SECURITY
        AGREEMENT

       

      THIS
        SECURITY AGREEMENT (this
        "Agreement")
        is
        dated as of August 14, 2006, by ADVANCE NANOTECH, INC., a Delaware corporation
        (the "Grantor"),
        in
        favor of JANO HOLDINGS LIMITED, a Gibraltar corporation (the "Lender").

       

      Recitals

       

      WHEREAS,
        pursuant to that certain letter agreement (the "Letter
        Agreement")
        of
        even date herewith between the Grantor and Lender, Lender has made available
        a
        senior, secured credit facility in the aggregate principal amount of up to
        Twenty Million Dollars ($20,000,000);

       

      WHEREAS,
        pursuant to that certain Note of even date herewith, issued by the Grantor
        in
        favor of the Lender (as the same may from time to time be amended, modified,
        supplemented or restated, the "Note"),
        Grantor has promised to pay the Obligations (as defined herein) to the Lender;
        and

       

      WHEREAS,
        the
        obligations of the Lender under the Letter Agreement are subject to the
        condition, among others, that Grantor shall have executed and delivered to
        Lender this Agreement.

       

      NOW,
        THEREFORE,
        for
        good and valuable consideration, the receipt and sufficiency of which are
        hereby
        acknowledged by Grantor, Grantor hereby represents, covenants and agrees
        with
        Lender as follows:

       

      	1.  	
              Definitions.

            


       

      	a.  	
              When
                used in this Agreement the following terms shall have the following
                meanings (such meanings being equally applicable to both the singular
                and
                plural forms of the terms defined):

            


       

      "Collateral"
        has the
        meaning assigned to such term in Section 2 of this Agreement.

       

      "Contracts"
        means
        all contracts (including any customer, vendor, supplier, service or maintenance
        contract), leases, licenses, undertakings, purchase orders, permits, franchise
        agreements or other agreements (other than any right evidenced by Chattel
        Paper,
        Documents or instruments), whether in written or electronic form, in or under
        which Grantor now holds or hereafter acquires any right, title or interest,
        including, without limitation, with respect to an Account, any agreement
        relating to the terms of payment or the terms of performance
        thereof.

       

      "Copyrights"
        means
        all of the following now owned or hereafter acquired or created (as a work
        for
        hire for the benefit of Grantor) by Grantor or in which Grantor now holds
        or
        hereafter acquires or receives any right or interest, in whole or in part:
        (a)
        all copyrights, whether registered or unregistered, held pursuant to the
        laws of
        the United States, any State thereof or any other country; (b) registrations,
        applications, recordings and proceedings in the United States Copyright Office
        or in any similar office or agency of the United States, any State thereof
        or
        any other country; (c) any continuations, renewals or extensions thereof;
        (d)
        any registrations to be issued in any pending applications, and shall include
        any right or interest in and to work protectable by any of the foregoing
        which
        are presently or in the future owned, created or authorized (as a work for
        hire
        for the benefit of Grantor) or acquired by Grantor, in whole or in part;
        (e)
        prior versions of works covered by copyright and all works based upon, derived
        from or incorporating such works; (f) income, royalties, damages, claims
        and
        payments now and hereafter due and/or payable with respect to copyrights,
        including, without limitation, damages, claims and recoveries for past, present
        or future infringement; (g) rights to sue for past, present and future
        infringements of any copyright; and (h) any other rights corresponding to
        any of
        the foregoing rights throughout the world.

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      "Obligations"
        has the
        meaning set forth in Section 3 of this Agreement.

       

      "Patents"
        means
        all of the following in which Grantor now holds or hereafter acquires any
        interest: (a) all letters patent of the United States or any other country,
        all
        registrations and recordings thereof and all applications for letters patent
        of
        the United States or any other country, including, without limitation,
        registrations, recordings and applications in the United States Patent and
        Trademark Office or in any similar office or agency of the United States,
        any
        State thereof or any other country; (b) all reissues, divisions, continuations,
        renewals, continuations-in-part or extensions thereof; (c) all petty patents,
        divisionals and patents of addition; (d) all patents to issue in any such
        applications; (e) income, royalties, damages, claims and payments now and
        hereafter due and/or payable with respect to patents, including, without
        limitation, damages, claims and recoveries for past, present or future
        infringement; and (f) rights to sue for past, present and future infringements
        of any patent.

       

      "Trademark"
        means
        any of the following in which Grantor now holds or hereafter acquires any
        interest: (a) all trademarks, whether registered or unregistered, held pursuant
        to the laws of the United States, and State thereof, or any country; (b)
        registrations, applications, recordings and proceedings in the United States
        Patent and Trademark Office or in any similar office or agency of the United
        States, any State thereof or any other country; (c) any continuations, renewals
        or extensions thereof; (d) any registrations to be issued in any pending
        applications (e) income, royalties, damages, claims and payments now and
        hereafter due and/or payable with respect to trademarks, including, without
        limitation, damages, claims and recoveries for past, present or future
        infringement; (g) rights to sue for past, present and future infringements
        of
        any trademark; and (h) any other rights corresponding to any of the foregoing
        rights throughout the world.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      "UCC"
        means
        the Uniform Commercial Code as the same may from time to time be in effect
        in
        the State of New York; provided, however, in the event that, by reason of
        mandatory provisions of law, any or all of the attachment, perfection or
        priority of Lender's security interest in any Collateral is governed by the
        Uniform Commercial Code as in effect in a jurisdiction other than the State
        of
        New York, the term "UCC"
        shall
        mean the Uniform Commercial Code (Including the Articles thereof) as in effect
        at such time in such other jurisdiction for purposes of the provisions hereof
        relating to such attachment, perfection or priority and for purposes of
        definitions related to such provisions. In addition, the following terms
        shall'
        have the meanings set forth for such terms in the UCC: "Account,"
        "Account
        Debtor,"
        "Chattel
        Paper"
        (including tangible and electronic chattel paper), "Commercial
        Tort Claims,"
        "Commodity
        Account,"
        "Deposit
        Account,"
        "Documents,"
        "Equipment,"
        "Fixtures,"
        "Fixture
        Filing,"
        "General
        Intangible"
        (including, without limitation, Payment Intangibles, Copyrights, Patents,
        Trademarks, designs, drawings, technical information, marketing plans, customer
        lists, trade secrets, proprietary or confidential information, inventions
        (whether or not patentable), procedures, know-how, models and data),
        "Instrument,"
        "Intellectual
        Property,"
        "Inventory"
        (including all goods held for sale or lease or to be furnished under a contract
        of service, and including returns and repossessions), "Investment
        Property"
        (including Securities; Securities Accounts and Securities entitlements),
        "Letter-of
        Credit Right"
        (whether or not the letter of credit is evidenced by a writing), "Payment
        Intangibles,"
        "Proceeds,"
        "Promissory
        Notes,"
        "Securities,"
        "Securities
        Account,"
        "Securities
        Entitlement"
        and
        "Supporting
        Obligations."
        Each
        of the foregoing terms shall include all of such items now owned, or hereafter
        acquired, by Grantor.

       

      	b.  	
              Except
                as otherwise defined herein, all capitalized terms used in this Agreement
                have the meanings stated in the Note.

            


       

      	2.  	
              Grant
                of Security.
                As collateral security for the full, prompt, complete and final payment
                and performance when due (whether at stated maturity, by acceleration
                or
                otherwise) of all the Obligations, Grantor hereby grants to Lender
                a lien
                on and security interest in, all of Grantor's right, title and interest
                in, to and under the following, whether now owned or hereafter acquired
                (all of which being collectively referred to herein as the "Collateral"):

            


       

      	a.  	
              All
                Accounts of Grantor (including, but not limited to, and notwithstanding
                anything in this Agreement to the contrary, any and all proceeds,
                money or
                accounts under all Contracts (without
                exception).

            


       

      	b.  	
              All
                Chattel Paper of Grantor;

            


       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      	c.  	
              All
                Contracts of Grantor;

            


       

      	d.  	
              All
                Deposit Accounts of Grantor;

            


       

      	e.  	
              All
                Documents of Grantor;

            


       

      	f.  	
              All
                Equipment of Grantor;

            


       

      	g.  	
              All
                Fixtures of Grantor;

            


       

      	h.  	
              All
                General Intangibles of Grantor;

            


       

      	i.  	
              All
                Instruments of Grantor, including, without limitation, Promissory
                Notes;

            


       

      	j.  	
              All
                Inventory of Grantor;

            


       

      	k.  	
              All
                Investment Property of Grantor;

            


       

      	l.  	
              All
                Letter-of-Credit Rights of Grantor;

            


       

      	m.  	
              All
                Supporting Obligations of Grantor;

            


       

      	n.  	
              All
                property of Grantor held by Lender, including, without limitation,
                all
                property of every description now or hereafter in the possession
                or
                custody of or in transit to Lender for any purpose, including, without
                limitation, safekeeping, collection or pledge, for the account of
                Grantor,
                or as to which Grantor may have any right or
                power;

            


       

      	o.  	
              All
                other goods and personal property of Grantor wherever located, whether
                tangible or intangible, and whether now owned or hereafter acquired,
                existing, leased or consigned by or to Grantor, except those goods
                and
                personal property which are excluded pursuant to Section 2(c) or
                2(h)
                hereunder; and

            


       

      	p.  	
              To
                the extent not otherwise included, all Proceeds of each of the foregoing
                and all accessions to, substitutions and replacements for and rents,
                profits and products of each of the
                foregoing.

            


       

      If
        Grantor shall at any time acquire a Commercial Tort Claim, Grantor shall
        promptly notify the Lender in a writing signed by Grantor of the brief details
        thereof and grant to Lender in such writing a security interest therein and
        in
        the proceeds thereof, all upon the terms of this Agreement, with such writing
        to
        be in form and substance reasonably satisfactory to the Lender.

       

      Grantor
        hereby authorizes the Lender to file, without Grantor's signature thereon
        and at
        Grantor's expense, financing statements, continuation statements (including
        "in
        lieu" continuation statements) and amendments thereto, that describe the
        Collateral and which contain any other information required by Part 5 of
        Article
        9 of the UCC for the sufficiency or filing office acceptance of any financing
        statement, continuation statement or amendment, including if Grantor is an
        organization, the type of organization and any organization identification
        number issued to Grantor.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      	3.  	
              Security
                for Obligations.
                This Agreement secures the payment of (i) all of the unpaid principal
                amount of, and accrued interest on (including any interest that accrues
                after the commencement of any bankruptcy proceeding) the Note, (ii)
                the
                obligation of Grantor to pay any fees, costs and expenses of Lender
                under
                the Note, and (iii) all other obligations, liabilities and indebtedness
                owed by Grantor to the Lender under the Note, in each case, whether
                now
                existing or hereafter incurred (collectively, the
                "Obligations").

            


       

      	4.  	
              Rights
                of Lender; Collection of Accounts.

            


       

      	a.  	
              Grantor
                expressly agrees that Grantor shall remain liable under each of its
                Contracts to observe and perform all the conditions and obligations
                to be
                observed and performed by it thereunder and that Grantor shall perform
                all
                of its duties and obligations thereunder such that the Grantor shall
                not
                be deemed to be in breach of each such Contract. The Lender shall
                not have
                any obligation or liability under any Contract by reason of or arising
                out
                of this Agreement or the granting to the Lender of a lien therein
                or the
                receipt by the Lender of any payment relating to any Contract pursuant
                hereto, nor shall the Lender be required or obligated in any manner
                to
                perform or fulfill any of the obligations of Grantor under or pursuant
                to
                any Contract, or to make any payment, or to make any inquiry as to
                the
                nature or the sufficiency of any payment received by them or the
                sufficiency of any performance by any party under any Contract, or
                to
                present or file any claim, or to take any action to collect or enforce
                any
                performance or the payment of any amounts which may have been assigned
                to
                them or to which they may be entitled at any time or
                times.

            


       

      	b.  	
              The
                Lender authorizes Grantor to collect its accounts, provided that
                such
                collection is performed in a prudent and businesslike manner, and
                the
                Lender may, upon the occurrence and during the continuation of any
                Event
                of Default and without notice, limit or terminate said authority
                at any
                time. Upon the occurrence and during the continuance of any Event
                of
                Default, at the request of the Lender, Grantor shall deliver to Lender
                all
                original and other documents which created and/or relate to such
                accounts,
                including, without limitation, all original orders, invoices and
                shipping
                receipts.

            


       

      	c.  	
              The
                Lender may at any time, upon the occurrence and during the continuance
                of
                any Event of Default, without notifying Grantor of its intention
                to do so,
                notify Account Debtors of Grantor, parties to the Contracts of Grantor,
                obligors in respect of instruments of Grantor and obligors in respect
                of
                Chattel Paper of Grantor that the Accounts and the right, title and
                interest of Grantor in, to and under such Contracts, instruments
                and
                Chattel Paper have been assigned to Lender and that payments thereunder
                or
                with respect thereto are to be made directly to the Lender. Upon
                the
                request of the Lender, Grantor shall promptly so notify such Account
                Debtors, parties to such Contracts, obligors in respect of such
                instruments and obligors in respect of such Chattel Paper. Upon the
                occurrence and during the continuance of any Event of Default, the
                Lender
                may, in Lender's name or in the name of others, communicate with
                such
                Account Debtors, parties to such Contracts, obligors in respect of
                such
                instruments and obligors in respect of such Chattel Paper to verify
                with
                such parties, to the Lender's satisfaction, the existence, amount
                and
                terms of any such Accounts, Contracts, Instruments or Chattel Paper.
                Notwithstanding the foregoing, Lender shall not notify or otherwise
                communicate with any parties to Contracts or Account Debtors of Grantor
                except upon the occurrence of any Event of
                Default.

            


       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      	d.  	
              Without
                limiting the foregoing and Lender's rights as set forth in the foregoing,
                any action by the Lender pursuant to or as described in Section 4(b)
                or
                Section 4(c) hereof shall be in compliance with the provisions set
                forth
                in Section 12(b)(v) hereof.

            


       

      	5.  	
              Representations
                and Warranties of Grantor.
                Grantor represents and warrants as
                follows:

            


       

      	a.  	
              Grantor
                is a corporation duly organized, existing and in good standing under
                the
                laws of the Delaware, (b) has the legal power to own its property
                and to
                carry on its business as now being conducted, and (c) is duly qualified
                to
                do business and is in good standing in each jurisdiction in which
                the
                character of the properties owned or leased by it therein or in which
                the
                transaction of its business makes such qualification necessary, except
                where the failure to so qualify or be in good standing would not
                have a
                Material Adverse Effect;

            


       

      	b.  	
              Grantor
                is, and as to Collateral acquired by it from time to time after the
                date
                hereof Grantor will be, the owner of all Collateral free from any
                liens,
                other than liens created hereby and other than Permitted
                Liens;

            


       

      	c.  	
              This
                Agreement creates, for the benefit and security of Lender in respect
                of
                the Obligations, a legally valid and binding lien on, pledge of,
                and
                security interest in the Collateral and, upon the filing of a UCC
                Financing Statement, and any applicable filings with respect to
                Copyrights, Patents or Trademarks in respect of the Collateral, such
                lien,
                pledge and security interest will be perfected and will have priority
                over
                the claims of any other present and future creditors of the Company
                (other
                than Permitted Liens or liens upon such of the Collateral that must
                be
                perfected by possession or control of such Collateral);
                and

            


       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      	d.  	
              Grantor's
                chief executive office, principal place of business and the place
                where
                Grantor maintains its records concerning the Collateral are each
                presently
                located at the address set forth on the signature page hereof; and
                Grantor's Federal taxpayer identification number and Grantor's
                organizational identification number under the laws of the State
                in which
                Grantor, as a registered organization, was organized are as set forth
                on
                the signature page hereto.

            


       

      	6.  	
              As
                to the Collateral.

            


       

      	a.  	
              Notwithstanding
                anything to the contrary contained herein, the assignment by Grantor
                herein stated is intended to be an assignment for security purposes
                and is
                not intended to divest Grantor of its ownership of the Collateral,
                except
                as otherwise provided herein.

            


       

      	b.  	
              So
                long as no Event of Default has occurred and is continuing, (i) Grantor
                shall retain title to and record ownership of the Collateral, and
                (ii)
                Grantor shall be entitled to receive any and all income or distributions
                made with respect to the Collateral, except as provided in Section
                6(c)
                hereof.

            


       

      	c.  	
              Upon
                the occurrence and during the continuance of an Event of Default,
                all
                income and proceeds of the Collateral which are received by Grantor
                shall
                be (i) received in trust for the benefit of the Lender, (ii) segregated
                from other funds of Grantor, and (iii) forthwith paid over by Grantor
                to
                the Lender (for application in accordance with this Agreement) in
                the same
                form as so received.

            


       

      	7.  	
              Covenants
                of Grantor.
                Grantor covenants and agrees with Lender that unless approved by
                Lender:

            


       

      	a.  	
              Grantor
                shall not sell, assign (by operation of law or otherwise), or otherwise
                transfer any of the Collateral, or attempt or contract to do so,
                or grant
                any option with respect to any of the Collateral, except inventory
                in the
                ordinary course of business.

            


       

      	b.  	
              Grantor
                shall not, directly or indirectly, create or permit to exist any
                lien upon
                or with respect to any of the Collateral, and shall defend the Collateral
                against, and take such other action as is necessary to remove, any
                lien on
                the Collateral, except for the lien created hereby and any Permitted
                Liens.

            


       

      	c.  	
              Grantor
                shall maintain all tangible Collateral in good condition and repair,
                ordinary wear and tear excepted.

            


       

      	d.  	
              Grantor
                shall maintain on the Collateral property damage and liability insurance
                in such amounts, against such risks, and in such forms and with such
                companies as are customarily maintained by businesses similar to
                Grantor.
                Each such policy shall not be materially altered or canceled, and
                the
                coverage will not be materially reduced, in any case, without at
                least
                thirty (30) days' prior written notice to the Lender. Grantor shall
                provide the Lender with satisfactory evidence of such insurance coverage
                at the request of the Lender.

            


       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      	e.  	
              Grantor
                shall promptly pay when due all property and other taxes, assessments
                and
                government charges or levies imposed upon, and all claims (including
                claims for labor, materials and supplies) against, the Collateral,
                except
                to the extent the validity thereof is being contested in good faith
                and by
                appropriate proceedings and adequate reserves are being maintained
                in
                connection therewith; provided that this Section 7(f) shall not apply
                to
                claims for labor, materials or supplies which Payee consents in writing
                shall be excluded herewith, notwithstanding that such claims, if
                unpaid,
                might become a lien or charge upon such properties or any part
                thereof.

            


       

      	f.  	
              Grantor
                shall keep and maintain at its own cost and expense satisfactory
                and
                reasonably complete records of the Collateral. Grantor shall furnish
                the
                Lender with such information regarding the Collateral as the Lender
                may
                reasonably request from time to time and shall allow the Lender,
                upon
                reasonable notice, access during normal business hours to inspect
                the
                Collateral and Grantor's records, accounts and books pertaining to
                the
                Collateral, provided that no restriction as to normal business hours
                shall
                be required during the continuance of an Event of
                Default.

            


       

      	g.  	
              Grantor
                shall not knowingly take or omit to take any action, the taking or
                omission of which might impair Lender's lien on the Collateral or
                adversely affect the value of the
                Collateral.

            


       

      	h.  	
              Upon
                the occurrence and during the continuance of any Event of Default,
                Grantor
                shall not grant any extension of the time of payment of any of its
                Accounts, Chattel Paper, Instruments or amounts due under any of
                its
                Contracts or Documents, compromise, compound or settle the same for
                less
                than the full amount thereof, release, wholly or partly, any Person
                liable
                for the payment thereof, or allow any credit or discount whatsoever
                thereon other than trade discounts and rebates granted in the ordinary
                course of Grantor's business.

            


       

      	i.  	
              Grantor
                shall (i) protect, defend and maintain the validity and enforceability
                of
                the Copyrights, Patents and Trademarks, (ii) use commercially reasonable
                efforts to detect infringements of the Copyrights, Patents and Trademarks
                and promptly advise the Lender in writing of material infringements
                detected, and (iii) not allow any material Copyrights, Patents or
                Trademarks to be abandoned, forfeited or dedicated to the public
                without
                the written consent of the Lender, unless any such abandonment is
                appropriate in accordance with reasonable and customary business
                practice.

            


       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      	j.  	
              Grantor
                shall not execute or authorize to be filed in any public office any
                UCC
                financing statement (or similar statement or instrument of registration
                under the law of any jurisdiction) except UCC financing statements
                filed
                or to be filed in respect of and covering the lien created by this
                Agreement

            


       

      	k.  	
              Grantor
                shall not amend, modify, waive, take any action or fail to take any
                action
                with respect to all or a portion of any Contract which Grantor reasonably
                expects or should expect would adversely affect Lender's interest
                in the
                Collateral (including, but not limited to, the value of the Collateral)
                or
                which affect the timing, value or amount of any proceeds due under
                any
                Contract.

            


       

      	8.  	
              Further
                Assurances.
                Grantor agrees, at any time and from time to time, at the expense
                of
                Grantor, and upon request of the Lender, to promptly execute and
                deliver
                all further instruments and documents, and take all further action,
                that
                may be necessary or desirable, in order to perfect and protect any
                security interest granted or purported to be granted hereby or to
                enable
                the Lender to exercise and enforce Lender's rights and remedies hereunder
                with respect to any Collateral, including, without limitation, (i)
                delivering and causing to be flied any financing or continuation
                statements (including in lieu" continuation statements) under the
                UCC with
                respect to the security interests granted hereby, (ii) obtaining
                "control"
                by or on behalf of Lender of any Investment Property, Deposit Accounts,
                Letter-of-Credit Rights or Electronic Chatter Paper (with reference
                to
                applicable provisions of the UCC with respect to "control" for such
                items
                of Collateral), (iii) placing the interest of the Lender as lienholders
                on
                the certificate of title (or similar evidence of ownership) of any
                Equipment constituting Collateral owned by Grantor which is covered
                by a
                certificate of title (or similar evidence of ownership), (iv) filing
                or
                cooperating with the Lender in filing any forms or other documents
                required to be recorded with the United States Patent and Trademark
                Office, United States Copyright Office, or any actions, filings,
                recordings or registrations in any foreign jurisdiction or under
                any
                international treaty, required to secure or protect Lender's interest
                in
                the Collateral, (v) transferring Collateral to the possession of
                the
                Lender (if a security interest in such Collateral can only be perfected
                by
                possession), (vi) executing and delivering or causing to be delivered
                written notice to insurers of Lender's security interest in, or claim
                in
                or under, any policy of insurance (including unearned premiums),
                and (vii)
                using its best efforts to obtain acknowledgements from bailees having
                possession of any Collateral and waivers of liens from landlords
                and
                mortgagees of any location where any of the Collateral may from time
                to
                time be stored or located. If Grantor executes and delivers any document
                or instrument pursuant to this Section 8, such document or instrument
                shall be in form and substance reasonably satisfactory to the Lender
                and a
                copy thereof shall be provided by Grantor to the Lender; and if Grantor
                takes any other action pursuant to this Section 8, such action shall
                be
                taken with the prior written consent of the Lender and notice thereof
                shall be given by Grantor to the Lender.

            


       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      	9.  	
              Security
                Interest Absolute.
                All rights of the Lender and the assignment and security interest
                hereunder, and all obligations of Grantor hereunder, shall remain
                in full
                force and effect and shall secure the Obligations, and shall be absolute
                and unconditional, irrespective of:

            


       

      	a.  	
              any
                change in the time, manner or place of payment of, or in any other
                term
                of, all or any of the Obligations or any other amendment or waiver
                of or
                any consent to any departure from the Note;
                or

            


       

      	b.  	
              any
                taking, exchange, release or non-perfection of any other collateral,
                or
                any release or amendment or waiver of or consent to departure from
                any
                guaranty, for all or any of the Obligations;
                or

            


       

      	c.  	
              any
                manner of application of any Collateral, or proceeds thereof, to
                all or
                any of the Obligations or any manner of sale or other disposition
                of any
                Collateral; or

            


       

      	d.  	
              any
                other circumstances other than releases, waivers and the like by
                the
                Lender that might otherwise constitute a defense available to, or
                a
                discharge of, Grantor's obligations hereunder or Lender's security
                interest hereunder.

            


       

      	10.  	
              Continuing
                Security Interest; Sale of Participations; Release of
                Collateral.
                This Agreement shall create a continuing security interest in the
                Collateral and shall (i) remain in full force and effect until the
                payment
                in full of the Obligations (subject to Section 14 hereof), (ii) be
                binding
                upon Grantor, its successors and its permitted assigns under the
                Note, and
                (iii) inure to the benefit of, and be enforceable by (subject to
                the terms
                hereof), the Lender and its successors and assigns. No sales of
                participations in, and no other sales, assignments, transfers or
                other
                dispositions of, any agreement governing or instrument evidencing
                the
                Obligations or any portion thereof or interest therein by the Lender
                shall
                in any manner affect the lien granted to the Lender hereunder. Subject
                to
                Section 14 hereof, upon the payment in full of the Obligations, the
                security interest granted hereby shall terminate and all rights to
                the
                Collateral shall revert to Grantor. Upon any such termination, the
                Lender
                will, at Grantor' expense, execute and deliver to Grantor such documents
                as Grantor shall reasonably request to evidence such termination.
                The
                Lender shall, at the request of Grantor, deliver any document reasonably
                necessary to release any lien granted hereunder with respect to any
                Collateral Grantor is transferring.

            


       

      	11.  	
              Lender's
                Duties.
                The powers conferred on the Lender hereunder are solely to protect
                Lender's interest in the Collateral as a secured party and shall
                not
                impose any duty upon the Lender to exercise any such powers. Except
                for
                the safe custody of any Collateral in Lender's possession and the
                accounting for money actually received by Lender hereunder, the Lender
                shall not have any duty as to any Collateral or as to the taking
                of any
                necessary steps to preserve any rights pertaining to any Collateral.
                The
                Lender shall not have any responsibility or liability for the collection
                of any proceeds of any Collateral or by reason of any invalidity,
                lack of
                value or uncollectability of any of the Collateral. The Lender shall
                be
                deemed to have exercised reasonable care in the custody and preservation
                of any Collateral in the Lender's possession if such Collateral is
                accorded treatment substantially equal to that which the Lender accords
                its own property.

            


       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      	12.  	
              Events
                of Default; Remedies Upon Default; Actions by Lender.

            


       

      	a.  	
              The
                occurrence of an Event of Default under and as defined in the Note
                shall
                constitute an "Event
                of Default"
                hereunder.

            


       

      	b.  	
              If
                any Event of Default shall have occurred:

            


       

      	i.  	
              The
                Lender may exercise in respect of the Collateral, in addition to
                other
                rights and remedies provided for herein or otherwise available to
                Lender
                (or any of them), all the rights and remedies of a secured party
                on
                default under the UCC (whether or not the UCC applies to the affected
                Collateral), and may also, without notice of any kind or demand of
                performance or other demand (all and each of which demands and notices
                are
                hereby expressly waived to the maximum extent provided by the UCC
                and
                other applicable law) reclaim, take possession, recover, store, maintain,
                finish, repair, prepare for sale or lease, advertise for sale or
                lease and
                sell the Collateral or any part thereof in one or more parcels at
                public
                or private sale, at any exchange, broker's board or at the Lender's
                offices or elsewhere, for cash, on credit, or for future delivery,
                and
                upon such other terms as the Lender may deem commercially reasonable.
                In
                connection with the liquidation, sale or other disposition of the
                Collateral, the Lender is granted a non-exclusive, royalty-free license
                or
                other right to use, without charge, Grantor' labels, patents, copyrights,
                trade secrets, trade names, trademarks, service marks, or any similar
                property as it pertains to the Collateral, in completing a liquidation,
                sale or other disposition of the Collateral. The Lender shall not
                be
                obligated to make any sale of Collateral regardless of notice of
                sale
                having been given. The Lender may adjourn any public or private sale
                from
                time to time by announcement at the time and place fixed therefor,
                and
                such sale may, without further notice, be made at the time and place
                to
                which it was so adjourned. Grantor agrees that in any sale of any
                of the
                Collateral, whether at a foreclosure sale or otherwise, the Lender
                is
                hereby authorized to comply with any limitation or restriction in
                connection with such sale as it may be advised by counsel is necessary
                in
                order to avoid any violation of applicable law (including compliance
                with
                such procedures as may restrict the number of prospective bidders
                and the
                Lender, require that such prospective bidders and the Lender have
                certain
                qualifications and restrict such prospective bidders and the Lender
                to
                Persons who will represent and agree that they are purchasing for
                their
                own account for investment and not with a view to the distribution
                or
                resale of such Collateral), and Grantor further agrees that such
                compliance shall not result in such sale being considered or deemed
                not to
                have been made in a commercially reasonable manner, nor shall the
                Lender
                be liable or accountable to Grantor for any discount allowed by reason
                of
                the fact that such Collateral is sold in compliance with any such
                limitation or restriction.

            


       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      	ii.  	
              Grantor
                authorizes the Lender, on the terms set forth herein, to enter the
                premises where the Collateral (or any part of it) is located, to
                take
                possession of the Collateral (or any part of it), and to pay, purchase,
                contract, or compromise any encumbrance, charge or lien which, in
                the
                opinion of the Lender, appears to be prior or superior to its security
                interest. Grantor further agrees, at the Lender's request, to assemble
                the
                Collateral and make it available to the Lender at places which the
                Lender
                shall reasonably select. To the maximum extent permitted by applicable
                law, Grantor hereby waives all claims, damages, and demands against
                the
                Lender arising out of the repossession, retention or sale of the
                Collateral.

            


       

      	iii.  	
              The
                Lender may sell Collateral without giving warranties as to such
                Collateral. The Lender may specifically disclaim any warranties of
                title
                or the like. The foregoing will not be considered adversely to affect
                the
                commercial reasonableness of any sale of
                Collateral.

            


       

      	iv.  	
              If
                the Lender sells any of the Collateral upon credit, Grantor will
                be
                credited only with, and at the time of, payments actually made by
                the
                purchaser in such sale received by the purchaser and applied to the
                indebtedness of such purchaser. In the event the purchaser in such
                sale
                fails to pay for the Collateral, the Lender may resell the Collateral
                and
                Grantor shall be credited with the proceeds of the resale in accordance
                with the preceding sentence. In the event the Lender purchase any
                of the
                Collateral being sold, the Lender may pay for the Collateral by crediting
                some or all of the amounts described in clauses first, second, third
                and
                fourth of Section 12(b)(vi) hereof.

            


       

      	v.  	
              Any
                cash held by the Lender as Collateral and all cash proceeds received
                by
                the Lender in respect of any sale of, collection from, or other
                realization upon, all or any part of the Collateral or the exercise
                of any
                other remedies consequent upon an Event of Default shall be applied
                in
                whole or in part by the Lender against all or any part of the Obligations
                in the following order;

            


       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      First,
        to the
        Lender in an amount sufficient to pay in full the Obligations, including
        all
        reasonable fees, costs, expenses, liabilities and advances incurred or made
        by
        the Lender in connection with the sale, disposition or other realization
        of the
        Collateral, including without limitation, reasonable attorneys'
        fees;

       

      Second,
        upon
        payment in full of all the Obligations, to Grantor or to whomsoever may be
        lawfully entitled to receive such surplus.

       

      	vi.  	
              Grantor
                shall remain liable for any deficiency if the proceeds of any sale
                or
                disposition of the Collateral are insufficient to fully pay the
                Obligations, and Grantor also shall be liable for the reasonable
                costs and
                expenses (Including reasonable attorneys' fees and expenses) incurred
                by
                Lender to collect such deficiency.

            


       

      	vii.  	
              Grantor
                hereby waives presentment, demand, protest or any notice (to the
                maximum
                extent permitted by applicable law) of any kind in connection with
                this
                Agreement or any Collateral.

            


       

      	13.  	
              Expenses.
                Grantor shall upon demand pay to the Lender the amount of any and
                all
                reasonable expenses, including the reasonable and necessary fees
                and
                expenses the Lender's counsel and of any experts and agents, which
                the
                Lender may incur in connection with (a) the administration of this
                Agreement, (b) the custody or preservation of, or the sale of, collection
                from, or other realization upon, any of the Collateral, (c) the exercise
                or enforcement of any of the rights of the Lender hereunder, or (d)
                the
                failure by Grantor to perform or observe any of the provisions hereof
                or
                of under the Note.

            


       

      	14.  	
              Reinstatement.
                This Agreement shall remain in full force and effect and continue
                to be
                effective should any petition be filed by or against Grantor for
                liquidation or reorganization, should Grantor become insolvent or
                make an
                assignment for the benefit of creditors or should a receiver or trustee
                be
                appointed for all or any significant part of Grantor's property and
                assets, and shall continue to be effective or be reinstated, as the
                case
                may be, if at any time payment and performance of the Obligations,
                or any
                part thereof, is, pursuant to applicable law, rescinded or reduced
                in
                amount, or must otherwise be restored or returned by any obligee
                of the
                Obligations, whether as a "voidable preference," "fraudulent conveyance,"
                or otherwise, all as though such payment or performance had not been
                made.
                In the event that any payment, or any part thereof, is rescinded,
                reduced,
                restored or returned, the Obligations shall be reinstated and deemed
                reduced only by such amount paid and not so rescinded, reduced, restored
                or returned.

            


       

      	15.  	
              Amendments,
                Etc.
                No amendment or waiver of any provision of this Agreement, nor consent
                to
                any departure by Grantor herefrom, shall in any event be effective
                unless
                the same shall be in writing and signed by the parties necessary
                to amend
                the Note, and then such waiver or consent shall be effective only
                in the
                specific instance and for the specific purpose for which
                given.

            


       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      	16.  	
              Cumulative
                Remedies.
                The rights and remedies hereunder provided are cumulative and may
                be
                exercised singly or concurrently, and are not exclusive of any rights
                and
                remedies provided by law. The Lender shall not by any act, delay,
                omission
                or otherwise be deemed to have waived any of their respective rights
                or
                remedies hereunder, nor shall any single or partial exercise of any
                right
                or remedy hereunder on any one occasion preclude the further exercise
                thereof or the exercise of any other right or
                remedy.

            


       

      	17.  	
              Lender
                May Perform; Reimbursement; Power of Attorney.

            


       

      	a.  	
              If
                Grantor fails to perform any obligation of Grantor under this Agreement,
                the Lender may, but shall not have the obligation to, without prior
                notice
                to or obtaining the consent of Grantor, perform that obligation on
                behalf
                of Grantor, including, without limitation, obtaining insurance coverage
                for the Collateral and satisfying tax obligations or liens on the
                Collateral. Grantor shall reimburse the Lender on demand for all
                reasonable expenses and reasonable attorneys' fees incurred by the
                Lender
                in performing any such obligation, including interest at the interest
                rate
                specified in the Note.

            


       

      	b.  	
              Grantor
                hereby absolutely and irrevocably constitutes and appoints the Lender
                as
                Grantor's true and lawful agent and attorney-in-fact, with full power
                of
                substitution, in the name of Grantor: (a) to take any and all such
                action
                as the Lender or any of its agents, nominees or attorneys may, in
                its or
                their sole and absolute discretion, reasonably determine as necessary
                or
                advisable for the purpose of maintaining, preserving or protecting
                the
                security constituted by this Agreement or any of the rights, remedies,
                powers or privileges of the Lender under this Agreement; and (b)
                generally, in the name of Grantor to exercise all or any of the powers,
                authorities and discretions, conferred on or reserved to the Lender
                by or
                pursuant to this Agreement, and (without prejudice to the generality
                of
                any of the foregoing) to seal and deliver or otherwise perfect any
                deed,
                assurance, agreement, instrument or act as the Lender may deem proper
                in
                or for the purpose of exercising any of such powers, authorities
                or
                discretions, in each case. Grantor hereby ratifies and confirms,
                and
                hereby agrees to ratify and confirm, whatever lawful acts the Lender
                or
                any of its agents, nominees or attorneys shall do or purport to do
                in the
                exercise of the power of attorney granted to the Lender pursuant
                to this
                Section 17(6), which power of attorney, being given for security,
                is
                irrevocable. Notwithstanding anything to the contrary in this Section
                17(b), no such action as Grantor's true and lawful agent and
                attorney-in-fact may be taken by Lender except upon the occurrence
                of any
                Event of Default.

            


       

      	18.  	
              Addresses
                for Notices.
                Ail notices and other communications to any party provided for hereunder
                shall be in writing and mailed by registered or certified mail, return
                receipt requested, to the addresses for the Grantor and the Lender
                set
                forth on the signature pages hereto, or, as to any party, to such
                other
                address as shall be designated by such party in a written notice
                to each
                other party complying as to delivery with the terms of this Section
                18:
                All such notices and other communications shall be effective (i)
                upon
                personal delivery to the party to be notified; (ii) on the date of
                first
                attempted delivery after having been sent by registered or certified
                mail,
                return receipt requested, postage prepaid; (iii) one (1) day after
                deposit
                with a nationally recognized overnight courier, specifying next day
                delivery, with written verification of
                receipt.

            


       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      	19.  	
              Forbearance;
                Delay.
                Any forbearance, failure or delay by the Lender in exercising any
                right,
                power or remedy hereunder shall not preclude the exercise thereof.
                Every
                right, power or remedy of the Lender shall continue in full force
                and
                effect until such right, power or remedy is specifically waived by
                an
                instrument in writing executed by the
                Lender.

            


       

      	20.  	
              Severability.
                Any provision of this Agreement which is prohibited or unenforceable
                in
                any jurisdiction shall, as to such jurisdiction, be ineffective to
                the
                extent of such prohibition or unenforceabiilty without invalidating
                the
                remaining provisions hereof, and any such prohibition or unenforceability
                in any jurisdiction shall not invalidate or render unenforceable
                such
                provision in any other jurisdiction.

            


       

      	21.  	
              Successors
                and Assigns.
                This Agreement is for the benefit of the Lender and its successors
                and
                assigns, and in the event of an assignment of all or any of the
                Obligations, the rights hereunder, to the extent applicable to the
                indebtedness so assigned, may be transferred with such indebtedness.
                This
                Agreement shall be binding on the Grantor and its respective successors
                and assigns.

            


       

      	22.  	
              Consent
                To Jurisdiction And Service Of Process.
                ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
                BE
                BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
                FOR
                THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY
                OF THIS
                AGREEMENT, EACH OF GRANTOR AND LENDER CONSENTS, FOR ITSELF AND IN
                RESPECT
                OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.
                EACH
                OF THE GRANTOR AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
                ANY
                OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
                NON
                CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
                ANY
                ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT
                OR
                ANY DOCUMENT RELATED HERETO. EACH OF GRANTOR AND LENDER WAIVES PERSONAL
                SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE
                MADE BY
                ANY OTHER MEANS PERMITTED BY NEW YORK
                LAW.

            


       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      	23.  	
              Waiver
                Of Jury Trial.
                EACH OF GRANTOR AND LENDER WAIVES ITS RIGHT TO A TRIAL BY JURY OF
                ANY
                CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED
                TO THIS
                AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION,
                PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY AGAINST
                ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
                OR
                OTHERWISE. EACH OF GRANTOR AND LENDER AGREES THAT ANY SUCH CLAIM
                OR CAUSE
                OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
                LIMITING
                THE FOREGOING, EACH OF GRANTOR AND LENDER FURTHER AGREES THAT ITS
                RIGHT TO
                A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
                ACTION,
                COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
                TO
                CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY
                PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
                RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
                AGREEMENT.

            


       

      	24.  	
              Advice
                of Counsel; Construction.
                Each of Grantor and Lender represents and warrants that it has discussed
                this Agreement, including, without limitation, Section
                22 and Section 23
                hereof, with its counsel. The parties hereto have participated jointly
                in
                the negotiation and drafting of this Agreement. In the event an ambiguity
                or question of intent or interpretation arises, this Agreement shall
                be
                construed as if drafted jointly by the parties hereto and no presumption
                or burden of proof shall arise favoring or disfavoring any party
                by virtue
                of the authorship of any provisions of the
                Agreement.

            


       

      	25.  	
              Headings.
                The various headings in this Agreement are inserted for convenience
                only
                and shall not affect the meanings or interpretation of this Agreement
                or
                any provision hereof.

            


       

      	26.  	
              Governing
                Law.
                This Agreement shall be governed by, and construed in accordance
                with, the
                internal laws of the State of New York determined without reference
                to
                principles of conflicts of law, except to the extent that the validity
                or
                perfection of any security interest created hereunder, or remedies
                hereunder, in respect of any item of the Collateral is governed by
                the
                laws of a jurisdiction other than the State of New
                York.

            


       

      	27.  	
              Counterparts.
                This Agreement may be executed in counterparts, each of which shall
                constitute an original.

            


       

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

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

       

      
        	 	 	 
	 	ADVANCE NANOTECH, INC.
	 
 	 
 	 
 
	Date: 	By:  	 
	 	
                
Name:
	 	Title:
	 	Address:  
                Address: 600
                Lexington Avenue
                Floor
                  29

                New
                  York, New York 10022

              


      

       

      
        	 	 	 
	 	JANO HOLDINGS LIMITED
	 
 	 
 	 
 
	Date: 	By:  	 
	 	
                
Name:
	 	Title:
	 	Address:   Address: Suite
                F8
                International
                  Commercial Centre

                Casemates,
                  Main Road

                Gibraltar

              


      

       

      
 

      
        
           

        

        
          17