Document:

EXHIBIT 10.54

                                               EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 2nd day of July, 2004,
as if executed on the 1st day of July, 2004 ("Execution Date") by and between
GelStat Corporation, a Minnesota Company with its principal office at 1650 West
82nd Street, Suite 1200, Bloomington, Minnesota ("Company"), and Nicholas Bluhm,
an individual presently residing at _________________ ("Bluhm").

WITNESSETH:

WHEREAS, the Company continues to find itself in a period of rapid growth, which
growth requires additional financial and operational management, including the
development and implementation of financial models, financial controls, and
management of the business on a day to day basis, and which growth has created
the need for an additional executive with strong operating capability, financial
expertise and management experience;

WHEREAS, the management and directors of the Company have determined that it is
in the best interest of the Company and its shareholders to retain the services
of an additional executive with strong operating capability, financial expertise
and management experience to assist in the day to day management of the Company;
and,

WHEREAS, the management and directors of the Company wish to engage Bluhm as
Chief Financial Officer, and Bluhm desires to render such services to the
Company beginning July 1, 2004 or at any such later date when and as formally
voted upon and approved by the Company's board of directors (the "Effective
Date"), provided however that the date of said formal approval by the Company's
board of directors, and hence the Effective Date, is not later than September
15, 2004, for a period of 36 months, or as otherwise specified herein, subject
to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and premises contained
herein, it is agreed as follows:

1.    Employment. Subject to the provisions for termination set forth below the
      Company hereby engages Bluhm as Chief Financial Officer pursuant to the
      terms and conditions of this Agreement effective as of the 1st day of
      July, 2004, contingent on the formal, affirmative vote of the Company's
      board of directors. Provided that the Company's board of directors
      formally votes to approve this Agreement not later than September 15,
      2004, then the Execution Date shall become the Effective Date ("Effective
      Date") for purposes of this Agreement. Bluhm hereby accepts such
      employment by the Company upon such terms and conditions ("Employment").
      Bluhm understands and acknowledges that, except as otherwise provided for
      herein, his Employment with the Company is for an unspecified duration and
      constitutes "at-will" Employment. Bluhm acknowledges that, except as
      otherwise provided for herein, this Employment relationship may be
      terminated at any time, with or without good cause, at the option either
      of the Company or himself, with or without notice. Notwithstanding
      anything to the contrary, should the Company's board of directors fail to
      formally vote upon and approve this Agreement on or before September 15,
      2004, then this Agreement becomes null and void. Bluhm hereby acknowledges
      and agrees that no compensation whatsoever, whether in the form of cash,
      options or any other benefits whatsoever, will be owed him or paid to him
      in such a case where the Company's board of directors fail to formally
      vote upon and approve this Agreement on or before September 15, 2004.

2.    Term. Unless earlier terminated pursuant to the provisions hereof, Bluhm's
      employment under this Agreement shall be for a three-year (thirty six
      consecutive month) term commencing on the Effective Date and ending 36
      months thereafter (the "Term"). Notwithstanding anything to the contrary,
      the Company and Bluhm hereby agree that Bluhm may resign, or the Company
      may terminate Bluhm, at the conclusion of the first year's service (June
      30, 2005) or at the conclusion of the second year's service (June 30,
      2006) and that on each date Bluhm's employment by the Company shall
      continue only by written agreement between Bluhm and the Company whereby
      each party affirms their desire and intention to continue the employment
      relationship, said written affirmation being required to be executed by
      each party hereto prior to the close of business on the respective dates
      provided above for the continuance of the employment relationship. In any
      case where such written affirmation is not executed by both parties prior
      to such date, then the employment relationship shall cease as of that
      date's close of business ("Termination By Failure To Renew").

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3.    Responsibilities and Duties. During the Term of this Agreement, Bluhm
      shall act as Chief Financial Officer, or in such alternate capacity as may
      be agreed between the parties in writing from time to time ("Position"),
      and shall have such responsibilities and duties as are agreed upon and
      determined from time to time by the Company. Notwithstanding anything to
      the contrary, the Company may, without further affecting any of the terms
      and conditions of this Agreement except as specifically pertains to
      Bluhm's Position, elect to appoint Bluhm as Chief Operating Officer or
      President, in each case either as a position to be held in lieu of his
      position as Chief Financial Officer or in addition to his position as
      Chief Financial Officer, and that such new position shall become Blum's
      Position. Bluhm agrees to give his best efforts to carry out his duties in
      an efficient, timely and professional manner and in the continuing best
      interests of the Company. Subject to the supervision and pursuant to the
      orders, advice, and direction of the Company, Bluhm shall in his Position
      perform such duties as are customarily performed by one holding such a
      Position in other businesses or enterprises of the same or similar nature
      as that engaged in by the Company. Bluhm shall additionally render such
      other and unrelated services and duties as may be reasonably assigned to
      him from time to time by the Company. Bluhm's duties may be reasonably
      modified at the Company's discretion from time to time. Bluhm shall report
      directly to the Chief Executive Officer of the Corporation or to that
      executive so designated by the Chief Executive Officer or, as the case may
      be, by the board of directors.

4.    Manner of Performance. Bluhm shall at all times faithfully, industriously,
      and to the best of his ability, experience, and talent, perform all duties
      that may be required of and from him pursuant to the express and implicit
      terms hereof, to the reasonable satisfaction of the Company. Such duties
      shall be rendered at the abovementioned premises and at such other place
      or places as the Company shall in good faith require or as the interests,
      needs, business, and opportunities of the Company shall require or make
      advisable, except as otherwise specifically provided for herein.

5.    Loyalty to Company's Interests. Bluhm shall devote all of his working
      time, attention, knowledge, and skill solely and exclusively to the
      business and interests of the Company, and the Company shall be entitled
      to all benefits, emoluments, profits, or other issues arising from or
      incident to any and all work, services, and advice of Bluhm. Bluhm
      expressly agrees that during the term hereof he will not be interested,
      directly or indirectly, in any form, fashion, or manner, as partner,
      officer, director, stockholder, advisor, employee, or in any other form or
      capacity, in any other business similar to employer's business or any
      allied trade, except that nothing herein contained shall be deemed to
      prevent or limit the right of Bluhm to invest any of his surplus funds in
      the capital stock or other securities of any corporation whose stock or
      securities are publicly owned or which are regularly traded on any public
      exchange, provided however that Bluhm shall not acquire a five percent
      (5%) or greater stake in any such company. Notwithstanding anything to the
      contrary, Bluhm agrees hereby that he will not accept a position as a
      board member or advisor to more than one (1) outside entity without the
      express written consent of the Company and furthermore that such consent,
      even once having been given, may be revoked by the Company on ninety (90)
      calendar days written notice. In the case of any such revocation of
      consent, Bluhm agrees to terminate his previously authorized association
      within ninety (90) calendar days.

6.    Confidentiality of Proprietary Information. Bluhm agrees, during and after
      the Term of his Employment, not to reveal confidential information, or
      trade secrets to any person, firm, corporation, or entity. Should Bluhm
      reveal or threaten to reveal this information, the Company shall be
      entitled to an injunction restraining Bluhm from disclosing same, or from
      rendering any services to any entity to whom said information has been or
      is threatened to be disclosed, the right to secure an injunction is not
      exclusive, and the Company may pursue any other remedies it has against
      Bluhm for a breach or threatened breach of this condition, including the
      recovery of damages from Bluhm. In addition, Bluhm agrees that at his
      termination for any reason, or at the expiration or Termination of his
      Employment according to this Agreement, he will promptly deliver to the
      Company or, at its written instruction, destroy, all documents, data,
      drawings, manuals, letters, notes, reports, electronic mail, recordings,
      and copies thereof, in his possession or control. The provisions of this
      paragraph shall survive the termination of this Agreement.

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7.    Confidentiality, Invention and Non-Compete Agreement. At or prior to the
      Effective Date, as a condition of this Agreement, in order to induce the
      Company to enter this Agreement and in return for the benefits conveyed
      hereby, Bluhm shall enter into a separate agreement with the Company, in
      such form as is reasonably satisfactory to the Company, which separate
      agreement, (i) restricts Bluhm from engaging in competition with the
      Company in regard to products then marketed, owned or under development by
      the Company, for a period of two years following the Termination of
      employment; (ii) requires that Bluhm maintain in confidentiality all
      confidential information, and that; (iii) subject to Minnesota Statute
      ss.181.78 provides that all inventions, original works of authorship,
      developments, improvements and trade secrets which he makes, conceives,
      learns or reduces to practice, either alone or jointly with others, during
      the period of Employment and which are related to or useful in the
      Company's business, or which result from tasks assigned by the Company or
      from use of Company confidential information or facilities, are the sole
      property of the Company, and that he will assist the Company in obtaining
      and enforcing any copyrights, patents, or other intellectual property
      rights relating thereto in any and all countries both during his
      Employment and beyond the Termination thereof. Pursuant to Minnesota
      Statute ss.181.78 the foregoing assignment does not apply to an invention
      for which no equipment, supplies, facility or trade secret information of
      the Company was used and which was developed entirely on Bluhm's own time,
      and (1) which does not relate (a) directly to the business of the Company
      or (b) to the Company's actual or demonstrably anticipated research or
      development, or (2) which does not result from any work performed by Bluhm
      for the Company.

      The parties agree that such provisions as set forth in a separate
      agreement shall survive termination of this Agreement and termination of
      Bluhm's employment for any reason. If Bluhm's assistance is needed when he
      is not employed by the Company, the Company shall compensate Bluhm for his
      assistance at a rate of seventy five ($75) dollars per hour, and shall, in
      addition, reimburse Bluhm for any direct expenses he incurs in connection
      with providing such assistance.

8.    Termination of Employment. Employment is effective and commences on the
      Effective Date and shall continue for three years (thirty six consecutive
      months) or until otherwise terminated hereunder ("Termination"). With or
      without good cause, the Company may terminate Bluhm's Employment at any
      time, without prior notice, which Termination becomes effective
      immediately upon written notice to Bluhm. For purposes of this Agreement,
      good cause ("Good Cause") shall be understood to be any of the following:
      (i) Bluhm's willful refusal to or failure to follow directives of the
      Board of Directors or Chief Executive Officer which are lawful,
      reasonable, and consistent with Bluhm's Position, and which is not cured
      within fifteen (15) business days after written notice from the Company
      and which results in or causes a material adverse effect on the Company;
      (ii) conviction or plea of nolo contendere to a felony; (iii) a formal
      criminal charge or arrest for a crime involving moral turpitude which
      could result in substantial damage or embarrassment to the Company; (iv)
      Bluhm has engaged in conduct that constitutes willful gross misconduct
      with regard to his employment duties, such gross misconduct resulting in
      economic harm or loss to the Company, provided that (1) for purposes of
      determining whether conduct constitutes willful gross misconduct, no act
      on Bluhm's part shall be considered "willful" unless done by Bluhm in bad
      faith or without reasonable belief that such action was in the best
      interests of the Company and (2) Bluhm has been given written notice by
      the Company of said violation of this Section and a reasonable opportunity
      to cure said violation; (v) Bluhm's death; or, (vi) separation as a result
      of Bluhm's Permanent Disability (as hereinafter defined). Termination for
      any other reason whatsoever, shall be considered termination without good
      cause ("Without Good Cause"). Bluhm may voluntarily elect to terminate his
      Employment ("Voluntary Resignation") at any time, which Termination
      becomes effective immediately upon written notice to the Company. Bluhm
      may also resign and terminate his employment for good reason ("Resignation
      for Good Reason") where good reason ("Good Reason") shall be understood to
      be any of the following: (i) a demotion such that Bluhm's job duties are
      substantially diminished, provided however that a reduction in the number
      of hours worked shall not by itself be considered a demotion; (ii) Bluhm's
      base salary ("Base Salary"), as provided for hereby, is reduced by more
      than 10%, provided however that a change in value of any stock options
      granted or vested, which change in value results from open market changes
      in the price or value of the underlying security (the common stock) shall
      not by itself constitute such a reduction in compensation; (iii) the
      Company materially breaches this Agreement; (iv) the Company relocates
      Bluhm to an office more than sixty (30) miles from the office location
      initially given herein, which relocation is for a period greater than
      seven (7) calendar days or which relocation is for a period greater than
      thirty (30) calendar days in any 365 calendar day period, except in the
      case where such relocation is with Bluhm's express, written and prior
      approval; (v) the Company officially notifies Bluhm that the Company will
      take any of the actions listed above; or, (vi) there is a "Change in
      Control" as defined in "Appendix A" attached hereto. Notwithstanding
      anything to the contrary, any event that would otherwise be considered to
      constitute reason for Resignation for Good Reason shall cease to be
      considered such if: (i) Bluhm does not Terminate employment within sixty
      (60) calendar days after such event occurs; or (ii) the Company reverses
      the action or cures the default or condition that constitutes Good Reason
      within fifteen (15) business days after having received written notice by
      Bluhm of his belief that Good Reason exists and of his intention to
      Terminate his employment by Resignation for Good Reason, which fifteen
      (15) business day notice shall be required in the case of Resignation for
      Good Reason.

<PAGE>

9.    Benefits Upon Termination. In each and every case of Termination, except
      as specifically provided for hereby, Bluhm's salary and benefits shall end
      and terminate immediately upon his Termination. In each and every case of
      Termination, Bluhm shall immediately receive: (i) prompt payment of any
      earned but unpaid Base Salary; (ii) a prorata amount of any bonus and/or
      incentive plan compensation due Bluhm based on his or the Company's
      performance up until and at the date of Termination pursuant to any bonus
      and/or incentive compensation plan in effect at the time of Termination;
      (iii) any outstanding expense reimbursements then owed; and, (iv) any
      other unpaid vested amounts or benefits then due Bluhm under any Company
      benefit plan. Bluhm shall, in addition, be entitled to the following:

      A.    Termination for Good Cause. If Bluhm is Terminated for Good Cause
            then Bluhm shall keep all those Options that have on the date of
            Termination vested (as hereinafter defined) and shall have thirty
            (30) calendar days to exercise said vested Options. Those Options
            which would otherwise have vested and become exercisable on any
            future date shall immediately cease to exist as issued options,
            having immediately reverted to the Company. Notwithstanding anything
            to the contrary, upon Termination for Good Cause, Bluhm shall, at a
            minimum, have vested one hundred thousand (100,000) Options, the
            Company agreeing hereby to take whatever action is required to make
            said Options vested and retained by Bluhm.

      B.    Termination By Failure To Renew. If Bluhm's employment is terminated
            on either June 30, 2005 or June 30, 2006, as a result of there being
            no written agreement between Bluhm and the Company whereby each
            party affirms their desire and intention to continue the employment
            relationship, said written affirmation being required to be executed
            by each party hereto prior to the close of business on the
            respective dates provided above for the continuance of the
            employment relationship, then Bluhm shall at the close of business
            on such date cease to be an employee of GelStat and shall be
            entitled only to those options which have vested and shall have
            three hundred sixty five (365) calendar days to exercise said vested
            Options. In any case where such written affirmation is not executed
            by both parties prior to such date, then the employment relationship
            shall cease as of that date's close of business and Bluhm shall be
            entitled to only those options that have become exercisable prior to
            that date. Those Options which would otherwise have vested and
            become exercisable on any future date shall immediately cease to
            exist as issued options, having immediately reverted to the Company.
            For purposes of clarity, it is expressly agreed and understood that,
            should Bluhm cease to be an employee at the close of business on
            June 30, 2005 by way of Termination By Failure To Renew then he
            shall have 365 days to exercise his then exercisable 40,000 options,
            the remainder of his otherwise granted options immediately reverting
            to the Company and ceasing to exist as issued options. Should Bluhm
            cease to be an employee at the close of business on June 30, 2006 by
            way of Termination By Failure To Renew then he shall have 365 days
            to exercise his then exercisable 180,000 options, the remainder of
            his otherwise granted options immediately reverting to the Company
            and ceasing to exist as issued options.

      C.    Termination Without Good Cause. If Bluhm is Terminated Without Good
            Cause then Bluhm shall keep all those Options that have on the date
            of Termination vested (as hereinafter defined) and shall in
            addition, provided Bluhm first executes and does not rescind a full
            and final release of claims agreement in favor of the Company (the
            form of which will be provided by the Company), receive as vested
            Options all those Options which would otherwise have vested over the
            course of the twenty four (24) months immediately following said
            Termination had Bluhm remained an employee during that twenty four
            (24) month period. Bluhm shall have 365 calendar days from
            Termination to exercise said Options vested according to this
            provision. Those Options which would otherwise have vested and
            become exercisable on any future date beyond twenty four (24) months
            immediately following Termination Without Good Cause shall
            immediately cease to exist as issued options, having immediately
            reverted to the Company.

      D.    Voluntary Resignation. Should Bluhm voluntarily resign and thus
            Terminate his employment then Bluhm shall keep all those Options
            that have on the date of Termination vested (as hereinafter defined)
            and shall have thirty (30) calendar days to exercise said vested
            Options. Those Options which would otherwise have vested and become
            exercisable on any future date shall immediately cease to exist as
            issued options, having immediately reverted to the Company.

<PAGE>

      E.    Resignation for Good Reason. Should Bluhm Terminate his employment
            as a result of Resignation for Good Reason (as defined herein) then
            Bluhm shall keep all those Options that have on the date of
            Termination vested (as hereinafter defined) and shall in addition,
            provided Bluhm first executes and does not rescind a full and final
            release of claims agreement in favor of the Company (the form of
            which will be provided by the Company), receive as vested Options
            all those Options which would otherwise have vested over the Term of
            this Agreement. Bluhm shall have 365 calendar days from Termination
            resulting from Resignation for Good Reason to exercise said Options
            vested according to this provision.

10.   Additional Option to Terminate Employment on Permanent Disability or Death
      of Bluhm. Notwithstanding anything to the contrary, the Company is hereby
      granted the option to immediately Terminate Bluhm's Employment in the
      event that Bluhm shall become Permanently Disabled, as the term
      "Permanently Disabled" is hereinafter defined. For purposes of this
      Agreement, Bluhm shall be deemed to have become permanently disabled if,
      even with any available reasonable accommodation, during any year of the
      term hereof, because of ill health, physical or mental disability, or for
      other causes beyond his control, he shall have been continuously unable or
      unwilling or have failed to perform his essential job duties hereunder for
      sixty (60) consecutive calendar days, or if, during any year of the term
      hereof, even with any available reasonable accommodation, he shall have
      been unable or unwilling or have failed to perform his essential job
      duties for a total period of sixty (60) business days, whether consecutive
      or not. For the purposes hereof, the term "any year of the term hereof" is
      defined to mean any period of 12 consecutive calendar months. Bluhm's
      employment will immediately terminate upon and in the case of his death.
      Termination upon death or Permanent Disability shall be Termination for
      Good Cause for all purposes of this Agreement.

11.   Life Insurance. The Company may elect, at its sole discretion, to obtain
      "key man" or other life insurance or disability insurance on Bluhm and
      may, at its sole discretion, designate the Company as either the sole or
      partial (in any percentage) beneficiary on said policy. Bluhm agrees to
      cooperate with the Company in obtaining said insurance policy and further
      agrees to waive any physician/patient confidentiality privilege as may be
      required or arise as a result of said cooperation to the furtherance of
      this provision.

12.   Compensation. The Company shall compensate Bluhm during the Term of this
      Agreement in the following manner:

      A.    Salary. The Company will initially pay Bluhm a base salary at the
            annual rate of twenty four thousand ($24,000.00) dollars ("Base
            Salary"), payable periodically but no less often than monthly, in
            substantially equal amounts, in accordance with the Company's
            payroll practices from time to time in effect, and shall be subject
            to withholdings required by federal, state and local laws. Beginning
            January 1, 2005, the Company will increase Bluhm's salary to an
            annual rate of one hundred fifty thousand ($150,000.00) dollars. The
            Company will review Bluhm's salary at least once each year and may,
            at its sole discretion, increase Bluhm's salary by providing
            additional salary above and beyond the Base Salary. The Company may
            elect to pay Bluhm a year-end bonus in an amount determined at the
            discretion of the Company's CEO, the Board or the Compensation
            Committee of the Board, as the case may be, and may similarly elect
            to include Bluhm in any incentive plan subsequently approved and
            implemented. Nothing herein shall be construed so as to obligate the
            Company to provide year-end bonuses or incentive plan participation
            for Bluhm.

      B.    Stock Option. The Company hereby grants to Bluhm, on the Execution
            Date, an option to purchase 400,000 shares ("Option" or "Options")
            of the Company's fully paid, non-assessable $0.01 par value common
            stock ("Common Stock").

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            i.    The Option shall be for a term of five (5) years, adjusted if
                  necessary as to quantity and price to account for any stock
                  splits, recombinations, stock dividends or similar and shall
                  be subject to the terms and conditions of the qualified stock
                  option plan approved at the Company's annual meeting on July
                  14, 2003 (the "Plan"). The exercise price of the Option shall
                  be set and is hereby set at the fair market value (mean of the
                  high and low price on the day immediately preceding the
                  Execution Date, rounded up to the nearest whole increment of
                  $0.05) of the Common Stock as reported on the OTC Bulletin
                  Board, namely five and 05/100 ($5.05) dollars per share of
                  Common Stock.

            ii.   Provided that Bluhm remains an employee of the Company, the
                  Option shall become exercisable as follows:

                  a.    20,000 on January 1, 2005

                  b.    20,000 on April 1, 2005

                  c.    80,000 on July 1, 2005

                  d.    20,000 on October 1, 2005

                  e.    20,000 on January 1, 2006

                  f.    20,000 on April 1, 2006

                  g.    80,000 on July 1, 2006

                  h.    20,000 on October 1, 2006

                  i.    20,000 on January 1, 2007

                  j.    20,000 on April 1, 2007

                  k.    80,000 on July 1, 2007

            iii.  Notwithstanding anything to the contrary the terms and
                  conditions of the Option shall be governed by the Plan and by
                  the "Incentive Stock Option Agreement" to be executed between
                  the Company and Bluhm on or prior to the Effective Date.

      C.    Executive-Level Employee Benefits. Bluhm will be entitled to
            participate in all medical, dental, life, short-term disability,
            long-term disability, 401k plan, paid time off, and other such
            benefit plans as are from time to time made available to other
            executive-level employees of the Company, subject to the provisions
            of those programs. Without limiting the generality of the foregoing,
            and notwithstanding anything to the contrary, the Company will,
            beginning fourteen (14) months after the Execution Date, but not
            before, provide Bluhm and his dependents with basic health and
            medical benefits on the terms that such benefits are provided to
            other executive-level employees of the Company. Bluhm will also be
            entitled to holidays, sick leave and vacation in accordance with the
            Company's policies as then in effect, but in no event shall Bluhm be
            entitled to less than three (3) weeks paid vacation per year.
            Executive-level employee benefits under this Section 12(D) shall not
            include a right to incentive compensation, bonus compensation or
            profit sharing which shall be available to Bluhm only if so agreed
            to by the Company.

      D.    Incentive and/or Bonus Compensation. Nothing herein shall be
            understood to compel or prevent the Company from providing specific
            incentive and/or bonus compensation to Bluhm based on performance as
            may be agreed between the parties in writing from time to time.

13.   Expenses. The Company will promptly reimburse Bluhm, in accordance with
      the Company's policies and practices in effect from time to time, for all
      expenses reasonably incurred by Bluhm in performance of Bluhm's duties
      under this Agreement, including reimbursement for miles driven by Bluhm in
      furtherance of the Company's business ("Business Mileage"). Reimbursement
      for Business Mileage shall be at the standard mileage rate allowed by the
      Internal Revenue Service ("IRS") as set forth in the appropriate IRS
      publication. Business mileage does not include commuting from Bluhm's
      residence to Bluhm's primary place of work. Bluhm is responsible for
      proper substantiation and reporting of Business Mileage and/or actual
      expenses.

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14.   Golden Parachute Gross-Up Upon Change In Control.

      In the case where Bluhm's option vesting accelerates as a result of a
      Change In Control (as defined in Appendix A), then:

      A.    If Bluhm's aggregate payments and benefits under this Agreement and
            all other contracts, arrangements, or programs would constitute an
            excess parachute payment under Section 280G of the Internal Revenue
            Code and the regulations there under, as determined in good faith by
            the Company's independent auditors, Bluhm will receive a gross-up
            payment. The gross-up amount will be an amount that, after payment
            by Bluhm of all income, payroll, and excise taxes on the gross-up
            payment, equals any excise taxes Bluhm must pay under Internal
            Revenue Code Section 4999.

      B.    All determinations needed to apply this Section shall be made in
            good faith by the Company's independent auditors. The independent
            auditors will assume that Bluhm pays federal, state, and local
            income taxes at the highest marginal tax rate in the calendar year
            in which the gross-up payment is to be made, net of the maximum
            reduction in federal income taxes that could be obtained from
            deduction of those state and local taxes.

      C.    If Bluhm's gross-up payment turns out to have been insufficient (for
            example, because Bluhm receives payments that were not expected when
            the gross-up payment was calculated), the Company will pay Bluhm an
            additional gross-up payment that, on an after tax basis, is
            sufficient to cover both the extra Internal Revenue Code Section
            4999 excise taxes owed by Bluhm and any interest, penalties, or
            additions he must pay because of the miscalculation of his excise
            tax liability. If Bluhm receives a gross-up payment that turns out
            to have been excessive, Bluhm shall pay the Company the excise tax
            included in the gross-up that he did not, in fact, have to pay, the
            federal, state and local income and payroll tax gross-up he received
            with respect to that excise tax amount (to the extent that he is
            allowed a federal, state, or local income tax deduction with respect
            to the repayment), and interest on the amount he must repay at the
            rate provided in Internal Revenue Code Section 1274(b)(2)(B).

      D.    Bluhm and the Company agree to cooperate with each other to resolve
            any administrative or judicial proceedings concerning the existence
            or amount of excess parachute payments with respect to payments or
            benefits Bluhm receives.

      E.    Notwithstanding anything to the contrary, the Company's total
            obligation to Bluhm under this Section 12 and any provision thereof
            shall not exceed five hundred thousand ($500,000) dollars.

15.   Assistance in Litigation. Bluhm shall, upon reasonable notice, furnish
      such information and proper assistance to the Company as it may reasonably
      require in connection with any litigation in which it is, or may become, a
      party either during or after Employment. The provisions of this paragraph
      shall survive the termination of this Agreement. If Bluhm's assistance is
      needed when he is not otherwise Employed by the Company, the Company shall
      compensate Bluhm for his assistance at a rate of seventy five ($75)
      dollars per hour, and shall, in addition, reimburse Bluhm for any direct
      expenses he incurs in connection with providing such assistance.

16.   Successors; Binding Agreement; Assignment. The Company shall require any
      successor (whether direct or indirect, by purchase, merger, consolidation
      or otherwise) to all or substantially all of the business or assets of the
      Company to expressly assume and agree in writing to perform this Agreement
      in the same manner and to the same extent that the Company would be
      required to perform it if no such succession had taken place, provided
      that Bluhm must be given a position with the same authority, powers and
      responsibilities set forth herein with respect to the subsidiary or
      subdivision which operates the business of the Company as it exists on the
      date of such business combination. The Company may not assign this
      Agreement, (i) except in connection with, and to the acquirer of, all or
      substantially all of the business or assets of the Company, provided such
      acquirer expressly assumes and agrees in writing to perform this Agreement
      as provided in this Section. Bluhm may not assign his rights or delegate
      his duties or obligations under this Agreement.

<PAGE>

17.   Waiver Or Discharge. No provisions of this Agreement may be modified,
      waived or discharged orally, but only by a waiver, modification or
      discharge in writing signed by Bluhm and such officer as may be designated
      by the Board of Directors of the Company to execute such a waiver,
      modification or discharge. No waiver by either party hereto at any time of
      any breach by the other party hereto of, or failure to be in compliance
      with, any condition or provision of this Agreement to be performed by such
      other party shall be deemed a waiver of similar or dissimilar provisions
      or conditions at the time or at any prior or subsequent time. No
      agreements or representations, oral or otherwise, express or implied, with
      respect to the subject matter hereof have been made by either party which
      are not expressly set forth in this Agreement.

18.   Representations and Warranties.

      A.    Bluhm warrants and represents to the Company that the execution,
            delivery and performance of this Agreement by Bluhm will not result
            in or constitute a breach of or conflict with any term, covenant,
            condition or provision of any commitment, contract or other
            agreement or instrument, including without limitation, any other
            employment agreement to which Bluhm is or has been a party.

      B.    The Company warrants and represents to Bluhm that the execution,
            delivery and performance of this Agreement have been duly and
            validly authorized and approved by all necessary corporate action;
            and this Agreement constitutes the legal, valid and binding
            obligation of the Corporation, enforceable in accordance with its
            terms.

16.   Binding Agreement. This Agreement shall be binding upon the Company and
      its successors and assigns and shall inure to the benefit of Bluhm and
      Bluhm's heirs, executors and administrators.

17.   Severability. If any provision or provisions of this Agreement shall be
      held to be invalid, illegal or unenforceable for any reason whatsoever.

      A.    The validity, legality and enforce ability of the remaining
            provisions of this Agreement (including without limitation, each
            portion of any Section of this Agreement containing any such
            provision held to be invalid, illegal or unenforceable) shall not in
            any way be effective or impaired thereby; and,

      B.    To the fullest extent possible, the provisions of this Agreement
            (including, without limitation, each provision of any section of
            this Agreement containing any such provision held to be invalid,
            illegal or unenforceable) the portion so held invalid, unenforceable
            or void shall, if possible, be deemed amended or reduced in scope,
            or otherwise be stricken from this Agreement to the extent required
            for the purposes of validity and enforcement thereof and so as to
            give effect to the intent manifested by the provisions held invalid,
            illegal or unenforceable.

18.   Headings. The headings of this Agreement are inserted for convenience only
      and shall not be deemed to constitute part of this Agreement or to affect
      the construction thereof.

19.   Counterparts. This Agreement may be executed in one or more counterparts,
      each of which shall be deemed to be an original but all of which together
      shall constitute the same instrument.

20.   Disputes. Any dispute arising under or relating to this Agreement shall be
      settled by binding arbitration in accordance with the rules of the
      American Arbitration Association. Such arbitration proceedings shall be
      conducted in the State of Minnesota in Hennepin County and judgment upon
      the award rendered may be entered in any court of competent jurisdiction.

21.   Indemnification. The Company agrees to fully indemnify Bluhm for any
      costs, legal expenses, fees, fines, judgments or other expenses of any
      kind that he may incur as a result of any actions he rightfully takes (or
      is alleged to have taken) in the course and scope of his employment with
      the Company subject to the limitations of Minnesota Statutes 302A.521.

<PAGE>

22.   Directors and Officers Liability. The Company shall use reasonable efforts
      obtain and maintain a Directors and Officers liability insurance policy,
      providing coverage in such amount as the Board determines to be fiscally
      prudent, which policy shall cover Bluhm during the entire term of his
      employment and which coverage is not less than that provided to any other
      Director or Officer at a cost to the Company acceptable to the Board. Such
      liability coverage shall effectively cover acts that occur during Bluhm's
      employment and following the Termination thereof.

23.   Notice. Any notice to be given hereunder shall be given in writing. Notice
      shall be deemed to be given when delivered by hand, or 5 calendar days
      after being mailed, postage prepaid, registered with return receipt
      requested, addressed to the address set forth below or the then current
      address of Bluhm or the principal office of the Company:

         If to the Company:

         1650 West 82nd Street, Suite 1200
         Bloomington, MN  55431

         If to Bluhm:

         Nicholas Bluhm

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

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

24.   Governing Law. This Agreement shall be governed by and interpreted in
      accordance with the laws of the State of Minnesota, without regard to
      conflicts of law provisions.

25.   Entire Agreement. This Agreement contains the entire agreement between the
      parties with respect to the Employment of Bluhm by the Company and
      supersedes any and all prior understandings, agreements or correspondence
      between the parties.

EACH PARTY ACKNOWLEDGES THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN THE
COMPANY AND BLUHM RELATING TO THE SUBJECTS COVERED IN THIS AGREEMENT ARE
CONTAINED IN IT AND THATEACH PARTY HAS ENTERED INTO THIS AGREEMENT VOLUNTARILY
AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY THE COMPANY OR BLUHM
OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF.

EACH PARTY FURTHER ACKNOWLEDGES THAT THEY HAVE CAREFULLY READ THIS AGREEMENT,
THAT THEY UNDERSTAND ALL OF IT, AND THAT EACH HAS BEEN GIVEN THE OPPORTUNITY TO
DISCUSS THIS AGREEMENT WITH LEGAL COUNSEL AND HAVE AVAILED THEMSELVES OF THAT
OPPORTUNITY TO THE EXTENT EACH WISHED TO DO SO.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Execution
Date first written above.

GELSTAT CORPORATION                     BLUHM

BY: /s/ Stephen C. Roberts              BY:  /s/ Nicholas Bluhm
    -----------------------------            ------------------------
        Stephen C. Roberts                       Nicholas Bluhm
        Chief Executive Officer

<PAGE>

                                   Appendix A
                                Change in Control

      1. "Change in Control" means one of the following events, except as
provided in Section 2 of this Appendix:

      (a) Acquisition of Controlling Interest. Any Person becomes the Beneficial
Owner, directly or indirectly, of securities of the Company representing 51% or
more of the combined voting power of the Company's then outstanding securities
in connection with a merger or otherwise; provided, however, this shall not
apply to securities issued in connection with, or pursuant to, securities of the
Company outstanding as of the date hereof.

      (b) Merger Approved. The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation unless the voting
securities of the Company outstanding immediately before the merger or
consolidation would continue to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 51% of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation.

      (c) Sale of Assets. The stockholders of the Company approve an agreement
or series of agreements for the Company's sale or disposition to one or more
Persons of at least 70% of the Company's tangible assets provided, however, this
shall not apply to the sale or transfer of assets to any Person in which the
Corporation or existing shareholders of the Corporation control at least 51% of
the combined voting power of the voting securities of said Person immediately
following such transfer or sale of assets.

      (e) Liquidation or Dissolution. The stockholders of the Company approve a
plan or proposal for liquidation or dissolution of the Company.

      2. "Change in Control" shall not include: any acquisition of the Company
by Bluhm or a group of which Bluhm is a member.

      3. As used in this Appendix A,

      "Beneficial Owner" has the meaning set forth in Rule 13d-3 under the
      Securities Exchange Act.

      "Person" has the meaning given in Securities Exchange Act Section 3(a)(9),
      as modified and used in Securities Exchange Act Section 13(d), and shall
      include a "group," as defined in Rule 13d-5 promulgated thereunder.
      However, a "person" shall not include: (i) the Company or its Affiliates
      (as that term is defined in Rule 405 of Regulation C under the Securities
      Act); (ii) a trustee or other fiduciary holding securities under any
      employee benefit plan of the Company, or its Affiliates (iii) an
      underwriter temporarily holding securities pursuant to an offering; or
      (iv) a corporation owned, directly or indirectly, by the stockholders of
      the Company in substantially the same proportions as their ownership of
      shares of the Company.

      "Securities Act" means the Securities Act of 1933.

      "Securities Exchange Act" means the Securities Exchange Act of 1934.EXHIBIT 10.55

                        INCENTIVE STOCK OPTION AGREEMENT

      THIS AGREEMENT, made this 2nd day of July, 2004, by and between GELSTAT
CORPORATION, a Minnesota corporation (the "Company"), and NICHOLAS BLUHM
("Optionee").

      1. Grant of Option.

      Pursuant to its 2003 Incentive Plan (the "Plan"), the Company grants to
Optionee, the right and option (the "Option") to purchase all or any part of an
aggregate of four hundred thousand (400,000) shares of the Company's Common
Stock, par value $0.01 per share (the "Stock"), at the price of $5.05 per share
(the "Option Price") on the terms and conditions set forth in this Agreement.
The Option is intended to be an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). To
the extent the Option does not qualify as an incentive stock option under the
Code, it shall be nonqualified.

      2. Duration and Exercisability.

      (a) Subject to the other Sections of this Agreement, the Option shall be
exercisable on and after the dates set forth below with respect to the number of
shares of Stock indicated.

                  Date                        No. of Shares (Cumulative)
                  ----                        --------------------------
            January 1, 2005                               20,000
             April 1, 2005                                40,000
              July 1, 2005                               120,000
            October 1, 2005                              140,000
            January 1, 2006                              160,000
             April 1, 2006                               180,000
              July 1, 2006                               260,000
            October 1, 2006                              280,000
            January 1, 2007                              300,000
             April 1, 2007                               320,000
              July 1, 2006                               400,000

      (b) The Option shall arise on the date of this Agreement and shall in all
events terminate on July 1, 2009 (the "Option Period").

      (c) During Optionee's lifetime, the Option shall be exercisable only by
Optionee and shall not be assignable or transferable by Optionee, other than by
will or the laws of descent and distribution.

      3. Effect of Termination of Employment. The Company and Optionee are
parties to a certain Employment Agreement dated July 1, 2004 (the "Employment
Agreement"). Capitalized terms used without definition in this Section 3 shall
have the meanings accorded to them by the Employment Agreement.

      (a) If Optionee's employment by the Company is Terminated for Good Cause
or Optionee voluntarily resigns Optionee's employment by the Company, then
Optionee shall have thirty (30) calendar days to exercise the Option with
respect to the shares of Stock that are exercisable under Section 2 on or before
the date of Termination. If Optionee is Terminated for Good Cause, then with
respect to such number of shares of Stock as would otherwise subject to the
Option but which are not exercisable under Section 2, then, subject to Section
3(e), the Option shall immediately cease to be exercisable.

      (b) If Optionee's employment by the Company is Terminated Without Good
Cause or Optionee's employment by the Company is Terminated by Resignation for
Good Reason, then Optionee shall have three hundred sixty-five (365) calendar
days to exercise the Option with respect to the number of shares of Stock that
are exercisable under Section 2 on or before the date of Termination.

<PAGE>

      (c) If Optionee's employment by the Company is Terminated Without Good
Cause but then Optionee executes and does not rescind a full and final release
of claims agreement in favor of the Company (the form of which will be provided
by the Company),then Optionee shall have three hundred sixty-five (365) calendar
days to exercise the Option with respect to such additional number of shares of
Stock as would have become exercisable had Optionee continued to be employed by
the Company for a period of twenty-four months immediately after the date of
Termination. If Optionee's employment by the Company is Terminated Without Good
Cause, with respect to such number of shares of Stock as would otherwise be
subject to the Option but which are not exercisable under Section 2 or as
described in the immediately preceding sentence, then, subject to Section 3(e),
the Option shall immediately cease to be exercisable.

      (d) If Optionee's employment by the Company is Terminated by Resignation
for Good Reason but then Optionee executes and does not rescind a full and final
release of claims agreement in favor of the Company (the form of which will be
provided by the Company),then Optionee shall have three hundred sixty-five (365)
calendar days to exercise the Option with respect to such additional number of
shares of Stock as would have become exercisable had Optionee continued to be
employed by the Company through July 1, 2007. Optionee's employment by the
Company is Terminated by Resignation for Good Reason, with respect to such
number of shares of Stock as would otherwise be subject to the Option but which
are not exercisable under Section 2 or as described in the immediately preceding
sentence, then, subject to Section 3(e), the Option shall immediately cease to
be exercisable.

      (e) If Optionee's employment is terminated on either June 30, 2005 or June
30, 2006, by Failure To Renew, then Optionee shall have three hundred sixty-five
(365) calendar days to exercise the Option with respect to the shares of Stock
that are exercisable under Section 2 on or before the date of Termination.

      (f) Except in the case of Termination by Failure to Renew as provided for
by paragraph (e) above, if Optionee's employment by the Company is Terminated,
then Optionee shall have thirty (30) calendar days to exercise the Option with
respect to at least one hundred thousand (100,000) shares of Stock whether or
not the Option is otherwise exercisable with respect to such number of shares of
Stock under Section 2.

      4. Manner of Exercise.

      (a) The Option may be exercised only by Optionee or other proper party
delivering within the Option Period written notice of exercise to the Company at
its principal office plus Optionee's original copy of this Agreement. The notice
shall state the number of shares as to which the Option is being exercised and
be accompanied by payment in full of the Option Price for all shares of Stock
designated in the notice. The number of shares of Stock issued to Optionee
pursuant to Optionee's exercises of the Option shall be noted on Optionee's
original copy of this Agreement prior to its return to Optionee.

      (b) Optionee may pay the Option Price in cash, by check (bank check,
certified check or personal check), or by money order or as otherwise provided
in the Plan.

      5. Miscellaneous.

      (a) The Option is issued pursuant to the Company's 2003 Incentive Plan and
is subject to its terms which are incorporated by reference. The Plan is
available for inspection during business hours at the principal office of the
Company.

      (b) This Agreement shall not confer on Optionee any right with respect to
continued employment by the Company or any of its subsidiaries, nor shall it
interfere in any way with the right of the Company to terminate such employment
at any time. Optionee shall have none of the rights of a shareholder with
respect to shares of Stock subject to the Option until such shares shall have
been issued to Optionee upon exercise of the Option.

      (c) The exercise of all or any parts of the Option shall only be effective
at such time that the sale of Stock pursuant to such exercise shall not violate
any state or federal securities laws.

<PAGE>

      (d) If there shall be any change in the Stock of the Company through
merger, consolidation, reorganization, recapitalization, dividend in the form of
Stock (of whatever amount), stock split or other change in the corporate
structure of the Company, and all or any portion of the Option shall then be
unexercised and not yet expired, then equitable adjustments in the outstanding
Option shall be made by the Company in order to prevent dilution or enlargement
of Option rights. Such adjustments shall include, where appropriate, changes in
the number of shares of Stock and the Option Price per share subject to the
outstanding Option. This Section is intended to ensure equitable adjustments to
the Option to reflect changes in the authorized and/or outstanding capital stock
of the Company which affect all shareholders and which arise from reorganization
of the capital structure of the Company. No adjustments shall be made for
issuance of capital stock by the Company for value.

      (e) The Company shall at all times during the Option Period reserve and
keep available such number of shares of Stock as shall be sufficient to satisfy
the requirements of the Option.

      (f) If Optionee shall dispose of any of the Stock acquired by Optionee
pursuant to the exercise of the Option within two (2) years from the date the
Option was granted or within one (1) year after the transfer of any such shares
to Optionee upon exercise of the Option, then, in order to provide the Company
with the opportunity to claim the benefit of any income tax deduction which may
be available to it under the circumstances, Optionee shall promptly notify the
Company of the dates of acquisition and disposition of such shares, the number
of shares so disposed of, and the consideration, if any, received for such
shares. In order to comply with all applicable federal or state income tax laws
or regulations, the Company may take such action as it deems appropriate to
insure (i) notice to the Company of any disposition of the Stock of the Company
within time periods described above and (ii) that, if necessary, all applicable
federal or state payroll, withholding, income or other taxes are withheld or
collected from Optionee. If the Company is unable to withhold such federal and
state taxes, for whatever reason, Optionee hereby agrees to pay to the Company
an amount equal to the amount the Company would otherwise be required to
withhold under federal or state law. Optionee may, subject to the approval and
discretion of the Board of Directors of the Company, elect to have all or a
portion of such tax withholding obligations satisfied by delivering shares of
the Company's Stock having a fair market value determined on the date of
exercise equal to such obligations.

      (g) Optionee agrees that if (i) the Company advises Optionee that it plans
an underwritten public offering of its common stock in compliance with the
Securities Act of 1933, as amended, and that the underwriters have requested
that certain shareholders, including Optionee, refrain from selling, entering
into any contract to sell, or granting any option to buy or otherwise dispose of
part or all of their common stock or common stock purchase rights, then (ii) for
a period not to exceed one hundred eighty (180) days from the prospectus,
Optionee shall not sell or contract to sell, or grant an option to buy or
otherwise dispose of the Option or any of the underlying Stock without the prior
written consent of the underwriters. This Section shall not prohibit any
exercise of the Option.

      (h) Notwithstanding anything in this Agreement to the contrary, in the
event the Company makes any public offering of its securities and determines in
its sole discretion that it is necessary to reduce the number of issued but
unexercised stock purchase rights so as to comply with any state securities or
Blue Sky law limitations with respect thereto, the Board of Directors of the
Company shall have the right (i) to accelerate the exercisability of the Option
and the date on which the Option must be exercised, provided that the Company
gives Optionee fifteen (15) days' prior written notice of such acceleration, and
(ii) to cancel any portion of the Option or any other option granted to Optionee
pursuant to the Option which is not exercised prior to or contemporaneously with
such public offering. To the extent the Option is cancelled pursuant to this
Section, the Company shall grant Optionee stock appreciation right or other
equivalent compensation which provides the same benefits as the Option so
cancelled. Notice shall be deemed given when delivered personally or when
deposited in the United States mail, first class postage prepaid and addressed
to Optionee at the address of Optionee on file with the Company.

      (i) The Company may require as a condition precedent to exercisability of
the Option, Optionee's execution of an agreement ("Buy-Sell Agreement") whereby
the Company may repurchase the Stock acquired pursuant to the Option in certain
circumstances. If the Company has not made demand for execution of a Buy-Sell
Agreement within six months after execution of this Agreement, this condition
shall be irrevocably waived.

<PAGE>

      (j) The stock certificates for any Stock acquired pursuant to the Option
shall bear an appropriate legend to reflect the restrictions imposed by this
Agreement.

      (k) Any dispute arising out of or relating to this Agreement or the
alleged breach of it, or the making of this Agreement, including claims of fraud
and inducement, shall be discussed between the disputing parties in a good faith
effort to arrive at a mutual settlement of any such controversy. If such dispute
cannot be resolved, such dispute shall be settled by binding arbitration.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall be a retired state or federal
judge or an attorney who has practiced securities or business litigation for at
least ten (10) years. If the parties cannot agree on an arbitrator within twenty
(20) days, any party may request that the chief judge of the District Court of
Hennepin County, Minnesota, select an arbitrator. Arbitration shall be conducted
pursuant to the provisions of this Agreement and the commercial arbitration
rules of the American Arbitration Association, unless such rules are
inconsistent with the provisions of this Agreement. Limited civil discovery
shall be permitted for the production of documents and taking of depositions.
Unresolved discovery disputes may be brought to the attention of the arbitrator
who may dispose of such disputes. The arbitrator shall have the authority to
award any remedy or relief that a court of this state could order or grant;
provided, however, that punitive or exemplary damages shall not be awarded. The
arbitrator may award to the prevailing party, if any, as determined by the
arbitrator, all of its costs and fees, including the arbitrator's fee,
administrative fees, travel expenses, out-of-pocket expenses and reasonable
attorney's fees. Unless otherwise agreed by the parties, the place of any
arbitration proceedings shall be Hennepin County, Minnesota.

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

                                        GELSTAT CORPORATION

                                        By:  /s/ Stephen C. Roberts
                                             ------------------------
                                        Its Chairman and Chief Executive Officer

                                        /s/ Nicholas Bluhm
                                        ---------------------
                                        NICHOLAS BLUHM

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