Document:

EXHIBIT 10.36
                                                                   -------------

                     SETTLEMENT AGREEMENT AND MUTUAL RELEASE

     This Settlement  Agreement and Mutual Release (the  "Agreement") is entered
into this 1st day of April,  2003 by and between  OneSource  Technologies,  Inc.
("OneSource")    and   Maurice   and   Judith   Mallette    ("Mallette"or    the
"Mallettes")(OneSource  and the  Mallettes are  collectively  referred to as the
"Parties").

                                   WITNESSETH

     Whereas,  OneSource  entered into a Stock  Exchange  Agreement  and Plan of
Reorganization  (the  "Stock  Exchange  Agreement")  on  September  1, 1999 with
Mallette  for the  purchase of their  entire  interest in  Cartridge  Care,  Inc
("Cartridge  Care") for the  consideration of 943,750 shares of OneSource common
voting stock and the continued  employment of Maurice Mallette by Cartridge Care
as its President and Chief  Executive  Officer and by OneSource as its Executive
Vice President and Director; and

     Whereas,  pursuant to the Stock Exchange Agreement,  the stock of Cartridge
Care was accepted by OneSource subject to certain liabilities, including but not
limited to liabilities to Valley First National  Bank,  which  liabilities  were
personally guaranteed by the Mallettes in the amount of $100,000.00; and

     Whereas,  in the course of his  employment  with  Cartridge  Care,  Maurice
Mallette  personally  advanced  certain funds to Cartridge  Care as expenses and
direct capital infusions,  and further claims salary, car expenses, and vacation
pay which have not been paid to the  Mallettes by Cartridge  Care or  OneSource;
and

     Whereas,  a dispute has arisen  concerning the valuation of Cartridge Care,
which dispute resulted in litigation entitled Folino v. Mallette in the Superior
Court of Maricopa County,  (the "Litigation")  which litigation was subsequently
settled by the Mallettes and Folino, which litigation resulted in attorneys fees
for which the Mallettes claim reimbursement, and

     Whereas,  the Mallettes and OneSource  entered into a Settlement  Agreement
and Mutual Release dated February 15, 2001,  including a Promissory  Note in the
principal amount of $10,000.00, the terms of which Settlement Agreement have not
been  performed by OneSource  and no payments  have been made on the  Promissory
Note; and

     Whereas,  the Parties  hereto desire to settle,  compromise,  release,  and
forever  discharge  all matters in dispute  between  them in regard to the Stock
Exchange Agreement, the employment of Maurice Mallette, the Settlement Agreement
and  Mutual  Release  dated  February  15,  2001,  the  Promissory  Note and any
agreements related thereto, the Litigation, the claim for attorneys fees related
thereto,  and any other claims,  cause or causes of action which could have been
asserted  therein,  or  which  may  have  been  asserted  independently  of  the
Litigation  by either  party  against  the other,  arising out of the conduct of
either party at any time through the date of this Agreement,  all upon the terms
and conditions appearing in this Agreement;

                                       1
<PAGE>

     Now,  Therefore,  and in  consideration  of the  foregoing  recitals and in
accordance with the following terms and conditions,  the Parties hereto agree as
follows:

                                   AGREEMENTS

     1.   Settlement Of Litigation And Consideration.

          The Parties agree for the  consideration  stated herein, to settle all
          claims as between  themselves,  and to release fully each party except
          for the obligations contained in this Agreement.  As consideration for
          the settlement,  release,  and the covenants and conditions  herein on
          the part of Mallette,  OneSource  agrees to pay to Mallette the sum of
          One hundred and fourteen thousand five hundred  ($114,500.00)  dollars
          which  shall be payable as set forth  below,  and to deliver the other
          consideration as stated herein:

          a.) OneSource  agrees to pay to the Mallettes by company check the sum
          of Two thousand five hundred ($2,500.00) dollars upon the execution of
          this Agreement. On the first day of May, 2003, and on the first day of
          each  month  thereafter,  through  the  first  day of  November,  2003
          OneSource  shall pay by company  check to the Mallettes the sum of Two
          thousand  five  hundred  ($2,500.00)  dollars.  On  the  first  day of
          December,  2003,  and on  the  first  day  of  each  and  every  month
          thereafter,  through the first day of July, 2004,  OneSource shall pay
          to the Mallettes the sum of Three thousand ($3,000.00) dollars. On the
          first  day of  August,  2004,  and on the  first day of each and every
          month  thereafter,  through  the first day of March,  2005,  OneSource
          shall pay to the  Mallettes  the sum of Three  thousand  five  hundred
          ($3,500.00)  dollars  such that the total of all cash  payments to the
          Mallettes   pursuant  to  this   paragraph  is  Seventy  two  thousand
          ($72,000.00) dollars.

          b.) Concurrently with the execution of this Agreement, OneSource shall
          deliver to the Mallettes an originally executed promissory note in the
          principal  amount  of Forty two  thousand  five  hundred  ($42,500.00)
          dollars, payable in one single sum on April 1, 2005 and convertible at
          the option of the Mallettes to shares of One Source Technologies, Inc.
          common voting stock in  accordance  with its  provisions.  The form of
          this Promissory Note is attached hereto as Exhibit "A".

          c.)  Within  thirty  (30)  days of the  execution  of this  Agreement,
          together with the execution and delivery of the  Investment  Letter by
          the Mallettes,  in form as set forth as Exhibit "B",  OneSource agrees
          to deliver to the Mallettes four stock certificates  aggregating Eight
          hundred and fifty thousand (850,000) shares of OneSource common voting
          stock  registered  in the names of the  Mallettes  as  provided in the
          Investment   Letter.   Three  stock   certificates  shall  be  in  the
          denomination  of 250,000  shares each and the forth stock  certificate
          shall be in the denomination of 100,000 shares.

                                       2
<PAGE>

          d.)  Within  thirty  (30)  days of the  execution  of this  Agreement,
          OneSource  agrees to  deliver to the  Mallettes  an  additional  stock
          certificate, replacing certificate number 1367, in the amount of Fifty
          eight thousand three hundred and thirty three (58,333)  shares,  which
          were  previously  purchased by the Mallettes.  OneSource  additionally
          agrees,  within  the  same  time  frame to issue  and  deliver  to the
          Mallettes an additional  stock  certificate,  in the amount of Seventy
          five   thousand   six  hundred   and  ninety  four  shares   (75,694),
          representing  additional  stock due to the  Mallettes as the result of
          the acquisition of their interest in Cartridge Care from the Mallettes
          by Onesource.

     2. Mutual Release of Liability.

          a.) The  Mallettes  hereby  release  and forever  discharge,  on their
          behalf, and on behalf of their heirs, executors,  administrators,  and
          assigns OneSource and any of its subsidiary  corporations,  and all of
          their respective employees,  officers,  directors,  agents, attorneys,
          successors,  assigns,  and  representatives  from any and all  rights,
          claims,  liabilities,  demands  or  damages  of any  kind  whatsoever,
          whether known or unknown,  resulting without limitation from the Stock
          Exchange  Agreement,  the employment of Maurice  Mallette as President
          and Chief  Executive  Officer of Cartridge Care, and as Executive Vice
          President  and Director of  OneSource,  the  Settlement  Agreement and
          Mutual Release dated  February 15, 2001, the Promissory  Note, and any
          agreements  related  thereto,  the  Litigation,  and  any  claims  for
          attorney fees related thereto,  and any other claims,  cause or causes
          of action which could have been  asserted  therein,  or which may have
          been asserted  independently of the Litigation by either party against
          the other, or any other dealings  between the Parties,  arising at any
          time whatsoever prior to the date of this Agreement.

          b.) OneSource  hereby  releases and forever  discharges,  on behalf of
          itself, and on behalf of its successors,  administrators, and assigns,
          the Mallettes,  their heirs, successors,  and assigns from any and all
          rights, claims, liabilities,  demands or damages of any kind, known or
          unknown,  resulting from the Stock Exchange Agreement,  the Employment
          Agreement,  the employment of Maurice  Mallette as President and Chief
          Executive  Officer of Cartridge Care, and Executive Vice President and
          Director of  OneSource  or any other  dealings  between  the  Parties,
          arising at any time  whatsoever  prior to the date of this  Agreement,
          with the  exception  of the matters set forth in the  indemnity by the
          Mallettes in paragraph 3 below.

     3. Indemnity.

          The Mallettes  agree to fully  indemnify and hold  OneSource  harmless
          from any and all claims,  liabilities,  demands,  damages or causes of
          action of any kind  arising  out of any claims  which they may have or
          which may be made by any other creditor relating to any loan or credit
          agreements  which the Mallettes have signed with a personal  guarantee
          on behalf of OneSource or Cartridge  Care.  Except for such matters as
          are set forth in the indemnity of the Mallettes,  OneSource  agrees to
          indemnify  and defend the Mallettes and to hold them harmless from any
          and all claims,  demands,  or causes of action to the same extent that
          OneSource  currently  indemnifies  its officers and  directors,  which
          claims,  demands, or causes of action may be brought,  threatened,  or
          pending  against  it or  Cartridge  Care by reason of any  actions  by
          OneSource  or any of its  officers,  directors  or employees up to the
          date of this Agreement.

                                        3
<PAGE>

     4. Securities Provisions.

          The  Mallettes  agree to accept the stock set forth in paragraph  1(c)
          above in  unregistered  form with standard  legends  currently used by
          OneSource for similar  securities  transactions in accordance with the
          provisions set forth in the Subscription  Agreement.  The shares, when
          issued, shall be fully paid and non-assessable. The Mallettes agree to
          execute OneSource's standard Subscription Agreement as provided above,
          and in form as  attached  hereto.  OneSource  agrees to  register  the
          shares set forth in  paragraph 1 (c) above,  together  with any shares
          acquired by the  Mallettes  through the exercise of the  conversion of
          the promissory  note in accordance  with the Statement of Registration
          Rights as set forth in  Exhibit  "C"  attached  hereto,  to which both
          parties hereby subscribe.  OneSource shall,  during the performance of
          any obligation set forth in this Agreement,  file quarterly  financial
          statements with the Securities and Exchange  Commission.  In the event
          that  such  statements  are not  filed,  OneSource  will,  during  the
          performance of any obligation set forth in this  Agreement,  supply to
          the  Mallettes  a  quarterly  financial  statement,  which shall be in
          audited  or  reviewed  form  if  available.  If  audited  or  reviewed
          statements are not available,  such unaudited financial  statements as
          are used by management shall be supplied.

     5. Warranties and Representations of the Parties:

          a.) The Parties represent,  warrant,  and agree that they are the sole
          owners of all right,  title,  and  interest  in and to every  claim or
          matter  released  herein,  and have not assigned or transferred to any
          person or entity any claim or other matter released herein.

          b.) Each of the  Parties  represents,  warrants,  and agrees  that the
          recitals as set forth in the preamble to this  Agreement  are true and
          correct as to themselves and that there are no undisclosed liabilities
          which,  based upon  personal  guarantees  of the  Mallettes,  could be
          asserted against OneSource and each Party agrees that the recitals are
          true and correct and are incorporated  herein as if fully set forth in
          the text of this Agreement.

          c.) Each of the  Parties  represents  and  warrants  that  the  person
          signing  this  Agreement on its behalf is duly  authorized  to execute
          this  Agreement  on  behalf  of the  Party  and  that  this  Agreement
          constitutes a valid and binding obligation.

                                        4
<PAGE>
          d.) Each Party  acknowledges that this Agreement has been entered into
          for the  sole  purpose  of  avoiding  the  expense,  uncertainty,  and
          inconvenience  associated  with  prospective  litigation.  Each  Party
          further agrees that this  Agreement  shall not constitute an admission
          of  liability  and  may  not be  used by any  other  Party  or  person
          including  creditors of the Mallettes,  Cartridge Care or OneSource as
          evidence of an admission of liability by any Party or anyone  claiming
          in the  right  of any  party in any  subsequent  dispute  between  the
          Parties  or  otherwise  other  than in an  action  for  breach of this
          Agreement or seeking enforcement of this Agreement.

     6. Notices.

          Notices and other communications required or permitted hereunder shall
          be effective  only if they are in writing and sent by  certified  mail
          postage prepaid addressed as follows:

          If to OneSource, to:

                            OneSource Technologies, Inc.
                            7419 E. Helm Drive
                            Scottsdale, AZ 85260
                            Attn: Len Ksobiech

          With a copy to:

                            James A. Deer
                            2046 West Rose Garden Lane
                            Phoenix, AZ 85027

          If to Mallettes:

                            Maurice and Judith Mallette
                            11744 East Sand Hills Road
                            Scottsdale, AZ 85255

          With a copy to:

                            Christopher Rapp
                            Ryan Woodrow & Rapp, P.L.C.
                            Suite 1500
                            3101 North Central Avenue
                            Phoenix, AZ 85012

     7. Construction.

          In preparing and executing this Agreement,  each Party was represented
          by  counsel.  The  terms and  provisions  of this  Agreement  shall be
          interpreted and construed in accordance with their usual and customary
          meanings  and each  Party  specifically  waives  any rule of law which
          would cause this Agreement to be  interpreted  against any Party whose
          attorney prepared the Agreement.

                                        5
<PAGE>

     8. Entire Agreement.

          Except  for such  Exhibits  as are  attached  hereto,  this  Agreement
          represents  the entire  agreement  between the parties with respect to
          the  subject  matter  hereof  and  supercedes  any  prior   agreement,
          understanding,    negotiation,   or   representation   regarding   the
          transactions contemplated by this Agreement.

     9. Attorneys Fees.

          In the  event of a breach  of this  Agreement,  which  results  in the
          commencement of any subsequent legal action or arbitration proceeding,
          the   prevailing   party  in  such   dispute   shall  be  entitled  to
          reimbursement of reasonable attorney's fees and court costs.

     10. Counterparts.

          This Agreement maybe executed in two counterparts, each of which, when
          executed  and  delivered,  shall be deemed an  original,  and all such
          counterparts shall constitute one and the same instrument. Transmittal
          by facsimile of a signed counterpart shall be deemed to constitute the
          delivery of a fully executed counterpart to the recipient.

     11. Cooperation.

          Each of the Parties  further  agrees that it or they shall execute and
          deliver to the other Party all  instruments  and do such  further acts
          and things as the other Party may reasonably  request when such things
          are necessary to effectuate the purpose of this Agreement.

     12. Jurisdiction, Venue, and Choice of Law.

          Each party hereto consents to the  jurisdiction of the Maricopa County
          Superior Court of the State of Arizona and agrees that all actions and
          proceedings  arising  out of or  relating  to this  Agreement  will be
          litigated  exclusively in such court.  The parties  further agree that
          this Agreement shall be interpreted in accordance with the laws of the
          State of Arizona.

Dated this 1st day of April, 2003.

OneSource Technologies, Inc.                Maurice Mallette

By:                                         /s/ Maurice Mallette
    ----------------------------            ----------------------------

Its:                                        Judith Mallette
    ----------------------------
                                            /s/ Judith Mallette
                                            ----------------------------

                                        6

<PAGE>

                                        A
                                    ---------

THIS SECURITY AND THE SECURITY INTO WHICH IT MAY BE CONVERTIBLE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED OTHER THAN TO AFFILIATES
OF HOLDER HEREOF UNLESS AND UNTIL REGISTERED UNDER THE ACT OR IN AN OPINION OF
COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE FOR SUCH
OFFER, SALE, OR TRANSFER, PLEDGE OR HYPOTHECATION

                                 Promissory Note

                          (Convertible to Common Stock)

Principal Amount: $42,500
Date of Note Agreement: April 1, 2003

Parties: The Maker is OneSource  Technologies,  Inc. The Holders are Maurice and
Judith Mallette (the "Mallettes").

Loan  Agreement:  In  consideration  for the settlement of  litigation,  and the
promises  as  set  forth  in  the  Settlement  Agreement  and  Release  executed
concurrently  herewith,  Maker  promises to pay to the Mallettes  (Holders),  or
order, in lawful money of the United States of America,  the principal amount of
Forty  two  thousand  five  hundred  ($42,500)  dollars  and no  cents,  without
interest, on the payment date as set forth herein.

Payments:  Maker will pay the  principal  of this Note in one single sum payment
due April 1, 2005.  All  payments  under  this Note shall be made to Holder,  as
Maurice and Judith  Mallette,  11744 East Sand Hills Road,  Scottsdale,  Arizona
85255 or to such other address as Holder shall provide to Maker in writing.

Conversion  Option:  On or prior to the  payment  due date as set  forth  above,
Holders may convert all or any portion of the outstanding  principal  balance of
this Note to shares of common voting stock of OneSource Technologies,  Inc. at a
conversion  price of Ten cents  ($.10)  per  common  share.  This  option may be
exercised  by  written  notice  specifying  the  amount of the  principal  to be
converted addressed to the President or Secretary of Maker and mailed or sent so
that it is received at Makers office on or before 5:00 p.m.,  Mountain  Standard
Time on or before  April 1, 2005.  The  Holders  agree to execute an  investment
letter for the shares in the form commonly  used by the Maker.  Holders agree to
receive  the shares in  unregistered  form  subject to the  standard  legend for
unregistered  securities  used by the  Maker on  similar  sales of  unregistered
securities.

Adjustments:  In the  event of any  capital  adjustment  resulting  from a stock
split,   reverse   stock  split,   stock   dividend,   reorganization,   merger,
consolidation,  or a  combination,  reclassification,  or  exchange of shares of
common stock or any other increase or decrease in the number of issued shares of
of common  stock,  the  number  and kind of shares  into  which this Note may be
converted  and the  conversion  price per share shall not be adjusted,  provided
that,  should  holders of the common  voting shares of the Maker be accorded any
anti-dilution  protection,  the Holders shall be entitled to the same protection
for their option to convert, the conversion price, and any shares into which the
principal of the Note is converted.

<PAGE>

Default: Maker will be in default if:
-------

     a)   Maker fails to make any payment due hereunder within ten (10) days of
          the date of written notice by Holder to Maker to make any late
          payment;

     b)   Maker fails to perform when due any other term, obligation, covenant
          or condition contained in this Note;

     c)   Maker becomes insolvent, a receiver is appointed for any part of
          Maker's property, Maker makes an assignment for the benefit of
          creditors, or any proceeding is commenced by Maker or against Maker
          under any bankruptcy or insolvency laws.

Default Notices: Default notices shall be effective only if they are in writing
and sent by facsimile and certified mail to:

          OneSource Technologies, Inc.
          7419 E. Helm Drive
          Scottsdale, AZ 85260
          Attn: Len Ksobiech
          Facsimile: (480) 889- 1166

With a copy to:

          James A. Deer
          2046 West Rose Garden Lane
          Phoenix, AZ 85027
          Facsimile: (623) 780-4810

Holder's Rights: Upon default, Holder may declare the entire unpaid principal
balance on this Note and all accrued and unpaid interest immediately due and
payable. Holder may increase the interest rate to a default rate of seven
percent (7%).. Holder may exercise any remedy or remedies provided in this Note
or under Arizona law in any order.

Holder's Expenses: In the event Holder utilizes the services of an attorney in
attempting to collect the amounts due hereunder or to enforce the terms hereof
or of any agreements related to this indebtedness, Maker shall pay to Holder, on
demand, all costs and expenses so incurred, including reasonable attorney's
fees, including those costs, expenses and attorney's fees incurred after the
entry of judgement herein or the filing by or against Maker of any proceeding
under any chapter of the Bankruptcy Code, or similar federal or state statutes,
and whether incurred in connection with the involvement of any Holder hereof as
creditor in such proceedings or otherwise.

                                       A-2
<PAGE>

Law Applicable: This Note shall be construed under the laws of the State of
Arizona

General Provisions: Holder may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Maker, to the extent permitted by
law, waives presentment, demand for payment, protest, or notice of dishonor.
Holder may renew or extend this loan, release any party or collateral, or fail
to realize upon or perfect a Holder's security interest in any collateral, and
to take any action deemed necessary by Holder without consent or notice to
anyone except as provided herein.

Jurisdiction, Venue, and Choice of Law: Maker and Holder consent to the
jurisdiction of the Maricopa County Superior Court of the State of Arizona and
agree that all actions and proceedings arising out of or related to this Note
will be litigated exclusively in such court. The Maker and Holder further agree
that this Note shall be interpreted in accordance with the laws of the State of
Arizona.

Assignment. This Note shall be non-assignable.

IN WITNESS WHEREOF, the Maker has caused this Note to be signed in its name this
1st day of April, 2003.

                        Maker
                        OneSource Technologies, Inc.

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

                        Its:
                            ---------------------------------

                                       A-3
<PAGE>

                                       B
                                    --------

OneSource Technologies, Inc.
7419 East Helm Lane
Scottsdale, Arizona  85260

Attn: Len Ksobiech

Re: Purchase of  850,000  Shares of One Source Technologies, Inc. Common Stock

Gentlemen:

In connection with the issuance of the referenced stock as partial consideration
for the settlement of the claims as between OneSource Technologies,  Inc. (the "
Company")  and Maurice  Mallette and Judith  Mallette (the  "Purchasers"  or the
Undersigned")  the Purchasers hereby represent and warrant to the Company and to
each  officer,  director,  controlling  person,  and agent of the  foregoing  as
follows:

A.   REPRESENTATION OF THE INVESTOR

     1.   The  undersigned  understands  the risks of, and other  considerations
          relating to the purchase of and holding of the Shares of the Company's
          Common Stock (the "Shares").

     2.   The  undersigned  is purchasing the shares for the  undersigned's  own
          account, with the intention of holding the Shares for investment, with
          no present  intention of dividing or allowing others to participate in
          this investment,  or of reselling or otherwise  participating directly
          or indirectly, in a distribution of the Shares. The undersigned agrees
          not to transfer any of the Shares unless they are registered under the
          provisions of the Securities Act of 1933 and any applicable securities
          laws of any state,  unless an exemption from registration is available
          under those laws.

     3.   The undersigned  has knowledge of the business  affairs of the Company
          and has made an independent evaluation of the merits of the securities
          and acknowledges the high risk of the securities.

<PAGE>

     4.   The   undersigned   understands   that  the  provisions  of  Rule  144
          promulgated  under the Act are not  available  to permit the resale of
          the  Shares,  until the  prescribed  waiting  period has  expired  and
          routine sales made in reliance on its provisions could be made only in
          limited amounts and in accordance with the terms and conditions of the
          Rule. The  undersigned  further  understands  that in connection  with
          sales of Shares for which Rule 144 is not available,  registration  or
          compliance  with some other  registration  exemption will be required.
          Rights to registration of the Shares are as provided in the Settlement
          Agreement and Mutual Release.

     5.   The undersigned understands and agrees that stop transfer instructions
          will be given to the Company's transfer agent and agrees that a legend
          will be placed on the certificates for the Shares or any substitutions
          therefore, the legend stating as follows:

          "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
          UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "ACT"),  OR THE
          SECURITIES  LAWS OF ANY STATE,  IN RELIANCE UPON  EXEMPTIONS  FROM THE
          REGISTRATION  REQUIREMENTS OF THE ACT AND SUCH LAWS.  THESE SHARES MAY
          NOT BE  TRANSFERRED  NOR WILL  ANY  ASSIGNEE  OR  ENDORSEE  HEREOF  BE
          RECOGNIZED AS AN OWNER HEREOF BY THE ISSUER FOR ANY  PURPOSES,  EXCEPT
          IN  TRANSACTIONS  REGISTERED  UNDER THE ACT AND ANY  APPLICABLE  STATE
          SECURITIES   LAWS  UNLESS  THE   AVAILABILITY  OF  AN  EXEMPTION  FROM
          REGISTRATION  UNDER THE ACT AND ANY APPLICABLE  STATE  SECURITIES LAWS
          WITH RESEPCT TO ANY PROPOSED  TRANSFER OR  DISPOSITION  OF SUCH SHARES
          SHALL BE ESTABLISHED TO THE SATISFACTION OF COUNSEL TO THE ISSUER."

          The undersigned  understands and agrees that the Company may refuse to
          permit the transfer of Shares out of the  investors  name and that the
          Shares must be held indefinitely in the absence of compliance with the
          terms of such legend.

     6.   The undersigned represents, if an individual,  that the undersigned is
          at least 21 years of age.

     7.   The  undersigned  is not  subscribing  to the Shares as a result of or
          subsequent   to  any   advertisement,   article,   notice   or   other
          communication published in any newspaper, magazine or similar media or
          broadcast  over  television  or radio,  or presented at any seminar or
          meeting,  or  any  solicitation  of a  subscription  by a  person  not
          previously  known to the undersigned in connection with investments in
          Shares generally.

                                       B-2
<PAGE>

B. INDEMNIFICATION

          The undersigned agrees to indemnify and hold harmless the Company, its
          officers,  directors, agents and shareholders and any other person who
          may be deemed to control the Company from any loss, liability,  claim,
          damage or expense,  arising out of the  inaccuracy of any of the above
          representations,  warranties  or  statements  or  the  breach  of  the
          agreements contained herein.

C.   GENERAL

     This  Investment  Letter (i) shall be binding upon the  undersigned and the
     heirs, legal representatives,  successors,  and assigns of the undersigned,
     (ii) shall be governed,  construed and enforced in accordance with the laws
     of the State of Arizona  applicable to contracts entered into and wholly to
     be performed in Arizona by Arizona residents (except insofar as affected by
     the state  securities or "Blue Sky" laws), and (iii) shall survive the sale
     of the Shares.

Sincerely yours,

-------------------------------

--------------------------------

Please register my shares as follows:

------------------------------
Name or Names of Purchasers

------------------------------
EIN Number

-----------------------------
Street Address

-----------------------------
City, State and Zip Code

                                       B-3

<PAGE>
                                        C
                                   -----------

                        STATEMENT OF REGISTRATION RIGHTS

     THIS STATEMENT OF REGISTRATION RIGHTS (the "Statement"), is dated as of the
___ day of _______________, 2003.

     WHEREAS,  In connection  with the provisions of a Settlement  Agreement and
Mutual Release (the "Settlement Agreement"),  Ahlawyss Fulton and Pamela Fulton,
husband and wife  (collectively  the  "Shareholders")  have acquired One Million
(1,000,000) shares of the common stock, $0.001 par value (the "Common Stock") of
OneSource   Technologies,   Inc.,  a  Delaware  corporation  (the  "Company"  or
"OneSource"),  and have the right to acquire up to an  additional  Seven Hundred
Thousand  (700,000)  shares of Common Stock upon the conversion of a Convertible
Promissory Note (the "Note") of the Company delivered pursuant to the Settlement
Agreement.

     WHEREAS,  the Company desires to grant to the Shareholders the registration
rights set forth herein with  respect to the Common Stock that the  Shareholders
have acquired or may acquire upon conversion of the Note.

     NOW,  THEREFORE,  the  OneSource  hereby  grants  to the  Shareholders  the
following registration rights:

     Section 1. Registration Rights.
                -------------------

          (a) The  Company  shall be  obligated  to the  Shareholders  to file a
     Registration  Statement  under the  Securities Act of 1933, as amended (the
     "Securities  Act")  covering  the shares of Common  Stock as  amended  (the
     "Securities  Act")  covering  the  shares  of  Common  Stock  held  by  the
     Shareholders only as follows:

          (i) Registration  rights shall apply only during the period commencing
          upon the date of this  Statement and  continuing  until the earlier of
          (a) the  disposition  by the  Shareholders  of all the  shares  of the
          Common Stock  acquired  pursuant to the Settlement  Agreement,  or (b)
          June 30, 2006 (the "Rights Period").

          (ii) Whenever,  during the Rights Period, the Company proposes to file
          with the  Securities  and Exchange  Commission  (the  "Commission")  a
          Registration  Statement  (other than a Form S-4 or S-8, or an S-3 used
          in  conjunction  with an S-8 which S-3 is filed  solely to  facilitate
          resales by affiliates  of the Company of Shares issued under  employee
          stock incentive plans, or comparable  registration  statements) of its
          Common Stock,  it shall,  at least 30 days prior to such filing,  give
          written notice of such proposed  filing to the  Shareholders  at their
          address  appearing on the records of the  Company,  and shall offer to
          include  and shall  include  in such  filing  all or a portion  of the
          Shareholders'  Common stock upon receipt by the Company, not less than
          10 days prior to the  proposed  filing date,  of a request  therefore,
          subject to the right of the managing underwriter, in any such offering
          that is  underwritten,  to limit or  eliminate  entirely the number of
          securities  that may be included in such  offering on a pro rata basis
          with any other person on whose behalf securities are being registered.

<PAGE>

          (b)  The  Company  will   maintain  any   Registration   Statement  or
     post-effective  amendment  filed under this Section 1 hereof  current under
     the  Securities  Act until the earlier of (1) the sale of all of the Common
     Stock subject to such Registration  Statement,  or (2) nine months from the
     effective  date  thereof.  If the Company  fails to keep such  Registration
     Statement   current  for  the  period  specified  above,  and  the  selling
     Shareholders  do not sell at least  one-half of the shares of Common  Stock
     which are the  subject  of the  offering,  such  registration  shall not be
     deemed an  exercise  of any of the rights  provided  under  this  Section 1
     hereof.

          (c) All  fees,  disbursements  and  out-of-pocket  expenses  and costs
     incurred by the Company in connection  with the  preparation  and filing of
     any  Registration  Statement  under  Section  1(a)  and in  complying  with
     applicable securities and Blue Sky laws (including, without limitation, all
     attorneys'  fees) shall be borne by the Company.  The selling  Shareholders
     shall  bear  their   proportionate  cost  of  underwriting   discounts  and
     commissions,  if any,  applicable to the Common Stock being  registered and
     the fees and  expenses of their  counsel.  The  Company  shall use its best
     efforts to qualify  any of the  securities  for sale in such  states as the
     selling Shareholders reasonably designate and shall furnish indemnification
     in the manner provided in Section 2 hereof.  However, the Company shall not
     be required  to qualify in any state which will  require an escrow or other
     restriction  relating to the Company and/or any selling  Shareholders.  The
     Company at its expense will supply the selling  Shareholders with copies of
     such  Registration  Statement  and  the  prospectus  or  offering  circular
     included  therein and other related  documents in such quantities as may be
     reasonably requested by them.

          (d) The  Company  shall not be  required  by this  Section 1 to file a
     Registration  Statement  or include the  Shareholders'  Common Stock in any
     Registration  Statement  which is to be filed if, in the opinion of counsel
     for both the  Shareholders  and the Company (or,  should they not agree, in
     the  opinion of another  counsel  experienced  in  securities  law  matters
     acceptable  to counsel  for  Shareholders  and the  Company)  the  proposed
     offering or other  transfer as to which such  registration  is requested is
     exempt from applicable  federal and state securities  registration laws and
     would result in all purchasers or transferees  obtaining  securities  which
     are  not  "restricted  securities",  as  defined  in  Rule  144  under  the
     Securities Act.

          (e) The Company agrees that,  commencing on the date of this Statement
     and until all  Shares  have been sold  under a  Registration  Statement  or
     pursuant  to Rule 144 under the  Securities  Act,  it will keep  current in
     filing all materials  required to be filed with the  Commission in order to
     permit the holders thereof to sell the Shares under such Rule 144.

          (f) No  provision  contained  herein  shall  preclude the Company from
     selling other securities pursuant to any Registration Statement in which it
     is required  to include the  Shareholders'  Common  Stock  pursuant to this
     Section 1.

                                       C-2
<PAGE>

          (g)  For  purposes  of  this  Statement,  the  Company  shall  include
     OneSource  and any  other  entity  which,  directly  or  indirectly,  owns,
     succeeds  to or is  assignee  of any  substantial  portion of the assets or
     business of OneSource (or who is an affiliate of any such other entity) and
     Common Stock shall include the comparable  equity  securities of such other
     entity.  OneSource  shall,  as a condition of any  reorganization,  sale or
     other  transaction  in which another  entity  becomes  owner,  successor or
     assignee of any substantial portion of the assets or business of OneSource,
     require that such entity  acknowledge and agree to be bound by the terms of
     this Statement.

     Section 2. Indemnification.
                ---------------

          (a) In the event of the  filing  of any  Registration  Statement  with
     respect to Shares  pursuant  to  Section 1 hereof,  the  Company  agrees to
     indemnify and hold harmless  each selling  Shareholder  against any losses,
     claims,  damages or  liabilities,  joint or several  (which shall,  for all
     purposes of this  Agreement,  include,  but not be limited to, all costs of
     defense  and   investigation  and  all  attorneys'  fees),  to  which  such
     Shareholder  may become  subject,  under the  Securities  Act or otherwise,
     insofar as such  losses,  claims,  damages or  liabilities  (or  actions in
     respect  thereof)  arise out of or are based upon any untrue  statement  or
     alleged  untrue  statement  of any  material  fact  contained  in any  such
     Registration  Statement,  or  any  related  preliminary  prospectus,  final
     prospectus,  offering  circular,  notification  or amendment or  supplement
     thereto, or arise out of or are based upon the omission or alleged omission
     to state therein a material fact required to be stated therein or necessary
     to make the statements therein not misleading;  provided, however, that the
     Company  will not be liable in any such  case to the  extent  that any such
     loss,  claim,  damage or liability arises out of or is based upon an untrue
     statement or alleged untrue  statement or omission or alleged omission made
     in such Registration Statement,  preliminary prospectus,  final prospectus,
     offering  circular,  notification  or  amendment or  supplement  thereto in
     reliance upon, and in conformity with, written information furnished to the
     Company by a selling  Shareholder,  specifically for use in the preparation
     thereof. This indemnity agreement will be in addition to any liability that
     the Company may otherwise have.

          (b) In the event of the  filing  of any  Registration  Statement  with
     respect  to  Common  Stock  pursuant  to  Section 1  hereof,  each  selling
     Shareholder  agrees to indemnify  and hold  harmless the Company,  and each
     person,  if any,  who  controls  the  Company  within  the  meaning  of the
     Securities Act, against any losses,  claims,  damages or liabilities (which
     shall, for all purposes of this Agreement,  include, but not be limited to,
     all costs of defense and  investigation  and all attorneys'  fees) to which
     the Company or any such  controlling  person may become  subject  under the
     Securities  Act or otherwise,  insofar as such losses,  claims,  damages or
     liabilities (or actions in respect  thereof) arise out of or are based upon
     any untrue  statement or alleged  untrue  statement  of any  material  fact
     contained in any such Registration  Statement,  or any related  preliminary
     prospectus, final prospectus,  offering circular, notification or amendment
     or  supplement  thereto,  or arise out of or are based upon the omission or
     the alleged omission to state therein a material fact required to be stated
     therein or necessary to make the statements therein not misleading,  but in
     each case only to the extent that such untrue  statement or alleged  untrue
     statement  or omission or alleged  omission  was made in such  Registration
     Statement,  preliminary  prospectus,  final prospectus,  offering circular,
     notification  or amendment or supplement  thereto in reliance  upon, and in
     conformity  with,  written  information  furnished  to the  Company by such
     selling  Shareholder,  specifically for use in the preparation thereof and,
     provided further,  that the indemnity  agreement  contained in Section 2(b)
     shall not inure to the  benefit of the Company  with  respect to any person
     asserting  such loss,  claim,  damage or liability who purchased the Common
     Stock  which is the subject  thereof if the Company  failed to send or give
     (in  violation  of  the  Securities  Act  or  the  rules  and   regulations
     promulgated  thereunder)  a  copy  of  the  prospectus  contained  in  such
     Registration   Statement  to  such  person  at  or  prior  to  the  written
     confirmation  to such  person of the sale of such Common  Stock,  where the
     Company was  obligated  to do so under the  Securities  Act or the rules or
     regulations  promulgated  thereunder.  This indemnity  agreement will be in
     addition to any liability that a selling Shareholder may otherwise have.

                                       C-3
<PAGE>

          (c) Promptly after receipt by an indemnified  party under this Section
     2 of notice of the commencement of any action, such indemnified party will,
     if a claim in respect thereof is to be made against the indemnifying  party
     under this  Section 2, notify the  indemnifying  party of the  commencement
     thereof;  but the  omission  so to notify the  indemnifying  party will not
     relieve the indemnifying  party from any liability which it may have to any
     indemnified  party  otherwise  than as to the  particular  item as to which
     indemnification  is then being sought solely pursuant to this Section 2. In
     case any such  action is brought  against  any  indemnified  party,  and it
     notifies  the  indemnifying   party  of  the  commencement   thereof,   the
     indemnifying  party will be entitled to participate  in, and, to the extent
     that it may wish,  jointly  with any  other  indemnifying  party  similarly
     notified,  assume the defense  thereof,  subject to the  provisions  herein
     stated and after  notice from the  indemnifying  party to such  indemnified
     party of its election so to assume the defense  thereof,  the  indemnifying
     party will not be liable to such indemnified party under this Section 2 for
     any legal or other expenses subsequently incurred by such indemnified party
     in  connection  with the defense  thereof  other than  reasonable  costs of
     investigation, unless the indemnifying party shall not pursue the action to
     its final conclusion.  The indemnified party shall have the right to employ
     separate  counsel in any such  action  and to  participate  in the  defense
     thereof,  but the fees and  expenses  of such  counsel  shall not be at the
     expense of the indemnifying party if the indemnifying party has assumed the
     defense  of  the  action  with  counsel  reasonably   satisfactory  to  the
     indemnified  party;  provided that, if the  indemnified  party is a selling
     Shareholder,  the fees and expenses of such counsel shall be at the expense
     of the  indemnifying  party if (i) the  employment of such counsel has been
     specifically  authorized in writing by the indemnifying  party, or (ii) the
     named parties to any such action (including any impleaded  parties) include
     both the selling  Shareholder  and the  indemnifying  party and the selling
     Shareholder  shall have been  advised by such counsel that there may be one
     or more legal defenses  available to the indemnifying  party different from
     or in  conflict  with any  legal  defenses  which may be  available  to the
     selling  Shareholder (in which case the  indemnifying  party shall not have
     the right to assume  the  defense of such  action on behalf of the  selling
     Shareholder,  it being  understood,  however,  that the indemnifying  party
     shall, in connection with any one such action or separate but substantially
     similar or related actions in the same jurisdiction arising out of the same
     general  allegations  or  circumstances,  be liable only for the reasonable
     fees and expenses of one separate  firm of  attorneys  for the  indemnified
     parties,  which firm  shall be  designated  in  writing by the  indemnified
     parties.  No settlement of any action against an indemnified party shall be
     made without the prior  written  consent of the  indemnified  party,  which
     consent shall not be unreasonably withheld.

                                       C-4
<PAGE>

     Section 3. Contribution.
                -------------

     In  order  to  provide  for  just  and  equitable  contribution  under  the
Securities Act in any case in which (i) a selling  Shareholder makes a claim for
indemnification  pursuant to Section 2 hereof but is judicially  determined  (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such  indemnification may not be enforced in such case  notwithstanding the fact
that the express  provisions of Section 2 hereof provide for  indemnification in
such case, or (ii) contribution  under the Securities Act may be required on the
part  of  a  selling  Shareholder,  then  the  Company  and  each  such  selling
Shareholder  shall  contribute  to the  aggregate  losses,  claims,  damages  or
liabilities to which they may be subject (which shall,  for all purposes of this
Agreement,   include,   but  not  be  limited  to,  all  costs  of  defense  and
investigation and all attorneys'  fees), in either such case after  contribution
from  others  on the  basis  of  relative  fault as well as any  other  relevant
equitable  considerations.  The relative  fault shall be determined by reference
to,  among other  things,  whether the untrue or alleged  untrue  statement of a
material  fact or the  omission  or alleged  omission  to state a material  fact
relates to information supplied by the Company or a selling Shareholder, and the
parties'  relative intent,  knowledge,  access to information and opportunity to
correct or prevent such statement or omission.  The Company and each Shareholder
agree that it would not be just and equitable if  contribution  pursuant to this
Section 3 were  determined  by pro rata  allocation  or by any  other  method of
allocation which does not take account of the equitable  considerations referred
to in this  Section 3. The amount paid or payable by an  indemnified  party as a
result of the  losses,  claims,  damages  or  liabilities  or actions in respect
thereof referred to above in this Section 3 shall be deemed to include any legal
or other expenses  reasonably  incurred by such indemnified  party in connection
with  investigating  or defending any such action or claim.  No person guilty of
fraudulent  misrepresentation  within  the  meaning  of  Section  11(f)  of  the
Securities  Act shall be  entitled to  contribution  from any person who was not
guilty of such fraudulent misrepresentation.

                                       C-5

<PAGE>

                                        D
                                    --------

OneSource Technologies, Inc.
7419 East Helm Lane
Scottsdale, Arizona  85260

Attn: Len Ksobiech

Re: Purchase of 75,694 Shares of One Source Technologies, Inc. Common Stock

Gentlemen:

In connection with the issuance of the referenced stock as partial consideration
for the settlement of the claims as between OneSource Technologies, Inc. (the "
Company") and Maurice Mallette and Judith Mallette (the "Purchasers" or the
Undersigned") the Purchasers hereby represent and warrant to the Company and to
each officer, director, controlling person, and agent of the foregoing as
follows:

A.   REPRESENTATION OF THE INVESTOR

     1.   The  undersigned  understands  the risks of, and other  considerations
          relating to the purchase of and holding of the Shares of the Company's
          Common Stock (the "Shares").

     2.   The  undersigned  is purchasing the shares for the  undersigned's  own
          account, with the intention of holding the Shares for investment, with
          no present  intention of dividing or allowing others to participate in
          this investment,  or of reselling or otherwise  participating directly
          or indirectly, in a distribution of the Shares. The undersigned agrees
          not to transfer any of the Shares unless they are registered under the
          provisions of the Securities Act of 1933 and any applicable securities
          laws of any state,  unless an exemption from registration is available
          under those laws.

     3.   The undersigned  has knowledge of the business  affairs of the Company
          and has made an independent evaluation of the merits of the securities
          and acknowledges the high risk of the securities.

<PAGE>

     4.   The   undersigned   understands   that  the  provisions  of  Rule  144
          promulgated  under the Act are not  available  to permit the resale of
          the  Shares,  until the  prescribed  waiting  period has  expired  and
          routine sales made in reliance on its provisions could be made only in
          limited amounts and in accordance with the terms and conditions of the
          Rule. The  undersigned  further  understands  that in connection  with
          sales of Shares for which Rule 144 is not available,  registration  or
          compliance  with some other  registration  exemption will be required.
          Rights to registration of the Shares are as provided in the Settlement
          Agreement and Mutual Release.

     5.   The undersigned understands and agrees that stop transfer instructions
          will be given to the Company's transfer agent and agrees that a legend
          will be placed on the certificates for the Shares or any substitutions
          therefore, the legend stating as follows:

          "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
          UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "ACT"),  OR THE
          SECURITIES  LAWS OF ANY STATE,  IN RELIANCE UPON  EXEMPTIONS  FROM THE
          REGISTRATION  REQUIREMENTS OF THE ACT AND SUCH LAWS.  THESE SHARES MAY
          NOT BE  TRANSFERRED  NOR WILL  ANY  ASSIGNEE  OR  ENDORSEE  HEREOF  BE
          RECOGNIZED AS AN OWNER HEREOF BY THE ISSUER FOR ANY  PURPOSES,  EXCEPT
          IN  TRANSACTIONS  REGISTERED  UNDER THE ACT AND ANY  APPLICABLE  STATE
          SECURITIES   LAWS  UNLESS  THE   AVAILABILITY  OF  AN  EXEMPTION  FROM
          REGISTRATION  UNDER THE ACT AND ANY APPLICABLE  STATE  SECURITIES LAWS
          WITH RESEPCT TO ANY PROPOSED  TRANSFER OR  DISPOSITION  OF SUCH SHARES
          SHALL BE ESTABLISHED TO THE SATISFACTION OF COUNSEL TO THE ISSUER."

          The undersigned  understands and agrees that the Company may refuse to
          permit the transfer of Shares out of the  investors  name and that the
          Shares must be held indefinitely in the absence of compliance with the
          terms of such legend.

     6.   The undersigned represents, if an individual,  that the undersigned is
          at least 21 years of age.

     7.   The  undersigned  is not  subscribing  to the Shares as a result of or
          subsequent   to  any   advertisement,   article,   notice   or   other
          communication published in any newspaper, magazine or similar media or
          broadcast  over  television  or radio,  or presented at any seminar or
          meeting,  or  any  solicitation  of a  subscription  by a  person  not
          previously  known to the undersigned in connection with investments in
          Shares generally.

                                       D-2
<PAGE>

B.   INDEMNIFICATION

     The  undersigned  agrees to indemnify  and hold  harmless the Company,  its
     officers,  directors,  agents and shareholders and any other person who may
     be deemed to control the Company from any loss, liability, claim, damage or
     expense, arising out of the inaccuracy of any of the above representations,
     warranties or statements or the breach of the agreements contained herein.

C.   GENERAL

     This  Investment  Letter (i) shall be binding upon the  undersigned and the
     heirs, legal representatives,  successors,  and assigns of the undersigned,
     (ii) shall be governed,  construed and enforced in accordance with the laws
     of the State of Arizona  applicable to contracts entered into and wholly to
     be performed in Arizona by Arizona residents (except insofar as affected by
     the state  securities or "Blue Sky" laws), and (iii) shall survive the sale
     of the Shares.

Sincerely yours,

-------------------------------

--------------------------------

Please register my shares as follows:

------------------------------
Name or Names of Purchasers

------------------------------
EIN Number

-----------------------------
Street Address

-----------------------------
City, State and Zip Code

                                       D-3EXHIBIT 10.52

                         STOCK PURCHASE OPTION AGREEMENT

     THIS STOCK PURCHASE OPTION AGREEMENT (the "Agreement") is entered into this
24th day of April,  2003 ("Effective  Date"),  by and between  EXCALIBUR LIMITED
PARTNERSHIP  ("Excalibur")  and BH  CAPITAL  INVESTMENTS,  L.P.  ("BH  Capital")
(Excalibur and BH Capital are sometime  hereinafter  referred to individually as
an "Optionor"  and  collectively  as the  "Optionors"),  and GALAXY  NUTRITIONAL
FOODS, INC. ("Optionee").

                              W I T N E S S E T H:

     WHEREAS,  pursuant to that  certain  Series A Preferred  Stock and Warrants
Purchase Agreement, dated as of April 6, 2001 (the "Purchase Agreement"), by and
among Optionee and the Optionors,  the Optionors purchased certain shares of the
Optionee's Series A Convertible  Preferred Stock, $.01 par value (the "Preferred
Stock"); and

     WHEREAS,  Excalibur and BH Capital are currently the record and  beneficial
owners of 25,945 shares and 31,439 shares, respectively,  of the Preferred Stock
(the "Option Shares"); and

     WHEREAS,  Optionee wishes to obtain an option to purchase the Option Shares
from  Optionors  and  Optionors  are willing to grant an option to purchase  the
Option Shares, all on the terms and conditions hereinafter set forth; and

     WHEREAS, pursuant to Section 6.13 of the Purchase Agreement,  Optionee must
hold a meeting of Optionee's  stockholders (the "Stockholders  Meeting") for the
purposes  described more  particularly in the Purchase  Agreement  within ninety
days of a request from Optionors; and

     WHEREAS,  on November 7, 2002,  Optionors  requested that the  Stockholders
Meeting be held on or prior to  February  5, 2003,  which date was  subsequently
extended to March 31, 2003; and

     WHEREAS,  Optionee  wishes to obtain an  extension of the date by which the
Stockholders  Meeting  must be held until  expiry of Option  Period (as  defined
below), and Optionors are willing to grant such an extension under the terms and
conditions hereinafter set forth.

     NOW  THEREFORE,  for good  and  valuable  consideration,  the  receipt  and
sufficiency of which are hereby acknowledged, the undersigned agree as follows:

     1.  Option.  Optionors  hereby  grant an option (the  "Option") to Optionee
(which, for purposes of this Agreement other than Sections 5 and 6 hereof, shall
be deemed to include  any  assignee(s)  of the  Option) to  purchase  the Option
Shares for  cancellation  or  immediate  conversion,  or so many of such  Option
Shares as  Optionee  determines,  on the terms and  conditions  hereinafter  set
forth,  which Option shall be exercisable by Optionee  during the Option Period.
As used herein,  "Option  Period"  shall mean the period  commencing on the date
hereof  and  expiring  at  earlier  of (a) 5:00 p.m.  Orlando,  Florida  time on
September  30,  2003 or (b) 5 business  days after the date of the  Stockholders
Meeting called pursuant to proxy statement  already filed with the SEC, provided
that in the  event the  existing  debt owed to (a)  FINOVA  Capital  Corporation
pursuant to that certain  Security  Agreement  dated as of November 1, 1996,  as
amended,  and (b) FINOVA  Mezzanine  Capital Inc.  pursuant to that certain Loan
Agreement  dated as of September 30, 1999, as amended,  has not been paid off or
refinanced on or prior to July 15, 2003,  the Option Period shall expire at 5:00
p.m.  Orlando,  Florida time on July 15, 2003.  Notwithstanding  the  foregoing,
subject to

<PAGE>

Section 2 of this Agreement, Optionee acknowledges that the Option is subject to
the rights of Optionors to exercise  their rights  convert the Option  Shares in
accordance with the terms and conditions applicable to the Preferred Stock.

     2. Exercise of Option. In order to exercise the Option or any part thereof,
Optionee must deliver written notice (the "Exercise  Notice") to Optionors prior
to the  expiration of the Option  Period of Optionee's  election to exercise the
Option (or  portion  thereof),  which  notice  shall  state the number of Option
Shares for which the Option is then being  exercised  (prorated  to the relative
holdings of Option Shares of each Optionor on the date of the Exercise  Notice).
Such Notice shall not be sent until the Optionee has immediately available funds
to pay the Purchase  Price.  Such notice shall be  accompanied  by a copy of the
Stock  Purchase  Agreement  (the form of which is attached  hereto as Exhibit A)
executed by Optionee in connection  with such exercise.  Within two (2) business
days after  delivery to  Optionors of the  Exercise  Notice and  executed  Stock
Purchase  Agreement in accordance with the preceding sentence of this paragraph,
Optionors  shall  execute  and  deliver to  Optionee  counterparts  of the Stock
Purchase  Agreement.  Unless  otherwise  agreed to in  writing by  Optionee  and
Optionors, the closing of the purchase of the Option Shares for which the Option
is then being  exercised  shall be consummated in accordance  with the terms and
conditions of the Stock Purchase Agreement on the third (3rd) business day after
Optionee's  receipt of the  counterparts  of the Stock Purchase  Agreement.  The
parties  acknowledge  that the Option may be  exercised in whole or in parts and
until such time as the Option is exercised in full or the Option Period expires,
the  unexercised  portion of the Option shall remain  outstanding and in effect.
The  parties  agree that upon the  Optionors'  execution  of the Stock  Purchase
Agreement,  Optionors  shall have no right to convert or  Transfer  (as  defined
below)  the Option  Shares to which  such  Exercise  Notice  applies  unless the
Optionee  defaults on such exercise.  In such event,  the Option Shares to which
such Stock Purchase Agreement applied will no longer be subject to the Option.

     3.  Assignment  of  Option.  The Option  and  Optionee's  rights in respect
thereof may, upon written notice to Optionors, be assigned, in whole or in part,
by Optionee in its sole  discretion to one or more third  parties  provided that
upon the exercise of the Option by an assignee  such  assignee  must convert the
Option Shares forthwith at terms no better than those available to Optionors.

     4.  Transfer of Option  Shares.  During the Option  Period,  Optionors  may
redeem, sell, assign,  transfer,  exchange,  gift, devise, pledge,  hypothecate,
encumber or otherwise  alienate or dispose of (each,  a  "Transfer")  any Option
Shares now owned by such  Optionor,  or any right or interest  therein,  whether
voluntarily  or  involuntarily,  by operation of law or  otherwise,  without the
prior  written  consent of Optionee  provided  that any such  Transfer  shall be
subject to this Agreement and the rights of Optionee  hereunder and any party to
whom any Option  Shares,  or any interest  therein,  are  Transferred  (each,  a
"Transferee")  must  agree  in  writing  to all  terms  of the  Option  and this
Agreement.   Notwithstanding  the  foregoing,  subject  to  Section  2  of  this
Agreement,  Optionee  acknowledges  that the  Option is subject to the rights of
Optionors or any  Transferee to exercise  their rights convert the Option Shares
in accordance with the terms and conditions applicable to the Preferred Stock.

     5. Meeting Date Extension. Optionors hereby agree to extend until expiry of
Option Period by which, under the terms of the Purchase Agreement, Optionee must
hold the  Stockholders  Meeting.  In connection  therewith,  Optionors waive all
requirements  that  Optionee  hold the  Stockholders  Meeting prior to expiry of
Option Period,  and all  penalties,  rights and remedies that Optionors may have
under the Purchase Agreement  (including  Section 6.13 thereof),  the Optionee's
Certificate  of  Incorporation,  as  amended,  or  otherwise,  as  a  result  of
Optionee's failure to hold the Stockholders Meeting prior to such date.

                                       2
<PAGE>

     6. Consideration for Option and Meeting Date Extension.

     a.   In consideration of Optionors' grant of the Option, Optionee agrees to
          issue to each  Optionor  warrants  (the form of which is  attached  as
          Exhibit B hereto) to purchase a total of 250,000  shares of Optionee's
          common stock, $.01 par value. Optionee agrees to deliver warrants (the
          "New Warrants") to Optionors (exercisable for 250,000 shares of common
          stock by each Optionor)  within two (2) business days after Optionee's
          receipt of a fully executed  original of this  Agreement.  The parties
          acknowledge  that  warrants to purchase  100,000  shares of Optionee's
          common stock (the "Old  Warrants") have already been delivered to each
          Optionor.  Each  Optionor  agrees to  redeliver  the  originals of the
          100,000 warrants to Optionee for cancellation. Upon receipt of the New
          Warrants,  each  Optionor  will  promptly  deliver to Optionee the Old
          Warrants  marked  cancelled.  The  Optionors  agree that no additional
          warrants  will be issued upon exercise of Option and that the issuance
          of the New  Warrants  shall  be in lieu of any  warrants,  options  or
          similar  rights  to  which  Optionors  are  entitled  pursuant  to the
          Purchase  Agreement,   Optionee's  Certificate  of  Incorporation,  or
          otherwise upon a redemption of the Option Stock.

     b.   In consideration of Optionors' agreeing to Meeting Date Extension, the
          Optionee  agrees  to  increase  the  purchase  price  payable  for the
          purchase of any Option  Shares under  Section 1.2 of a Stock  Purchase
          Agreement  by an  accretion  computed  at the rate of 2.5%  per  month
          starting  from June 15, 2003 to the date on which such  Option  Shares
          are purchased.  Upon issuance of New Warrants,  the Optionors agree to
          waive such  accretion  to  Purchase  Price for period  before June 15,
          2003.

     7.  Litigation and Attorneys'  Fees. If it shall be necessary for any party
to this Agreement to bring suit to enforce any provisions  hereof or for damages
on  account  of any  breach  of this  Agreement,  the  prevailing  party in such
litigation and any appeals therefrom shall be entitled to recover from the other
party,  in addition to any damages or other  relief  granted as a result of such
litigation,  all costs and  expenses  of such  litigation  and their  reasonable
attorneys' and paralegals' fees.

     8. Time of  Essence.  Time is of the essence of this  Agreement  and in the
performance  of all  conditions  and  covenants  to be performed or satisfied by
either party hereto. Waiver of performance or satisfaction of timely performance
or satisfaction of any condition or covenant by one party shall not be deemed to
be a waiver  of the  performance  or  satisfaction  of any  other  condition  or
covenant unless specifically consented to in writing.  Whenever a date specified
herein  shall fall on a  Saturday,  Sunday or legal  holiday,  the date shall be
extended to the next succeeding business day.

     9.  Counterparts.  This  Agreement may be executed in one or more duplicate
counterparts in originals or by facsimile,  each of which, taken together, shall
upon execution by all parties be deemed to be a complete original.

     10. Notices.  All notices and other  communications under this Agreement to
any  party  shall  be in  writing  and  shall be  deemed  given  when  delivered
personally  to that  party,  sent by  facsimile  transmission  (with  electronic
confirmation)  to that  party at the  facsimile  number for that party set forth
below,  mailed by certified mail (postage prepaid and return receipt  requested)
to that party at the address for that party set forth  below,  or  delivered  by
Federal  Express or any similar  express  delivery  service for delivery to that
party at that address:

                                       3
<PAGE>

     (a)  If to Optionee:

          Galaxy Nutritional Foods, Inc.
          2441 Viscount Row
          Orlando, Florida 32809
          Phone:  (407) 855-5500; Fax: (407) 855-1099
          Attention:  Christopher New

     (b)  If to Optionors:

          Excalibur Limited Partnership
          33 Prince Arthur Avenue
          Toronto, Ontario, Canada M5R 1B2
          Phone: (416) 964 9077; Fax: (416) 964 8868
          Attention:  William Hechter

          And

          BH Capital Investments, L.P.
          175 Bloor Street East
          South Tower, 7th Floor
          Toronto, Ontario, Canada M4W 3R8
          Phone:  (416) 929 1626; Fax:  (416 929 5314
          Attention:  Henry Brachfeld

     Any party may change its facsimile number or address for notices under this
Agreement at any time by giving the other parties notice of such change.

     11.  Governing Law. This Agreement  shall be governed by and interpreted in
accordance  with  the  laws of the  State  of  Delaware  without  regard  to the
principles of conflict of laws.

     12.  Binding  Effect.  This Agreement  shall be binding upon,  inure to the
benefit of and be  enforceable  by and against the parties and their  respective
successors, and assigns.

     13.  Entire  Agreement.  This  Agreement and the Stock  Purchase  Agreement
constitutes the entire  agreement,  and supersedes all prior or  contemporaneous
discussions, negotiations, agreements and understandings (both written and oral)
among the parties with respect to the subject matter hereof and thereof.

                         [Signatures on Following Page]

                                       4
<PAGE>

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

                                        "OPTIONORS"

                                        EXCALIBUR LIMITED PARTNERSHIP

                                        By: Excalibur Capital Management, Inc.

                                        By: /s/ William Hechter
                                            ---------------------------
                                            William Hechter, President

                                        BH CAPITAL INVESTMENTS, L.P.

                                        By: BH and Co., Inc.

                                        By: /s/ Henry Brachfeld
                                            ---------------------------
                                            Henry Brachfeld, President

                                        "OPTIONEE"

                                        GALAXY NUTRITIONAL FOODS, INC.

                                        By: /s/ Christopher J. New
                                            ---------------------------
                                            Christopher New, Chief Executive
                                            Officer

                                       5
<PAGE>

                                    EXHIBIT A

                            STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE  AGREEMENT (this  "Agreement") is made and entered into
as of the ____  day of  _____________,  2003,  among  ____________________  (the
"Purchaser")  located  at   _____________________________________,   BH  CAPITAL
INVESTMENTS,  L.P.,  located at 175 Bloor Street East,  South Tower,  7th Floor,
Toronto,   Ontario,  Canada  M4W  3R8  ("BH  Capital"),  and  EXCALIBUR  LIMITED
PARTNERSHIP,  located at 33 Prince Arthur Avenue,  Toronto,  Ontario, Canada M5R
IB2  ("Excalibur").  BH  Capital  and  Excalibur  are  hereinafter  collectively
referred to as the "Sellers."

                             PRELIMINARY STATEMENTS

     1. Each of BH Capital and  Excalibur is the owner of shares of the Series A
convertible  preferred stock,  par value $0.01 per share, of Galaxy  Nutritional
Foods, Inc., a Delaware corporation (the "Preferred Stock").

     2.  Upon  the  terms  and  subject  to the  conditions  set  forth  in this
Agreement,  BH Capital  desires that the Purchaser  purchase,  and the Purchaser
desires to purchase,  shares of the Preferred Stock owned by BH Capital (the "BH
Capital Shares").

     3.  Upon  the  terms  and  subject  to the  conditions  set  forth  in this
Agreement,  Excalibur  desires that the  Purchaser  purchase,  and the Purchaser
desires to  purchase,  shares of the  Preferred  Stock owned by  Excalibur  (the
"Excalibur  Shares")  The  BH  Capital  Shares  and  the  Excalibur  Shares  are
hereinafter collectively referred to as the "Shares."

     NOW,  THEREFORE,  in  consideration  of the premises and the  covenants and
promises herein contained, the Purchaser and Sellers hereby agree as follows:

                                    ARTICLE I
                                    ---------

                               PURCHASE OF SHARES
                               ------------------

     SECTION  1.1.  PURCHASE  OF  SHARES.  Upon the  terms  and  subject  to the
conditions set forth herein, Sellers hereby agree to sell, assign,  transfer and
deliver to the  Purchaser,  and the  Purchaser  hereby  agrees to purchase  from
Sellers,  all of the Shares on the  Closing  Date (as  defined  in  Section  1.3
hereof) for the purchase  price set forth in Section 1.2 hereof.  On the Closing
Date,  Sellers  shall  deliver or cause to be  delivered  to the  Purchaser  the
certificates representing the Shares,  accompanied by duly executed stock powers
in favor of the Purchaser.  The Purchaser  agrees to cancel (if the Purchaser is
Galaxy  Nutritional  Foods,  Inc.) or convert all Shares  forthwith  at terms no
favorable than those available to the Sellers.

     SECTION 1.2.  PURCHASE PRICE. The purchase price for each Share shall be an
amount per share equal to $50.589,  plus  accretion as specified in Section 7(b)
of the Option Agreement plus all accrued dividends that are then unpaid for each
Share.  The  purchase  price  shall be paid to the Sellers at Closing in cash by
wire  transfer  of  immediately  available  funds,  or  by  certified  check  if
available, and if not available then by cashiers check or official bank check

<PAGE>

     SECTION  1.3.  TIME AND PLACE OF CLOSING.  The  closing of the  transaction
contemplated  by  this  Agreement  (the  "Closing")   shall  be  consummated  on
__________  , 2003,  or such other date agreed to in writing by the parties (the
"Closing  Date").  The  Closing  shall  take  place  at the  offices  of Baker &
Hostetler LLP, 200 S. Orange Ave.,  Suite 2300,  Orlando,  FL 32801,  or at such
other place as may be agreed upon in writing by the parties.

                                   ARTICLE II
                                   ----------

                    REPRESENTATIONS AND WARRANTIES OF SELLERS
                    -----------------------------------------

     SECTION 2.1. BH CAPITAL.  BH Capital hereby  represents and warrants to the
Purchaser, for the benefit of the Purchaser, that:

          (a) It has all the  necessary  power and  authority  to enter into and
perform its obligations under this Agreement,  and this Agreement  constitutes a
legal, valid and binding agreement of BH Capital, enforceable against BH Capital
in accordance with its terms.

          (b) It owns  beneficially  and of record the BH Capital Shares and has
the full and unrestricted right and power to sell, assign,  transfer and deliver
the same to the Purchaser in accordance with this  Agreement,  free and clear of
all liens, security interests,  encumbrances,  pledges, charges, claims, rights,
options, voting trusts and restrictions on transfer of any nature whatsoever.

     SECTION 2.2.  EXCALIBUR.  Excalibur  hereby  represents and warrants to the
Purchaser, for the benefit of the Purchaser, that:

          (a) It has all the  necessary  power and  authority  to enter into and
perform its obligations under this Agreement,  and this Agreement  constitutes a
legal, valid and binding agreement of Excalibur,  enforceable  against Excalibur
in accordance with its terms.

          (b) It owns  beneficially  and of record the Excalibur  Shares and has
the full and unrestricted right and power to sell, assign,  transfer and deliver
the same to the Purchaser in accordance with this  Agreement,  free and clear of
all liens, security interests,  encumbrances,  pledges, charges, claims, rights,
options, voting trusts and restrictions on transfer of any nature whatsoever.

                                   ARTICLE III
                                   -----------

                              CONDITIONS TO CLOSING
                              ---------------------

     SECTION 3.1. CONDITIONS TO CLOSING.

          (a) The  obligation of the Purchaser to  consummate  the  transactions
contemplated by this Agreement shall be subject to the occurrence of each of the
following  events  contemporaneously  with  or  prior  to  the  Closing  of  the
transaction contemplated by this Agreement:

               (i) Sellers shall have delivered or caused to be delivered to the
Purchaser, the original stock certificates for the Shares referred to in Section
1.1 of this  Agreement,  accompanied by duly executed stock powers in accordance
with said Section 1.1.

<PAGE>

               (ii)  Sellers  shall  have  delivered  such  other  documents  or
instruments  required  under this Agreement or as may be necessary or reasonably
requested by the Purchaser to effectuate the purposes  hereof and consummate the
transactions contemplated hereby.

          (b)  The  obligations  of  each  of  the  Sellers  to  consummate  the
transactions  contemplated by this Agreement shall be subject to the Purchaser's
delivery of the  purchase  price for the Shares  pursuant to Section 1.2 of this
Agreement and Purchaser  converting all Shares forthwith at terms no better than
those available to Sellers.

                                   ARTICLE IV
                                   ----------

                                    SURVIVAL
                                    --------

     SECTION 4.1 SURVIVAL. The representations, warranties and covenants made by
each Seller and in each instrument,  agreement and certificate  entered into and
delivered by them pursuant to this Agreement,  shall survive the Closing and the
consummation of the transactions  contemplated  hereby. In the event of a breach
or  violation by either  Seller of any of such  representations,  warranties  or
covenants,  the Purchaser  shall have all rights and remedies for such breach or
violation  available to it under the provisions of this Agreement and in law and
equity,  irrespective of any investigation made by or on behalf of the Purchaser
on or prior to the Closing Date.

                                    ARTICLE V
                                    ---------

                            MISCELLANEOUS PROVISIONS
                            ------------------------

     SECTION 5.1. ENTIRE AGREEMENT.  This Agreement  (including the documents or
portions of  documents  incorporated  herein by  reference)  embodies the entire
agreement and  understanding  of the parties  hereto with respect to the subject
matter  hereof  and  supersedes  all prior and  contemporaneous  agreements  and
understandings, oral or written, relative to said subject matter.

     SECTION 5.2.  BINDING  EFFECT;  ASSIGNMENT.  This Agreement and the various
rights and  obligations  arising  hereunder shall inure to the benefit of and be
binding upon the parties  hereto and their  respective  successors  and assigns.
Neither this Agreement nor any of the rights of any party hereto may be assigned
without the prior written consent of each other party.

     SECTION 5.3. AMENDMENT; WAIVER. This Agreement may not be changed, amended,
terminated,  augmented,  rescinded or discharged (other than by performance), in
whole or in part,  except by a writing executed by the parties hereto. No waiver
of any of the provisions or conditions of this Agreement or any of the rights of
a party  hereto  shall be  effective  or binding  unless such waiver shall be in
writing and signed by the party claimed to have given or consented thereto.

     SECTION 5.4. OTHER  DOCUMENTS;  MISCELLANEOUS.  The parties shall,  in good
faith,  either  before or after the  Closing,  execute  such other  instruments,
assignments or documents as may be necessary or appropriate for the consummation
of the  transactions  contemplated  by  this  Agreement  provided  that  no such
additional  instrument,  assignment,  or  document  shall  increase or modify in
material fashion the obligations of any party under this Agreement. Whenever the
context  requires,  words used in the singular shall be construed to include the
plural and vice versa.  The Article and Section  headings of this  Agreement are
inserted for convenience  only and shall not constitute a part of this Agreement
in construing or interpreting any provision hereof.

<PAGE>

     SECTION  5.5.  GOVERNING  LAW.  This  Agreement  shall in all  respects  be
construed  with and  governed  by the laws of the  State  of  Delaware,  without
reference to principles of conflict of laws.

     SECTION  5.6  NOTICES.  All  notices  and other  communications  under this
Agreement  to any party  shall be in  writing  and shall be  deemed  given  when
delivered  personally  to that  party,  sent  by  facsimile  transmission  (with
electronic  confirmation)  to that party at the facsimile  number for that party
set forth below,  mailed by certified  mail (postage  prepaid and return receipt
requested)  to that  party at the  address  for that party set forth  below,  or
delivered  by Federal  Express  or any  similar  express  delivery  service  for
delivery to that party at that address:

     (a)  If to the Purchaser:

          _______________________

          _______________________

          _______________________

          Phone:  (___) ________; Fax: (___) __________
          Attention:

     (b)  If to Sellers:

          Excalibur Limited Partnership
          33 Prince Arthur Avenue
          Toronto, Ontario, Canada M5R 1B2
          Phone:  (416) 964 9077; Fax: (416) 964 8868
          Attention:  William Hechter

          And

          BH Capital Investments, L.P.
          175 Bloor Street East
          South Tower, 7th Floor
          Toronto, Ontario, Canada M4W 3R8
          Phone:  (416) 929 1626; Fax:  (416) 929 5314
          Attention:  Henry Brachfeld

          Any party may change its facsimile number or address for notices under
this Agreement at any time by giving the other parties notice of such change.

     SECTION 5.7 LITIGATION  AND  ATTORNEYS'  FEES. If it shall be necessary for
any party to this  Agreement to bring suit to enforce any  provisions  hereof or
for damages on account of any breach of this Agreement,  the prevailing party in
such litigation and any appeals  therefrom shall be entitled to recover from the
other party,  in addition to any damages or other relief  granted as a result of
such litigation,  all costs and expenses of such litigation and their reasonable
attorneys' and paralegals' fees.

     SECTION 5.8 PRELIMINARY STATEMENTS. The preliminary statements and preamble
contained in this Agreement are hereby made a part of this Agreement.

                         [Signatures on Following Page]

<PAGE>

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

                                       "PURCHASER"

                                       ___________________________________

                                       By: _______________________________

                                       Name: _____________________________
                                       As its: ___________________________

                                       "BH CAPITAL"

                                       BH CAPITAL INVESTMENTS, L.P.

                                       By: HB and Co., Inc., its General Partner

                                       By: _______________________________
                                           Henry Brachfeld
                                           President

                                       "EXCALIBUR"

                                       EXCALIBUR LIMITED PARTNERSHIP

                                       By: Excalibur Capital Management, Inc.,
                                       its General Partner

                                       By: _______________________________
                                           William Hechter
                                           President

<PAGE>

                                    EXHIBIT B

NEITHER  THIS WARRANT NOR THE SHARES  ISSUABLE  UPON  EXERCISE  HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT")
OR ANY OTHER  APPLICABLE  SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
REGISTRATION  REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS WARRANT NOR THE SHARES  ISSUABLE UPON EXERCISE  HEREOF MAY BE SOLD,
PLEDGED,  TRANSFERRED,  ENCUMBERED OR OTHERWISE  DISPOSED OF EXCEPT  PURSUANT TO
REGULATION S OF THE SECURITIES  ACT, AN EFFECTIVE  REGISTRATION  STATEMENT UNDER
THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM  REGISTRATION  UNDER
THE  PROVISIONS  OF THE  SECURITIES  ACT,  SUPPORTED  IN EACH CASE  (OTHER  THAN
PURSUANT TO A REGISTRATION STATEMENT) BY AN OPINION OF COUNSEL.

                             STOCK PURCHASE WARRANT

                  To Purchase 250,000 Shares of Common Stock of

                         GALAXY NUTRITIONAL FOODS, INC.

     THIS CERTIFIES that, for value received,  ___________________________  (the
"Holder"), is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time on or after the date hereof (the "Initial Exercise Date")
and on or prior to the close of  business  on July 15,  2006  (the  "Termination
Date"),  but  not  thereafter,   to  subscribe  for  and  purchase  from  Galaxy
Nutritional Foods, Inc., a corporation incorporated in Delaware (the "Company"),
two hundred and fifty thousand (250,000) shares (the "Warrant Shares") of Common
Stock,  $0.01 par value,  of the Company  (the  "Common  Stock").  The per share
purchase price of the Warrant Shares (the "Exercise Price") shall be $2.00.

     1.  Title  to  Warrant.  Prior  to the  Termination  Date  and  subject  to
compliance  with  applicable  laws,  this Warrant and all rights  hereunder  are
transferable, in whole or in part, at the office or agency of the Company by the
Holder hereof in person or by duly authorized  attorney,  upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed.

     2. Authorization of Shares. The Company covenants that all shares of Common
Stock  which may be issued  upon the  exercise  of  rights  represented  by this
Warrant will, upon exercise of the rights  represented by this Warrant,  be duly
authorized,  validly  issued,  fully  paid and  nonassessable  and free from all
taxes,  liens and charges in respect of the issue  thereof  (other than taxes in
respect of any transfer occurring contemporaneously with such issue).

     3. Exercise of Warrant. Except as provided in Section 4 herein, exercise of
the purchase rights represented by this Warrant may be made at any time or times
on or after the Initial  Exercise  Date, and before the close of business on the
Termination  Date by the  surrender  of this  Warrant and the Notice of Exercise
Form annexed hereto duly  executed,  at the office of the Company (or such other
office or agency of the Company as it may  designate by notice in writing to the
registered Holder hereof at the address of such Holder appearing on the books of
the Company) and upon payment of the Exercise Price

<PAGE>

of the shares thereby  purchased by wire transfer or cashier's  check drawn on a
United  States bank,  the Holder of this Warrant  shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased.  This Warrant
may also be exercised  in whole or in part by means of a "cashless  exercise" by
tendering  this  Warrant to the  Company to receive a number of shares of Common
Stock equal in Market  Value to the  difference  between the Market Value of the
shares of Common Stock issuable upon such exercise of this Warrant and the total
cash exercise price of that part of the Warrant being exercised.  "Market Value"
for this purpose  shall be the closing  price of the Common Stock as reported by
Bloomberg L.P. on the date of such cashless  exercise.  Certificates  for shares
purchased  hereunder  shall be  delivered to the Holder  hereof  within four (4)
Trading Days after the date on which this Warrant  shall have been  exercised as
aforesaid.  This  Warrant  shall  be  deemed  to have  been  exercised  and such
certificate or certificates  shall be deemed to have been issued, and the Holder
or any other person so  designated  to be named  therein shall be deemed to have
become a the Holder of record of such  shares for all  purposes,  as of the date
the Warrant has been  exercised by payment to the Company of the Exercise  Price
and all taxes required to be paid by the Holder,  if any,  pursuant to Section 5
prior to the issuance of such shares, have been paid. If this Warrant shall have
been  exercised  in part,  the  Company  shall,  at the time of  delivery of the
certificate or  certificates  representing  the Warrant  Shares,  deliver to the
Holder a new  Warrant  evidencing  the  rights  of the  Holder to  purchase  the
unpurchased shares of Common Stock called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant.

     4.  No  Fractional   Shares  or  Scrip.  No  fractional   shares  or  scrip
representing  fractional  shares  shall  be  issued  upon the  exercise  of this
Warrant.  As to any  fraction of a share  which the Holder  would  otherwise  be
entitled to purchase upon such exercise, the Company shall pay a cash adjustment
in respect of such final fraction in an amount equal to the Exercise Price.

     5. Charges,  Taxes and  Expenses.  Issuance of  certificates  for shares of
Common Stock upon the exercise of this Warrant  shall be made without  charge to
the Holder hereof for any issue or transfer tax or other  incidental  expense in
respect of the  issuance of such  certificate,  all of which taxes and  expenses
shall be paid by the Company,  and such certificates shall be issued in the name
of the Holder of this Warrant or in such name or names as may be directed by the
Holder of this Warrant;  provided,  however,  that in the event certificates for
shares of Common  Stock  are to be issued in a name  other  than the name of the
Holder of this  Warrant,  this Warrant when  surrendered  for exercise  shall be
accompanied by the Assignment  Form attached  hereto duly executed by the Holder
hereof; and the Company may require,  as a condition  thereto,  the payment of a
sum sufficient to reimburse it for any transfer tax incidental thereto.

     6.  Further  Assurances.  The  Company  will  take all  action  that may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and  nonassessable  shares of stock,  free from all taxes,  liens and
charges with respect to the issue thereof, on the exercise of all or any portion
of this Warrant from time to time outstanding.

     7. Transfer, Division and Combination.

          (a)  Subject  to  compliance  with  any  applicable  securities  laws,
transfer of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained  for such purpose,  upon
surrender of this Warrant at the principal office of the Company,  together with
a written  assignment of this Warrant  substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required,  such  payment,  the Company  shall  execute and deliver a new
Warrant  or  Warrants  in the  name  of the  assignee  or  assignees  and in the
denomination or  denominations  specified in such instrument of assignment,  and
shall issue to the assignor a new

<PAGE>

Warrant evidencing the portion of this Warrant not so assigned, and this Warrant
shall promptly be cancelled.  A Warrant, if properly assigned,  may be exercised
by a new Holder for the purchase of shares of Common Stock without  having a new
Warrant issued.

          (b) This Warrant may be divided or combined  with other  Warrants upon
presentation  hereof at the  aforesaid  office of the Company,  together  with a
written notice  specifying the names and denominations in which new Warrants are
to be  issued,  signed  by the  Holder  or its  agent or  attorney.  Subject  to
compliance  with Section 7(a), as to any transfer  which may be involved in such
division or combination,  the Company shall execute and deliver a new Warrant or
Warrants  in  exchange  for the Warrant or Warrants to be divided or combined in
accordance with such notice.

          (c) The Company  shall  prepare,  issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section 7.

          (d) The Company agrees to maintain, at its aforesaid office, books for
the registration and the registration of transfer of the Warrants.

     8. No Rights as Stockholder  until Exercise.  This Warrant does not entitle
the Holder hereof to any voting  rights or other rights as a stockholder  of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate  Exercise Price,  the Warrant Shares so purchased shall
be and be deemed to be issued to such Holder as the record  owner of such shares
as of the  close of  business  on the  later of the  date of such  surrender  or
payment.

     9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence  reasonably  satisfactory  to it of
the loss,  theft,  destruction or mutilation of this Warrant  certificate or any
stock certificate  relating to the Warrant Shares, and in case of loss, theft or
destruction,  of indemnity or security  reasonably  satisfactory to it, and upon
surrender and cancellation of such Warrant or stock  certificate,  if mutilated,
the Company  will make and deliver a new  Warrant or stock  certificate  of like
tenor  and  dated  as of such  cancellation,  in lieu of such  Warrant  or stock
certificate.

     10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the  expiration of any right  required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.

     11. Adjustments of Exercise Price and Number of Warrant Shares.

          (a) Stock Splits,  etc. The number and kind of securities  purchasable
upon the  exercise of this  Warrant and payment of the  Exercise  Price shall be
subject  to  adjustment  from  time to time  upon  the  happening  of any of the
following.  In case the  Company  shall (i) pay a  dividend  in shares of Common
Stock or make a  distribution  in shares of Common  Stock to the  Holders of its
outstanding  Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares of Common Stock,  (iii) combine its  outstanding
shares of Common  Stock into a smaller  number of shares of Common Stock or (iv)
issue any shares of its capital stock in a reclassification of the Common Stock,
then the number of Warrant  Shares  purchasable  upon  exercise of this  Warrant
immediately  prior  thereto shall be adjusted so that the Holder of this Warrant
shall be  entitled  to receive  the kind and  number of Warrant  Shares or other
securities  of the  Company  which he would have owned or have been  entitled to
receive had such  Warrant  been  exercised  in advance  thereof.  Upon each such
adjustment of the kind and number of Warrant  Shares or other  securities of the
Company which are purchasable hereunder, the

<PAGE>

Holder of this Warrant  shall  thereafter  be entitled to purchase the number of
Warrant Shares or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security  obtained by multiplying  the Exercise
Price in effect  immediately  prior to such  adjustment by the number of Warrant
Shares  purchasable  pursuant  hereto  immediately  prior to such adjustment and
dividing  by the number of Warrant  Shares or other  securities  of the  Company
resulting from such  adjustment.  An adjustment  made pursuant to this paragraph
shall  become  effective  immediately  after the  effective  date of such  event
retroactive to the record date, if any, for such event.

          (b)  Reorganization,   Reclassification,   Merger,   Consolidation  or
Disposition  of  Assets.  In case the  Company  shall  reorganize  its  capital,
reclassify  its  capital  stock,  consolidate  or  merge  with or  into  another
corporation  (where the Company is not the surviving  corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business  to another  corporation  and,  pursuant to the terms of such
reorganization,   reclassification,  merger,  consolidation  or  disposition  of
assets, shares of common stock of the successor or acquiring corporation, or any
cash,  shares of stock or other securities or property of any nature  whatsoever
(including  warrants or other subscription or purchase rights) in addition to or
in lieu of  common  stock of the  successor  or  acquiring  corporation  ("Other
Property"),  are to be received by or distributed to the holders of Common Stock
of the Company, then the Holder shall have the right thereafter to receive, upon
exercise of this Warrant,  the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving  corporation,
and  Other  Property  receivable  upon or as a  result  of such  reorganization,
reclassification,  merger, consolidation or disposition of assets by a holder of
the  number of shares of Common  Stock for which  this  Warrant  is  exercisable
immediately   prior  to  such  event.  In  case  of  any  such   reorganization,
reclassification,  merger, consolidation or disposition of assets, the successor
or acquiring  corporation (if other than the Company) shall expressly  assume in
writing  or by  by  operation  of  law  the  due  and  punctual  observance  and
performance  of each and every  covenant  and  condition  of this  Warrant to be
performed and observed by the Company and all the  obligations  and  liabilities
hereunder,  subject  to such  modifications  as may be  deemed  appropriate  (as
determined in good faith by resolution of the Board of Directors of the Company)
in order to provide  for  adjustments  of shares of Common  Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to the
adjustments  provided  for in this  Section 11. For purposes of this Section 11,
"common stock of the successor or acquiring  corporation" shall include stock of
such  corporation  of any class which is not preferred as to dividends or assets
over any other  class of stock of such  corporation  and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other  securities  which are convertible  into or  exchangeable  for any such
stock,  either  immediately  or upon  the  arrival  of a  specified  date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock.  The  foregoing  provisions of this Section 11 shall
similarly  apply  to  successive  reorganizations,  reclassifications,  mergers,
consolidations or disposition of assets.

     12. Voluntary Adjustment by the Company. The Company may at any time during
the term of this Warrant,  reduce the then current  Exercise Price to any amount
and for any period of time deemed  appropriate  by the Board of Directors of the
Company.

     13. Notice of  Adjustment.  Whenever the number of Warrant Shares or number
or kind of securities or other  property  purchasable  upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested,  to the
Holder of this Warrant notice of such  adjustment or  adjustments  setting forth
the number of Warrant Shares (and Other Property)  purchasable upon the exercise
of this  Warrant  and the  Exercise  Price of such  Warrant  Shares  (and  Other
Property)  after such  adjustment,  setting forth a brief statement of the facts
requiring  such  adjustment  and  setting  forth the  computation  by which such
adjustment was made. Such notice, in the absence of manifest error, shall be

<PAGE>

conclusive evidence of the correctness of such adjustment.

     14. Registration.  If at any time the Company proposes to file with the SEC
a  Registration  Statement  relating to an  offering  for its own account or the
account of others under the 1933 Act of any of its  securities the Company shall
include in such  Registration  Statement  all or any part of the Warrant  Shares
then  outstanding,  provided  that in any event,  the  Company  shall  cause the
Warrant Shares to be registered for resale no later than December 31, 2003.

     15. Notice of Corporate Action. If at any time:

          (a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling  them to receive a dividend or other  distribution,
or any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property,  or to receive
any other right; or

          (b) there  shall be any capital  reorganization  of the  Company,  any
reclassification  or recapitalization of the capital stock of the Company or any
consolidation  or merger of the  Company  with,  or any sale,  transfer or other
disposition of all or substantially all the property,  assets or business of the
Company to, another corporation; or

          (c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;

then, in any one or more of such cases, the Company shall give to the Holder (i)
at least 30 days' prior written  notice of the date on which a record date shall
be selected for such dividend,  distribution or right or for determining  rights
to  vote  in  respect  of any  such  reorganization,  reclassification,  merger,
consolidation, sale, transfer, disposition,  liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 30
days'  prior  written  notice of the date when the same shall take  place.  Such
notice in accordance  with the foregoing  clause also shall specify (x) the date
on which  any such  record  is to be taken  for the  purpose  of such  dividend,
distribution  or right,  the date on which the holders of Common  Stock shall be
entitled  to any such  dividend,  distribution  or  right,  and the  amount  and
character  thereof,   and  (y)  the  date  on  which  any  such  reorganization,
reclassification,    merger,   consolidation,   sale,   transfer,   disposition,
dissolution,  liquidation  or winding  up is to take place and the time,  if any
such  time is to be fixed,  as of which the  holders  of Common  Stock  shall be
entitled  to  exchange  their  shares of Common  Stock for  securities  or Other
Property deliverable upon such disposition,  dissolution, liquidation or winding
up. Each such  written  notice shall be  sufficiently  given if addressed to the
Holder at the last  address of the Holder  appearing on the books of the Company
and delivered in accordance with Section 16(d).

     16. Authorized Shares.

          (a) The  Company  covenants  that  during the  period  the  Warrant is
outstanding,  it will reserve from its  authorized  and unissued  Common Stock a
sufficient  number of shares to provide for the  issuance of the Warrant  Shares
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall  constitute  full authority to
its officers who are charged with the duty of executing  stock  certificates  to
execute and issue the  necessary  certificates  for the Warrant  Shares upon the
exercise of the purchase  rights under this  Warrant.  The Company will take all
such  reasonable  action as may be necessary to assure that such Warrant  Shares
may be issued as provided  herein  without  violation of any  applicable  law or
regulation, or of any requirements of the Principal Market upon which the Common
Stock may be listed.

          (b)  The  Company  shall  not  by  any  action,   including,   without
limitation,   amending  its   certificate  of   incorporation   or  through  any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities  or any other  voluntary  action,  avoid or seek to avoid the
observance or performance  of any of the terms of this Warrant,  but will at all
times in good  faith  assist in the  carrying  out of all such  terms and in the
taking of all such  actions as may be necessary  or  appropriate  to protect the
rights of the Holder against impairment.  Without limiting the generality of the
foregoing,  the  Company  will (i) not  increase  the par value of any shares of
Common  Stock  receivable  upon the  exercise of this  Warrant  above the amount
payable  therefor upon such exercise  immediately  prior to such increase in par
value,  (ii) take all such action as may be  necessary or  appropriate  in order
that the Company may  validly  and  legally  issue fully paid and  nonassessable
shares of Common Stock upon the exercise of this Warrant, and (iii) use its best
efforts to obtain  all such  authorizations,  exemptions  or  consents  from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.

          (c) Upon the request of the the Holder,  the Company  will at any time
during the period this Warrant is outstanding  acknowledge  in writing,  in form
reasonably  satisfactory to the Holder, the continuing  validity of this Warrant
and the obligations of the Company hereunder.

          (d) Before taking any action which would cause an adjustment  reducing
the current  Exercise  Price below the then par value,  if any, of the shares of
Common Stock issuable upon exercise of the Warrants,  the Company shall take any
corporate  action  which may be  necessary in order that the Company may validly
and legally issue fully paid and  non-assessable  shares of such Common Stock at
such adjusted Exercise Price.

          (e) Before  taking any action which would result in an  adjustment  in
the number of shares of Common Stock for which this Warrant is exercisable or in
the  Exercise  Price,  the  Company  shall  obtain  all such  authorizations  or
exemptions  thereof,  or consents  thereto,  as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.

     17. Miscellaneous.

          (a) Jurisdiction. This Warrant shall be binding upon any successors or
assigns of the Company.  This Warrant shall constitute a contract under the laws
of Delaware  without regard to its conflict of law  principles or rules,  and be
subject to arbitration  pursuant to the terms set forth in that certain Series A
Preferred Stock and Warrants  Purchase  Agreement  effective as of April 6, 2001
among the Company,  Excalibur  Limited  Partnership and BH Capital  Investments,
L.P. (the "Purchase Agreement")

<PAGE>

          (b)  Restrictions.  The Holder  hereof  acknowledges  that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered,  will have
restrictions upon resale imposed by state and federal securities laws.

          (c)  Nonwaiver  and  Expenses.  No course of  dealing  or any delay or
failure to exercise any right  hereunder on the part of the Holder shall operate
as a waiver of such right or otherwise prejudice the Holder's rights,  powers or
remedies,  notwithstanding  all rights  hereunder  terminate on the  Termination
Date. If the Company  fails to comply with any  provision of this  Warrant,  the
Company shall pay to the Holder such amounts as shall be sufficient to cover any
costs and expenses  including,  but not limited to, reasonable  attorneys' fees,
including those of appellate  proceedings,  incurred by the Holder in collecting
any amounts due  pursuant  hereto or in otherwise  enforcing  any of its rights,
powers or remedies hereunder.

          (d)  Notices.  Any  notice,  request  or other  document  required  or
permitted to be given or delivered to the Holder  hereof by the Company shall be
delivered in accordance with the notice provisions of the Purchase Agreement.

          (e) Limitation of Liability.  No provision  hereof,  in the absence of
affirmative  action by the Holder to  purchase  shares of Common  Stock,  and no
enumeration herein of the rights or privileges of the Holder hereof,  shall give
rise to any  liability of the Holder for the purchase  price of any Common Stock
or as a stockholder  of the Company,  whether such  liability is asserted by the
Company or by creditors of the Company.

          (f) Remedies.  The Holder,  in addition to being  entitled to exercise
all rights granted by law,  including  recovery of damages,  will be entitled to
specific  performance of its rights under this Warrant.  The Company agrees that
monetary  damages  would not be adequate  compensation  for any loss incurred by
reason of a breach by it of the  provisions of this Warrant and hereby agrees to
waive the defense in any action for  specific  performance  that a remedy at law
would be adequate.

          (g) Successors  and Assigns.  Subject to applicable  securities  laws,
this Warrant and the rights and obligations  evidenced hereby shall inure to the
benefit of and be binding upon the  successors of the Company and the successors
and permitted assigns of the Holder. The provisions of this Warrant are intended
to be for the benefit of all holders from time to time of this Warrant and shall
be enforceable by any such Holder or holder of Warrant Shares.

          (h) Indemnification. The Company agrees to indemnify and hold harmless
the Holder from and  against  any  liabilities,  obligations,  losses,  damages,
penalties, actions, judgments, suits, claims, costs, reasonable attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by or
asserted  against  the Holder in any manner  relating  to or arising  out of any
failure by the Company to perform or observe in any material  respect any of its
covenants,  agreements,  undertakings  or obligations set forth in this Warrant;
provided,  however,  that the Company will not be liable hereunder to the extent
that  any  liabilities,   obligations,   losses,  damages,  penalties,  actions,
judgments,  suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final  non-appealable  judgment by a court to have  resulted from the
Holder's bad faith or willful  misconduct  in its capacity as a  stockholder  or
warrantholder of the Company.

          (i)  Amendment.  This  Warrant  may  be  modified  or  amended  or the
provisions hereof waived with the written consent of the Company and the Holder.

<PAGE>

          (j) Severability.  Wherever  possible,  each provision of this Warrant
shall  be  interpreted  in  such  manner  as to be  effective  and  valid  under
applicable  law, but if any  provision of this Warrant shall be prohibited by or
invalid under  applicable law, such provision shall be ineffective to the extent
of such  prohibition or invalidity,  without  invalidating the remainder of such
provisions or the remaining provisions of this Warrant.

          (k)  Headings.   The  headings  used  in  this  Warrant  are  for  the
convenience of reference  only and shall not, for any purpose,  be deemed a part
of this Warrant.

     IN WITNESS  WHEREOF,  the Company has caused this Stock Purchase Warrant to
be executed by its officer thereunto duly authorized.

Dated:  April __, 2003

                                        GALAXY NUTRITIONAL FOODS, INC.

                                        By: _____________________________
                                        Name: ___________________________
                                        Title: __________________________

<PAGE>

NOTICE OF EXERCISE

To: [Transfer Agent]

          (1) The  undersigned  hereby  elects to  purchase  ________  shares of
Common  Stock (the "Common  Stock"),  of Galaxy  Nutritional  Foods,  Inc.  (the
"Company")  pursuant to the terms of the attached Warrant,  and (check one:) [ ]
tenders  herewith  payment  of the  exercise  price in full OR [ ]  tenders  the
Warrant for cashless exercise,  together with all applicable  transfer taxes, if
any.

          (2) Calculation of cashless exercise value, if applicable:

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

          (3)  The  undersigned  hereby  restates  and  confirms  the  continued
accuracy of the investment  representations  made by the Investors under Article
III of the  Series A  Preferred  Stock and  Warrants  Purchase  Agreement  dated
effective  April 6, 2001 by and between the Company and the Investors  signatory
thereto, as applicable to the undersigned on the date hereof.

          (4) Please  issue a  certificate  or  certificates  representing  said
shares of Common Stock in the name of the  undersigned  or in such other name as
is specified below:

                                          _______________________________
                                          (Name)

                                          _______________________________
                                          (Address)

                                          _______________________________

Dated: _____________________, _____

                                         _______________________________________
                                                      Signature

<PAGE>

                                    EXHIBIT A

ASSIGNMENT FORM

             (To assign the foregoing Warrant, execute this form and
              supply required information. Do not use this form to
                             exercise the Warrant.)

          FOR VALUE  RECEIVED,  the foregoing  Warrant and all rights  evidenced
thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________

_______________________________________________________________

                                                 Dated:  ______________, _______

                              Holder's Signature:  _____________________________

                              Holder's Address:    _____________________________

                                                   _____________________________

Signature Guaranteed:  ___________________________________________

Any assignee  receiving this Warrant in a non-public resale  transaction must be
an accredited investor as that term is defined under the Securities act of 1933,
as amended, and the rules and regulations promulgated thereunder.

NOTE: The signature to this  Assignment Form must correspond with the name as it
appears on the face of the Warrant,  without  alteration or  enlargement  or any
change whatsoever,  and must be guaranteed by a bank or trust company.  Officers
of  corporations  and  those  acting  in an  fiduciary  or other  representative
capacity  should  file  proper  evidence of  authority  to assign the  foregoing
Warrant.

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