Exhibit 10.7

                             FUNDS ESCROW AGREEMENT

         This Agreement  (this  "Agreement") is dated as of the 13th day of May,
2004 among Front Porch  Digital,  Inc., a Nevada  corporation  (the  "COMPANY"),
Laurus  Master Fund,  Ltd. (the  "PURCHASER"),  and Loeb & Loeb LLP (the "ESCROW
AGENT"):

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

         WHEREAS,  the  Purchaser  has  advised  the  Escrow  Agent that (a) the
Company and the Purchaser have entered into a Securities Purchase Agreement (the
"PURCHASE  AGREEMENT") for the sale by the Company to the Purchaser of a secured
convertible  term note (the  "TERM  NOTE"),  (b) the  Company  has issued to the
Purchaser  a  common  stock  purchase  warrant  (the  "TERM  NOTE  WARRANT")  in
connection  with the  issuance  of the Term Note,  and (c) the  Company  and the
Purchaser  have  entered  into a  Registration  Rights  Agreement  covering  the
registration of the Company's common stock underlying the Term Note and the Term
Note Warrant (the "TERM NOTE REGISTRATION RIGHTS AGREEMENT");

         WHEREAS, the Company and the Purchaser wish the Purchaser to deliver to
the Escrow Agent copies of the Documents (as hereafter defined) and the Escrowed
Payment  (as  hereafter  defined)  to be held and  released  by Escrow  Agent in
accordance with the terms and conditions of this Agreement; and

         WHEREAS,  the Escrow Agent is willing to serve as escrow agent pursuant
to the terms and conditions of this Agreement;

         NOW THEREFORE, the parties agree as follows:

                                    ARTICLE I

                                 INTERPRETATION

         1.1      DEFINITIONS.  Whenever used in this  Agreement,  the following
terms shall have the meanings set forth below.

                  (a)  "Agreement"  means this Agreement,  as amended,  modified
and/or  supplemented  from time to time by written  agreement  among the parties
hereto.
                  (b) "Closing  Payment" means the closing payment to be paid to
Laurus  Capital  Management,  LLC, the fund manager,  as set forth on Schedule A
hereto.
                  (c) "Documents"  means copies of the Purchase  Agreement,  the
Term Note, the Term Note Warrant and the Term Note Registration Rights.

                  (d) "Escrowed Payment" means $5,000,000.

         1.2      ENTIRE  AGREEMENT.   This  Agreement  constitutes  the  entire
agreement among the parties hereto with respect to the matters  contained herein
and  supersedes  all  prior   agreements,   understandings,   negotiations   and
discussions  of the parties,  whether oral or written.  There are no warranties,
representations  and other agreements made by the parties in

<PAGE>

connection  with the subject matter hereof except as  specifically  set forth in
this Agreement.

         1.3      EXTENDED  MEANINGS.  In this  Agreement  words  importing  the
singular number include the plural and vice versa; words importing the masculine
gender include the feminine and neuter  genders.  The word "person"  includes an
individual,  body  corporate,  partnership,  trustee or trust or  unincorporated
association, executor, administrator or legal representative.

         1.4      WAIVERS  AND  AMENDMENTS.   This  Agreement  may  be  amended,
modified,  superseded,  cancelled,  renewed  or  extended,  and  the  terms  and
conditions  hereof  may be  waived,  in each case  only by a written  instrument
signed by all parties hereto,  or, in the case of a waiver, by the party waiving
compliance. Except as expressly stated herein, no delay on the part of any party
in exercising any right, power or privilege  hereunder shall operate as a waiver
thereof,  nor shall any waiver on the part of any party of any  right,  power or
privilege  hereunder  preclude any other or future  exercise of any other right,
power or privilege hereunder.

         1.5      HEADINGS.  The  division  of  this  Agreement  into  articles,
sections,  subsections  and  paragraphs  and the  insertion  of headings are for
convenience  of  reference  only  and  shall  not  affect  the  construction  or
interpretation of this Agreement.

         1.6      LAW GOVERNING THIS AGREEMENT;  CONSENT TO  JURISDICTION.  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  of laws.  With
respect to any suit,  action or proceeding  relating to this Agreement or to the
transactions contemplated hereby ("Proceedings"),  each party hereto irrevocably
submits to the exclusive  jurisdiction  of the courts of the County of New York,
State of New York and the United States  District court located in the county of
New York in the State of New York.  Each party  hereto  hereby  irrevocably  and
unconditionally  (a) waives  trial by jury in any  Proceeding  relating  to this
Agreement and for any related counterclaim and (b) waives any objection which it
may have at any time to the  laying of venue of any  Proceeding  brought  in any
such  court,  waives any claim  that such  Proceedings  have been  brought in an
inconvenient forum and further waives the right to object,  with respect to such
Proceedings,  that such court does not have jurisdiction over such party. In the
event that any provision of this Agreement is determined by a court of competent
jurisdiction  to be  invalid  or  unenforceable,  then  the  remainder  of  this
Agreement shall not be affected and shall remain in full force and effect.

         1.7      CONSTRUCTION.  Each party  acknowledges that its legal counsel
participated  in the  preparation of this Agreement and,  therefore,  stipulates
that the rule of construction  that  ambiguities are to be resolved  against the
drafting party shall not be applied in the  interpretation  of this Agreement to
favor any party against the other.

<PAGE>

                                   ARTICLE II

                APPOINTMENT OF AND DELIVERIES TO THE ESCROW AGENT

         2.1      APPOINTMENT.  The Company and the Purchaser hereby irrevocably
designate  and appoint the Escrow  Agent as their  escrow agent for the purposes
set forth  herein,  and the Escrow Agent by its  execution  and delivery of this
Agreement  hereby  accepts such  appointment  under the terms and conditions set
forth herein.

         2.2      COPIES  OF  DOCUMENTS  TO ESCROW  AGENT.  On or about the date
hereof,  the Purchaser shall deliver to the Escrow Agent copies of the Documents
executed by the Company to the extent it is a party thereto.

         2.3      DELIVERY OF ESCROWED  PAYMENT TO ESCROW AGENT. On or about the
date  hereof,  the  Purchaser  shall  deliver to the Escrow  Agent the  Escrowed
Payment.

         2.4      INTENTION  TO CREATE  ESCROW OVER THE  ESCROWED  PAYMENT.  The
Purchaser  and the Company  intend that the  Escrowed  Payment  shall be held in
escrow by the Escrow Agent and released  from escrow by the Escrow Agent only in
accordance with the terms and conditions of this Agreement.

                                   ARTICLE III

                                RELEASE OF ESCROW

         3.1      RELEASE OF ESCROW.  Subject to the  provisions of Section 4.2,
the Escrow Agent shall release the Escrowed Payment from escrow as follows:

                  (a)  Promptly  following  receipt by the  Escrow  Agent of (i)
copies of the fully  executed  Documents and this  Agreement,  (ii) the Escrowed
Payment in immediately available funds, (iii) joint written instructions ("JOINT
INSTRUCTIONS")  executed  by the  Company and the  Purchaser  setting  forth the
payment  direction  instructions  with respect to the Escrowed  Payment and (iv)
Escrow Agent's verbal  instructions  from David Grin and/or Eugene Grin (each of
whom is a director of the  Purchaser)  indicating  that all  closing  conditions
relating to the Documents  have been  satisfied and directing  that the Escrowed
Payment  be  disbursed  by  the  Escrow  Agent  in  accordance  with  the  Joint
Instructions, then the Escrowed Payment shall be deemed released from escrow and
shall be promptly disbursed in accordance with the Joint Instructions. The Joint
Instructions shall include, without limitation,  Escrow Agent's authorization to
retain from the Escrowed  Payment  Escrow Agent's fee for acting as Escrow Agent
hereunder and the Closing Payment for delivery to Laurus Capital Management, LLC
in accordance with the Joint Instructions.

                  (b)  Upon   receipt  by  the  Escrow  Agent  of  a  final  and
non-appealable  judgment,  order,  decree  or  award  of a  court  of  competent
jurisdiction  (a "COURT  ORDER")  relating to the Escrowed  Payment,  the Escrow
Agent shall remit the Escrowed  Payment in accordance with the Court Order.  Any
Court  Order  shall be  accompanied  by an  opinion  of  counsel  for the  party
presenting  the  Court  Order  to the  Escrow  Agent  (which  opinion  shall  be
satisfactory to the Escrow Agent) to the effect that the court issuing the

<PAGE>

Court  Order is a court of  competent  jurisdiction  and that the Court Order is
final and non-appealable.

         3.2      ACKNOWLEDGEMENT  OF  COMPANY  AND  PURCHASER;   DISPUTES.  The
Company and the Purchaser  acknowledge  that the only terms and conditions  upon
which the  Escrowed  Payment is to be  released  from escrow are as set forth in
Sections 3 and 4 of this Agreement. The Company and the Purchaser reaffirm their
agreement to abide by the terms and conditions of this Agreement with respect to
the release of the Escrowed Payment.  Any dispute with respect to the release of
the  Escrowed  Payment  shall be resolved  pursuant to Section 4.2 or by written
agreement between the Company and Purchaser.

                                   ARTICLE IV

                           CONCERNING THE ESCROW AGENT

         4.1      DUTIES AND  RESPONSIBILITIES  OF THE ESCROW AGENT.  The Escrow
Agent's duties and responsibilities  shall be subject to the following terms and
conditions:

                  (a) The Purchaser and the Company  acknowledge  and agree that
the  Escrow  Agent  (i)  shall not be  required  to  inquire  into  whether  the
Purchaser, the Company or any other party is entitled to receipt of any Document
or all or any portion of the Escrowed Payment;  (ii) shall not be called upon to
construe or review any Document or any other  document,  instrument or agreement
entered into in  connection  therewith;  (iii) shall be  obligated  only for the
performance  of such  duties as are  specifically  assumed by the  Escrow  Agent
pursuant to this Agreement; (iv) may rely on and shall be protected in acting or
refraining  from  acting  upon  any  written  notice,  instruction,  instrument,
statement,  request or document  furnished to it  hereunder  and believed by the
Escrow Agent in good faith to be genuine and to have been signed or presented by
the proper person or party, without being required to determine the authenticity
or  correctness  of any fact stated  therein or the propriety or validity or the
service  thereof;  (v) may assume that any person  purporting  to give notice or
make any  statement or execute any document in  connection  with the  provisions
hereof has been duly  authorized to do so; (vi) shall not be responsible for the
identity,  authority  or rights of any  person,  firm or  company  executing  or
delivering or purporting to execute or deliver this Agreement or any Document or
any funds deposited  hereunder or any endorsement thereon or assignment thereof;
(vii)  shall not be under  any duty to give the  property  held by Escrow  Agent
hereunder  any greater  degree of care than  Escrow  Agent gives its own similar
property;   and  (viii)  may  consult  counsel   satisfactory  to  Escrow  Agent
(including, without limitation, Loeb & Loeb, LLP or such other counsel of Escrow
Agent's  choosing),  the  opinion  of  such  counsel  to be  full  and  complete
authorization and protection in respect of any action taken, suffered or omitted
by Escrow Agent  hereunder in good faith and in  accordance  with the opinion of
such counsel.

                  (b) The Purchaser and the Company  acknowledge that the Escrow
Agent is acting  solely as a  stakeholder  at their  request and that the Escrow
Agent shall not be liable for any action taken by Escrow Agent in good faith and
believed  by  Escrow  Agent to be  authorized  or  within  the  rights or powers
conferred  upon Escrow Agent by this  Agreement.  The  Purchaser and the Company
hereby, jointly and severally,  indemnify and hold harmless the Escrow Agent

<PAGE>

and any of Escrow Agent's partners,  employees,  agents and representatives from
and against any and all actions  taken or omitted to be taken by Escrow Agent or
any of  them  hereunder  and any and all  claims,  losses,  liabilities,  costs,
damages and expenses suffered and/or incurred by the Escrow Agent arising in any
manner whatsoever out of the transactions  contemplated by this Agreement and/or
any transaction related in any way hereto, including the fees of outside counsel
and other costs and expenses of  defending  itself  against any claims,  losses,
liabilities,  costs,  damages and expenses arising in any manner  whatsoever out
the transactions  contemplated by this Agreement and/or any transaction  related
in any way hereto, except for such claims, losses,  liabilities,  costs, damages
and  expenses  incurred  by reason of the Escrow  Agent's  gross  negligence  or
willful misconduct.  The Escrow Agent shall owe a duty only to the Purchaser and
Company under this Agreement and to no other person.

                  (c) The  Purchaser and the Company shall jointly and severally
reimburse the Escrow Agent for its reasonable  out-of-pocket expenses (including
counsel fees (which  counsel may be Loeb & Loeb LLP or such other counsel of the
Escrow  Agent's  choosing)  incurred in connection  with the  performance of its
duties and  responsibilities  hereunder,  which  shall not  (subject  to Section
4.1(b)) exceed $1,500.

                  (d) The Escrow  Agent may at any time  resign as Escrow  Agent
hereunder by giving five (5) business days prior written  notice of  resignation
to the Purchaser and the Company.  Prior to the effective date of resignation as
specified in such  notice,  the  Purchaser  and Company will issue to the Escrow
Agent a Joint Instruction authorizing delivery of the Documents and the Escrowed
Payment to a substitute  Escrow Agent selected by the Purchaser and the Company.
If no successor  Escrow  Agent is named by the  Purchaser  and the Company,  the
Escrow Agent may apply to a court of competent  jurisdiction in the State of New
York for appointment of a successor  Escrow Agent, and deposit the Documents and
the Escrowed Payment with the clerk of any such court and/or otherwise  commence
an interpleader  or similar action for a  determination  of where to deposit the
same.

                  (e) The  Escrow  Agent  does  not  have  and will not have any
interest in the  Documents  and the  Escrowed  Payment,  but is serving  only as
escrow agent, having only possession thereof.

                  (f) The Escrow  Agent shall not be liable for any action taken
or omitted by it in good faith and  reasonably  believed by it to be  authorized
hereby or within  the  rights or powers  conferred  upon it  hereunder,  nor for
action taken or omitted by it in good faith,  and in  accordance  with advice of
counsel  (which  counsel  may be Loeb & Loeb,  LLP or such other  counsel of the
Escrow  Agent's  choosing),  and shall not be liable for any  mistake of fact or
error of judgment or for any acts or  omissions of any kind except to the extent
any such liability arose from its own willful misconduct or gross negligence.

                  (g) This  Agreement sets forth  exclusively  the duties of the
Escrow  Agent  with  respect to any and all  matters  pertinent  thereto  and no
implied duties or obligations shall be read into this Agreement.

                  (h) The Escrow  Agent shall be permitted to act as counsel for
the  Purchaser  or the  Company,  as the case may be, in any  dispute  as to the

<PAGE>

disposition  of the  Documents  and the Escrowed  Payment,  in any other dispute
between the Purchaser  and the Company,  whether or not the Escrow Agent is then
holding the  Documents  and/or the Escrowed  Payment and continues to act as the
Escrow Agent hereunder.

                  (i) The  provisions  of this  Section  4.1 shall  survive  the
resignation of the Escrow Agent or the termination of this Agreement.

         4.2      DISPUTE RESOLUTION;  JUDGMENTS. Resolution of disputes arising
under this Agreement shall be subject to the following terms and conditions:

                  (a) If any dispute  shall arise with respect to the  delivery,
ownership,  right of  possession  or  disposition  of the  Documents  and/or the
Escrowed Payment,  or if the Escrow Agent shall in good faith be uncertain as to
its duties or rights  hereunder,  the Escrow Agent shall be authorized,  without
liability  to anyone,  to (i)  refrain  from  taking  any  action  other than to
continue to hold the Documents  and the Escrowed  Payment  pending  receipt of a
Joint Instruction from the Purchaser and Company,  (ii) commence an interpleader
or similar  action,  suit or proceeding  for the resolution of any such dispute;
and/or (iii) deposit the  Documents  and the Escrowed  Payment with any court of
competent jurisdiction in the State of New York, in which event the Escrow Agent
shall give written  notice  thereof to the  Purchaser  and the Company and shall
thereupon be relieved and discharged  from all further  obligations  pursuant to
this Agreement.  The Escrow Agent may, but shall be under no duty to,  institute
or defend any legal  proceedings  which relate to the Documents and the Escrowed
Payment.  The Escrow Agent shall have the right to retain  counsel if it becomes
involved in any disagreement, dispute or litigation on account of this Agreement
or  otherwise  determines  that it is necessary  to consult  counsel  which such
counsel  may be Loeb & Loeb LLP or such  other  counsel  of the  Escrow  Agent's
choosing.

                  (b) The Escrow Agent is hereby expressly  authorized to comply
with and obey any Court Order. In case the Escrow Agent obeys or complies with a
Court Order,  the Escrow Agent shall not be liable to the  Purchaser and Company
or to any other person, firm, company or entity by reason of such compliance.

                                    ARTICLE V

                                 GENERAL MATTERS

         5.1      TERMINATION.  This escrow shall terminate upon disbursement of
the Escrowed  Payment in accordance  with the terms of this Agreement or earlier
upon the agreement in writing of the Purchaser and Company or resignation of the
Escrow Agent in accordance with the terms hereof.

         5.2      NOTICES.   All   notices,    requests,   demands   and   other
communications  required or permitted hereunder shall be in writing and shall be
deemed to have been duly given one (1) day after  being sent by  telecopy  (with
copy delivered by overnight courier, regular or certified mail):

<PAGE>

                  (a) If to the Company, to: Front Porch Digital, Inc.

                                             1140 Pearl Street
                                             Boulder, Colorado  80302
                                             Attention: Chief Financial Officer
                                             Facsimile:  (303) 449-9584

                                             With a copy to:

                                             Pryor Cashman Sherman & Flynn LLP
                                             410 Park Avenue
                                             New York, New York  10022
                                             Attention:  Eric M. Hellige, Esq.
                                             Facsimile:  (212) 798-6380

                  (b) If to the Purchaser, to: LAURUS MASTER FUND, LTD.

                                             c/o Ironshore Corporate Services
                                             Ltd.
                                             P.O. Box 1234 G.T., Queensgate
                                             House, South Church Street
                                             Grand Cayman, Cayman Islands
                                             Fax: 212-541-4434
                                             Attention:  John Tucker, Esq.

                  (c) If to the Escrow Agent, to: Loeb & Loeb LLP

                                             345 Park Avenue
                                             New York, New York 10154
                                             Fax:  (212) 407-4990
                                             Attention:  Scott J. Giordano, Esq.

or to such other  address as any of them shall give to the others by notice made
pursuant to this Section 5.2.

         5.3      INTEREST.  The  Escrowed  Payment  shall  not  be  held  in an
interest bearing account nor will interest be payable in connection therewith.

         5.4      ASSIGNMENT;  BINDING AGREEMENT. Neither this Agreement nor any
right or obligation hereunder shall be assignable by any party without the prior
written consent of the other parties  hereto.  This Agreement shall inure to the
benefit of and be binding  upon the parties  hereto and their  respective  legal
representatives, successors and assigns.

         5.5      INVALIDITY.  In  the  event  that  any  one  or  more  of  the
provisions contained herein, or the application thereof in any circumstance,  is
held  invalid,  illegal,  or  unenforceable  in any respect for any reason,  the
validity,  legality  and  enforceability  of any such  provision  in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.

<PAGE>

         5.6      COUNTERPARTS/EXECUTION.  This Agreement may be executed in any
number  of  counterparts  and  by  different   signatories  hereto  on  separate
counterparts,  each of which, when so executed, shall be deemed an original, but
all such  counterparts  shall  constitute but one and the same  agreement.  This
Agreement may be executed by facsimile transmission.

<PAGE>



                  IN WITNESS  WHEREOF,  the parties  hereto have  executed  this
Agreement as of the date and year first above written.

                                          COMPANY:

                                          FRONT PORCH DIGITAL, INC.

                                          By:/s/ Thomas P. Sweeney III
                                             -------------------------------
                                          Name: Thomas P. Sweeney III
                                          Title: Chairman

                                          PURCHASER:

                                          LAURUS MASTER FUND, LTD.
                                          By: /s/ David Grin
                                              -------------------------------
                                          Name: David Grin
                                          Title: Director

                                          ESCROW AGENT:

                                          LOEB & LOEB LLP
                                          By: /s/ Scott Giordano
                                              -------------------------------
                                          Name: Scott Giordano
                                          Title:

<PAGE>



                      SCHEDULE A TO FUNDS ESCROW AGREEMENT


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
PURCHASER                                                      PRINCIPAL NOTE AMOUNT
---------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
LAURUS MASTER FUND, LTD.,                                      Term  Note  in  an  aggregate   principal  amount  of
c/o Ironshore  Corporate  Services  Ltd.,                      $5,000,000
P.O. Box 1234 G.T., Queensgate House,
South Church Street,  Grand Cayman,
Cayman Islands
Fax: 345-949-9877
---------------------------------------------------------------------------------------------------------------------
TOTAL                                                          $5,000,000
---------------------------------------------------------------------------------------------------------------------


<CAPTION>
---------------------------------------------------------------------------------------------------------------------
FUND MANAGER                                                   CLOSING PAYMENT
---------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
LAURUS CAPITAL MANAGEMENT, L.L.C.                              Closing   payment  payable  in  connection  with
                                                               investment  by  Laurus  Master  Fund,  Ltd.  for
825 Third Avenue, 14th Floor                                   which Laurus Capital  Management,  L.L.C. is the
                                                               Manager.
New York, New York 10022

Fax: 212-541-4434
---------------------------------------------------------------------------------------------------------------------
TOTAL                                                          $195,000
---------------------------------------------------------------------------------------------------------------------

<CAPTION>

WARRANTS


---------------------------------------------------------------------------------------------------------------------
WARRANT RECIPIENT                                              WARRANTS IN CONNECTION WITH OFFERING
---------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>
LAURUS MASTER FUND, LTD.                                       Term Note  Warrant  exercisable  into  4,435,500
                                                               shares of common  stock of the Company  issuable
A Cayman Island corporation                                    in connection with the Term Note

c/o Ironshore Corporate Services Ltd.

P.O. Box 1234 G.T.

Queensgate House, South Church Street

Grand Cayman, Cayman Islands

Fax: 345-949-9877
---------------------------------------------------------------------------------------------------------------------
TOTAL                                                          WARRANTS   EXERCISABLE   INTO  UP  TO  4,435,500
                                                               SHARES OF COMMON STOCK OF THE COMPANY
---------------------------------------------------------------------------------------------------------------------
</TABLE>