
                               ------------------

              SECURITY AGREEMENT, dated March 1, 2002 (this "AGREEMENT"), by
TELENETICS CORPORATION, a California corporation having its principal place of
business at 25111 Arctic Ocean, Lake Forest, California 92630 (the "GRANTOR"),
for the benefit of the secured parties listed on the signature pages hereto (the
"SECURED PARTIES")


                              W I T N E S S E T H:
                              - - - - - - - - - -

              WHEREAS, on the date hereof, the Grantor has executed secured
convertible promissory notes, in favor of each of the Secured Parties in an
aggregate principal amount of $162,500.00 (the "NOTES"), issued pursuant to the
Note and Warrant Purchase Agreement, dated as of the date hereof among the
Grantor and the Secured Parties (the "PURCHASE AGREEMENT"). In order to provide
security for the payment of all of the obligations of the Grantor to the Secured
Parties under the Notes, the Grantor has agreed to grant to the Secured Parties
a continuing lien and security interest in all of the Grantor's Inventory (as
defined below) and to execute this and such other security agreements and
instruments as are necessary to grant such lien and security interest and enable
the Secured Parties to perfect such security interest.

              NOW, THEREFORE, in consideration of the premises contained herein
and in the Notes and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Grantor agrees with the Secured
Parties as follows:

Section 1.        DEFINITIONS.

              Capitalized terms used in this Security Agreement which are not
otherwise defined herein shall have the following meanings:

              "Code" shall mean the Uniform Commercial Code as in effect in the
State of New York from time to time.

              "Collateral" shall have the meaning assigned thereto in Section 2
of this Agreement.

              "Inventory" shall have the meaning assigned to that term in the
Code.

Section 2.        GRANT OF SECURITY INTEREST.

              The Grantor hereby pledges, assigns and grants to the Secured
Parties a continuing security interest in and lien on all Inventory of the
Grantor, wherever located and whether now or hereafter existing and whether now
owned or hereafter acquired and, to the extent not otherwise included all

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payments under insurance (whether or not any of the Secured Parties is the loss
payee) or under any indemnity, warranty, guaranty or government award which is
payable by reason of any damage to, or any loss, taking or condemnation of, the
Inventory (collectively, the "COLLATERAL").

Section 3.        OBLIGATIONS SECURED.

              The Collateral hereunder constitutes and will constitute
continuing security for the strict performance and observance by the Grantor of
the prompt payment, when due, of all present and future obligations and
indebtedness of the Grantor to the Secured Parties under the Notes (after giving
effect to any offset rights of the Grantor thereunder with respect thereto) and
of the Grantor under this Agreement (collectively, the "OBLIGATIONS").

Section 4.        GRANTOR REMAINS LIABLE.

              Anything herein to the contrary notwithstanding, in the absence of
the Secured Parties' express prior written consent thereto, (a) the Grantor
shall remain liable under any and all contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Secured Parties of any of the rights hereunder
shall not release the Grantor from any of its duties or obligations under any
contracts and agreements included in the Collateral, and (c) the Secured Parties
shall not have any obligation or liability under any contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Secured
Parties be obligated to perform any of the obligations or duties of the Grantor
under any such contract or agreement or to take any action to collect or enforce
any claim for payment assigned hereunder.

Section 5.        REPRESENTATIONS AND WARRANTIES.

         The Grantor represents and warrants to the Secured Parties that:

         5.1 The Grantor is a corporation duly incorporated, validly existing
and in good standing under the laws of its state of incorporation, is duly
qualified and in good standing under the laws of each jurisdiction where the
character of its properties or the transaction of its business makes such
qualification necessary, except for any jurisdictions(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect (as defined in the Purchase Agreement), and has the requisite
corporate power to own or hold under lease its properties and assets and to
conduct its business as it is now being conducted.

         (a) The Grantor has the requisite corporate power and authority to
enter into and perform this Agreement, which has been duly authorized by all
necessary corporate action, and no further consent or authorization of the
Grantor or its board of directors or shareholders or any public authority is

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required in connection therewith. The execution, delivery and performance by the
Grantor of this Agreement will not violate any provision of law applicable to
the Grantor and will not conflict with or result in the breach of any order,
writ, injunction or decree of any court or government instrumentality, or its
charter or by-laws or create a default under any agreement, note or indenture to
which it is a party or by which it is bound or to which any of its property is
subject, or result in the imposition of any lien, charge, security interest or
encumbrance of any nature whatsoever upon any of its properties or assets under
any agreement or any commitment to which the Grantor is bound or by which any of
its properties or assets are bound, except for the liens created under this
Agreement and except for such conflicts, defaults, violations, breaches and the
like that would not, individually or in the aggregate, have a Material Adverse
Effect.

         (b) This Agreement has been duly executed and delivered, and
constitutes the legal, valid and binding obligation of the Grantor, enforceable
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.

         5.2 Except as disclosed on Schedule 1 to this Agreement, the Grantor
has good title to and is the lawful owner of the Collateral free from all
claims, liens, encumbrances, charges or security interests whatsoever. Except as
provided in Section 5.9 of this Agreement, the Collateral will at all times be
kept at the locations set forth on EXHIBIT A hereto.

         5.3 The provisions of this Agreement create a valid, and upon filing a
UCC-1 financing statement with the Secretary of State of the State of
California, a perfected, security interest in the Collateral, enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.

         5.4 Except as disclosed on Schedule 1 to this Agreement, there are no
judgments outstanding against the Grantor and there are no actions or
proceedings before any court or administrative agency pending or, to the
knowledge of the Grantor, threatened against the Grantor which, if determined
adversely to the Grantor, would affect the Collateral.

         5.5 The Grantor's principal office and place of business where it
maintains its records concerning the Collateral is at its address stated above.
The Grantor has no other office or place of business except as indicated on
EXHIBIT A hereto.

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Section 6.        COVENANTS.

         The Grantor covenants and agrees that from the date of this Agreement
until payment in full of all of the Obligations:

         6.1 The Grantor shall keep and maintain the Collateral insured against
loss or damage by fire and all other risks as is customarily maintained by
similar businesses for the full insurable value thereof. Such policies shall by
their terms provide that the Secured Parties be given at least 30 days prior
written notice of any amendment, modification or cancellation thereof and that
the Secured Parties shall have the option, but not the obligation, to pay the
premiums to continue such insurance in effect or obtain like coverage.
Certificates of all such policies shall be delivered to the Secured Parties. The
Grantor agrees that any payment made by the Grantor pursuant to the foregoing
authorization shall bear interest thereon at the rate of 10% per annum from the
date of such payment and shall become part of the Obligations and be shall
secured by the Collateral pursuant to the terms of this Agreement. The Grantor
hereby appoints the Secured Parties as its attorney-in-fact to make, adjust or
settle any claim under any insurance policy insuring the Collateral while an
Event of Default (as defined below) shall have occurred and be continuing.

         6.2 The Grantor shall maintain the Collateral in good repair, working
order and condition, subject to normal wear and tear, and make all reasonable
repairs, replacements, additions and improvements thereto.

         6.3 The Grantor shall give the Secured Parties full and free access to
the Collateral and to all books, correspondence and records of the Grantor with
respect thereto upon reasonable notice and at all reasonable times, and shall
permit upon the occurrence and continuance of an Event of Default the Secured
Parties and their representatives to examine the same and to make extracts
therefrom all at the Grantor's expense.

         6.4 The Grantor shall promptly pay and discharge or cause to be paid
and discharged all its obligations and liabilities including, without
limitation, all taxes, assessments and governmental charges upon it or its
income or properties, when due unless and to the extent only that the same shall
be contested in good faith and by appropriate proceedings and then only to the
extent that a bond is filed in cases where the filing of a bond is necessary to
avoid the creation of a lien against any of its property.

         6.5 The Grantor shall do, or cause to be done, all things necessary to
preserve and keep in full force and effect its corporate existence and all
franchises, rights and privileges necessary for the proper conduct of its
business, and continue to engage in the business of the same type as now
conducted by it.

         6.6 The Grantor shall not grant, permit or suffer to exist any lien,
claim, security interest or encumbrance upon the Collateral, that is senior or
on parity with those in favor of the Secured Parties, other than the security
interest granted by the Grantor pursuant to a Security Agreement dated as of
January 23, 2002 between the Grantor and the secured parties named therein.

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         6.7 The Grantor shall notify the Secured Parties in writing within 5
business days after the occurrence thereof, of the occurrence of any event which
constitutes, or which with notice or lapse of time, or both, would constitute an
Event of Default.

         6.8 The Grantor shall execute and deliver such further or additional
instruments and assurances, and take all such additional action as the Secured
Parties may require for the purpose of carrying out the provisions of this
Agreement.

         6.9 Except as expressly permitted by or described in this Agreement or
its schedules or exhibits, the Grantor shall not sell, assign, lease or
otherwise dispose of the Collateral except in the ordinary course of business.

         6.10 The Grantor shall not change its principal office or the place
where it maintains its records pertaining to the Collateral as specified in
Section 5.5 hereof without giving the Secured Parties at least 30 days prior
written notice thereof.

         6.11 The Grantor shall not remove or permit the removal of the
Collateral from its present location as set forth on EXHIBIT A hereto except in
the ordinary course of business without the prior written consent of the Secured
Parties.

Section 7.        OPTION TO PERFORM OBLIGATION OF THE GRANTOR IN RESPECT OF THE
COLLATERAL.

         If the Grantor fails or refuses to make any payment, perform any
covenant or obligation, or take any other action which the Grantor is obligated
hereunder to perform, observe, take or do, then the Secured Parties may, at
their option, without notice or demand upon the Grantor and without releasing
the Grantor from any obligation or covenant hereof, perform, observe, take or do
the same in such manner and to such extent as the Secured Parties may deem
necessary to protect any of the Collateral and their rights hereunder including,
without limitation, obtaining insurance and the payment of any taxes and the
payment of any sums necessary to discharge liens or security interests at any
time levied or placed on the Collateral.

Section 8.        EVENTS OF DEFAULT.

         For purposes of this Agreement, any of the following events shall
constitute an "Event of Default":

         8.1 The Grantor shall fail to make any payment of principal and
interest on the Notes prior to the expiration of all applicable cure periods;

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         8.2 The Grantor shall default in the performance or observance of any
covenant or agreement contained in this Agreement and such default shall
continue for a period of seven (7) business days following the Grantor's receipt
of written notice thereof;

         8.3 Any representation or warranty made by the Grantor in this
Agreement or the other Transaction Documents (as defined in the Purchase
Agreement) or in any other certificate, agreement, instrument or statement
delivered to the Secured Parties by or on behalf of the Grantor shall at any
time prove to have been incorrect when made in any material respect;

         8.4 There shall be a defect in the Grantor's title to any of the
Collateral and such defect in title shall not have been cured or removed within
20 days after the Grantor's receipt of written notice thereof;

         8.5 The Grantor shall become insolvent, make a general assignment for
the benefit of creditors, file a petition in bankruptcy, be adjudicated
insolvent or bankrupt, admit in writing its inability to pay its debts as they
mature, petition or apply for, consent to, or acquiesce in the appointment of, a
trustee or receiver for all or a substantial part of the Grantor's property; or
any other bankruptcy, reorganization, debt arrangement or other proceeding under
any bankruptcy, insolvency law, or any dissolution or liquidation proceeding
shall be instituted by or against the Grantor, and if instituted against it,
shall be consented to or acquiesced in by the Grantor or shall not be dismissed
or, if contested, stayed within a period of 90 days; or any judgment, writ of
attachment or execution or any similar process shall be issued or levied against
a substantial part of the property of the Grantor and shall not be released,
stayed, bonded or vacated within a period of 90 days after its issue or levy;

         8.6 The Grantor shall, at any time without the prior written consent of
the Secured Parties, enter into an agreement to change the location of the
Collateral or permit any change in such location of the Collateral from that
specified in Section 5.3 hereof except as permitted by Section 6.9 of this
Agreement, and/or

         8.7 The lien created hereunder shall, for any reason other than by or
through the conduct of the Secured Parties, cease to be valid.

Section 9.        REMEDIES.

         In case any Event of Default shall have occurred and be continuing, the
Secured Parties shall have, in addition to all other rights and remedies given
it by this Agreement or the Notes, those allowed by law and the rights and
remedies of a secured party under the Uniform Commercial Code as enacted in any
jurisdiction in which any of the Collateral may be located and, without limiting
the generality of the foregoing, the Secured Parties may immediately, without
demand of performance and without notice of intention to sell or of time or
place of sale or redemption or other notice or demand whatsoever to the Grantor,
all of which are hereby expressly waived, and without advertisement, enter onto

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the premises where the Collateral is located and take possession thereof without
liability for any lawsuit or action, and sell, lease or otherwise dispose of all
or any part of the Collateral or any interest which the Grantor may have
therein, either at pubic or private sale or otherwise, and after deducting from
the proceeds of sale or other disposition of the Collateral all expenses
(including all reasonable fees and expenses of counsel) as provided in Section
13 hereof, shall apply the residue of such proceeds toward the payment of the
Obligations. If notice of any sale or other disposition is required by law to be
given, the Grantor hereby agrees that a notice sent at least 5 days before the
time of any intended public sale or before the time after which any private sale
or other disposition of the Collateral is to be made shall be reasonable notice
of such sale or other disposition. The Grantor agrees to assemble the
Collateral, or cause it to be assembled, at such place or places as the Secured
Parties may designate by written notice to the Grantor. At any such sale or
other disposition, the Secured Parties may purchase the whole or any part of the
Collateral, free from any right of redemption on the part of the Grantor, which
right is hereby waived and released. Without limiting the generality of the
rights and remedies conferred upon the Secured Parties under this Section 9, the
Secured Parties may: (a) enter upon the premises of the Grantor and take
immediate possession of the Collateral, either personally or by means of a
receiver appointed by a court therefor, using reasonable force to do so; (b) at
the Secured Parties' option, use, operate, manage and control the Collateral in
any lawful manner; (c) collect and receive all rents, income, revenue, earnings,
issue and profits therefrom; and (d) maintain, repair, renovate, alter or remove
the Collateral as the Secured Parties may determine in their discretion and any
monies so collected or received by the Secured Parties shall be applied to, or
may be accumulated for application upon the Obligations and the Grantor shall be
liable for any deficiency.

Section 10.       POWER OF ATTORNEY.

         The Grantor authorizes the Secured Parties and does hereby make,
constitute and appoint the Secured Parties and agents of the Secured Parties
with full power of substitution, as the Grantor's true and lawful
attorney-in-fact with power, in its own name or in the name of the Grantor, upon
the occurrence and continuance of any Event of Default, to endorse any notes
checks, drafts, money orders, or other instruments of payment (including,
payments under or in respect of any policy of insurance) in respect of the
Collateral that may come into possession of the Secured Parties; to sign and
endorse any documents elating to the Collateral; to pay or discharge taxes,
liens, security interests or other encumbrances at any time levied or placed on
or threatened against the Collateral; to grant, collect, receipt or, compromise,
settle and sue for monies due in respect of the Collateral; and generally, to do
at the Secured Parties' option and at the Grantor's expense, at any time, or
from time to time all act and things which the Secured Parties deem necessary to
protect, preserve and realize upon the Collateral and the Grantor's security
interests therein in order to effect the intent of this Agreement, as fully and
effectually as the Grantor might or could do; and the Grantor hereby ratifies
all that said attorney shall do or cause to be done by virtue hereof. THIS POWER
OF ATTORNEY IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE FOR AS LONG AS

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ANY OF THE OBLIGATIONS SHALL BE OUTSTANDING. The Grantor agrees that any
reasonable fees, costs and expenses incurred by the Secured Parties pursuant to
the foregoing authorization, and interest thereon at the rate of 10% per annum
from the date of incurring any such reasonable fees, costs and expense, shall
become part of the Obligations and be secured by the Collateral.

Section 11.       NOTICES.

         All notices, requests, demands and other communications to or upon the
respective parties hereto shall be made in accordance with Section 4.1 of the
Notes.

Section 12.       NO WAIVER; REMEDIES CUMULATIVE.

         No failure on the part of the Secured Parties to exercise, and no delay
in exercising any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Secured Parties of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.

Section 13.       FINANCING STATEMENTS; FURTHER ASSURANCES; FILING.

         On the dates thereof, the Grantor shall deliver UCC-1 financing
statements in form and substance satisfactory to the Secured Parties and with
the Secured Parties' security interest duly noted thereon with respect to the
Collateral for filing at the appropriate offices. Thereafter, within 10 business
days after the Secured Parties' written request therefor, the Grantor shall
cause such additional Uniform Commercial Code financing statements with respect
to the Collateral or any modifications or amendments to any such financing
statements (all in form and substance reasonable satisfactory to the Secured
Parties) to be delivered to the Secured Parties for filing at the appropriate
offices. The Grantor from time to time, at its sole expense, will promptly
execute and deliver all further instruments and documents, and take all further
action that the Secured Parties may reasonably request, and hereby authorizes
the Secured Parties to take all action (including the filing of any financing
statements, continuation statements or amendments thereto with respect to the
Collateral without the signature of the Grantor where permitted by law) as the
Secured Parties in each case may deem reasonably necessary, proper or desirable
in order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Secured Parties to exercise and enforce their
rights and remedies hereunder with respect to any Collateral. A carbon,
photographic or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law. The Secured Parties shall execute terminations
to any such financing statements within 3 business days of the Grantor's request
therefore upon payment of the Obligations.

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Section 14.       COSTS AND EXPENSES.

         The Grantor shall reimburse the Secured Parties for all reasonable
costs and expenses incurred by them and shall pay the reasonable fees and
disbursements to one attorney for the Secured Parties in connection with
enforcement of the Secured Parties' rights hereunder.

Section 15.       AMENDMENTS.

         No amendment, modification or waiver of any provision of this Agreement
nor consent to any departure by the Grantor therefrom shall be effective unless
the same shall be in writing and signed by the Secured Parties and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.

Section 16.       TERMINATION.

         Upon the payment in full of all Obligations, the Secured Parties shall
execute and deliver to the Grantor all such documents and instruments as shall
be necessary to evidence termination of this Agreement and the security
interests created hereunder; PROVIDED, HOWEVER, the obligations of the Grantor
under Section 12 hereof shall survive any termination under this Section 15.

Section 17.       GOVERNING LAW.

         THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OR
CHOICE OF LAW.

Section 18.       ASSIGNMENT, ETC.

         The Grantor shall not assign, pledge, mortgage, sublet or otherwise
transfer or encumber any of its rights or obligations, as the case may be, under
this Agreement without the Secured Parties' prior written consent. Any such
purported assignment, pledge, mortgage, sublet, transfer or other action without
such written consent shall be void. This Agreement shall be binding upon each of
the Grantor and its successors and shall inure to the benefit of the Secured
Parties and their successors and assigns.

Section 19.       SEVERABILITY.

         The provisions of this Agreement are severable, and if any provision
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
then such invalidity or unenforceability shall not in any manner affect such
provision in any other jurisdiction or any other provision of this Agreement in
any jurisdiction.

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              IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their authorized representatives on the date first above
written.

GRANTOR:                                    TELENETICS CORPORATION


                                            By: /S/ Shala Shashani Lutz
                                               ---------------------------------
                                               Name: Shala Shashani Lutz
                                               Title:   President



SECURED PARTIES:

                                               /S/ Charles S. Brand
                                               ---------------------------------
                                               Charles S. Brand


                                               /S/ Michael J. Fourticq
                                               ---------------------------------
                                               Michael J. Fourticq


                                               /S/ Keith Becker
                                               ---------------------------------
                                               Keith Becker


                                               /S/ Lloyd B. Embry
                                               ---------------------------------
                                               Lloyd B. Embry


                                               JOHN R. WORTHINGTON TRUST

                                           By: /S/ John R. Worthington
                                               ---------------------------------
                                               John R. Worthington, Trustee

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                                                                       Exhibit A
                                                                              to
                                                              Security Agreement

                          GRANTOR'S PLACES OF BUSINESS
                          ----------------------------

         The following address is the Grantor's principal place of business and
is a location where Collateral is kept:

                                    25111 Arctic Ocean
                                    Lake Forest, California 92630

         The Company maintains the following additional place of business where
a portion of the Collateral is kept:
                                    SDC
                                    4111 Citrus Ave. #5
                                    Rocklin, California 95677

         Collateral also is kept at the following third party locations:

                                    Corlund Electronics
                                    14101 Myford Road
                                    Tustin, California 92780

                                    American Optisurgical
                                    25501 Arctic Ocean
                                    Lake Forest, California 92630

                                    DisCopy Labs
                                    3550-B Jurupa St.
                                    Ontario, California 91761


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                                                                      Schedule 1
                                                                              to
                                                              Security Agreement

                                   EXCEPTIONS
                                   ----------


Title to the Collateral:

         See Schedule 2.1(l) to the Purchase Agreement (except with regard to
the promissory note in favor of Knobbe, Martens Olsen & Bear LLP and the various
capital leases).



Legal Proceedings:

         See Schedule 2.1(m) to the Purchase Agreement.


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