Document:

Exhibit 10.2

                               SECURITY AGREEMENT

            SECURITY AGREEMENT, dated as of October __, 2003 (this "AGREEMENT"),
among QT 5, Inc., a Delaware  corporation  (the  "Debtor")  and the  signatories
hereto, their endorsees,  transferees and assigns (collectively  referred to as,
the "SECURED PARTIES").

                              W I T N E S S E T H:

            WHEREAS,  pursuant  to the  Company's  Convertible  Debentures  (the
"DEBENTURES"), issued pursuant that certain Securities Purchase Agreement, dated
August 19, 2003, by and among the Debtor and the Secured  Parties (the "PURCHASE
AGREEMENT"),  the Secured  Parties  have agreed to extend the loan to the Debtor
evidenced by the Debentures; and

            WHEREAS,  in order to induce the Secured  Parties to extend the loan
evidenced by the Debentures, the Debtor has agreed to execute and deliver to the
Secured  Parties  this  Agreement  and to grant the  Secured  Parties a security
interest  in all of the  assets  of the  Debtor to secure  the  prompt  payment,
performance and discharge in full of all of the Debtor's  obligations  under the
Debentures.

            NOW, THEREFORE,  in consideration of the agreements herein contained
and for other good and valuable  consideration,  the receipt and  sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:

            1. CERTAIN  DEFINITIONS.  As used in this  Agreement,  the following
terms shall have the  meanings  set forth in this  Section 1. Terms used but not
otherwise  defined in this  Agreement  that are  defined in Article 9 of the UCC
(such as  "general  intangibles"  and  "proceeds")  shall  have  the  respective
meanings given such terms in Article 9 of the UCC.

                  (a)  "COLLATERAL"  means the  collateral  in which the Secured
         Parties are granted a security  interest  by this  Agreement  and which
         shall include the  following,  whether  presently  owned or existing or
         hereafter  acquired or coming into  existence,  and all  additions  and
         accessions thereto and all substitutions and replacements  thereof, and
         all  proceeds,  products  and  accounts  thereof,  including,   without
         limitation,  all proceeds  from the sale or transfer of the  Collateral
         and of insurance covering the same and of any tort claims in connection
         therewith:

                           (i)  All  Goods  of the  Debtor,  including,  without
                  limitations,  all  machinery,   equipment,   computers,  motor
                  vehicles, trucks, tanks, boats, ships, appliances,  furniture,
                  special and general tools, fixtures,  test and quality control
                  devices  and other  equipment  of every  kind and  nature  and
                  wherever  situated,  together  with all documents of title and
                  documents  representing the same, all additions and accessions

<PAGE>

                  thereto,  replacements  therefor,  all parts therefor, and all
                  substitutes  for any of the foregoing and all other items used
                  and useful in connection with the Debtor's  businesses and all
                  improvements thereto (collectively, the "EQUIPMENT"); and

                           (ii) All Inventory of the Debtor; and

                           (iii) All of the Debtor's contract rights and general
                  intangibles,  including,  without limitation,  all partnership
                  interests, stock or other securities,  licenses,  distribution
                  and other agreements,  computer software  development  rights,
                  leases,   franchises,    customer   lists,   quality   control
                  procedures, grants and rights, goodwill,  trademarks,  service
                  marks,   trade   styles,   trade   names,   patents,    patent
                  applications,  copyrights,  deposit  accounts,  and income tax
                  refunds (collectively, the "GENERAL INTANGIBLES"); and

                           (iv) All  Receivables  of the  Debtor  including  all
                  insurance  proceeds,  and rights to refunds or indemnification
                  whatsoever owing, together with all instruments, all documents
                  of title representing any of the foregoing,  all rights in any
                  merchandising,  goods,  equipment,  motor  vehicles and trucks
                  which any of the same may  represent,  and all  right,  title,
                  security  and  guaranties  with  respect  to each  Receivable,
                  including any right of stoppage in transit; and

                           (v) All of the Debtor's  documents,  instruments  and
                  chattel  paper,  files,  records,  books of account,  business
                  papers, computer programs and the products and proceeds of all
                  of the  foregoing  Collateral  set forth in  clauses  (i)-(iv)
                  above.

                  (c) "OBLIGATIONS" means all of the Debtor's  obligations under
         this Agreement,  the Debentures and any other agreements or obligations
         undertaken by the Company to the Secured Parties, in each case, whether
         now  or  hereafter  existing,  voluntary  or  involuntary,   direct  or
         indirect, absolute or contingent,  liquidated or unliquidated,  whether
         or not jointly owed with  others,  and whether or not from time to time
         decreased or extinguished and later increased, created or incurred, and
         all or any portion of such obligations or liabilities that are paid, to
         the  extent all or any part of such  payment  is  avoided or  recovered
         directly  or  indirectly  from the  Secured  Parties  as a  preference,
         fraudulent  transfer or otherwise as such  obligations  may be amended,
         supplemented, converted, extended or modified from time to time.

                  (d) "UCC" means the Uniform  Commercial  Code and or any other
         applicable law of any jurisdiction (including,  without limitation, the
         state of California) as to any Collateral located therein.

            2. GRANT OF  SECURITY  INTEREST.  As an  inducement  for the Secured
Parties  to extend the loan as  evidenced  by the  Debentures  and to secure the
complete and timely payment,  performance and discharge in full, as the case may

                                       2
<PAGE>

be,  of  all  of  the  Obligations,  the  Debtor  hereby,   unconditionally  and
irrevocably,  pledges,  grants  and  hypothecates  to  the  Secured  Parties,  a
continuing  security interest in, a lien upon and a right of set-off against all
of their respective  right,  title and interest of whatsoever kind and nature in
and to the Collateral (the "SECURITY INTEREST").

            3.  REPRESENTATIONS,  WARRANTIES,  COVENANTS  AND  AGREEMENTS OF THE
DEBTOR.  The Debtor  represents  and warrants to, and covenants and agrees with,
the Secured Parties as follows:

                  (a) The Debtor has the requisite corporate power and authority
         to enter into this Agreement and otherwise to carry out its obligations
         thereunder.  The execution,  delivery and  performance by the Debtor of
         this  Agreement  and the filings  contemplated  therein  have been duly
         authorized  by all  necessary  action on the part of the  Debtor and no
         further action is required by the Debtor.

                  (b) The Debtor represents and warrants that they have no place
         of business  or offices  where  their  respective  books of account and
         records  are  kept  (other  than  temporarily  at  the  offices  of its
         attorneys  or  accountants)  or places  where  Collateral  is stored or
         located, except as set forth on SCHEDULE A attached hereto.

                  (c) Except as set forth on  SCHEDULE B  attached  hereto,  the
         Debtor is the sole owner of the  Collateral  (except for  non-exclusive
         licenses  granted by the Debtor in the  ordinary  course of  business),
         free and clear of any liens, security interests,  encumbrances,  rights
         or claims,  and are fully authorized to grant the Security  Interest in
         and to pledge the Collateral.  There is not on file in any governmental
         or  regulatory  authority,  agency or  recording  office  an  effective
         financing  statement,  security  agreement,  license or transfer or any
         notice of any of the  foregoing  (other than those that have been filed
         in favor of the Secured Parties pursuant to this Agreement) covering or
         affecting any of the Collateral.  So long as this Agreement shall be in
         effect,  Debtor shall not execute and shall not knowingly  permit to be
         on file in any such office or agency any such  financing  statement  or
         other document or instrument (except to the extent filed or recorded in
         favor of the Secured Parties pursuant to the terms of this Agreement).

                  (d) No part of the  Collateral  has  been  judged  invalid  or
         unenforceable.  No written claim has been received that any  Collateral
         or  Debtor's  use of any  Collateral  violates  the rights of any third
         party.  There  has  been no  adverse  decision  to  Debtor's  claim  of
         ownership  rights in or exclusive  rights to use the  Collateral in any
         jurisdiction  or to Debtor's right to keep and maintain such Collateral
         in full force and effect,  and there is no  proceeding  involving  said
         rights  pending or, to the best  knowledge  of the  Debtor,  threatened
         before any court,  judicial body,  administrative or regulatory agency,
         arbitrator or other governmental authority.

                                       3
<PAGE>

                  (e) The Debtor shall at all times  maintain  their  respective
         books of  account  and  records  relating  to the  Collateral  at their
         respective principal place of business and their respective  Collateral
         at the  locations  set forth on SCHEDULE A attached  hereto and may not
         relocate  such books of account  and  records  or  tangible  Collateral
         unless they  deliver to the  Secured  Parties at least 30 days prior to
         such  relocation  (i)  written  notice of such  relocation  and the new
         location  thereof  (which  must be within the United  States)  and (ii)
         evidence that appropriate  financing statements under the UCC and other
         necessary  documents  have been filed and recorded and other steps have
         been taken to perfect the  Security  Interest to create in favor of the
         Secured  Parties  a  valid,  perfected  and  continuing  liens  in  the
         Collateral.

                  (f) This Agreement  creates in favor of the Secured  Parties a
         valid  security  interest in the  Collateral  securing  the payment and
         performance of the Obligations  and, upon making the filings  described
         in the immediately following sentence, a perfected security interest in
         such Collateral. Except for the filing of financing statements pursuant
         to the UCC  with  the  proper  filing  and  recording  agencies  in the
         jurisdictions   indicated   on  SCHEDULE   C,   attached   hereto,   no
         authorization   or  approval  of  or  filing  with  or  notice  to  any
         governmental  authority or regulatory  body is required  either (i) for
         the grant by the  Debtor  of, or the  effectiveness  of,  the  Security
         Interest granted hereby or for the execution,  delivery and performance
         of this  Agreement  by the  Debtor  or (ii)  for the  perfection  of or
         exercise by the Secured Parties of its rights and remedies hereunder.

                  (g) On the date of  execution  of this  Agreement,  the Debtor
         will file one or more financing  statements  under the UCC with respect
         to the Security Interest with the proper filing and recording  agencies
         in the  jurisdictions  indicated on SCHEDULE C, attached  hereto and in
         such other jurisdictions as may be requested by the Secured Parties and
         will deliver  true and  complete  copies of such filings to the Secured
         Parties.

                  (h) The execution,  delivery and performance of this Agreement
         by the Debtor does not conflict  with,  or  constitute a default (or an
         event that with notice or lapse of time or both would become a default)
         under,  or  give  to  others  any  rights  of  termination,  amendment,
         acceleration or cancellation (with or without notice,  lapse of time or
         both) of, any  agreement,  credit  facility,  debt or other  instrument
         (evidencing Debtor's debt or otherwise) or other understanding to which
         Debtor is a party or by which any  property  or asset of the  Debtor is
         bound or affected.  No consent  (including,  without  limitation,  from
         stock holders or creditors of the Debtor) is required for the Debtor to
         enter into and perform its obligations hereunder.

                  (i) The  Debtor  shall at all  times  maintain  the  liens and
         Security  Interest  provided for hereunder as valid and perfected liens
         and  security  interests  in the  Collateral  in favor  of the  Secured
         Parties until this Agreement and the Security Interest  hereunder shall
         be terminated  pursuant to Section 11 hereof.  The Debtor hereby agrees
         to defend  the same  against  any and all  persons.  The  Debtor  shall

                                       4
<PAGE>

         safeguard  and  protect all  Collateral  for the account of the Secured
         Parties.  At the request of the Secured  Parties,  the Debtor will sign
         and deliver to the Secured Parties at any time or from time to time one
         or more  financing  statements  pursuant to the UCC in form  reasonably
         satisfactory to the Secured Parties and will pay the cost of filing the
         same in all  public  offices  wherever  filing  is, or is deemed by the
         Secured Parties to be,  necessary or desirable to effect the rights and
         obligations provided for herein. Without limiting the generality of the
         foregoing,  the  Debtor  shall  pay all fees,  taxes and other  amounts
         necessary  to  maintain  the  Collateral  and  the  Security   Interest
         hereunder,  and the  Debtor  shall  obtain and  furnish to the  Secured
         Parties  from  time  to  time,   upon  demand,   such  releases  and/or
         subordinations  of claims and liens  which may be  required to maintain
         the priority of the Security Interest hereunder.

                  (j)  The  Debtor  will  not  transfer,  pledge,   hypothecate,
         encumber,  license  (except  for  non-exclusive  licenses  granted by a
         Debtor in its ordinary course of business and sales of inventory), sell
         or otherwise dispose of any of the Collateral without the prior written
         consent of a majority in interest of the Secured Parties.

                  (k)  The  Debtor  shall  keep  and  preserve  its   Equipment,
         Inventory and other tangible  Collateral in good condition,  repair and
         order and shall not operate or locate any such  Collateral (or cause to
         be operated or located) in any area excluded from insurance coverage.

                  (l) The  Debtor  shall,  within  ten  (10)  days of  obtaining
         knowledge thereof,  advise the Secured Parties promptly,  in sufficient
         detail,  of  any  substantial  change  in  the  Collateral,  and of the
         occurrence of any event which would have a material  adverse  effect on
         the  value  of the  Collateral  or on  the  Secured  Parties'  security
         interest therein.

                  (m) The  Debtor  shall  promptly  execute  and  deliver to the
         Secured Parties such further deeds,  mortgages,  assignments,  security
         agreements,  financing  statements  or  other  instruments,  documents,
         certificates and assurances and take such further action as the Secured
         Parties may from time to time  request  and may in its sole  discretion
         deem necessary to perfect,  protect or enforce its security interest in
         the Collateral.

                  (n) The Debtor  shall  permit the  Secured  Parties  and their
         representatives  and agents to inspect the  Collateral at any time, and
         to make  copies  of  records  pertaining  to the  Collateral  as may be
         requested by a Secured Party from time to time.

                  (o) The Debtor  shall take all steps  reasonably  necessary to
         diligently pursue and seek to preserve, enforce and collect any rights,
         claims,  causes of action  and  accounts  receivable  in respect of the
         Collateral.

                                       5
<PAGE>

                  (p) The Debtor shall  promptly  notify the Secured  Parties in
         sufficient  detail upon becoming aware of any attachment,  garnishment,
         execution or other legal process  levied  against any Collateral and of
         any other information received by the Debtor that may materially affect
         the value of the  Collateral,  the Security  Interest or the rights and
         remedies of the Secured Parties hereunder.

                  (q) All information  heretofore,  herein or hereafter supplied
         to the Secured  Parties by or on behalf of the Debtor  with  respect to
         the Collateral is accurate and complete in all material  respects as of
         the date furnished.

                  (r) The Debtor  shall at all times  preserve  and keep in full
         force and effect their respective valid existence and good standing and
         any rights and franchises material to its business.

                  (s) The Debtor will not change its name,  corporate structure,
         or identity, or add any new fictitious name unless it provides at least
         30 days prior written notice to the Secured Parties of such change and,
         at the time of such  written  notification,  such Debtor  provides  any
         financing  statements  or fixture  filings  necessary  to  perfect  and
         continue  perfected the Security Interest granted and evidenced by this
         Agreement.

                  (t) The Debtor may not  consign any of its  Inventory  or sell
         any of its  Inventory  on  bill  and  hold,  sale  or  return,  sale on
         approval,  or other  conditional terms of sale without the consent of a
         majority  in  interest  of  the  Secured  Parties  which  shall  not be
         unreasonably withheld.

                  (u) The Debtor may not relocate its chief executive  office to
         a new location  without  providing 30 days prior  written  notification
         thereof  to the  Secured  Parties  and so long as,  at the time of such
         written  notification,  the Debtor provides any financing statements or
         fixture  filings  necessary  to  perfect  and  continue  perfected  the
         Security Interest granted and evidenced by this Agreement.

         4. DEFAULTS. The following events shall be "Events of Default":

                  (a) The  occurrence  of an Event of Default (as defined in the
         Debenture) under the Debenture;

                  (b)  Any  representation  or  warranty  of a  Debtor  in  this
         Agreement  shall prove to have been  incorrect in any material  respect
         when made;

                  (c) The  failure by a Debtor to observe or perform  any of its
         obligations  hereunder for five (5) days after  delivery to such Debtor
         of notice of such failure by or on behalf of a Secured Party; or

                  (d) If any provision of this  Agreement  shall at any time for
         any  reason  be  declared  to be null  and  void,  or the  validity  or
         enforceability  thereof shall be contested by a Debtor, or a proceeding

                                       6
<PAGE>

         shall be commenced by a Debtor, or by any governmental authority having
         jurisdiction  over a Debtor,  seeking to establish  the  invalidity  or
         unenforceability  thereof, or a Debtor shall deny that a Debtor has any
         liability or obligation purported to be created under this Agreement.

         5. DUTY TO HOLD IN TRUST.  Upon the  occurrence of any Event of Default
and at any time  thereafter,  the Debtor  shall,  upon  receipt of any  revenue,
income or other sums subject to the Security Interest,  whether payable pursuant
to  the  Debenture  or  otherwise,  or of any  check,  draft,  Debenture,  trade
acceptance  or other  instrument  evidencing  an obligation to pay any such sum,
hold the same in trust for the Secured Parties and shall  forthwith  endorse and
transfer any such sums or instruments, or both, to the Secured Parties, pro-rata
in proportion to their initial  purchases of Debentures  for  application to the
satisfaction of the Obligations.

         6. RIGHTS AND REMEDIES UPON DEFAULT.  Upon the  occurrence of any Event
of Default and at any time thereafter,  the Secured Parties shall have the right
to exercise all of the remedies  conferred  hereunder and under the  Debentures,
and the  Secured  Parties  shall have all the rights and  remedies  of a secured
party under the UCC.  Without  limitation,  the Secured  Parties  shall have the
following rights and powers:

                  (a)  The  Secured   Parties  shall  have  the  right  to  take
         possession of the Collateral and, for that purpose, enter, with the aid
         and assistance of any person, any premises where the Collateral, or any
         part thereof,  is or may be placed and remove the same,  and the Debtor
         shall  assemble  the  Collateral  and make it  available to the Secured
         Parties at places which the Secured  Parties shall  reasonably  select,
         whether at the Debtor's  premises or elsewhere,  and make  available to
         the Secured  Parties,  without  rent,  all of the  Debtor's  respective
         premises and facilities  for the purpose of the Secured  Parties taking
         possession  of,  removing  or putting  the  Collateral  in  saleable or
         disposable form.

                  (b) The  Secured  Parties  shall have the right to operate the
         business of the Debtor using the Collateral and shall have the right to
         assign, sell, lease or otherwise dispose of and deliver all or any part
         of the Collateral, at public or private sale or otherwise,  either with
         or without special conditions or stipulations, for cash or on credit or
         for future  delivery,  in such  parcel or  parcels  and at such time or
         times and at such place or places,  and upon such terms and  conditions
         as the Secured Parties may deem  commercially  reasonable,  all without
         (except  as shall be  required  by  applicable  statute  and  cannot be
         waived)  advertisement  or demand upon or notice to the Debtor or right
         of redemption of a Debtor, which are hereby expressly waived. Upon each
         such sale,  lease,  assignment  or other  transfer of  Collateral,  the
         Secured Parties may,  unless  prohibited by applicable law which cannot
         be waived,  purchase all or any part of the Collateral being sold, free
         from and  discharged of all trusts,  claims,  right of  redemption  and
         equities of the Debtor, which are hereby waived and released.

                                       7
<PAGE>

            7. APPLICATIONS OF PROCEEDS. The proceeds of any such sale, lease or
other  disposition of the Collateral  hereunder  shall be applied first,  to the
expenses of retaking,  holding,  storing,  processing  and  preparing  for sale,
selling, and the like (including,  without limitation, any taxes, fees and other
costs  incurred in connection  therewith) of the  Collateral,  to the reasonable
attorneys'  fees and expenses  incurred by the Secured  Parties in enforcing its
rights hereunder and in connection with collecting, storing and disposing of the
Collateral,  and then to satisfaction of the Obligations  pro-rata in proportion
to each Secured Party's initial  purchases of Debentures,  and to the payment of
any other amounts  required by applicable  law, after which the Secured  Parties
shall pay to the  applicable  Debtor any  surplus  proceeds.  If, upon the sale,
license  or other  disposition  of the  Collateral,  the  proceeds  thereof  are
insufficient  to pay all  amounts  to which  the  Secured  Parties  are  legally
entitled,  the Debtor will be liable for the deficiency,  together with interest
thereon,  at the  rate  of 10% per  annum  or the  lesser  amount  permitted  by
applicable law (the "DEFAULT  RATE"),  and the reasonable  fees of any attorneys
employed  by the  Secured  Parties to  collect  such  deficiency.  To the extent
permitted by applicable  law, the Debtor waives all claims,  damages and demands
against the Secured Parties arising out of the repossession,  removal, retention
or sale  of the  Collateral,  unless  due to the  gross  negligence  or  willful
misconduct of the Secured Parties. Upon the receipt of any proceeds hereunder by
a Secured Party, such Secured Party shall,  upon receipt of any revenue,  income
or other sums subject to the Security Interest,  whether payable pursuant to the
Debenture or otherwise, or of any check, draft,  Debenture,  trade acceptance or
other instrument  evidencing an obligation to pay any such sum, hold the same in
trust for the other Secured Parties and shall forthwith endorse and transfer any
such sums or instruments,  or both, to the Secured Parties in such amounts as is
required hereunder.

            8.  COSTS AND  EXPENSES.  The  Debtor  agrees to pay all  reasonable
out-of-pocket  fees,  costs and expenses  incurred in connection with any filing
required  hereunder,  including  without  limitation,  any financing  statements
pursuant  to  the  UCC,   continuation   statements,   partial  releases  and/or
termination   statements  related  thereto  or  any  expenses  of  any  searches
reasonably required by the Secured Parties.  The Debtor shall also pay all other
claims and charges which in the reasonable  opinion of the Secured Parties might
prejudice,  imperil or otherwise affect the Collateral or the Security  Interest
therein.  The Debtor will also,  upon  demand,  pay to the  Secured  Parties the
amount of any and all reasonable  expenses,  including the  reasonable  fees and
expenses of its counsel and of any experts and agents, which the Secured Parties
may incur in connection  with (i) the  enforcement of this  Agreement,  (ii) the
custody  or  preservation  of,  or  the  sale  of,  collection  from,  or  other
realization upon, any of the Collateral, or (iii) the exercise or enforcement of
any of the rights of the Secured  Parties under the  Debentures.  Until so paid,
any  fees  payable  hereunder  shall be added  to the  principal  amount  of the
Debentures and shall bear interest at the Default Rate.

            9. RESPONSIBILITY FOR COLLATERAL. The Debtor assumes all liabilities
and responsibility in connection with all Collateral,  and the Obligations in no
way be  affected or  diminished  by reason of the loss,  destruction,  damage or
theft of any of the Collateral or its unavailability for any reason.

                                       8
<PAGE>

            10. SECURITY  INTEREST  ABSOLUTE.  All rights of the Secured Parties
and  all   Obligations   of  the  Debtor   hereunder,   shall  be  absolute  and
unconditional,  irrespective of: (a) any lack of validity or  enforceability  of
this Agreement,  the Debentures or any agreement entered into in connection with
the  foregoing,  or any portion  hereof or thereof;  (b) any change in the time,
manner or place of  payment or  performance  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  Debentures  or any  other  agreement  entered  into in
connection with the foregoing; (c) any exchange, release or nonperfection of any
of the  Collateral,  or any  release  or  amendment  or waiver of or  consent to
departure from any other collateral for, or any guaranty, or any other security,
for all or any of the  Obligations;  (d) any  action by the  Secured  Parties to
obtain, adjust, settle and cancel in its sole discretion any insurance claims or
matters  made or arising in  connection  with the  Collateral;  or (e) any other
circumstance  which might  otherwise  constitute any legal or equitable  defense
available  to a  Debtor,  or a  discharge  of all or any  part  of the  Security
Interest  granted  hereby.  Until  the  Obligations  shall  have  been  paid and
performed in full, the rights of the Secured  Parties shall continue even if the
Obligations  are barred  for any  reason,  including,  without  limitation,  the
running of the statute of limitations or bankruptcy. The Debtor expressly waives
presentment, protest, notice of protest, demand, notice of nonpayment and demand
for performance. In the event that at any time any transfer of any Collateral or
any payment  received by the Secured Parties  hereunder shall be deemed by final
order of a court of competent jurisdiction to have been a voidable preference or
fraudulent  conveyance  under the  bankruptcy or  insolvency  laws of the United
States,  or shall be deemed to be  otherwise  due to any  party  other  than the
Secured  Parties,  then, in any such event, the Debtor's  obligations  hereunder
shall survive  cancellation  of this  Agreement,  and shall not be discharged or
satisfied by any prior payment  thereof and/or  cancellation  of this Agreement,
but shall remain a valid and binding  obligation  enforceable in accordance with
the terms and  provisions  hereof.  The Debtor  waives all right to require  the
Secured  Parties to proceed  against any other person or to apply any Collateral
which the Secured  Parties  may hold at any time,  or to marshal  assets,  or to
pursue any other remedy.  The Debtor waives any defense arising by reason of the
application of the statute of limitations to any obligation secured hereby.

            11. TERM OF AGREEMENT.  The Security  Interest as to a Secured Party
shall terminate on the earlier of the date on which such Secured Party no longer
holds any principal amount of the original Debentures  purchased by such Secured
Party.  Upon such  termination,  the Secured Parties,  at the request and at the
expense of the Debtor,  will join in executing any  termination  statement  with
respect  to  any  financing  statement  executed  and  filed  pursuant  to  this
Agreement.

         12. POWER OF ATTORNEY; FURTHER ASSURANCES.

                   (a) The  Debtor  authorizes  the  Secured  Parties,  and does
         hereby  make,  constitute  and appoint  the  Secured  Parties and their
         respective officers,  agents,  successors or assigns with full power of
         substitution,  as the Debtor's true and lawful  attorney-in-fact,  with
         power, in the name of the Secured Parties or the Debtor,  to, after the

                                       9
<PAGE>

         occurrence  and  during the  continuance  of an Event of  Default,  (i)
         endorse  any  Debentures,   checks,  drafts,  money  orders,  or  other
         instruments of payment (including  payments payable under or in respect
         of any policy of insurance) in respect of the Collateral  that may come
         into  possession of the Secured  Parties;  (ii) to sign and endorse any
         financing  statement  pursuant  to the UCC or any  invoice,  freight or
         express bill,  bill of lading,  storage or warehouse  receipts,  drafts
         against debtors,  assignments,  verifications and notices in connection
         with accounts, and other documents relating to the Collateral; (iii) to
         pay or discharge taxes, liens, security interests or other encumbrances
         at any time levied or placed on or threatened  against the  Collateral;
         (iv) to demand,  collect,  receipt for, compromise,  settle and sue for
         monies due in respect of the Collateral;  and (v) generally,  to do, at
         the option of the Secured Parties, and at the expense of the Debtor, at
         any time,  or from time to time,  all acts and things which the Secured
         Parties  deem  necessary  to protect,  preserve  and  realize  upon the
         Collateral and the Security Interest granted therein in order to effect
         the  intent  of this  Agreement  and the  Debentures  all as fully  and
         effectually  as the Debtor  might or could do;  and the  Debtor  hereby
         ratifies all that said attorney  shall  lawfully do or cause to be done
         by virtue  hereof.  This power of attorney is coupled  with an interest
         and shall be irrevocable  for the term of this Agreement and thereafter
         as long as any of the Obligations shall be outstanding.

                  (b) On a  continuing  basis,  the Debtor  will make,  execute,
         acknowledge,  deliver,  file and  record,  as the case may be, with the
         proper filing and recording  agencies in any  jurisdiction,  including,
         without limitation, the jurisdictions indicated on SCHEDULE C, attached
         hereto,  all  such  instruments,  and  take  all  such  action  as  may
         reasonably be deemed necessary or advisable, or as reasonably requested
         by the  Secured  Parties,  to perfect  the  Security  Interest  granted
         hereunder  and  otherwise  to carry out the intent and purposes of this
         Agreement,  or for assuring and  confirming to the Secured  Parties the
         grant or perfection of a security  interest in all the Collateral under
         the UCC.

                  (c) The Debtor hereby irrevocably appoints the Secured Parties
         as the Debtor's attorney-in-fact,  with full authority in the place and
         stead of the Debtor and in the name of the Debtor, from time to time in
         the Secured Parties' discretion,  to take any action and to execute any
         instrument which the Secured Parties may deem necessary or advisable to
         accomplish the purposes of this Agreement, including the filing, in its
         sole  discretion,  of one or more financing or continuation  statements
         and amendments  thereto,  relative to any of the Collateral without the
         signature of the Debtor where permitted by law.

            13. NOTICES. All notices, requests, demands and other communications
hereunder shall be subject to the notice provision of the Purchase Agreement.

            14. OTHER  SECURITY.  To the extent that the  Obligations are now or
hereafter  secured by property  other than the  Collateral or by the  guarantee,
endorsement or property of any other person, firm,  corporation or other entity,
then the  Secured  Parties  shall have the  right,  in its sole  discretion,  to

                                       10
<PAGE>

pursue,  relinquish,  subordinate,  modify or take any other action with respect
thereto,  without in any way modifying or affecting any of the Secured  Parties'
rights and remedies hereunder.

            15. MISCELLANEOUS.

                  (a) No course of dealing  between  the Debtor and the  Secured
         Parties, nor any failure to exercise,  nor any delay in exercising,  on
         the  part  of the  Secured  Parties,  any  right,  power  or  privilege
         hereunder or under the  Debentures  shall operate as a waiver  thereof;
         nor shall  any  single  or  partial  exercise  of any  right,  power or
         privilege  hereunder  or  thereunder  preclude  any  other  or  further
         exercise  thereof  or  the  exercise  of  any  other  right,  power  or
         privilege.

                  (b) All of the rights and remedies of the Secured Parties with
         respect  to  the  Collateral,  whether  established  hereby  or by  the
         Debentures or by any other  agreements,  instruments or documents or by
         law shall be cumulative and may be exercised singly or concurrently.

                  (c) This  Agreement  constitutes  the entire  agreement of the
         parties  with respect to the subject  matter  hereof and is intended to
         supersede all prior  negotiations,  understandings  and agreements with
         respect thereto. Except as specifically set forth in this Agreement, no
         provision  of this  Agreement  may be modified  or amended  except by a
         written agreement  specifically  referring to this Agreement and signed
         by the parties hereto.

                  (d) In the event that any provision of this  Agreement is held
         to be invalid,  prohibited or unenforceable in any jurisdiction for any
         reason,  unless such  provision  is narrowed by judicial  construction,
         this Agreement shall, as to such jurisdiction,  be construed as if such
         invalid,  prohibited or unenforceable  provision had been more narrowly
         drawn  so as  not  to be  invalid,  prohibited  or  unenforceable.  If,
         notwithstanding the foregoing,  any provision of this Agreement is held
         to be invalid,  prohibited or unenforceable in any  jurisdiction,  such
         provision, as to such jurisdiction,  shall be ineffective to the extent
         of   such   invalidity,   prohibition   or   unenforceability   without
         invalidating  the  remaining  portion  of such  provision  or the other
         provisions  of this  Agreement  and without  affecting  the validity or
         enforceability  of  such  provision  or the  other  provisions  of this
         Agreement in any other jurisdiction.

                  (e) No waiver of any breach or default or any right under this
         Agreement shall be considered valid unless in writing and signed by the
         party giving such  waiver,  and no such waiver shall be deemed a waiver
         of any  subsequent  breach or default or right,  whether of the same or
         similar nature or otherwise.

                  (f) This  Agreement  shall be  binding  upon and  inure to the
         benefit of each party hereto and its successors and assigns.

                                       11
<PAGE>

                  (g) Each party shall take such further  action and execute and
         deliver such further  documents as may be necessary or  appropriate  in
         order to carry out the provisions and purposes of this Agreement.

                  (h)  All  questions  concerning  the  construction,  validity,
         enforcement and  interpretation  of this Agreement shall be governed by
         and construed and enforced in accordance  with the internal laws of the
         State of New York, without regard to the principles of conflicts of law
         thereof.  Each  party  agrees  that  all  proceedings   concerning  the
         interpretations,   enforcement   and   defense   of  the   transactions
         contemplated  by this  Agreement  and the  Debenture  (whether  brought
         against  a  party  hereto  or  its  respective  affiliates,  directors,
         officers,  shareholders,   employees  or  agents)  shall  be  commenced
         exclusively  in the state and federal courts sitting in the City of New
         York,  Borough of  Manhattan.  Each  party  hereto  hereby  irrevocably
         submits to the exclusive  jurisdiction  of the state and federal courts
         sitting  in  the  City  of New  York,  Borough  of  Manhattan  for  the
         adjudication of any dispute hereunder or in connection herewith or with
         any transaction  contemplated  hereby or discussed  herein,  and hereby
         irrevocably  waives,  and agrees not to assert in any  proceeding,  any
         claim that it is not personally subject to the jurisdiction of any such
         court,  that such  proceeding  is improper.  Each party  hereto  hereby
         irrevocably  waives personal service of process and consents to process
         being  served in any such  proceeding  by  mailing a copy  thereof  via
         registered or certified  mail or overnight  delivery  (with evidence of
         delivery)  to such party at the  address  in effect  for  notices to it
         under this Agreement and agrees that such service shall constitute good
         and sufficient service of process and notice thereof. Nothing contained
         herein  shall be deemed to limit in any way any right to serve  process
         in any manner  permitted by law. Each party hereto  hereby  irrevocably
         waives,  to the fullest extent permitted by applicable law, any and all
         right  to  trial  by jury in any  legal  proceeding  arising  out of or
         relating to this Agreement or the transactions  contemplated hereby. If
         either party shall  commence a proceeding to enforce any  provisions of
         this Agreement,  then the prevailing  party in such proceeding shall be
         reimbursed  by the other party for its  reasonable  attorneys  fees and
         other costs and expenses incurred with the  investigation,  preparation
         and prosecution of such proceeding.

                  (i)  This   Agreement   may  be  executed  in  any  number  of
         counterparts,  each of which when so executed  shall be deemed to be an
         original and, all of which taken together shall  constitute one and the
         same  Agreement.  In the  event  that any  signature  is  delivered  by
         facsimile  transmission,  such  signature  shall create a valid binding
         obligation of the party executing (or on whose behalf such signature is
         executed) the same with the same force and effect as if such  facsimile
         signature were the original thereof.

         16. SUBORDINATION TO FACTORING  ARRANGEMENT.  Notwithstanding  anything
herein to the contrary,  subject to the Debtor's  compliance with its obligation
under the Debentures  with respect to the Debtor's  obligation to offer any such
Factor Lien to the Secured  Parties first and subject to no Event of Default (as

                                       12
<PAGE>

defined in the Debentures)  existing at such time, the Debtor shall be permitted
to grant any lien,  security  interest,  encumbrance,  right or claim during the
term of this  Agreement  to one or more factor  arrangements  in relation to the
sale of the Debtor's accounts  receivable (a "FACTOR LIEN").  Each Secured Party
agrees that, upon the request of the Debtor in conjunction with a Factor Lien on
Debtor's  accounts  receivables (and no other Collateral) by a third party, each
Secured  Party  agrees to  subordinate  the  Security  Interest in the  Debtor's
accounts  receivables  pursuant  to a  subordination  agreement,  which shall be
reasonable and customary in form, if required by the Factor Lien lender.

                           ***************************

                                       13
<PAGE>

            IN WITNESS  WHEREOF,  the parties  hereto have caused this  Security
Agreement to be duly executed on the day and year first above written.

                                 QT 5, INC.

                                 By:___________________________________
                                             Name:
                                             Title:

                                 PALISADES MASTER FUND L.P.

                                 By:_________________________
                                        Name:
                                        Title:

                                 CRESCENT INTERNATIONAL LTD.

                                 By: ____________________________
                                 Name:
                                 Title:

                                 ALPHA CAPITAL, AG

                                 By: ___________________________
                                 Name:
                                 Title:

                                 BRISTOL INVESTMENT FUND, LTD.

                                 By: ____________________________
                                 Name:
                                 Title:

                                 ELLIS INTERNATIONAL LTD

                                 By: __________________________
                                 Name:
                                 Title:

                                 ZENNY TRADING LIMITED

                                 BY: ___________________________
                                 Name:
                                 Title:

                                       14

<PAGE>

                                   SCHEDULE A

Principal Place of Business of Debtor:

Locations Where Collateral is Located or Stored:

                                       15
<PAGE>

                                   SCHEDULE B

                                       16
<PAGE>

                                   SCHEDULE C

                                       17<PAGE>

                                                                    Exhibit 10.1

                         EQUITY LINE OF CREDIT AGREEMENT

         AGREEMENT  dated as of the 15th day of August  2002  (the  "Agreement")
between  CORNELL  CAPITAL  PARTNERS,  LP, a Delaware  limited  partnership  (the
"Investor"), and Y3K SECURE ENTERPRISE SOFTWARE INC, a corporation organized and
existing under the laws of the State of Nevada (the "Company").

         WHEREAS,  the parties  desire  that,  upon the terms and subject to the
conditions  contained herein,  the Company shall issue and sell to the Investor,
from time to time as provided  herein,  and the Investor shall purchase from the
Company up to Seven Million  ($7,000,000) Dollars of the Company's common stock,
par value $.001 per share (the "Common  Stock"),  for a total  purchase price of
Seven Million ($7,000,000) Dollars; and

         WHEREAS,  such investments will be made in reliance upon the provisions
of Regulation D ("Regulation D") of the Securities Act of 1933, as amended,  and
the regulations promulgated there under (the "Securities Act"), and or upon such
other exemption from the registration  requirements of the Securities Act as may
be available with respect to any or all of the investments to be made hereunder.

         WHEREAS, the Company has engaged Westrock Advisors,  Inc. to act as the
Company's exclusive placement agent in connection with the sale of the Company's
Common Stock to the Investor hereunder.

         NOW, THEREFORE, the parties hereto agree as follows:

                                   ARTICLE I.
                               Certain Definitions

         Section 1.1.  "Advance" shall mean the portion of the Commitment Amount
requested by the Company in the Advance Notice.

         Section  1.2.  "Advance  Date"  shall  mean  the date  Butler  Gonzalez
LLP/Wachovia  Bank,  N.A.  Escrow  Account  is in  receipt of the funds from the
Investor and Butler  Gonzalez  LLP, as Escrow  Agent,  is in  possession of free
trading  shares from the Company and therefore an Advance by the Investor to the
Company can be made and Butler  Gonzalez LLP can release the free trading shares
to the Investor. No Advance Date shall be less than seven (7) Trading Days after
an Advance Notice Date.

         Section  1.3.  "Advance  Notice"  shall  mean a  written  notice to the
Investor  setting  forth the Advance  amount that the Company  requests from the
Investor and the Advance Date.

         Section  1.4.  "Advance  Notice  Date" shall mean each date the Company
delivers to the  Investor an Advance  Notice  requiring  the Investor to advance
funds to the Company,  subject to the terms of this Agreement. No Advance Notice
Date shall be less than seven (7) Trading  Days after the prior  Advance  Notice
Date.

                                       1
<PAGE>

         Section 1.5. "Bid Price" shall mean, on any date, the closing bid price
(as reported by Bloomberg  L.P.) of the Common Stock on the Principal  Market or
if the Common Stock is not traded on a Principal  Market,  the highest  reported
bid price for the Common  Stock,  as furnished by the  National  Association  of
Securities Dealers, Inc.

         Section 1.6. "Closing" shall mean one of the closings of a purchase and
sale of Common Stock pursuant to Section 2.3.

         Section 1.7.  "Commitment Amount" shall mean the aggregate amount of up
to Seven Million Dollars  ($7,000,000)  which the Investor has agreed to provide
to the Company in order to purchase the Company's  Common Stock  pursuant to the
terms and conditions of this Agreement.

         Section 1.8.  "Commitment  Period" shall mean the period  commencing on
the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the
Company and the  Investor  may  mutually  agree in writing,  and expiring on the
earliest to occur of (x) the date on which the Investor  shall have made payment
of Advances  pursuant to this Agreement in the aggregate amount of Seven Million
Dollars  ($7,000,000),  (y) the date this  Agreement is  terminated  pursuant to
Section  2.5,  or (z) the date  occurring  twenty-four  (24)  months  after  the
Effective Date.

         Section 1.9.  "Common Stock" shall mean the Company's common stock, par
value $.001 per share.

         Section 1.10. "Condition  Satisfaction Date" shall have the meaning set
forth in Section 7.2.

         Section 1.11. "Damages" shall mean any loss, claim, damage,  liability,
costs and expenses (including,  without limitation,  reasonable  attorney's fees
and disbursements and costs and expenses of expert witnesses and investigation).

         Section  1.12.  "Effective  Date"  shall mean the date on which the SEC
first declares effective a Registration  Statement registering the resale of the
Registrable Securities as set forth in Section 7.2(a).

         Section 1.13.  "Escrow Agreement" shall mean the escrow agreement among
the  Company,   the  Investor,   the  Investor's   Counsel  and  Wachovia  Bank,
N.A.National Bank dated the date hereof.

         Section 1.14.  "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated there under.

         Section  1.15.  "Material  Adverse  Effect"  shall mean any  condition,
circumstance, or situation that would prohibit or otherwise materially interfere
with the ability of the Company to enter into and perform any of its obligations
under this  Agreement  or the  Registration  Rights  Agreement  in any  material
respect.

                                       2
<PAGE>

         Section 1.16. "Market Price" shall mean the lowest closing Bid Price of
the Common Stock during the Pricing Period.

         Section 1.17.  "Maximum  Advance Amount" The aggregate dollar amount of
all Puts in any  thirty-day  calendar  period  shall be up to a maximum of Three
Hundred  Thousand  Dollars  ($300,000) with a limitation of One Hundred Thousand
Dollars ($100,000) per Put.

         Section  1.18.  "Minimum  Acceptable  Price"  shall mean a price of the
Company's  Common Stock as determined by the Company on the Advance  Notice Date
of which the  Investor  shall be advised of in writing  simultaneously  with the
Advance Notice.

         Section 1.19 "NASD" shall mean the National  Association  of Securities
Dealers, Inc.

         Section  1.20  "Person"  shall mean an  individual,  a  corporation,  a
partnership, an association, a trust or other entity or organization,  including
a government or political subdivision or an agency or instrumentality thereof.

         Section 1.21  "Placement  Agent" shall mean Westrock  Advisors,  Inc. a
registered broker-dealer.

         Section  1.22  "Pricing  Period"  shall  mean the five (5)  consecutive
Trading Days after the Advance Notice Date.

         Section 1.23 "Principal  Market" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange,  the OTC Bulletin Board
or the New York Stock Exchange,  whichever is at the time the principal  trading
exchange or market for the Common Stock.

         Section  1.24  "Purchase  Price"  shall be set at one  hundred  percent
(100%) of the Market Price during the Pricing Period.

         Section 1.25  "Registrable  Securities" shall mean the shares of Common
Stock (i) in respect of which the  Registration  Statement has not been declared
effective by the SEC, (ii) which have not been sold under circumstances  meeting
all of the applicable  conditions of Rule 144 (or any similar  provision then in
force)  under the  Securities  Act  ("Rule  144") or (iii)  which  have not been
otherwise  transferred to a holder who may trade such shares without restriction
under the  Securities  Act, and the Company has delivered a new  certificate  or
other  evidence of  ownership  for such  securities  not  bearing a  restrictive
legend.

         Section   1.26   "Registration   Rights   Agreement"   shall  mean  the
Registration Rights Agreement dated the date hereof, regarding the filing of the
Registration  Statement for the resale of the  Registrable  Securities,  entered
into between the Company and the Investor.

         Section  1.27  "Registration   Statement"  shall  mean  a  registration
statement  on Form S-1 or SB-2  (if use of such  form is then  available  to the
Company  pursuant  to the  rules  of the SEC and,  if not,  on such  other  form
promulgated  by the SEC for which the Company then  qualifies  and which counsel
for the Company  shall deem  appropriate,  and which form shall be available for
the  resale  of the  Registrable  Securities  to be  registered  there  under in
accordance  with the  provisions of this Agreement and the  Registration  Rights
Agreement,  and in accordance  with the intended  method of distribution of such
securities),  for  the  registration  of  the  resale  by  the  Investor  of the
Registrable Securities under the Securities Act.

                                       3
<PAGE>

         Section  1.28  "Regulation  D" shall have the  meaning set forth in the
recitals of this Agreement.

         Section 1.29 "SEC" shall mean the Securities and Exchange Commission.

         Section 1.30  "Securities  Act" shall have the meaning set forth in the
recitals of this Agreement.

         Section 1.31 "SEC Documents"  shall mean Annual Reports on Form 10-KSB,
Quarterly  Reports  on Form  10-QSB,  Current  Reports  on Form  8-KSB and Proxy
Statements  of the  Company as  supplemented  to the date  hereof,  filed by the
Company for a period of at least twelve (12) months  immediately  preceding  the
date  hereof or the  Advance  Date,  as the case may be,  until such time as the
Company  no  longer  has  an  obligation  to  maintain  the  effectiveness  of a
Registration Statement as set forth in the Registration Rights Agreement.

         Section 1.32 "Trading Day" shall mean any day during which the New York
Stock Exchange shall be open for business.

                                   ARTICLE II.
                                    Advances

         Section 2.1. Investments.

                  (a) Advances.  Upon the terms and  conditions set forth herein
(including,  without  limitation,  the provisions of Article VII hereof), on any
Advance  Notice Date the  Company may request an Advance by the  Investor by the
delivery  of an Advance  Notice.  The number of shares of Common  Stock that the
Investor  shall  receive for each Advance  shall be  determined  by dividing the
amount of the Advance by the  Purchase  Price.  No  fractional  shares  shall be
issued.  Fractional  shares  shall be rounded to the next higher whole number of
shares.  The aggregate maximum amount of all Advances that the Investor shall be
obligated to make under this Agreement shall not exceed the Commitment Amount.

                  (b)  Notwithstanding  the  foregoing the Company shall only be
entitled to an Advance if the  Company's  Common  Stock has an active bid at all
times during the Pricing Period.

                  (c) The Company  acknowledges  that the  Investor may sell the
Company's  Common  Stock  purchased  pursuant  to an Advance  Notice  during the
corresponding Pricing Period.

         Section 2.2. Mechanics.

                  (a) Advance Notice. At any time during the Commitment  Period,
the  Company  may  deliver an  Advance  Notice to the  Investor,  subject to the
conditions  set forth in

                                       4
<PAGE>

Section 7.2; provided,  however,  unless waived by the Investor,  the amount for
each Advance as  designated  by the Company in the  applicable  Advance  Notice,
shall not be more than the Maximum Advance Amount.  The aggregate  amount of the
Advances  pursuant to this  Agreement  shall not exceed the  Commitment  Amount,
unless  otherwise  agreed by the  Investor in the  Investor's  sole and absolute
discretion.  The Company  acknowledges  that the Investor may sell shares of the
Company's Common Stock corresponding with a particular Advance Notice on the day
the Advance Notice is received by the Investor. There will be a minimum of seven
(7) Trading Days between each Advance Notice Date.

              (b) Withdrawal of Advance Notice. The Company shall  automatically
withdraw a pro rata portion of the Advance  Notice amount based on the number of
days the  closing  bid  price of the  Company's  Common  Stock (as  reported  by
Bloomberg,  L.P.) during the Pricing Period is lower than the Minimum Acceptable
Price.  The shares of Common Stock  issued  shall also be reduced to  correspond
with the reduction in the Advance Notice amount.  For example if the closing bid
price of the Company's Common Stock on the Advance Notice Date is $0.65, and the
Minimum  Acceptable  Price as determined by the Company is $0.60,  for every day
during the Pricing  Period that the  closing bid price of the  Company's  Common
Stock is below  $0.60 the  Advance  Notice  amount  shall be  reduced  by Twenty
Percent (20%). If the Advance Notice amount is Fifty Thousand Dollars  ($50,000)
and  closing  bid price of.  the  Company's  Common  Stock is below the  Minimum
Acceptable  Price for two (2) of the five (5) days of the  Pricing  Period,  the
Purchase  Amount  shall be reduced by 40% (2 x 20%) or Twenty  Thousand  Dollars
($20,000) ( 40% of $50,000 = $20,000) and therefore the reduced  Advance  Notice
amount shall be Thirty Thousand  Dollars  ($30,000) (the "Reduced Advance Notice
amount") ($50,000-$20,000 = $30,000). Accordingly the number of shares of Common
Stock issued to the Investor  shall,  be reduced and  calculated by dividing the
Reduced Advance Notice amount by the Purchase Price.

              (c) Date of Delivery of Advance Notice. An Advance Notice shall be
deemed delivered on (i) the Trading Day it is received by facsimile or otherwise
by the Investor if such notice is received  prior to 12:00 noon Eastern Time, or
(ii) the  immediately  succeeding  Trading Day if it is received by facsimile or
otherwise after 12:00 noon Eastern Time on a Trading Day or at any time on a day
which is not a Trading Day. No Advance Notice may be deemed delivered,  on a day
that is not a Trading Day.

              (d) Pre-Closing  Share Credit.  Within two (2) business days after
the Advance Notice Date, the Company shall credit shares of the Company's Common
Stock to the  Investor's  balance  account  with The  Depository  Trust  Company
through its Deposit  Withdrawal At Custodian  system,  in an amount equal to the
amount  of the  requested  Advance  divided  by the  closing  Bid  Price  of the
Company's Common Stock as of the Advance Notice Date multiplied by one point one
(1.1).  Any  adjustments to the number of shares to be delivered to the Investor
at the  Closing  as a result of  fluctuations  in the  closing  Bid Price of the
Company's  Common Stock shall be made as of the date of the Closing.  Any excess
shares  shall be credited to the next  Advance.  In no event shall the number of
shares  issuable to the  Investor  pursuant  to an Advance  exceed nine and 9/10
percent (9.9%) of the then outstanding Common Stock of the Company.

                                       5
<PAGE>

                  (e)  Hardship.  In the event the Investor  sells the Company's
Common Stock  pursuant to subsection  (c) above and the Company fails to perform
its obligations as mandated in Section 2.5 and 2.2 (c), and  specifically  fails
to  provide  the  Investor  with the shares of Common  Stock for the  applicable
Advance,  the Company  acknowledges  that the Investor  shall  suffer  financial
hardship  and  therefore  shall be liable for any and all  losses,  commissions,
fees, or financial hardship caused to the Investor.

         Section 2.3.  Closings.  On each Advance Date, which shall be seven (7)
Trading Days after an Advance  Notice Date, (i) the Company shall deliver to the
Investor's Counsel,  as defined pursuant to the Escrow Agreement,  shares of the
Company's  Common Stock,  representing the amount of the Advance by the Investor
pursuant to Section 2.1 herein,  registered  in the name of the  Investor  which
shall be delivered to the Investor,  or otherwise in accordance  with the Escrow
Agreement  and (ii) the  Investor  shall  deliver to Wachovia  Bank,  N.A.  (the
"Escrow  Agent") the amount of the Advance  specified  in the Advance  Notice by
wire  transfer of  immediately  available  funds which shall be delivered to the
Company, or otherwise in accordance with the Escrow Agreement.  In addition,  on
or prior to the Advance Date, each of the Company and the Investor shall deliver
to the other  through the  Investor's  Counsel all  documents,  instruments  and
writings  required to be  delivered  or  reasonably  requested by either of them
pursuant to this  Agreement  in order to implement  and effect the  transactions
contemplated  herein.  Payment  of  funds to the  Company  and  delivery  of the
Company's  Common  Stock to the  Investor  shall  occur in  accordance  with the
conditions  set  forth  above  and  those  contained  in the  Escrow  Agreement;
provided,  however,  that to the  extent  the  Company  has not paid  the  fees,
expenses,  and  disbursements  of the  Investor  or its  Investor's  counsel  in
accordance  with  Section  12.4,  the  amount  of  such  fees,   expenses,   and
disbursements may be deducted by the Investor (and shall be paid to the relevant
party) from the amount of the Advance  with no reduction in the amount of shares
of the Company's Common Stock to be delivered on such Advance Date.

         Section 2.4. Termination of Investment.  The obligation of the Investor
to make an Advance to the Company  pursuant to this  Agreement  shall  terminate
permanently  (including  with  respect  to an  Advance  Date  that  has  not yet
occurred)  in the event that (i) there shall occur any stop order or  suspension
of the  effectiveness  of the  Registration  Statement for an aggregate of fifty
(50)  Trading  Days,  other  than due to the acts of the  Investor,  during  the
Commitment  Period,  and (ii) the Company  shall at any time fail  materially to
comply with the  requirements of Article VI and such failure is not cured within
thirty (30) days after receipt of written  notice from the  Investor,  provided,
however,  that  this  termination  provision  shall  not  apply  to  any  period
commencing upon the filing of a  post-effective  amendment to such  Registration
Statement  and ending upon the date on which such post  effective  amendment  is
declared effective by the SEC..

         Section 2.5. Agreement to Advance Funds.

                  (a) The Investor agrees to advance the amount specified in the
Advance  Notice to the Company  after the  completion  of each of the  following
conditions and the other conditions set forth in this Agreement:

                           (i) the  execution  and delivery by the Company,  and
the Investor, of this Agreement, and the Exhibits hereto;

                                       6
<PAGE>

                           (ii)  Investor's  Counsel  shall  have  received  the
shares of Common  Stock  applicable  to the Advance in  accordance  with Section
2.2(c) hereof;

                           (iii)  the  Company's   Registration  Statement  with
respect to the resale of the Registrable Securities in accordance with the terms
of the Registration  Rights Agreement shall have been declared  effective by the
SEC;

                           (iv) the Company  shall have  obtained  all  material
permits and  qualifications  required by any applicable  state for the offer and
sale of the Registrable Securities, or shall have the availability of exemptions
there from. The sale and issuance of the Registrable Securities shall be legally
permitted by all laws and regulations to which the Company is subject;

                           (v) the Company shall have filed with the  Commission
in a timely  manner all  reports,  notices  and other  documents  required  of a
"reporting   company"   under  the  Exchange  Act  and   applicable   Commission
regulations;

                           (vi) the fees as set forth in  Section  12.4  below
shall have been paid or can be withheld as provided in Section 2.3; and

                           (vii) the  conditions  set forth in Section 7.2 shall
have been satisfied.

                           (viii)  The  Company   shall  have  provided  to  the
Investor an acknowledgement, to the
satisfaction  of  the  Investor,  from  the  Company's  accountants  as  to  the
accountant's  ability  to  provide  all  consents  required  in  order to file a
registration statement in connection with this transaction;

                           (xi)  The  Company's  transfer  agent  shall  be DWAC
eligible.

         Section 2.6. Lock Up Period.

                           (i) The Company  shall not,  without ten days written
advance  notice to the  Investor,  issue or sell (i) any  Common  Stock  without
consideration  or for a  consideration  per share less than the Bid Price on the
date of issuance or  (ii)issue  or sell any warrant,  option,  right,  contract,
call, or other  security or instrument  granting the holder thereof the right to
acquire Common Stock without consideration or for a consideration per share less
than the Bid Price on the date of issuance.

                           (ii) On the date  hereof,  the Company  shall  obtain
from each officer and director a lock-up  agreement,  as defined  below,  in the
form annexed hereto as Schedule  2.6(b) agreeing to only sell in compliance with
the volume limitation of Rule 144.

                                  ARTICLE III.
                   Representations and Warranties of Investor

         Investor  hereby  represents  and  warrants  to, and agrees  with,  the
Company  that the  following  are true and as of the date  hereof and as of each
Advance Date:

                                       7
<PAGE>

         Section  3.1.  Organization  and  Authorization.  The  Investor is duly
incorporated  or  organized  and  validly  existing in the  jurisdiction  of its
incorporation  or  organization  and has all  requisite  power and  authority to
purchase and hold the securities issuable hereunder.  The decision to invest and
the execution and delivery of this Agreement by such Investor,  the  performance
by such  Investor of its  obligations  hereunder  and the  consummation  by such
Investor of the transactions  contemplated  hereby have been duly authorized and
requires no other  proceedings on the part of the Investor.  The undersigned has
the right,  power and  authority to execute and deliver this  Agreement  and all
other  instruments  (including,  without  limitations,  the Registration  Rights
Agreement), on behalf of the Investor. This Agreement has been duly executed and
delivered by the Investor and,  assuming the  execution and delivery  hereof and
acceptance thereof by the Company,  will constitute the legal, valid and binding
obligations of the Investor, enforceable against the Investor in accordance with
its terms.

         Section 3.2.  Evaluation of Risks.  The Investor has such knowledge and
experience in financial tax and business  matters as to be capable of evaluating
the  merits  and risks of,  and  bearing  the  economic  risks  entailed  by, an
investment  in the Company and of protecting  its  interests in connection  with
this  transaction.  It recognizes that its investment in the Company  involves a
high degree of risk.

         Section  3.3.  No  Legal   Advice  From  the   Company.   The  Investor
acknowledges  that it had the  opportunity  to  review  this  Agreement  and the
transactions  contemplated  by this  Agreement with his or its own legal counsel
and investment and tax advisors.  The Investor is relying solely on such counsel
and advisors and not on any statements or  representations of the Company or any
of its  representatives  or agents  for legal,  tax or  investment  advice  with
respect to this investment,  the transactions  contemplated by this Agreement or
the securities laws of any jurisdiction.

         Section 3.4. Investment  Purpose.  The Investor agrees not to assign or
in any way  transfer the  Investor's  rights to the  securities  or any interest
therein and  acknowledges  that the Company  will not  recognize  any  purported
assignment or transfer except in accordance  with  applicable  Federal and state
securities  laws.  No  other  person  has or  will  have a  direct  or  indirect
beneficial  interest  in the  securities.  The  Investor  agrees  not  to  sell,
hypothecate  or  otherwise   transfer  the  Investor's   securities  unless  the
securities are registered  under Federal and applicable state securities laws or
unless, in the opinion of counsel satisfactory to the Company, an exemption from
such laws is available.

         Section 3.5. Accredited Investor.  Investor is an "Accredited Investor"
as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.

         Section  3.6.  Information.  The  Investor  and its  advisors  (and its
counsel),  if any,  have  been  furnished  with all  materials  relating  to the
business,  finances  and  operations  of the Company and  information  it deemed
material  to  making an  informed  investment  decision.  The  Investor  and its
advisors,  if any,  have been afforded the  opportunity  to ask questions of the
Company and its  management.  Neither such inquiries nor any other due diligence
investigations  conducted  by such  Investor  or its  advisors,  if any,  or its
representatives  shall modify,  amend or affect the Investor's  right to rely on
the Company's  representations and warranties  contained in this Agreement.  The
Investor  understands  that its  investment  involves a high degree of risk. The
Investor is in a position  regarding the Company,  which, based upon employment,
family  relationship  or economic  bargaining  power,  enabled and enables  such
Investor to obtain  information from the Company in order to evaluate the merits
and risks of this investment. The Investor has sought such accounting, legal and
tax  advice,  as it has  considered  necessary  to make an  informed  investment
decision with respect to this transaction.

                                       8
<PAGE>

         Section  3.7.  Receipt of  Documents.  The Investor and its counsel has
received and read in their entirety: (i) this Agreement and the Exhibits annexed
hereto;  (ii) all due  diligence and other  information  necessary to verify the
accuracy and  completeness  of such  representations,  warranties and covenants;
(iii) the Company's  Form 10-KSB for the year ended year ended December 31, 2001
and Form 10-QSB for the periods  ended March 31,  2002;  and (iv) answers to all
questions the Investor  submitted to the Company  regarding an investment in the
Company;  and has relied on the information  contained  therein and has not been
furnished any other documents, literature, memorandum or prospectus.

         Section 3.8.  Registration  Rights Agreement and Escrow Agreement.  The
parties have  entered  into the  Registration  Rights  Agreement  and the Escrow
Agreement, each dated the date hereof.

         Section 3.9. No General  Solicitation.  Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general  solicitation  or general  advertising  (within  the  meaning of
Regulation D under the Securities  Act) in connection  with the offer or sale of
the shares of Common Stock offered hereby.

         Section  3.10.  Not an  Affiliate.  The  Investor  is  not an  officer,
director  or  a  person  that  directly,  or  indirectly  through  one  or  more
intermediaries,  controls or is controlled  by, or is under common  control with
the Company or any  "Affiliate"  of the Company (as that term is defined in Rule
405 of the Securities Act).  Neither the Investor nor its Affiliates has an open
short position in the Common Stock of the Company,  and the Investor agrees that
it will not, and that it will cause its  Affiliates  not to, engage in any short
sales of or hedging transactions with respect to the Common Stock, provided that
the Company  acknowledges  and agrees that upon receipt of an Advance Notice the
Investor  will sell the  Shares to be issued  to the  Investor  pursuant  to the
Advance Notice, even if the Shares have not been delivered to the Investor.

                                   ARTICLE IV.
                  Representations and Warranties of the Company

         Except as stated below, on the disclosure  schedules attached hereto or
in the SEC Documents (as defined  herein),  the Company  hereby  represents  and
warrants to, and  covenants  with,  the Investor that the following are true and
correct as of the date hereof:

         Section  4.1.  Organization  and  Qualification.  The  Company  is duly
incorporated  or  organized  and  validly  existing in the  jurisdiction  of its
incorporation  or  organization  and  has  all  requisite  power  and  authority
corporate  power to own its properties and to carry on its business as now being
conducted.  Each of the  Company and its  subsidiaries  is duly  qualified  as a
foreign  corporation  to do business and within ten (10) days of the date hereof
will be in good  standing  in every  jurisdiction  in which  the  nature  of the
business  conducted  by it makes  such  qualification  necessary,  except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

                                       9
<PAGE>

         Section  4.2.   Authorization,   Enforcement,   Compliance  with  Other
Instruments.  (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Registration Rights Agreement and any
related  agreements,  in accordance with the terms hereof and thereof,  (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Escrow Agreement and any related  agreements by the Company and the consummation
by it of the  transactions  contemplated  hereby  and  thereby,  have  been duly
authorized  by the  Company's  Board of  Directors  and no  further  consent  or
authorization  is  required  by the  Company,  its  Board  of  Directors  or its
stockholders,  (iii) this Agreement,  the  Registration  Rights  Agreement,  the
Escrow  Agreement  and any  related  agreements  have  been  duly  executed  and
delivered  by  the  Company,  (iv)  this  Agreement,   the  Registration  Rights
Agreement,  the Escrow Agreement and assuming the execution and delivery thereof
and acceptance by the Investor and any related  agreements  constitute the valid
and  binding  obligations  of the  Company  enforceable  against  the Company in
accordance  with their terms,  except as such  enforceability  may be limited by
general   principles   of   equity   or   applicable   bankruptcy,   insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting generally, the enforcement of creditors' rights and remedies.

         Section  4.3.  Capitalization.  As of the date hereof,  the  authorized
capital stock of the Company consists of 200,000,000 shares of Common Stock, par
value $.001 per share of which  _________  shares of Common Stock are issued and
outstanding.  All of such  outstanding  shares have been validly  issued and are
fully paid and  nonassessable.  Except as  disclosed  in the SEC  Documents  (as
defined  in  Section  4.5  hereof),  no shares of Common  Stock are  subject  to
preemptive  rights or any  other  similar  rights  or any liens or  encumbrances
suffered or permitted by the Company.  Except as disclosed in the SEC Documents,
or as set forth in Exhibit B, attached hereto, as of the date hereof,  (i) there
are no outstanding  options,  warrants,  scrip, rights to subscribe to, calls or
commitments  of any  character  whatsoever  relating to, or securities or rights
convertible  into,  any  shares of  capital  stock of the  Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the  Company  or  any of  its  subsidiaries  is or may  become  bound  to  issue
additional  shares of capital stock of the Company or any of its subsidiaries or
options,  warrants,  scrip,  rights to subscribe to, calls or commitments of any
character  whatsoever relating to, or securities or rights convertible into, any
shares of capital  stock of the Company or any of its  subsidiaries,  (ii) there
are no  outstanding  debt  securities  and  (iii)  there  are no  agreements  or
arrangements  under which the Company or any of its subsidiaries is obligated to
register the sale of any of their  securities  under the  Securities Act (except
pursuant to the  Registration  Rights  Agreement).  There are no  securities  or
instruments  containing   anti-dilution  or  similar  provisions  that  will  be
triggered by this Agreement or any related  agreement or the consummation of the
transactions  described  herein or  therein..  The Company has  furnished to the
Investor true and correct copies of the Company's  Certificate of Incorporation,
as  amended  and  as  in  effect  on  the  date  hereof  (the   "Certificate  of
Incorporation"), and the Company's By-laws, as in effect on the date hereof (the
"By-laws"),  and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.

                                       10
<PAGE>

         Section 4.4. No Conflict.  The execution,  delivery and  performance of
this  Agreement  by the  Company  and the  consummation  by the  Company  of the
transactions  contemplated  hereby  will not (i)  result in a  violation  of the
Certificate of Incorporation, any certificate of designations of any outstanding
series of  preferred  stock of the Company or By-laws or (ii)  conflict  with or
constitute  a default  (or an event  which with  notice or lapse of time or both
would  become a default)  under,  or give to others  any rights of  termination,
amendment,   acceleration  or  cancellation  of,  any  agreement,  indenture  or
instrument to which the Company or any of its subsidiaries is a party, or result
in a  violation  of  any  law,  rule,  regulation,  order,  judgment  or  decree
(including  federal and state  securities laws and regulations and the rules and
regulations  of the  Principal  Market  on which  the  Common  Stock is  quoted)
applicable  to the Company or any of its  subsidiaries  or by which any material
property or asset of the Company or any of its subsidiaries is bound or affected
and which would cause a Material Adverse Effect.  Except as disclosed in the SEC
Documents,  neither the Company nor its subsidiaries is in violation of any term
of or in default  under its  Certificate  of  Incorporation  or By-laws or their
organizational  charter or  by-laws,  respectively,  or any  material  contract,
agreement, mortgage,  indebtedness,  indenture,  instrument, judgment, decree or
order or any  statute,  rule or  regulation  applicable  to the  Company  or its
subsidiaries.  The  business of the Company  and its  subsidiaries  is not being
conducted  in  violation  of any  material  law,  ordinance,  regulation  of any
governmental entity.  Except as specifically  contemplated by this Agreement and
as required under the Securities Act and any applicable  state  securities laws,
the Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental  agency in order
for  it to  execute,  deliver  or  perform  any  of  its  obligations  under  or
contemplated  by  this  Agreement  or  the  Registration   Rights  Agreement  in
accordance  with the terms  hereof or  thereof.  All  consents,  authorizations,
orders,  filings  and  registrations  which the  Company is  required  to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date  hereof.  The Company and its  subsidiaries  are unaware of any fact or
circumstance which might give rise to any of the foregoing.

         Section 4.5. SEC Documents; Financial Statements. Since September 1999,
the  Company  has filed all  reports,  schedules,  forms,  statements  and other
documents required to be filed by it with the SEC under of the Exchange Act. The
Company has delivered to the Investor or its representatives,  or made available
through the SEC's website at http://www.sec.gov, true and complete copies of the
SEC Documents.  As of their respective  dates,  the financial  statements of the
Company disclosed in the SEC Documents (the "Financial  Statements") complied as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto.  Such financial
statements have been prepared in accordance with generally  accepted  accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise  indicated in such financial  statements or the notes  thereto,  or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary  statements) and, fairly present in all
material respects the financial  position of the Company as of the dates thereof
and the  results of its  operations  and cash flows for the  periods  then ended
(subject,  in the  case  of  unaudited  statements,  to  normal  year-end  audit
adjustments).  No other  information  provided by or on behalf of the Company to
the  Investor  which is not  included in the SEC  Documents  contains any untrue
statement of a material  fact or omits to state any material  fact  necessary in
order to make the statements  therein,  in the light of the circumstances  under
which they were made, not misleading.

                                       11
<PAGE>

         Section  4.6.  10b-5.  The SEC  Documents  do not  include  any  untrue
statements  of  material  fact,  nor do they  omit to state  any  material  fact
required to be stated therein necessary to make the statements made, in light of
the circumstances under which they were made, not misleading.

         Section 4.7. No Default.  Except as disclosed in Section 4.4 or the SEC
Documents, the Company is not in default in the performance or observance of any
material  obligation,   agreement,   covenant  or  condition  contained  in  any
indenture,  mortgage, deed of trust or other material instrument or agreement to
which it is a party or by which it is or its  property  is bound and neither the
execution,  nor the delivery by the Company,  nor the performance by the Company
of its  obligations  under this  Agreement or any of the exhibits or attachments
hereto will  conflict  with or result in the breach or  violation  of any of the
terms or  provisions  of, or  constitute  a default or result in the creation or
imposition  of any lien or charge on any  assets or  properties  of the  Company
under  its  Certificate  of  Incorporation,  By-Laws,  any  material  indenture,
mortgage, deed of trust or other material agreement applicable to the Company or
instrument  to which  the  Company  is a party or by which it is  bound,  or any
statute,  or any decree,  judgment,  order,  rules or regulation of any court or
governmental  agency  or  body  having  jurisdiction  over  the  Company  or its
properties,  in each  case  which  default,  lien or charge is likely to cause a
Material Adverse Effect on the Company's business or financial condition.

         Section 4.8. Absence of Events of Default. Except for matters described
in the SEC Documents and/or this Agreement,  no Event of Default,  as defined in
the  respective  agreement to which the Company is a party,  and no event which,
with the giving of notice or the passage of time or both,  would become an Event
of Default (as so defined),  has occurred and is continuing,  which would have a
Material  Adverse  Effect  on the  Company's  business,  properties,  prospects,
financial condition or results of operations.

         Section  4.9.   Intellectual  Property  Rights.  The  Company  and  its
subsidiaries  own or possess  adequate  rights or licenses  to use all  material
trademarks,  trade names,  service marks,  service mark  registrations,  service
names, patents,  patent rights,  copyrights,  inventions,  licenses,  approvals,
governmental authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted.  The Company and its subsidiaries do not
have any knowledge of any  infringement  by the Company or its  subsidiaries  of
trademark,  trade name rights, patents, patent rights,  copyrights,  inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others,  and, to the knowledge of the Company,  there
is no claim,  action or  proceeding  being  made or brought  against,  or to the
Company's  knowledge,  being threatened against, the Company or its subsidiaries
regarding trademark,  trade name, patents, patent rights, invention,  copyright,
license, service names, service marks, service mark registrations,  trade secret
or other  infringement;  and the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.

         Section 4.10.  Employee  Relations.  Neither the Company nor any of its
subsidiaries  is involved in any labor  dispute  nor,  to the  knowledge  of the
Company or any of its subsidiaries,  is any such dispute threatened. None of the
Company's or its subsidiaries'  employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.

                                       12
<PAGE>

         Section 4.11.  Environmental Laws. The Company and its subsidiaries are
(i) in compliance with any and all applicable material foreign,  federal,  state
and local laws and  regulations  relating to the  protection of human health and
safety,  the environment or hazardous or toxic substances or wastes,  pollutants
or contaminants ("Environmental Laws"), (ii) have received all permits, licenses
or other  approvals  required  of them under  applicable  Environmental  Laws to
conduct their  respective  businesses and (iii) are in compliance with all terms
and conditions of any such permit, license or approval.

         Section  4.12.  Title.  Except as set forth in the SEC  Documents,  the
Company has good and  marketable  title to its  properties  and material  assets
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable  interest other than such as are not material to the business
of the Company. Any real property and facilities held under lease by the Company
and its  subsidiaries  are held by them under valid,  subsisting and enforceable
leases with such  exceptions as are not material and do not  interfere  with the
use made and proposed to be made of such  property and  buildings by the Company
and its subsidiaries.

         Section 4.13.  Insurance.  The Company and each of its subsidiaries are
insured by insurers of recognized financial  responsibility  against such losses
and risks and in such  amounts  as  management  of the  Company  believes  to be
prudent  and  customary  in  the   businesses  in  which  the  Company  and  its
subsidiaries  are engaged.  Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such  subsidiary has any reason to believe that it will not be able to renew
its existing  insurance  coverage as and when such coverage expires or to obtain
similar  coverage  from  similar  insurers as may be  necessary  to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise,  or the earnings,  business or operations of the Company
and its subsidiaries, taken as a whole.

         Section  4.14.  Regulatory  Permits.  The Company and its  subsidiaries
possess all  material  certificates,  authorizations  and permits  issued by the
appropriate  federal,  state or  foreign  regulatory  authorities  necessary  to
conduct  their  respective  businesses,  and  neither  the  Company nor any such
subsidiary has received any notice of proceedings  relating to the revocation or
modification of any such certificate, authorization or permit.

         Section 4.15. Internal Accounting Controls. The Company and each of its
subsidiaries  maintain a system of internal  accounting  controls  sufficient to
provide  reasonable  assurance that (i)  transactions are executed in accordance
with  management's  general or specific  authorizations,  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with generally accepted  accounting  principles and to maintain asset
accountability,  (iii) access to assets is  permitted  only in  accordance  with
management's   general  or  specific   authorization   and  (iv)  the   recorded
accountability  for assets is compared  with the existing  assets at  reasonable
intervals and appropriate action is taken with respect to any differences.

         Section 4.16. No Material Adverse Breaches, etc. Except as set forth in
the SEC Documents, neither the Company nor any of its subsidiaries is subject to
any charter,  corporate or other legal  restriction,  or any  judgment,  decree,
order, rule or regulation which in the judgment of the Company's officers has or
is expected  in the future to have a Material  Adverse  Effect on the  business,
properties,  operations, financial condition, results of operations or prospects
of the Company or its  subsidiaries.  Except as set forth in the SEC  Documents,
neither the Company nor any of its  subsidiaries is in breach of any contract or
agreement  which breach,  in the judgment of the Company's  officers,  has or is
expected  to  have  a  Material  Adverse  Effect  on the  business,  properties,
operations,  financial  condition,  results of  operations  or  prospects of the
Company or its subsidiaries.

                                       13
<PAGE>

         Section  4.17.  Absence of  Litigation.  Except as set forth in the SEC
Documents, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board, government agency,  self-regulatory  organization
or body pending against or affecting the Company, the Common Stock or any of the
Company's subsidiaries, wherein an unfavorable decision, ruling or finding would
(i) have a Material Adverse Effect on the transactions  contemplated hereby (ii)
adversely affect the validity or enforceability  of, or the authority or ability
of the Company to perform its  obligations  under,  this Agreement or any of the
documents contemplated herein, or (iii) except as expressly disclosed in the SEC
Documents,  have  a  Material  Adverse  Effect  on  the  business,   operations,
properties,  financial  condition or results of operation of the Company and its
subsidiaries taken as a whole.

         Section 4.18.  Subsidiaries.  Except as disclosed in the SEC Documents,
the Company  does not  presently  own or control,  directly or  indirectly,  any
interest in any other  corporation,  partnership,  association or other business
entity.

         Section 4.19. Tax Status.  The Company and each of its subsidiaries has
made or filed all federal and state  income and all other tax  returns,  reports
and declarations required by any jurisdiction to which it is subject and (unless
and only to the extent  that the Company  and each of its  subsidiaries  has set
aside on its books provisions  reasonably adequate for the payment of all unpaid
and unreported taxes) has paid all taxes and other governmental  assessments and
charges  that are  material  in amount,  shown or  determined  to be due on such
returns,  reports and  declarations,  except those being contested in good faith
and has set aside on its books provision  reasonably adequate for the payment of
all taxes for periods  subsequent to the periods to which such returns,  reports
or declarations  apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any  jurisdiction,  and the officers of the
Company know of no basis for any such claim.

         Section  4.20.  Certain  Transactions.  Except  as set forth in the SEC
Documents  none of the  officers,  directors,  or  employees  of the  Company is
presently a party to any  transaction  with the Company (other than for services
as employees,  officers and  directors),  including  any contract,  agreement or
other  arrangement  providing for the furnishing of services to or by, providing
for rental of real or  personal  property  to or from,  or  otherwise  requiring
payments to or from any officer,  director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer,  director,  or any such  employee has a  substantial  interest or is an
officer, director, trustee or partner.

         Section 4.21. Fees and Rights of First Refusal.  Except as set forth in
the SEC Documents,  the Company is not obligated to offer the securities offered
hereunder on a right of first  refusal  basis or otherwise to any third  parties
including,  but not limited to, current or former  shareholders  of the Company,
underwriters, brokers, agents or other third parties.

                                       14
<PAGE>

         Section  4.22.  Use of Proceeds.  The Company  represents  that the net
proceeds  from  this  offering  will be used  for  general  corporate  purposes.
However,  in no event shall the net proceeds  from this  offering be used by the
Company for the  payment  (or loaned to any such person for the  payment) of any
judgment,  or other  liability,  incurred  by any  executive  officer,  officer,
director or  employee  of the  Company,  except for any  liability  owed to such
person for services rendered,  or if any judgment or other liability is incurred
by such person originating from services rendered to the Company, or the Company
has indemnified such person from liability.

         Section 4.23. Further Representation and Warranties of the Company. For
so  long as any  securities  issuable  hereunder  held  by the  Investor  remain
outstanding, the Company acknowledges,  represents,  warrants and agrees that it
will maintain the listing of its Common Stock on the Principal Market

         Section  4.24.  Opinion of Counsel.  Investor  shall receive an opinion
letter from Jack G. Orr,  counsel to the Company  (updated where  applicable) on
the date hereof.

         Section  4.25.  Opinion of  Counsel.  The  Company  will obtain for the
Investor, at the Company's expense, any and all opinions of counsel which may be
reasonably  required in order to sell the securities  issuable hereunder without
restriction.

         Section  4.26.  Dilution.  The Company is aware and  acknowledges  that
issuance  of shares of the  Company's  Common  Stock  could  cause  dilution  to
existing shareholders and could significantly increase the outstanding number of
shares of Common Stock.

                                   ARTICLE V.
                                 Indemnification

         The Investor and the Company  represent to the other the following with
respect to itself:

         Section 5.1. Indemnification.

                  (a) In consideration of the Investor's  execution and delivery
of this  Agreement,  and in addition to all of the Company's  other  obligations
under this  Agreement,  the Company  shall defend,  protect,  indemnify and hold
harmless the Investor, and all of its officers, directors,  partners, employees,
attorneys  and  agents  (including,   without  limitation,   those  retained  in
connection with the transactions  contemplated by this Agreement) (collectively,
the  "Investor  Indemnitees")  from and against any and all  actions,  causes of
action, suits, claims, losses, costs, penalties,  fees, liabilities and damages,
and expenses in connection therewith  (irrespective of whether any such Investor
Indemnitee  is a party to the  action  for which  indemnification  hereunder  is
sought),  and  including  reasonable  attorneys'  fees  and  disbursements  (the
"Indemnified Liabilities"),  incurred by the Investor Indemnitees or any of them
as a result of, or arising out of, or relating to (a) any  misrepresentation  or
breach of any  representation  or warranty made by the Company in this Agreement
or the  Registration  Rights Agreement or any other  certificate,  instrument or
document  contemplated  hereby  or  thereby,  (b) any  breach  of any  covenant,
agreement  or  obligation  of the Company  contained  in this  Agreement  or the
Registration  Rights Agreement or any other certificate,  instrument or document
contemplated  hereby  or  thereby,  or (c) any  cause of  action,  suit or claim
brought or made against such Investor  Indemnitee  not arising out of any action
or inaction of an Investor Indemnitee,  and arising out of or resulting from the
execution,  delivery,  performance or enforcement of this Agreement or any other
instrument,  document  or  agreement  executed  pursuant  hereto  by  any of the
Investor  Indemnitees.  To the  extent  that the  foregoing  undertaking  by the
Company may be unenforceable for any reason,  the Company shall make the maximum
contribution  to the  payment  and  satisfaction  of  each  of  the  Indemnified
Liabilities, which is permissible under applicable law.

                                       15
<PAGE>

                  (b) In consideration  of the Company's  execution and delivery
of this Agreement,  and in addition to all of the Investor's  other  obligations
under this  Agreement,  the Investor shall defend,  protect,  indemnify and hold
harmless the Company and all of its officers, directors, shareholders,  counsel,
employees  and  agents  (including,   without  limitation,   those  retained  in
connection with the transactions  contemplated by this Agreement) (collectively,
the "Company Indemnitees") from and against any and all Indemnified  Liabilities
incurred  by the Company  Indemnitees  or any of them as a result of, or arising
out of, or relating to (a) any misrepresentation or breach of any representation
or warranty  made by the Investor in this  Agreement,  the  Registration  Rights
Agreement, or any instrument or document contemplated hereby or thereby executed
by the Investor, (b) any breach of any covenant,  agreement or obligation of the
Investor(s)  contained in this Agreement,  the Registration  Rights Agreement or
any other  certificate,  instrument or document  contemplated  hereby or thereby
executed by the Investor,  or (c) any cause of action,  suit or claim brought or
made against such Company  Indemnitee  based on  misrepresentations  or due to a
breach by the  Investor  and arising  out of or  resulting  from the  execution,
delivery,  performance or enforcement of this Agreement or any other instrument,
document  or  agreement   executed   pursuant  hereto  by  any  of  the  Company
Indemnitees. To the extent that the foregoing undertaking by the Investor may be
unenforceable for any reason,  the Investor shall make the maximum  contribution
to the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.

                                   ARTICLE VI.
                            Covenants of the Company

         Section  6.1.   Registration   Rights.  The  Company  shall  cause  the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.

         Section 6.2.  Listing of Common Stock.  The Company shall  maintain the
Common  Stock's  authorization  for  quotation  on the National  Association  of
Securities Dealers Over the Counter Bulletin Board.

         Section  6.3.  Exchange  Act  Registration.  The Company will cause its
Common Stock to continue to be  registered  under  Section 12(g) of the Exchange
Act, will file in a timely manner all reports and other documents required of it
as a reporting  company  under the  Exchange Act and will not take any action or
file any document  (whether or not  permitted by Exchange Act or the rules there
under to terminate or suspend such  registration  or to terminate or suspend its
reporting and filing obligations under said Exchange Act.

                                       16
<PAGE>

         Section 6.4. Transfer Agent Instructions. Not later than two days after
each Advance Notice Date and prior to each Closing and the  effectiveness of the
Registration  Statement  and resale of the  Common  Stock by the  Investor,  the
Company  will  deliver  instructions  to its  transfer  agent to issue shares of
Common Stock free of restrictive legends.

         Section  6.5.  Corporate  Existence.  The  Company  will take all steps
necessary to preserve and continue the corporate existence of the Company.

         Section  6.6.   Notice  of  Certain  Events   Affecting   Registration;
Suspension of Right to Make an Advance.  The Company will immediately notify the
Investor  upon its  becoming  aware of the  occurrence  of any of the  following
events in respect of a registration  statement or related prospectus relating to
an offering of Registrable Securities: (i) receipt of any request for additional
information  by the SEC or any other  Federal  or state  governmental  authority
during the period of effectiveness of the Registration  Statement for amendments
or supplements to the  registration  statement or related  prospectus;  (ii) the
issuance by the SEC or any other Federal or state governmental  authority of any
stop order suspending the  effectiveness  of the  Registration  Statement or the
initiation  of  any  proceedings   for  that  purpose;   (iii)  receipt  of  any
notification  with respect to the suspension of the  qualification  or exemption
from  qualification  of  any of  the  Registrable  Securities  for  sale  in any
jurisdiction  or the  initiation  or  threatening  of any  proceeding  for  such
purpose;  (iv) the happening of any event that makes any  statement  made in the
Registration  Statement or related  prospectus of any document  incorporated  or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration  Statement,  related
prospectus or documents so that, in the case of the Registration  Statement,  it
will not contain any untrue  statement  of a material  fact or omit to state any
material fact required to be stated  therein or necessary to make the statements
therein not misleading,  and that in the case of the related prospectus, it will
not  contain  any  untrue  statement  of a  material  fact or omit to state  any
material fact required to be stated  therein or necessary to make the statements
therein,  in the light of the  circumstances  under  which they were  made,  not
misleading; and (v) the Company's reasonable determination that a post-effective
amendment to the  Registration  Statement would be appropriate;  and the Company
will promptly make available to the Investor any such supplement or amendment to
the related  prospectus.  The  Company  shall not  deliver to the  Investor  any
Advance Notice during the continuation of any of the foregoing events.

         Section 6.7.  Expectations  Regarding Advance Notices.  Within ten (10)
days after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company must notify the Investor,  in
writing, as to its reasonable expectations as to the dollar amount it intends to
raise  during such  calendar  quarter,  if any,  through the issuance of Advance
Notices.  Such  notification  shall  constitute  only the  Company's  good faith
estimate and shall in no way  obligate the Company to raise such amount,  or any
amount,  or otherwise limit its ability to deliver Advance Notices.  The failure
by the  Company  to comply  with this  provision  can be cured by the  Company's
notifying  the  Investor,   in  writing,  at  any  time  as  to  its  reasonable
expectations with respect to the current calendar quarter.

         Section 6.8. Consent of Investor to Sell Common Stock.  Except upon ten
day written  advance  notice to  Investor,  during the  Commitment  Period,  the
Company  shall not issue or sell (i) any Common Stock without  consideration  or
for a  consideration  per share less than its Bid Price  determined  immediately
prior to its issuance, (ii) issue or sell any warrant,  option, right, contract,
call, or other  security or instrument  granting the holder thereof the right to
acquire Common Stock without consideration or for a consideration per share less
than such Common Stock's Bid Price determined immediately prior to its issuance,
or (iii) file any registration statement on Form S-8.

                                       17
<PAGE>

         Section 6.9. Consolidation;  Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into,  or a transfer  of all or  substantially  all the assets of the Company to
another  entity (a  "Consolidation  Event")  unless the  resulting  successor or
acquiring  entity  (if  not the  Company)  assumes  by  written  instrument  the
obligation to deliver to the Investor such shares of stock and/or  securities as
the Investor is entitled to receive pursuant to this Agreement.

         Section 6.10.  Issuance of the Company's  Common Stock. The sale of the
shares of Common  Stock  shall be made in  accordance  with the  provisions  and
requirements of Regulation D and any applicable state securities law.

                                  ARTICLE VII.
                Conditions for Advance and Conditions to Closing

         Section 7.1.  Conditions  Precedent to the  Obligations of the Company.
The  obligation  hereunder of the Company to issue and sell the shares of Common
Stock to the Investor  incident to each Closing is subject to the  satisfaction,
or  waiver  by the  Company,  at or before  each  such  Closing,  of each of the
conditions set forth below.

              (a) Accuracy of the Investor's Representations and Warranties. The
representations  and warranties of the Investor shall be true and correct in all
material respects.

              (b)   Performance  by  the  Investor.   The  Investor  shall  have
performed, satisfied and complied in all respects with all covenants, agreements
and conditions  required by this Agreement and the Registration Rights Agreement
to be performed,  satisfied or complied with by the Investor at or prior to such
Closing.

         Section  7.2.  Conditions  Precedent  to the  Right of the  Company  to
Deliver an Advance Notice and the Obligation of the Investor to Purchase  Shares
of Common Stock.  The right of the Company to deliver an Advance  Notice and the
obligation  of the  Investor  hereunder  to  acquire  and pay for  shares of the
Company's  Common Stock incident to a Closing is subject to the  satisfaction or
waiver by the Investor,  on (i) the date of delivery of such Advance  Notice and
(ii) the applicable Advance Date (each a "Condition Satisfaction Date"), of each
of the following conditions:

                  (a) Registration of the Common Stock with the SEC. The Company
shall have  filed  with the SEC a  Registration  Statement  with  respect to the
resale  of the  Registrable  Securities  in  accordance  with  the  terms of the
Registration  Rights  Agreement.   As  set  forth  in  the  Registration  Rights
Agreement, the Registration Statement shall have previously become effective and
shall remain effective on each Condition  Satisfaction  Date and (i) neither the
Company nor the Investor  shall have received  notice that the SEC has issued or
intends to issue a stop order with respect to the Registration Statement or that
the  SEC  otherwise  has  suspended  or  withdrawn  the   effectiveness  of  the
Registration  Statement,  either  temporarily or permanently,  or intends or has
threatened  to do so (unless  the SEC's  concerns  have been  addressed  and the
Investor  is  reasonably  satisfied  that the SEC no  longer is  considering  or
intends  to take  such  action),  and  (ii) no  other  suspension  of the use or
withdrawal  of  the  effectiveness  of the  Registration  Statement  or  related
prospectus  shall exist.  The  Registration  Statement  must have been  declared
effective by the SEC prior to the first Advance Notice Date.

                                       18
<PAGE>

                  (b) Authority. The Company shall have obtained all permits and
qualifications   required  by  any  applicable  state  in  accordance  with  the
Registration  Rights  Agreement  for the offer and sale of the  shares of Common
Stock,  or shall have the  availability  of exemptions  there from. The sale and
issuance of the shares of Common  Stock shall be legally  permitted  by all laws
and regulations to which the Company is subject.

                  (c) Fundamental Changes. There shall not exist any fundamental
changes to the information set forth in the  Registration  Statement which would
require  the  Company to file a  post-effective  amendment  to the  Registration
Statement.

                  (d)  Performance  by  the  Company.  The  Company  shall  have
performed,  satisfied and complied in all material  respects with all covenants,
agreements  and  conditions  required  by  this  Agreement  (including,  without
limitation, the conditions specified in Section 2.5 hereof) and the Registration
Rights  Agreement to be performed,  satisfied or complied with by the Company at
or prior to each Condition Satisfaction Date.

                  (e) No Injunction.  No statute,  rule,  regulation,  executive
order,  decree,   ruling  or  injunction  shall  have  been  enacted,   entered,
promulgated  or endorsed by any court or  governmental  authority  of  competent
jurisdiction  that  prohibits  or  directly  and  adversely  affects  any of the
transactions  contemplated by this Agreement,  and no proceeding shall have been
commenced that may have the effect of prohibiting or adversely  affecting any of
the transactions contemplated by this Agreement.

                  (f) No  Suspension of Trading in or Delisting of Common Stock.
The trading of the Common  Stock is not  suspended  by the SEC or the  Principal
Market (if the Common  Stock is traded on a Principal  Market).  The issuance of
shares of Common Stock with respect to the applicable Closing, if any, shall not
violate the shareholder  approval  requirements of the Principal  Market (if the
Common  Stock is traded  on a  Principal  market).  The  Company  shall not have
received any notice threatening the continued listing of the Common Stock on the
Principal Market (if the Common Stock is traded on a Principal Market).

                  (g)  Maximum  Advance  Amount.  The  amount of the  individual
Advance,  requested  by the Company does not exceed the Maximum  Advance  Amount
unless  waived by the  Investor.  In  addition,  in no event shall the number of
shares issuable to the Investor pursuant to an Advance cause the Investor to own
in excess of nine and 9/10 percent (9.9%) of the then  outstanding  Common Stock
of the Company.

                  (h) No  Knowledge.  The Company has no  knowledge of any event
more likely than not to have the effect of causing such  Registration  Statement
to be suspended or otherwise ineffective.

                                       19
<PAGE>

                  (i) Other. On each Condition  Satisfaction  Date, the Investor
shall have received and been reasonably  satisfied with such other  certificates
and documents as shall have been  reasonably  requested by the Investor in order
for the Investor to confirm the Company's  satisfaction  of the  conditions  set
forth in this Section 7.2, including, without limitation, a certificate executed
by an executive officer of the Company and to the effect that all the conditions
to  such  Closing  shall  have  been  satisfied  as at the  date  of  each  such
certificate substantially in the form annexed hereto on Exhibit A.

                                  ARTICLE VIII.
         Due Diligence Review; Non-Disclosure of Non-Public Information

         Section  8.1.  Due  Diligence  Review.  Prior  to  the  filing  of  the
Registration  Statement the Company  shall make  available  for  inspection  and
review by the Investor,  advisors to and  representatives  of the Investor,  any
underwriter  participating  in any disposition of the Registrable  Securities on
behalf  of  the  Investor  pursuant  to the  Registration  Statement,  any  such
registration  statement or amendment or supplement thereto or any blue sky, NASD
or other filing,  all financial and other  records,  all SEC Documents and other
filings with the SEC, and all other  corporate  documents and  properties of the
Company as may be reasonably necessary for the purpose of such review, and cause
the Company's  officers,  directors and employees to supply all such information
reasonably  requested  by the  Investor or any such  representative,  advisor or
underwriter in connection with such Registration  Statement (including,  without
limitation,  in response to all questions and other inquiries reasonably made or
submitted  by any of them),  prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor  and  such   representatives,   advisors  and  underwriters  and  their
respective  accountants  and  attorneys  to  conduct  initial  and  ongoing  due
diligence  with  respect to the  Company and the  accuracy  of the  Registration
Statement.

         Section 8.2. Non-Disclosure of Non-Public Information.

                  (a) The Company shall not disclose  non-public  information to
the Investor,  advisors to or  representatives  of the Investor  unless prior to
disclosure of such information the Company  identifies such information as being
non-public   information   and  provides  the   Investor,   such   advisors  and
representatives  with the  opportunity  to  accept  or  refuse  to  accept  such
non-public information for review. The Company may, as a condition to disclosing
any  non-public  information  hereunder,  require the  Investor's  advisors  and
representatives  to enter into a  confidentiality  agreement in form  reasonably
satisfactory to the Company and the Investor.

                  (b)  Nothing  herein  shall  require  the  Company to disclose
non-public  information to the Investor or its advisors or representatives,  and
the Company  represents that it does not disseminate  non-public  information to
any investors who purchase stock in the Company in a public  offering,  to money
managers or to securities  analysts,  provided,  however,  that  notwithstanding
anything  herein to the contrary,  the Company will,  as  hereinabove  provided,
immediately notify the advisors and representatives of the Investor and, if any,
underwriters,  of any event or the  existence of any  circumstance  (without any
obligation to disclose the specific event or  circumstance)  of which it becomes
aware,  constituting  non-public  information  (whether or not  requested of the
Company  specifically  or generally  during the course of due  diligence by such
persons or entities),  which, if not disclosed in the prospectus included in the
Registration  Statement  would  cause  such  prospectus  to  include a  material
misstatement  or to omit a material fact required to be stated  therein in order
to make the statements,  therein,  in light of the  circumstances  in which they
were made,  not  misleading.  Nothing  contained  in this  Section  8.2 shall be
construed to mean that such persons or entities other than the Investor (without
the written consent of the Investor prior to disclosure of such information) may
not obtain  non-public  information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from  notifying the Company of their opinion that based
on such due  diligence  by such  persons  or  entities,  that  the  Registration
Statement contains an untrue statement of material fact or omits a material fact
required to be stated in the  Registration  Statement  or  necessary to make the
statements  contained therein,  in light of the circumstances in which they were
made, not misleading.

                                       20
<PAGE>

                                   ARTICLE IX.
                           Choice of Law/Jurisdiction

         Section 9.1.  Governing  Law. This  Agreement  shall be governed by and
interpreted  in  accordance  with the laws of the  State of New  Jersey  without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Hudson County,  New Jersey,  and expressly
consent  to the  jurisdiction  and venue of the  Superior  Court of New  Jersey,
sitting in Hudson County, New Jersey and the United States District Court of New
Jersey,  sitting in Newark, New Jersey, for the adjudication of any civil action
asserted pursuant to this paragraph.

                                   ARTICLE X.
                             Assignment; Termination

         Section 10.1. Assignment.  Neither this Agreement nor any rights of the
Company hereunder may be assigned to any other Person.

         Section  10.2.  Termination.  The  obligations  of the Investor to make
Advances under Article II hereof shall terminate  twenty-four  (24) months after
the Effective.

                                   ARTICLE XI.
                                     Notices

         Section  11.1.  Notices.  Any  notices,  consents,  waivers,  or  other
communications  required  or  permitted  to be  given  under  the  terms of this
Agreement  must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered  personally;  (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S.  certified  mail,  return  receipt  requested;
(iii) three (3) days after being sent by U.S.  certified  mail,  return  receipt
requested,  or (iv)  one (1) day  after  deposit  with a  nationally  recognized
overnight  delivery  service,  in each case  properly  addressed to the party to
receive the same.  The addresses and facsimile  numbers for such  communications
shall be:

                                       21
<PAGE>

If to the Company, to:                  Y3K SECURE ENTERPRISE SOFTWARE INC
                                        108 West Stewart Avenue
                                        Puyallup, Washington, 98371
                                        Attention:  King Cole
                                        Telephone: (253) 284-2935
                                        Facsimile: (253) 284-2944

With a copy to:                         Law Office of Jack G.Orr
                                        Attention: Jack G. Orr, Esq.
                                        3019 Narrows Place
                                        Tacoma, Washington
                                        Telephone: (253) 756-9795

If to the Investor(s):                  Cornell Capital Partners, LP
                                        101 Hudson Street -Suite 3606
                                        Jersey City, NJ 07302
                                        Attention:        Mark Angelo
                                                          Portfolio Manager
                                        Telephone:        (201) 985-8300
                                        Facsimile:        (201) 985-8266

With a Copy to:                         Butler Gonzalez LLP
                                        1000 Stuyvesant Avenue - Suite 6
                                        Union, NJ 07083
                                        Attention:        David Gonzalez, Esq.
                                        Telephone:        (908) 810-8588
                                        Facsimile:        (908) 810-0973

With a Copy to:                         Seth A. Farbman, P.C.
                                        Attention: Seth A. Farbman, Esq.
                                        301 Eastwood Road
                                        Woodmere, NY 11598
                                        Telephone: 516-569-6089
                                        Facsimile: 516-569-6084

Each party shall provide five (5) days' prior written  notice to the other party
of any change in address or facsimile number.

                                  ARTICLE XII.
                                  Miscellaneous

         Section 12.1.  Counterparts.  This  Agreement may be executed in two or
more identical  counterparts,  all of which shall be considered one and the same
agreement and shall become effective when  counterparts have been signed by each
party and  delivered  to the other  party.  In the event any  signature  page is
delivered  by  facsimile  transmission,  the party  using such means of delivery
shall  cause  four  (4)  additional  original  executed  signature  pages  to be
physically  delivered to the other party  within five (5) days of the  execution
and delivery hereof.

                                       22
<PAGE>

         Section 12.2. Entire Agreement;  Amendments.  This Agreement supersedes
all other prior oral or written  agreements  between the Investor,  the Company,
their  affiliates and persons acting on their behalf with respect to the matters
discussed  herein,  and this  Agreement and the  instruments  referenced  herein
contain  the entire  understanding  of the parties  with  respect to the matters
covered  herein and therein  and,  except as  specifically  set forth  herein or
therein,  neither  the  Company  nor  the  Investor  makes  any  representation,
warranty,  covenant or undertaking with respect to such matters. No provision of
this  Agreement  may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.

         Section  12.3.  Reporting  Entity for the Common  Stock.  The reporting
entity relied upon for the  determination of the trading price or trading volume
of the Common Stock on any given Trading Day for the purposes of this  Agreement
shall be Bloomberg, L.P. or any successor thereto. The written mutual consent of
the  Investor  and the Company  shall be required to employ any other  reporting
entity.

         Section 12.4.  Fees and Expenses.  The Company hereby agrees to pay the
following fees:

              (a) Legal  Fees.  Each of the  parties  shall pay its own fees and
expenses (including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection  with this  Agreement and the  transactions
contemplated  hereby,  except that upon the  execution  of this  Agreement,  the
Company  will pay the sum of  Fifteen  Thousand  Dollars  ($15,000),  to Seth A.
Farbman,  P.C. for legal fees.  Subsequently  on each advance date,  the Company
will pay Butler  Gonzalez LLP, the sum of Five Hundred Dollars ($500) for legal,
administrative and escrow agent fees.

              (b) Commitment Fees.

              (i) On each  Advance Date the Company  shall pay to the  Investor,
directly from the gross proceeds held in escrow, an amount equal to four (4%) of
the amount of each Advance.  The Company hereby agrees that if such payment,  as
is described above, is not made by the Company on the Advance Date, such payment
will be made at the  direction  of the  Investor  as  outlined  and  mandated by
Section 2.3 of this Agreement.

              (ii) (a) Upon the  execution of this  Agreement  the Company shall
issue to the Investor shares of the Company's Common Stock in an amount equal to
One Hundred and Forty  Thousand  Dollars  ($140,000)  divided by the Closing Bid
Price on the Closing Date and (b) on the 120th day  following  the  execution of
this Agreement the Company shall issue to the Investor  additional shares of the
Company's  Common  Stock in an amount  equal to One Hundred  and Forty  Thousand
Dollars  ($140,000)  divided by the  Closing Bid Price of the  Company's  Common
Stock on the date thereof (collectively referred to as the "Investor's Shares").

              (iii) Fully Earned. Any Investor's Shares issued to the

Investor shall be deemed fully earned upon delivery to the Investor.

                                       23
<PAGE>

              (v) Registration  Rights.  The Investor's  Shares will have demand
and "piggy-back" registration rights.

         Section 12.5. Brokerage.  Each of the parties hereto represents that it
has had no  dealings  in  connection  with this  transaction  with any finder or
broker who will demand  payment of any fee or  commission  from the other party.
The  Company on the one hand,  and the  Investor,  on the other  hand,  agree to
indemnify  the  other  against  and hold  the  other  harmless  from any and all
liabilities  to any person  claiming  brokerage  commissions or finder's fees on
account  of  services   purported  to  have  been  rendered  on  behalf  of  the
indemnifying  party  in  connection  with  this  Agreement  or the  transactions
contemplated hereby.

         Section  12.6.  Confidentiality.  If for any  reason  the  transactions
contemplated by this Agreement are not  consummated,  each of the parties hereto
shall keep  confidential  any information  obtained from any other party (except
information  publicly  available  or in such  party's  domain  prior to the date
hereof,  and except as required by court order) and shall promptly return to the
other  parties  all  schedules,  documents,  instruments,  work  papers or other
written information without retaining copies thereof, previously furnished by it
as a result of this Agreement or in connection herein.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       24
<PAGE>

         IN WITNESS WHEREOF,  the parties hereto have caused this Line of Credit
Agreement to be executed by the undersigned,  thereunto duly  authorized,  as of
the date first set forth above.

                                        COMPANY:
                                        Y3K SECURE ENTERPRISE SOFTWARE INC.

                                        By: /s/ KINGWM S. COLE
                                            -------------------------------
                                        Name: KINGWM S. COLE
                                             ------------------------------
                                        Title:PRESIDENT
                                              -----------------------------

                                        INVESTOR:
                                        CORNELL CAPITAL PARTNERS, LP

                                        By:      Yorkville Advisors, LLC
                                        Its:     General Partner

                                        By: /S/ MARK ANGELO
                                            -------------------------------
                                        Name:    Mark Angelo
                                        Title:   Portfolio Manager

                                       25
<PAGE>

                                    EXHIBIT A

                      ADVANCE NOTICE/COMPLIANCE CERTIFICATE

                       Y3K SECURE ENTERPRISE SOFTWARE INC

         The  undersigned,  ________________________________  hereby  certifies,
with  respect  to the sale of shares of Common  Stock of Y3K  SECURE  ENTERPRISE
SOFTWARE INC (the  "Company"),  issuable in connection  with this Advance Notice
and Compliance Certificate dated  ___________________ (the "Notice"),  delivered
pursuant to the Equity Line of Credit Agreement (the "Agreement"), as follows:

         1. The undersigned is the duly elected Chief  Executive  Officer of the
Company.

         2. There are no fundamental changes to the information set forth in the
Registration  Statement which would require the Company to file a post effective
amendment to the Registration Statement.

         3. The Company has performed in all material respects all covenants and
agreements  to be  performed  by the  Company  on or prior to the  Advance  Date
related  to the  Notice  and has  complied  in all  material  respects  with all
obligations and conditions contained in the Agreement.

         4. The Advance requested is _____________________.

         The  undersigned  has  executed  this  Certificate  this  ____  day  of
_________________.

                                Y3K SECURE ENTERPRISE SOFTWARE INC

                                By:
                                    ---------------------------------
                                Name:
                                     --------------------------------
                                Title:
                                      -------------------------------

<PAGE>

                                SCHEDULED 2.6(b)

                       Y3K SECURE ENTERPRISE SOFTWARE INC

         The undersigned  hereby agrees that for a period commencing on the date
hereof and expiring on the termination of the Agreement  dated  ________________
between Y3K SECURE ENTERPRISE SOFTWARE INC. (the "Company"), and Cornell Capital
Partners,  LP, (the "Investor") (the "Lock-up Period"),  he, she or it will not,
directly or  indirectly,  without  the prior  written  consent of the  Investor,
issue,  offer, agree or offer to sell, sell, grant an option for the purchase or
sale of, transfer, pledge, assign, hypothecate, distribute or otherwise encumber
or dispose of except  pursuant to Rule 144 of the General Rules and  Regulations
under the  Securities  Act of 1933,  any  securities  of the Company,  including
common  stock or  options,  rights,  warrants  or other  securities  underlying,
convertible  into,  exchangeable  or exercisable  for or evidencing any right to
purchase or subscribe for any common stock (whether or not beneficially owned by
the  undersigned),  or  any  beneficial  interest  therein  (collectively,   the
"Securities").

         In  order  to  enable  the  aforesaid  covenants  to be  enforced,  the
undersigned  hereby  consents  to the  placing of legends  and/or  stop-transfer
orders with the transfer agent of the Company's  securities  with respect to any
of the  Securities  registered in the name of the  undersigned  or  beneficially
owned by the undersigned,  and the undersigned hereby confirms the undersigned's
investment in the Company.

Dated: _______________, 2002

                                  Signature

                                  ----------------------------------------
                                  Address:
                                          --------------------------------
                                  City, State, Zip Code:
                                                        ------------------

                                  ----------------------------------------
                                  Print Social Security Number
                                  or Taxpayer I.D. Number

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00057-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00057-of-00352.parquet"}]]