CERTIFICATE OF DESIGNATION
                          OF RIGHTS AND PREFERENCES OF
                           SERIES B PREFERRED STOCK OF
                                AXM PHARMA, INC.



Pursuant to N.R.S.  78.1955,  AXM Pharma, Inc. (the "Company") hereby amends its
Articles of Incorporation as follows:

         I.  Article IV of the  Company's  Articles  of  Incorporation  shall be
amended by adding the following after the existing provisions of such article:

         1.  DESIGNATION,  AMOUNT,  PAR  VALUE,  AND RANK.  The  Company  hereby
designates the issuance of a series of Preferred  Stock to be called the "Series
B  Convertible  Preferred  Stock" (the  "Series B Preferred  Stock").  The total
number of shares of Series B Preferred Stock that the corporation shall have the
authority to issue is  2,000,000.  Each share of Series B Preferred  Stock shall
have a par value of $.001 per share.

         2.  VOTING  RIGHTS.  The holder of each share of the Series B Preferred
Stock  shall be entitled to the number of votes equal to the number of shares of
Common  Stock  into  which  such  share of  Series B  Preferred  Stock  could be
converted  for  purposes  of  determining  the  shares  entitled  to vote at any
regular,  annual or special meeting of  shareholders  of the Company,  and shall
have  voting  rights  and powers  equal to the  voting  rights and powers of the
Common Stock (except as otherwise  expressly  provided  herein or as required by
law,  voting  together  with the  Common  Stock as a single  class) and shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the  Company.  Fractional  votes  shall  not,  however,  be  permitted  and  any
fractional voting rights resulting from the above formula (after aggregating all
shares into which  shares of Series B Preferred  Stock held by each holder could
be converted)  shall be rounded to the nearest whole number (with one-half being
rounded upward).

         3.  DIVIDEND  PROVISIONS.  The holders of the Series B Preferred  Stock
shall be entitled to  receive,  when and as declared by the Board of  Directors,
dividends in such amounts as may be  determined  by the Board of Directors  from
time to time out of funds legally available  therefor.  No dividends (other than
those  payable  solely in Common Stock) shall be paid on the Common Stock during
any fiscal year of the Company  until there shall have been paid or declared and
set apart  during  that  fiscal  year for the  holders of the Series B Preferred
Stock a  dividend  in an amount  per share  equal to (i) the number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock times (ii)
the  amount  per  share  of  the  dividend  to be  paid  on  the  Common  Stock.
Notwithstanding the foregoing, the holders of Series B Preferred Stock shall not
be entitled to paid any dividends  dividends (other than those payable solely in
Common  Stock) until such time as there shall have been paid or declared and set
apart during that fiscal year for the holders of the Series A Preferred  Stock a
dividend  in an  amount  per share  equal to (i) the  number of shares of Common


<PAGE>

Stock  issuable upon  conversion of the Series A Preferred  Stock times (ii) the
amount per share of the dividend to be paid on the Series B Preferred Stock.

         4. PREFERENCE AS TO LIQUIDATION.  (a) In the event of any  liquidation,
dissolution or winding up of the Company, either voluntary and involuntary,  the
holders of each share of the  Series B  Preferred  Stock  shall be  entitled  to
receive,  prior and in  preference to any  distribution  of any of the assets or
surplus  funds  of the  Company  to the  Common  Stock  holders  but  after  any
distribution  of the  assets or  surplus  funds of the  Company  to the Series A
Preferred  Stock  holders,  an  amount  equal  to (i) all  declared  and  unpaid
dividends on each such share;  plus (ii) an amount per share equal to greater of
(A) the original  issue price ($2.25),  as adjusted for any stock splits,  stock
dividends,  recapitalizations  or similar  occurrences,  as set forth in Section
5(d)  herein,  plus  interest of 8% per annum on such  original  issue price (as
adjusted) accumulated, but not compounded, from the date of issuance to the date
on which the  liquidation  preference  is paid or (B) the  amount  that would be
receivable if the Series B Preferred  Stock had been converted into Common Stock
immediately prior to such liquidation distribution.  In the event the assets and
funds of the Company are insufficient to pay the entire  liquidation  preference
of the Series B Preferred  Stock,  the holders thereof will share ratably in the
assets and funds of the Company in  proportion to the  preferential  amount each
such holder is otherwise entitled to receive.

         (b) A  consolidation  or merger of the  Company  with or into any other
corporation or corporations  wherein the Company is not the surviving company or
the Company's  shareholders do not constitute a majority of the  shareholders of
the surviving  company,  or a sale of all or substantially  all of the assets of
the  Company  to a  company  in which  the  Company's  shareholders  are not the
majority  shareholders,  shall be deemed  to be a  liquidation,  dissolution  or
winding up for purposes of this section.

         5. CONVERSION RIGHTS

         (a) Right to Convert.  Each share of Series B Preferred  Stock shall be
convertible,  at the option of the holder thereof, at any time after the date of
issuance  of such share at the office of the Company or any  transfer  agent for
such stock,  into such number of fully paid and  nonassessable  shares of Common
Stock as is  determined  by  dividing  $2.25 by the  Series B  Conversion  Price
applicable to such share,  determined as hereinafter  provided, in effect on the
date the certificate is surrendered for conversion. The price at which shares of
Common  Stock shall be  deliverable  upon  conversion  of shares of the Series B
Preferred  Stock (the "Series B Conversion  Price") shall initially be $2.25 per
share of Common Stock.  Such initial Series B Conversion Price shall be adjusted
as hereinafter provided.


         (b)  Mechanics of  Conversion.  Before any holder of Series B Preferred
Stock shall be entitled  to convert  the same into  shares of Common  Stock,  he
shall surrender the certificate or certificates  thereof,  duly endorsed, at the
office of the Company or of any  transfer  agent for such stock,  and shall give
written  notice to the Company at such office that he elects to convert the same
and shall state therein the name or names in which he wishes the  certificate or
certificates for shares of Common Stock to be issued. The Company shall, as soon
as  practicable  thereafter,  issue and deliver at such office to such holder of
Series B Preferred Stock, a certificate or certificates for the number of shares


                                       2
<PAGE>

of Common  Stock to which he shall be entitled  as  aforesaid.  Such  conversion
shall be deemed to have been made immediately  prior to the close of business on
the date of surrender of the shares of Series B Preferred Stock to be converted,
and the  person or  persons  entitled  to  receive  the  shares of Common  Stock
issuable  upon such  conversion  shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.

         (c)  Adjustments  to Series B  Conversion  Price for  Certain  Diluting
Issues.

                  (i) For purposes of this Section,  the  following  definitions
apply:

                           (a) "Options" shall mean rights, options, or warrants
                  to subscribe for,  purchase or otherwise acquire either Common
                  Stock or Convertible Securities.

                           (b)  "Original  Issue  Date"  shall  mean the date on
                  which a share of Series B Preferred Stock was first issued.

                           (c) "Convertible Securities" shall mean any evidences
                  of indebtedness,  shares (other than Common Stock and Series B
                  Preferred  Stock)  or  other  securities  convertible  into or
                  exchangeable for Common Stock.

                           (d)  "Additional  Shares of Common  Stock" shall mean
                  all shares of Common  Stock  issued  (or,  pursuant to Section
                  5(c)(iii),  deemed  to be  issued)  by the  Company  after the
                  Original Issue Date,  other than shares of Common Stock issued
                  or issuable:

                                    (1) upon  conversion of shares of the Series
                           A or Series B Preferred Stock;

                                    (2) to  officers,  directors  or  bona  fide
                           employees of, or consultants to, the Company pursuant
                           to stock option or stock  purchase plans and reserved
                           for issuance upon exercise of warrants outstanding on
                           the   Original   Issue  Date  and  for  issuance  for
                           services,   on  terms   approved   by  the  Board  of
                           Directors,  but not  exceeding  1,300,000  shares  of
                           Common Stock (net of any repurchases of such shares),
                           subject  to  adjustment  for  all   subdivisions  and
                           combinations;

                                    (3) as a  dividend  or  distribution  on the
                           Series A or Series B Preferred Stock; or

                                    (4) for which  adjustment of the Series A or
                           Series B Conversion Price is made pursuant to Section
                           5(d) or otherwise.

                  (ii) No adjustment  in the Series B Conversion  Price shall be

                                       3
<PAGE>

         made in respect of the  issuance of  Additional  Shares of Common Stock
         unless the  consideration  per share  (determined  pursuant  to Section
         5(c)(v)  hereof)  for an  Additional  Share of Common  Stock  issued or
         deemed to be issued by the Company is less than the Series B Conversion
         Price in effect on the date of and immediately prior to such issue.

                  (iii) In the  event  the  Company  at any time or from time to
         time  after  the  Original  Issue  Date  shall  issue  any  Options  or
         Convertible Securities or shall fix a record date for the determination
         of holders of any class of securities then entitled to receive any such
         Options or  Convertible  Securities,  then the maximum number of shares
         (as set forth in the instrument  relating thereto without regard to any
         provisions  contained  therein designed to protect against dilution) of
         Common Stock issuable upon the exercise of such Options or, in the case
         of  Convertible  Securities  and Options  therefor,  the  conversion or
         exchange  of  such  Convertible  Securities,  shall  be  deemed  to  be
         Additional  Shares of Common  Stock issued as of the time of such issue
         or, in case such a record date shall have been  fixed,  as of the close
         of business on such record date,  provided  that  Additional  Shares of
         Common  Stock  shall  not be  deemed to have  been  issued  unless  the
         consideration per share (determined pursuant to Section 5(c)(v) hereof)
         of such Additional Shares of Common Stock would be less than the Series
         B Conversion  Price in effect on the date of and  immediately  prior to
         such  issue,  or such  record  date,  as the case may be, and  provided
         further  that in any such  case in which  Additional  Shares  of Common
         Stock are deemed to be issued:

                           (a) No further adjustments in the Series B Conversion
                  Price shall be made upon the  subsequent  issue of Convertible
                  Securities or shares of Common Stock upon the exercise of such
                  Options  or  conversion   or  exchange  of  such   Convertible
                  Securities;

                           (b) If such  options  or  Convertible  Securities  by
                  their terms  provide,  with the passage of time or  otherwise,
                  for any increase in the consideration  payable to the Company,
                  or decrease in the number of shares of Common Stock  issuable,
                  upon the exercise,  conversion or exchange thereof, the Series
                  B Conversion  Price  computed upon the original  issue thereof
                  (or  upon  the  occurrence  of  a  record  date  with  respect
                  thereto), and any subsequent adjustments based thereon, shall,
                  upon any such  increase or  decrease  becoming  effective,  be
                  recomputed to reflect such increase or decrease  insofar as it
                  affects such Options or the rights of  conversion  or exchange
                  under such Convertible Securities (provided,  however, that no
                  such adjustment of the Series B Conversion  Price shall effect
                  Common Stock previously issued upon conversion of the Series B
                  Preferred Stock); and

                           (c) Upon the  expiration  of any such  Options or any
                  rights  of  conversion  or  exchange  under  such  Convertible
                  Securities  which shall not have been exercised,  the Series B
                  Conversion  Price computed upon the original issue thereof (or
                  upon the  occurrence  of a record date with respect  thereto),


                                       4
<PAGE>

                  and any subsequent adjustments based thereon, shall, upon such
                  expiration, be recomputed as if:

                                    (1) In the case of Convertible Securities or
                           Options for Common Stock the only  Additional  Shares
                           of  Common  Stock  issued  were the  share of  Common
                           Stock,  if any,  actually issued upon the exercise of
                           such  Options or the  conversion  or exchange of such
                           Convertible Securities and the consideration received
                           therefor was the  consideration  actually received by
                           the  Company  for  the  issue  of all  such  Options,
                           whether  or not  exercised,  plus  the  consideration
                           actually  received by the Company upon such exercise,
                           or for the issue of all such  Convertible  Securities
                           which were actually converted or exchanged,  plus the
                           additional  consideration,  if any, actually received
                           by the Company upon such conversion or exchange and

                                    (2) In the case of Options  for  Convertible
                           Securities only the Convertible  Securities,  if any,
                           actually issued upon the exercise thereof were issued
                           at the  time  of  issue  of  such  Options,  and  the
                           consideration  received  by the Company for the issue
                           of all such Options,  whether or not exercised,  plus
                           the consideration deemed to have been received by the
                           Company  (determined  pursuant to Section  5(c)(viii)
                           upon the  issue of the  Convertible  Securities  with
                           respect  to  which   such   Options   were   actually
                           exercised.

                  (iv) In the event the Company,  at any time after the Original
         Issue Date shall issue  Additional  Shares of Common  Stock  (including
         Additional  Shares of Common  Stock  deemed  to be issued  pursuant  to
         Section  5(c)(iii))  without  consideration or for a consideration  per
         share less than the Series B Conversion  Price in effect on the date of
         and immediately prior to such issue, then and in such event, the Series
         B Conversion Price shall be reduced, concurrently with such issue, to a
         price  (calculated to the nearest cent)  determined by multiplying such
         Series B Conversion  Price by a fraction,  the numerator of which shall
         be the number of shares of Common Stock  outstanding  immediately prior
         to such  issue  plus the  number of shares  of Common  Stock  which the
         aggregate consideration received by the Company for the total number of
         Additional  Shares of Common  Stock so issued  would  purchase  at such
         Series B Conversion  Price,  and the  denominator of which shall be the
         number of shares of Common Stock outstanding  immediately prior to such
         issue  plus the  number of such  Additional  Shares of Common  Stock so
         issued. For the purpose of the above calculation,  the number of shares
         of Common Stock  outstanding  immediately  prior to such issue shall be
         calculated  on a fully  diluted  basis,  as if all  shares  of Series B
         Preferred Stock and all convertible securities had been fully converted
         into shares of Common Stock and any  outstanding  warrants,  options or
         other  rights  for the  purchase  of  shares  of stock  or  convertible
         securities had been fully exercised (and the resulting securities fully
         converted into shares of Common Stock,  if so  convertible)  as of such


                                       5
<PAGE>

         date, but not including any such  calculation  of additional  shares of
         Common  Stock  issuable  with  respect to shares of Series B  Preferred
         Stock,  Convertible  Securities,  or outstanding  options,  warrants or
         other  rights  for the  purchase  of  shares  of stock  or  convertible
         securities,  solely as a result  of the  adjustment  of the  respective
         conversion  prices  (or other  conversion  ratios)  resulting  from the
         issuances of Additional Shares of Common Stock causing such adjustment.

                  (v) For  purposes  of this  Section  5(c),  the  consideration
         received  by the  Company  for the  issue of any  Additional  Shares of
         Common Stock shall be computed as follows:

                           (a) Cash and property shall:

                                    (1)  insofar  as it  consists  of  cash,  be
                           computed at the aggregate  amount of cash received by
                           the  Company  excluding  amounts  paid or payable for
                           accrued interest or accrued dividends;

                                    (2) insofar as it consists of property other
                           than cash,  be computed at the fair value  thereof at
                           the time of such issue,  as  determined in good faith
                           by,  and  reflected  in a formal  resolution  of, the
                           Board of Directors; and

                                    (3) in the event Additional Shares of Common
                           Stock  are  issued  together  with  other  shares  or
                           securities   or  other  assets  of  the  Company  for
                           consideration which covers both, be the proportion of
                           such consideration so received,  computed as provided
                           in clauses (A) and (B) above,  as  determined in good
                           faith by, and  reflected in a formal  resolution  of,
                           the Board of Directors.

                           (b)  The  consideration  per  share  received  by the
                  Company for  Additional  Shares of Common Stock deemed to have
                  been issued pursuant to Section  5(c)(iii)(c)(1),  relating to
                  Options and  Convertible  Securities,  shall be  determined by
                  dividing

                                    (1) the total  amount,  if any,  received or
                           receivable  by the Company as  consideration  for the
                           issue of such Options or Convertible Securities, plus
                           the   minimum    aggregate   amount   of   additional
                           consideration   (as  set  forth  in  the  instruments
                           relating  thereto,  without  regard to any  provision
                           contained   therein   designed  to  protect   against
                           dilution) payable to the Company upon the exercise of
                           such  Options or the  conversion  or exchange of such
                           Convertible Securities, or in the case of Options for
                           Convertible Securities,  the exercise of such Options
                           for  Convertible  Securities  and the  conversion  or
                           exchange of such Convertible Securities by


                                       6
<PAGE>


                                    (2) the  maximum  number of shares of Common
                           Stock  (as  set  forth  in the  instruments  relating
                           thereto,  without  regard to any provision  contained
                           therein  designed to protect  against  the  dilution)
                           issuable   upon  the  exercise  of  such  Options  or
                           conversion   or   exchange   of   such    Convertible
                           Securities.

                  (vi) The  rights  of the  Series  B  Preferred  Stock  Holders
         provided in this Section 5(c) shall expire on the date that is one year
         from the Original Issue Date.


         (d)  Adjustments  to  Series B  Conversion  Price for  Combinations  or
Subdivisions  of Common Stock. In the event that the Company at any time or from
time to time after the Original  Issue Date shall declare or pay any dividend on
the  Common  Stock  payable in Common  Stock or in any right to  acquire  Common
Stock, or shall effect a subdivision of the  outstanding  shares of Common Stock
into  a  greater   number  of   shares   of  Common   Stock  (by  stock   split,
reclassification  or otherwise  than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common  Stock  shall  be  combined  or  consolidated,   by  reclassification  or
otherwise,  into a lesser  number of shares of Common  Stock,  then the Series B
Conversion Price in effect  immediately prior to such event shall,  concurrently
with the effectiveness of such event, be proportionately decreased or increased,
as  appropriate.  In the event that the Company  shall  declare or pay,  without
consideration,  any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration  then the Company shall be deemed to have made
a dividend  payable in Common  Stock in an amount of shares equal to the maximum
number of shares issuable upon exercises of such rights to acquire Common Stock.

         (e)  Adjustments  for  Reclassifications  and  Reorganizations.  If the
Common Stock issuable upon  conversion of the Series B Preferred  Stock shall be
changed  into the same or a  different  number of  shares of any other  class or
classes  of  stock,  whether  by  capital  reorganization,  reclassification  or
otherwise  (other than a subdivision or  combination  of shares  provided for in
Section  5(d) above or a merger or other  reorganization  referred to in Section
4(b) above),  the Series B Conversion  Price then in effect shall,  concurrently
with  the  effectiveness  of  such   reorganization  or   reclassification,   be
proportionately  adjusted  so  that  the  Series  B  Preferred  Stock  shall  be
convertible  into,  in lieu of the  number of shares of Common  Stock  which the
holders would  otherwise  have been  entitled to receive,  a number of shares of
such  other  class or  classes  of stock  equivalent  to the number of shares of
Common  Stock  that would have been  subject  to  receipt  by the  holders  upon
conversion of the Series B Preferred Stock immediately before that change.

         (f) Beneficial  Ownership.  The Company shall not effect any conversion
of the  Series B  Preferred  Stock,  and no  person  who is a holder of Series B
Preferred  Stock shall have the right to convert  its Series B  Preferred  Stock
into Common Stock,  to the extent that after giving  effect to such  conversion,
such person (together with such person's  affiliates) would  beneficially own in
excess of 4.99% of the shares of the Common Stock outstanding  immediately after


                                       7
<PAGE>

giving effect to such conversion.  For purposes of the foregoing  sentence,  the
aggregate number of shares of Common Stock beneficially owned by such Person and
its affiliates shall include, without limitation, the number of shares of Common
Stock issuable upon  conversion of the Series B Preferred  Stock with respect to
which the determination of such sentence is being made, but shall exclude shares
of Common Stock which would be issuable upon (i)  conversion  of the  remaining,
unconverted shares of Series B Preferred Stock beneficially owned by such person
and its  affiliates,  and (ii)  exercise or  conversion  of the  unexercised  or
unconverted portion of any other securities of the Company beneficially owned by
such Person and its affiliates (including,  without limitation,  any debentures,
convertible  notes or  convertible  preferred  stock or  warrants)  subject to a
limitation  on  conversion  or exercise  analogous to the  limitation  contained
herein.  Except as set forth in the  preceding  sentence,  for  purposes of this
paragraph,  beneficial  ownership shall be calculated in accordance with Section
13(d) of the Securities  Exchange Act of 1934, as amended.  For purposes of this
Section 5(f), in determining the number of outstanding shares of Common Stock, a
holder may rely on the number of outstanding shares of Common Stock as reflected
in (1) the  Company's  most recent Form 10-Q,  Form 10-K or other public  filing
with the  Securities  and  Exchange  Commission,  as the case may be, (2) a more
recent  public  announcement  by the  Company,  or (3) any  other  notice by the
Company or its transfer agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or oral request of any
holder of Series B Preferred  Stock,  the Company shall within two business days
confirm  orally  and in  writing  to such  holder the number of shares of Common
Stock then outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined  after giving effect to the  conversion or exercise of
securities of the Company by such holder and its affiliates since the date as of
which  such  number  of  outstanding  shares of Common  Stock was  reported.  In
effecting the conversion of the Series B Preferred  Stock,  the Company shall be
entitled  to rely on a  representation  by the holder of such shares of Series B
Preferred  Stock  as to the  number  of  shares  that it  beneficially  owns for
purposes of the above 4.99% limitation calculation.

         By written  notice to the Company,  the holder may waive the provisions
of this  Section but any such waiver  will not be  effective  until the 65th day
after such notice is delivered to the Company.

         6. AMENDMENT.  Any term relating to the Series B Preferred Stock may be
amended and the observance of any term relating to the Series B Preferred  Stock
may  be  waived  (either  generally  or  in a  particular  instance  and  either
retroactively or prospectively) only with the vote or written consent of holders
of at least  fifty-one  percent  (51%)  of all  Series B  Preferred  Stock  then
outstanding;  provided,  however, that in determining whether the holders of the
requisite  shares of Series B  Preferred  Stock have given any vote,  consent or
other authorization,  shares of Series B Preferred Stock owned by the Company or
any subsidiary thereof shall be disregarded and not be deemed to be outstanding.
Any  amendment  or waiver so effected  shall be binding upon the Company and all
holders of Series B Preferred Stock.

         7. NO  REISSUANCE  OF SERIES B PREFERRED  STOCK.  No share or shares of
Series B Preferred  Stock  acquired by the  Company by reason of  conversion  or


                                       8
<PAGE>

otherwise shall be reissued, and all such shares shall be canceled,  retired and
eliminated from the shares which the Company shall be authorized to issue.

         8.  RESTRICTIONS  AND  LIMITATIONS.  So long as any  shares of Series B
Preferred Stock remain  outstanding,  the Company shall not, without the vote or
written consent by the holders of at least  fifty-one  percent (51%) of the then
outstanding shares of Series B Preferred Stock:

         (a) Effect any reclassification,  recapitalization or other change with
respect to any  outstanding  shares of stock  which  results in the  issuance of
shares of stock having any  preference  or priority as to dividend or redemption
rights, liquidation preferences, conversion rights or otherwise, superior to any
such preference or priority of the Series B Preferred Stock, or

         (b) Authorize or issue, or obligate  itself to issue,  any other equity
security  senior  to or on a parity  with the  Series  B  Preferred  Stock as to
dividend or redemption  rights,  liquidation  preferences,  conversion rights or
otherwise, or create any obligation or security convertible into or exchangeable
for, or having any option rights to purchase,  any such equity security which is
senior to the Series B Preferred Stock, or

         (c) Amend,  alter or repeal the  preferences,  special  rights or other
powers of the  Series B  Preferred  Stock,  or  otherwise  amend  the  Company's
Articles  of  Incorporation,  so as to effect  adversely  the Series B Preferred
Stock.

         For purposes of this Section 8, in  determining  whether the holders of
the requisite shares of Series B Preferred Stock have given any vote, consent or
other authorization,  shares of Series B Preferred Stock owned by the Company or
any subsidiary thereof shall be disregarded and not be deemed to be outstanding

         9.  MISCELLANEOUS  PROVISIONS.  (a) The  Company  shall not engage in a
transfer  of  assets,  consolidation,  merger,  dissolution,  issue  or  sale of
securities or any other voluntary action, in order to avoid or seek to avoid the
observance  or  performance  of any of the  terms to be  observed  or  performed
hereunder  by the  Company  and will at all  times in good  faith  assist in the
carrying  out of all the  provisions  of and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment.

         (b) The Company  shall at all times  reserve and keep  available out of
its  authorized but unissued  shares of Common Stock,  solely for the purpose of
effecting  the  conversion of the shares of the Series B Preferred  Stock,  such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Preferred Stock;
and if at any time the number of authorized but unissued  shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding  shares
of the Series B Preferred  Stock, the Company will take such corporate action as
may, in the opinion of its counsel,  be necessary to increase its authorized but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such purpose,  including,  without  limitation,  engaging in best efforts to


                                       9
<PAGE>

obtain the  requisite  shareholder  approval of any  necessary  amendment to its
Articles of Incorporation.

         (c) No  fractional  share  shall be issued upon the  conversion  of any
share or  shares of  Series B  Preferred  Stock.  All  shares  of  Common  Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series B Preferred Stock by a holder thereof shall be aggregated for purposes of
determining  whether  the  conversion  would  result  in  the  issuance  of  any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the  issuance  of a fraction of a share of Common  Stock,  the Company
shall,  round the number of shares to be issued upon  conversion  up to the next
whole number.

         (d) Any  notice  required  by the  provisions  of this  Certificate  of
Designation  to be given to the  holders of Series B  Preferred  Stock  shall be
deemed given if  deposited  in the United  States  mail,  postage  prepaid,  and
addressed to each holder of record at his address  appearing on the books of the
Company.

         IN WITNESS WHEREOF, the undersigned,  being the Chief Executive Officer
and President of the Company,  has executed this Certificate of Designation this
30th day of December, 2003.



-----------------------
Name: Peter Cunningham
Title:   Chief Executive Officer and President











                                       10