Document:

Exhibit 10.3

    
      

    

    
      	
              NUMBER
                2007-01

            	
              $
                150,000.00

            

    

    

    UNITED
      STATES OF AMERICA

     

    STATE
      OF
      TEXAS

     

    QI
      SYSTEMS, INC.

     

    2006
      CONVERTIBLE SUBORDINATED CAPITAL NOTE

    

    On
      this
      date of September
      5, 2006 for
      good
      and valuable consideration, QI SYSTEMS, INC., a Nevada corporation, (hereinafter
      collectively called the "COMPANY"), hereby grants a ten
      (10)
      day
      period for the below named party to enter into a subordinated Capital Note
      loan
      agreement with the COMPANY as follows:

     

    
      
        	
                Name:

              	
                Scott
                  and Kymberly Sabins

              	 
	
                Address:

              	
                3919
                  Calle Ariana

              

      

    

    
      
        
          	
                  City:

                	
                  San
                    Clemente

                	
                  State/Prov:

                	
                  CA

                	
                  Zip/Postal:
                    

                	
                  92672

                	
                  Country:
                    

                	
                  USA

                

        

      

    

     

    or
      registered assigns (hereafter called the “Holder”), agrees to loan the COMPANY,
      in legal tender of the United States of America, the principal sum of One
      Hundred Fifty Thousand Dollars ($150,000.00), with interest at the rate of
      ten
      percent
      (10%) calculated annually from September 7, 2006 (“date of issuance”) of this
      Capital Note to the earlier of maturity or payment in full if paid before
      maturity. The date of issuance shall be the last day the Holder has to deliver
      the principal sum to the Company in a form (wire transfer or certified check
      made out to “QI Systems, Inc.”) which the Company shall deposit into their bank
      account(s), such delivery giving effect to this Capital Note agreement as
      defined herein.

    

    Unless
      this Capital Note has been converted, as provided below, the principal sum
      remaining and all accrued interest thereon shall be due and payable, in full,
      five
      (5) years
      from the
      date of issuance (the “maturity date”). 

    

    All
      payments shall be paid to the registered owner of this Capital Note as of the
      date of payment and no proration shall be required.

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    The
      indebtedness of the COMPANY evidenced by this Capital Note, including the
      principal and any interest thereon, shall be subordinate and junior in right
      of
      payment of its obligations to its other creditors, whether now outstanding
      or
      hereafter incurred, (except as to any obligation of the COMPANY ranking on
      a
      parity with or junior to this Capital Note) so that in case of any insolvency
      proceedings, receivership, conservatorship, reorganization, readjustment of
      debt, marshalling of assets and liabilities, or similar proceedings relating
      to
      the COMPANY or any liquidation or winding-up of the COMPANY, whether voluntary
      or involuntary, all such obligations (other than those above excepted) shall
      be
      entitled to be paid in full before any payment shall be made on account of
      the
      principal of, or interest on, this Capital Note. In the event of any such
      proceeding, after payment in full of all sums owing with respect of such prior
      obligations, the Holder of this Capital Note, together with the holders of
      any
      obligations of the COMPANY ranking on a parity with this Capital Note, shall
      be
      entitled to be paid from the remaining assets of the COMPANY the unpaid
      principal thereof and any interest thereon before any payment or other
      distribution, whether in cash, property or otherwise, shall be made on account
      of any capital stock of the COMPANY or any obligations of the COMPANY ranking
      junior to this Capital Note. Subject to the payment in full of all such prior
      obligations, the Holder of this Capital Note shall be subrogated to the rights
      of the holders of such prior obligations to receive payments or distributions
      of
      cash, property or securities of the COMPANY applicable to such prior
      obligations.

    

    Upon
      the
      occurrence and continuance of default, the principal of this Capital Note may
      be
      declared due and payable prior to its regular maturity. The COMPANY shall be
      in
      default under this INSTRUMENT upon the happening of any of the following events
      or conditions:

    

    (a)
      Failure or omission(s) to pay, or other delinquency in the payment of, any
      interest upon this Capital Note as and when the same shall become due and
      payable, and continuance of such delinquency for a period of thirty (30) days;
      or

    (b)
      Failure or omission(s) to pay, or other default in the payment of the principal
      of this Capital Note as and when the same shall become due and payable either
      upon redemption, by declaration or otherwise; or

    (c)
      If
      the COMPANY becomes insolvent or unable to pay its debts as they mature or
      makes
      an assignment for the benefit of its creditors, or a proceeding is instituted
      by
      or against the COMPANY alleging that the COMPANY is insolvent or unable to
      pay
      its debts as they mature and such proceeding remains undismissed for ninety
      (90)
      days; or

    (d)
      Failure on the part of the COMPANY duly to observe or perform any of the
      covenants or agreements on the part of the COMPANY contained in this Capital
      Note for a period of ninety (90) days after the date on which the earliest
      written notice of such failure, requiring the COMPANY to remedy the same, shall
      have been given to the COMPANY by the Holder; or

    (e)
      If
      the COMPANY shall, on a petition in bankruptcy or reorganization filed against
      it, be adjudicated a bankrupt, or if a court of competent jurisdiction shall
      enter an order or decree appointing, without the consent of the COMPANY, a
      receiver of the COMPANY or of the whole or substantially all of its property,
      or
      approving a petition filed against it seeking reorganization or arrangement
      of
      the COMPANY under the federal bankruptcy laws or any other applicable law or
      statute of the United States of America or any state thereof, and such
      adjudication, order, or decree shall not be vacated or set aside or stayed
      within ninety (90) days from the date of the entry thereof. If the COMPANY
      shall
      default, as defined herein, then and in each and every such case, unless the
      principal of this Capital Note shall have already become due and payable, the
      Holder, by notice in writing to the COMPANY, may declare the principal of this
      Capital Note to be due and payable immediately, and upon such declaration the
      same shall become and shall be immediately due and payable, anything in this
      Capital Note contained to the contrary notwithstanding.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    Capital
      Note Convertibility Options and Conditions:

    

    The
      Holder of this Capital Note shall have the right, at any time during the term
      of
      this Agreement, to convert the principal and accrued but unpaid interest into
      shares of the COMPANY’s Common Stock, such Common Stock to be issued with a Rule
      144 Restrictive Sale Legend. The principal sum ($150,000.00) of this Capital
      Note and the accrued but unpaid interest thereon shall be convertible into
      Restricted Common Stock at a price of seven
      cents ($0.07)
      per share. In addition, for each share of Restricted Common Stock issued, the
      Holder share receive 1.0 warrants to purchase one additional share of QI
      Systems, Inc. Commons Stock at an exercise price of twenty cents ($0.20) per
      share. The warrants will expire two (2) years from the date the Capital Note
      is
      converted.

    

    Upon
      conversion of this Capital Note into Restricted Common Stock of the COMPANY,
      this Capital Note shall be deemed retired and not to be outstanding, and the
      Holder of this Capital Note shall not be entitled to any other benefit except
      to
      receive the Restricted Common Stock entitled to above as a result of the
      conversion. 

    

    This
      Capital Note is subject to call and redemption at any time prior to its regular
      maturity upon payment of the principal amount of this Capital Note, without
      a
      redemption premium or prepayment penalty.

    

    Subject
      to the transfer restrictions of federal and state securities laws, this Capital
      Note is transferable on the books of the COMPANY, to be kept at the office
      of
      the COMPANY, by the registered owner hereof in person, or by an attorney duly
      authorized in writing, upon surrender and cancellation of this Capital Note.
      Upon any such transfer, a new registered Capital Note or Capital Notes of the
      same issue and for the same aggregate original face amount shall be issued
      to
      the transferee in exchange therefor; provided, nevertheless, that the actual
      liability of the COMPANY shall be limited to the actual unpaid principal amount
      outstanding as of the date of transfer, together with any accrued but unpaid
      interest thereon.

     

    The
      COMPANY may deem or treat the person in whose name this Capital Note shall
      at
      the time be registered as the absolute owner hereof for the purposes of transfer
      and receiving payment of principal and/or interest as well as for all other
      purposes whatsoever and the COMPANY shall not be affected by any notice to
      the
      contrary.

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      COMPANY has caused this Capital Note to
      be
      executed by the signatures of its duly authorized officer(s).

    

    
      	
              Holder

            	
              QI
                Systems, Inc.

            
	 	 
	
              Signed:
                 /s/
                Scott A. Sabins

            	
              Signed: 
                /s/
                Robert I McLean Jr. 

            
	 	 
	
              Printed
                Name:  Scott
                Sabins

            	
              Printed: 
                Robert
                I. McLean Jr., CFO & COO

            
	 	 
	
              Date:
                 9-6-06

            	
              Date:
                 9-22-06

            
	 	 
	 	 
	
              Signed:
                 Kymberly
                Sabins

            	 
	 	 
	
              Printed
                Name:  Kymberly
                Sabins

            	 
	 	 
	
              Date:
                 9-6-06

            	 

    

     

    
 

    TRANSFER
      RESTRICTION NOTICE

    This
      Capital Note has not been registered under the Securities Act of 1933.
      Accordingly, this Capital Note may not be transferred unless subsequently
      registered or unless, in the opinion of counsel satisfactory to the Company,
      such registration is not required. 

     

     

    4ASSIGNMENT
                                   ----------
                                       AND
                                       ---
                                  BILL OF SALE
                                  ------------

     This  instrument  is executed as of June 30, 2006 by Marshall Distributing,
L.L.C.,  a  Utah limited liability company and EMS Business Development, Inc., a
California  corporation  (hereinafter  collectively  "Assignor")  and  Gateway
Distributors,  Ltd.,  a  Nevada  corporation  (hereinafter  the  "Assignee"):

     For  valuable consideration Assignor hereby sells, assigns and transfers to
the  Assignee all Assignor's right, title, and interest in and to all contracts,
goodwill,  leasehold  interests, trade names and other intangible assets of that
certain  herbal  and  health  food  supplement distributing business operated by
Marshall Distributing, L.L.C., located at 3085 Directors Row, Salt Lake City, UT
84104,  specifically  including but not limited to those described in Schedule I
attached  hereto.

Dated  as  of  June  30,  2006

ASSIGNOR:                                    ASSIGNEE:

Marshall Distributing, LLC,                  Gateway Distributors, Ltd.
a Utah limited liability company             a Nevada corporation

By:                                          By:
   --------------------------------             --------------------------------

By:                                          By:
   --------------------------------             --------------------------------

EMS Business Development, Inc.,
a California corporation

By:
   --------------------------------

By:
   --------------------------------

<PAGE>
                                   SCHEDULE I

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