Document:

BioBalance Corporation Announces Acceptance of New Offer for Its Home Healthcare
Business

Tuesday January 17, 8:30 am ET

NEW YORK, NY--(MARKET WIRE)--Jan 17, 2006 -- New York Health Care, Inc. (the
"Company") (OTC BB:BBAL.OB - News) and its wholly owned subsidiary, The
BioBalance Corporation ("BioBalance"), announced that the Company has accepted
an alternative offer for the sale of its home healthcare business from Revival
Home Health Care, a NYS-licensed home healthcare agency. Terms of the Revival
Letter of Intent include a significant upfront break-up fee, assumption of
approximately $4.3 million in net liabilities and a final cash payment at
closing. The Company also received a $100,000 payment with signing of the Letter
of Intent as part of the break-up fee.

The Company had previously announced on October 26, 2005 that it accepted an
offer from a competitive firm which began the due diligence process with a 30
day exclusivity period. Once the exclusivity period expired, Revival was free to
submit this new offer which was judged superior by the Company's board of
directors. The Revival Letter of Intent requires completion of the definitive
agreement within 45 days.

Dennis O'Donnell, CEO of the Company and its BioBalance subsidiary, said, "We
are pleased to have received this offer from Revival which is very favorable to
the Company's shareholders. With this agreement, we can further focus our
efforts on the prescription drug development for PROBACTRIX, for which we hope
to receive FDA approval to begin clinical testing in First Quarter 2006."

The sale is subject to the satisfaction of a number of conditions including
execution of a definitive agreement, obtaining shareholder and regulatory
approvals. Pending a definitive agreement, the Company will seek shareholder
approval to endorse the divestiture and change the corporate name from New York
Health Care, Inc. to BioBalance Inc. to reflect the new focus.

About The BioBalance Corporation

BioBalance, a development stage specialty pharmaceutical company, is focused on
the development of patented biotherapeutic agents for gastrointestinal disorders
that are poorly addressed by current therapies via accelerated regulatory
pathways. These disorders include pouchitis, Irritable Bowel Syndrome (IBS),
inflammatory bowel disease and diarrhea caused by antibiotics, chemotherapy or
AIDS. On January 2, 2003, New York Health Care and BioBalance completed a
business combination accounted for as a "reverse acquisition," in which
BioBalance became a wholly owned subsidiary of the Company. The Company's common
stock trades on the OTC Bulletin Board under the symbol BBAL. Additional
information on BioBalance is located on the BioBalance website at
www.biobalancecorp.com. Reports of the Company filed with the SEC are available
on the SEC website at http://www.sec.gov.

<PAGE>

About Revival Home Health Care

Since 1994, Revival is an integral part of the health care network within the
metro-NY area, serving as a resource center for a variety of health related
matters. Revival is dedicated to providing responsive, culturally sensitive,
professional home care to our patients in a cost conscious manner, with the goal
of enhancing the potential for physical. psychological. and spiritual well being
of those we serve. It provides its services within New York City, Westchester,
Rockland, Orange and Sullivan counties. Revival has achieved unmatched growth
and distinction as a provider of home health care services, and takes pride in
the ability to integrate the ritual religious observance of its patients with
healthcare needs so that neither is compromised. For more information, please
contact us at 718-629-1000, info@revivalhhc.org or visit our website at
www.revivalhhc.org.

SAFE HARBOR STATEMENT: In addition to historical information, certain of the
statements in the preceding paragraphs, particularly those anticipating future
events, financial performance, business prospects and growth and operating
strategies constitute forward-looking statements within the meaning of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such
statements may be identified by words such as anticipate, believe, estimate,
expect, intend, predict, hope or similar expressions. Such statements are based
on management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements, including, without limitation,
satisfaction of regulatory and other approvals and conditions necessary to
market PROBACTRIX(R), the Company's ability to implement its strategies and
achieve its objectives and the risks and uncertainties described in reports
filed by the Company with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, including without limitation, the
risk factors set forth and cautionary statements made in the Company's 2004
Annual Report on Form 10-K, as amended, its latest quarterly report on Form 10-Q
and current reports on Form 8-K.

Consulting For Strategic Growth I, Ltd. ("CFSG") provides The BioBalance
Corporation with consulting, business advisory, investor relations, public
relations and corporate development services, for which CFSG receives a fixed
monthly fee for the duration of the agreement. Independent of CFSG's receipt of
cash compensation from BioBalance, CFSG may choose to purchase the common stock
of New York Health Care, Inc. and thereafter sell those shares at any time it
deems appropriate to do so.

Contact:

        CONTACTS:
        Dennis O'Donnell
        CEO
        New York Health Care, Inc.
        Tel: (212) 679-7778
        Fax: (212) 679-7774
        Email Contact

        Stanley Wunderlich
        CEO
        Consulting For Strategic Growth 1, Ltd.
        Tel: (800) 625-2236
        Fax: (212) 337-8089
        Email ContactSECURITIES PURCHASE AGREEMENT

      THIS SECURITIES PURCHASE AGREEMENT (this  "Agreement"),  dated as of March
8, 2006,  by and among  COMPLIANCE  SYSTEMS  CORPORATION,  a Nevada  corporation
(formerly know as GSA Publishing,  Inc.) (the "Company"),  and the Buyers listed
on  Schedule  I  attached  hereto  (individually,   a  "Buyer"  or  collectively
"Buyers").

                                    RECITALS:

      WHEREAS,  the Company and the Buyer(s) are executing and  delivering  this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation  D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").

      WHEREAS,  the Company has issued to the Buyer and the Buyer has  purchased
from the  Company a Secured  Convertible  Debenture  on  November  30, 2005 (the
"November  Debenture")  for a purchase  price of $600,000.  The entire  purchase
price of $600,000 was paid by the Holder on November  30,  2005.  As of the date
hereof, the outstanding  principal on the November Debenture equals $600,000 and
all accrued interest has been paid.

      WHEREAS,  as of the date hereof,  the Buyer is the beneficial owner of the
November  Debenture.  The Buyer desires to surrender the November  Debenture for
conversion   into  the  convertible   debentures  and  to  purchase   additional
convertible  debentures as outlined  below for the total  purchase  price of One
Million Dollars ($1,000,000).

      WHEREAS,  the  parties  desire  that,  upon the terms and  subject  to the
conditions  contained herein,  the Company shall issue and sell to the Buyer, as
provided  herein,  and  the  Buyer  shall  purchase  up to One  Million  Dollars
($1,000,000) of secured convertible  debentures (the "Convertible  Debentures"),
which shall be convertible  into shares of the Company's common stock, par value
$0.001 (the "Common  Stock") (as converted,  the  "Conversion  Shares") of which
$600,000 shall be purchased for consideration  solely consisting of surrendering
the November  Debenture,  and Four Hundred Thousand Dollars  ($400,000) shall be
purchased by additional  funding by the Buyer for a total of One Million Dollars
($1,000,000)  within  five (5)  business  days  following  the date  hereof (the
"Closing") for a total purchase price of up to One Million Dollars  ($1,000,000)
(the "Purchase Price").

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement  substantially (the "Investor Registration Rights Agreement") pursuant
to which the Company has agreed to provide certain registration rights under the
Securities  Act and the rules  and  regulations  promulgated  there  under,  and
applicable state securities laws.

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties hereto are executing and delivering a Security Agreement
and each wholly  owned  subsidiary  of the  Company is entering  into a Security
Agreement  (collectively the "Security Agreement") pursuant to which the Company
and its  subsidiaries  have agreed to provide  the Buyer a security  interest in
Pledged Collateral (as this term is defined in the Security Agreement) to secure
the  Company's   obligations  under  the  Transaction  Documents  or  any  other
obligations of the Company to the Buyer.

                                       1
<PAGE>

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties  hereto are executing and delivering a Pledge and Escrow
Agreements  (the  "Issuer  Pledge and Escrow  Agreement")  pursuant to which the
Company  has agreed to  provide  the Buyer a security  interest  in the  Pledged
Shares (as this term is defined in the Issuer  Pledge and Escrow  Agreement)  to
secure the Company's  obligations  under the Transaction  Documents or any other
obligations of the Company to the Buyer.

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the  parties  hereto,  Barry  Brookstein,  and  Dean  Garfinkel  are
executing and  delivering a Insider Pledge and Escrow  Agreements  (collectively
the "Pledge and Escrow  Agreement")  pursuant  to which the Dean  Garfinkel  and
Barry  Brookstein  have agreed to provide  the Buyer a security  interest in the
Pledged  Shares (as this term is defined in the Pledge and Escrow  Agreement) to
secure the Company's  obligations  under the Transaction  Documents or any other
obligations of the Company to the Buyer.

      WHEREAS,  contemporaneously  with  the  execution  and  delivery  of  this
Agreement,  the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions (the "Irrevocable Transfer Agent Instructions").

      NOW, THEREFORE, for and in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:

            1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

                  (a)  Purchase  of  Convertible  Debentures.   Subject  to  the
satisfaction  (or waiver) of the terms and  conditions of this  Agreement,  each
Buyer  agrees,  severally  and not jointly,  to purchase at each Closing and the
Company  agrees to sell and issue to each Buyer,  severally and not jointly,  at
the  Closing,   Convertible   Debentures  in  amounts   corresponding  with  the
Subscription Amount set forth opposite each Buyer's name on Schedule I hereto.

                  (b) Closing Date.  The Closing of the purchase and sale of the
Convertible  Debentures  shall take place at 10:00 a.m. Eastern Standard Time on
the fifth (5th) business day following the date hereof,  subject to notification
of  satisfaction  of the conditions to the First Closing set forth herein and in
Sections  6 and 7 below  (or such  later  date as is  mutually  agreed to by the
Company and the Buyer(s)) (the "Closing  Date").  The Closing shall occur on the
respective Closing Dates at the offices of Yorkville Advisors,  LLC, 3700 Hudson
Street,  Suite 3700,  Jersey  City,  New Jersey 07302 (or such other place as is
mutually agreed to by the Company and the Buyer(s)).

                  (c) Form of Payment.  Subject to the satisfaction of the terms
and  conditions  of this  Agreement,  on the Closing  Date,  (i) the Buyer shall
deliver to the Company in such aggregate proceeds for the Convertible Debentures
to be issued and sold to such  Buyer(s),  and (ii) the Company  shall deliver to
each Buyer,  Convertible Debentures which such Buyer(s) is purchasing in amounts
indicated  opposite  such Buyer's name on Schedule I, duly executed on behalf of
the Company.

                                       2
<PAGE>

            2. BUYER'S REPRESENTATIONS AND WARRANTIES.

      Each Buyer represents and warrants, severally and not jointly, that:

                  (a) Investment Purpose. Each Buyer is acquiring the
Convertible Debentures and, upon conversion of Convertible Debentures, the Buyer
will acquire the Conversion Shares then issuable, for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, such Buyer reserves the right to dispose of the
Conversion Shares at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares or an available exemption
under the Securities Act.

                  (b) Accredited  Investor Status.  Each Buyer is an "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D.

                  (c) Reliance on Exemptions.  Each Buyer  understands  that the
Convertible  Debentures are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities  laws and that the  Company  is  relying  in part  upon the truth and
accuracy of, and such Buyer's compliance with, the representations,  warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the  availability  of such  exemptions and the eligibility of
such Buyer to acquire such securities.

                  (d) Information.  Each Buyer and its advisors (and his or, its
counsel),  if any,  have  been  furnished  with all  materials  relating  to the
business,  finances  and  operations  of the Company and  information  he deemed
material to making an informed investment decision regarding his purchase of the
Convertible  Debentures and the Conversion Shares,  which have been requested by
such  Buyer.  Each  Buyer  and its  advisors,  if any,  have been  afforded  the
opportunity  to ask  questions of the Company and its  management.  Neither such
inquiries nor any other due diligence  investigations conducted by such Buyer or
its advisors,  if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's  representations and warranties contained
in  Section  3  below.  Each  Buyer  understands  that  its  investment  in  the
Convertible Debentures and the Conversion Shares involves a high degree of risk.
Each Buyer is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such Buyer
to obtain information from the Company in order to evaluate the merits and risks
of this investment. Each Buyer has sought such accounting, legal and tax advice,
as it has  considered  necessary to make an informed  investment  decision  with
respect to its  acquisition  of the  Convertible  Debentures  and the Conversion
Shares.

                  (e) No Governmental  Review.  Each Buyer  understands  that no
United States  federal or state agency or any other  government or  governmental
agency  has  passed  on  or  made  any  recommendation  or  endorsement  of  the
Convertible  Debentures or the Conversion Shares, or the fairness or suitability
of the investment in the Convertible  Debentures or the Conversion  Shares,  nor
have such authorities  passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.

                                       3
<PAGE>

                  (f) Transfer or Resale.  Each Buyer understands that except as
provided in the Investor  Registration  Rights  Agreement:  (i) the  Convertible
Debentures have not been and are not being  registered  under the Securities Act
or any state securities laws, and may not be offered for sale, sold, assigned or
transferred  unless (A) subsequently  registered  thereunder,  or (B) such Buyer
shall have  delivered  to the  Company an opinion  of  counsel,  in a  generally
acceptable  form,  to the effect that such  securities  to be sold,  assigned or
transferred may be sold,  assigned or transferred  pursuant to an exemption from
such  registration  requirements;  (ii)  any  sale  of such  securities  made in
reliance  on Rule 144 under the  Securities  Act (or a successor  rule  thereto)
("Rule  144")  may be made  only in  accordance  with the  terms of Rule 144 and
further,  if Rule 144 is not  applicable,  any resale of such  securities  under
circumstances  in which the seller (or the person through whom the sale is made)
may be deemed to be an  underwriter  (as that term is defined in the  Securities
Act) may require  compliance  with some other exemption under the Securities Act
or the rules and  regulations  of the SEC  thereunder;  and  (iii)  neither  the
Company nor any other person is under any obligation to register such securities
under the  Securities  Act or any state  securities  laws or to comply  with the
terms and conditions of any exemption thereunder. The Company reserves the right
to place stop transfer  instructions against the shares and certificates for the
Conversion Shares.

                  (g) Legends.  Each Buyer  understands that the certificates or
other instruments  representing the Convertible Debentures and or the Conversion
Shares shall bear a restrictive  legend in substantially the following form (and
a  stop  transfer   order  may  be  placed   against   transfer  of  such  stock
certificates):

            THE SECURITIES  REPRESENTED BY THIS CERTIFICATE HAVE NOT
            BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933, AS
            AMENDED,   OR  APPLICABLE  STATE  SECURITIES  LAWS.  THE
            SECURITIES  HAVE BEEN  ACQUIRED  SOLELY  FOR  INVESTMENT
            PURPOSES  AND NOT WITH A VIEW TOWARD  RESALE AND MAY NOT
            BE OFFERED FOR SALE,  SOLD,  TRANSFERRED  OR ASSIGNED IN
            THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT FOR
            THE  SECURITIES  UNDER THE  SECURITIES  ACT OF 1933,  AS
            AMENDED,  OR  APPLICABLE  STATE  SECURITIES  LAWS, OR AN
            OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
            REGISTRATION   IS  NOT   REQUIRED   UNDER  SAID  ACT  OR
            APPLICABLE STATE SECURITIES LAWS.

The  legend set forth  above  shall be removed  and the  Company  within two (2)
business days shall issue a certificate without such legend to the holder of the
Conversion  Shares upon which it is stamped,  if, unless  otherwise  required by
state securities laws, (i) in connection with a sale  transaction,  provided the
Conversion  Shares are registered under the Securities Act or (ii) in connection
with a sale transaction,  after such holder provides the Company with an opinion
of counsel,  which opinion shall be in form,  substance and scope  customary for
opinions  of counsel in  comparable  transactions,  to the effect  that a public
sale,  assignment  or  transfer  of the  Conversion  Shares may be made  without
registration under the Securities Act.

                                       4
<PAGE>

                  (h) Authorization,  Enforcement.  This Agreement has been duly
and validly authorized,  executed and delivered on behalf of such Buyer and is a
valid and binding  agreement of such Buyer  enforceable  in accordance  with its
terms,  except as such  enforceability  may be limited by general  principles of
equity  or  applicable  bankruptcy,  insolvency,   reorganization,   moratorium,
liquidation  and other  similar laws  relating to, or affecting  generally,  the
enforcement of applicable creditors' rights and remedies.

                  (i)  Receipt of  Documents.  Each Buyer and his or its counsel
has  received  and  read  in  their  entirety:   (i)  this  Agreement  and  each
representation,  warranty  and covenant set forth  herein,  and the  Transaction
Documents;  (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants; and
(iii) answers to all questions each Buyer submitted to the Company  regarding an
investment  in the  Company;  and  each  Buyer  has  relied  on the  information
contained  therein and has not been furnished any other  documents,  literature,
memorandum or prospectus.

                  (j) Due  Formation  of  Corporate  and  Other  Buyers.  If the
Buyer(s) is a  corporation,  trust,  partnership  or other entity that is not an
individual  person,  it has been  formed  and  validly  exists  and has not been
organized for the specific purpose of purchasing the Convertible  Debentures and
is not prohibited from doing so.

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

                  (l) No Buyer makes any  representation  or warranty  regarding
the Company's  ability to  successfully  become a public  company or to have any
registration  statement filed by the Company pursuant to the Registration Rights
Agreement or otherwise  declared  effective by the SEC. The Company has the sole
obligation  to make any and all such  filings  as may be  necessary  to become a
public company and to have any registration  statement declared effective by the
SEC.

            3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      The Company  represents and warrants to each of the Buyers that, except as
set forth in the Disclosure Schedule attached as Exhibit A hereto:

                  (a)  Organization  and  Qualification.  The  Company  and  its
subsidiaries  are  corporations  duly  organized  and  validly  existing in good
standing under the laws of the jurisdiction in which they are incorporated,  and
have the requisite corporate power to own their properties and to carry on their
business as now being  conducted.  Each of the Company and its  subsidiaries  is
duly  qualified as a foreign  corporation to do business and is in good standing
in every  jurisdiction in which the nature of the business conducted by it makes
such  qualification  necessary,  except to the extent  that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.

                                       5
<PAGE>

                  (b)   Authorization,   Enforcement,   Compliance   with  Other
Instruments.  (i) The Company has the requisite corporate power and authority to
enter into and perform  this  Agreement,  the Security  Agreement,  the Investor
Registration  Rights Agreement,  the Irrevocable  Transfer Agent Agreement,  the
Pledge and Escrow  Agreements,  the Issuer Pledge and Escrow Agreement,  and any
related agreements  (collectively the "Transaction  Documents") and to issue the
Convertible  Debentures and the Conversion  Shares in accordance  with the terms
hereof and thereof, (ii) the execution and delivery of the Transaction Documents
by the  Company  and the  consummation  by it of the  transactions  contemplated
hereby  and  thereby,  including,   without  limitation,  the  issuance  of  the
Convertible  Debentures the Conversion  Shares and the  reservation for issuance
and the issuance of the Conversion  Shares  issuable upon conversion or exercise
thereof,  have been duly  authorized by the Company's  Board of Directors and no
further  consent or  authorization  is  required  by the  Company,  its Board of
Directors or its  stockholders,  (iii) the Transaction  Documents have been duly
executed and delivered by the Company, (iv) the Transaction Documents constitute
the valid and binding obligations of the Company enforceable against the Company
in accordance with their terms,  except as such enforceability may be limited by
general   principles   of   equity   or   applicable   bankruptcy,   insolvency,
reorganization,   moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally,  the  enforcement of creditors'  rights and remedies.  The
authorized  officer of the Company executing the Transaction  Documents knows of
no reason why the Company  cannot file the  registration  statement  as required
under the Investor Registration Rights Agreement or perform any of the Company's
other obligations under such documents.

                  (c)  Capitalization.  As of the  date  hereof  the  authorized
capital stock of the Company consists of 500,000,000  shares of Common Stock and
no shares of Preferred  Stock,  of which  50,000,000  shares of Common Stock are
issued and outstanding.  All of such outstanding shares have been validly issued
and are fully paid and  nonassessable.  No shares of Common Stock are subject to
preemptive  rights or any  other  similar  rights  or any liens or  encumbrances
suffered or  permitted  by the Company.  As of the date of this  Agreement,  (i)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character  whatsoever relating to, or securities or rights
convertible  into,  any  shares of  capital  stock of the  Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the  Company  or  any of  its  subsidiaries  is or may  become  bound  to  issue
additional  shares of capital stock of the Company or any of its subsidiaries or
options,  warrants,  scrip,  rights to subscribe to, calls or commitments of any
character  whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its  subsidiaries,  (ii) except
for the November  Debenture,  there are no outstanding debt securities and (iii)
there are no  agreements or  arrangements  under which the Company or any of its
subsidiaries is obligated to register the sale of any of their  securities under
the Securities Act (except  pursuant to the Registration  Rights  Agreement) and
(iv)  there  are  no  outstanding  registration  statements  and  there  are  no
outstanding  comment letters from the SEC or any other regulatory agency.  There
are no securities or instruments containing  anti-dilution or similar provisions
that  will  be  triggered  by the  issuance  of the  Convertible  Debentures  as
described  in this  Agreement.  The Company has  furnished to the Buyer true and
correct copies of the Company's Articles of Incorporation,  as amended and as in
effect on the date hereof (the "Articles of  Incorporation"),  and the Company's
Bylaws,  as in effect on the date  hereof (the  "Bylaws"),  and the terms of all
securities  convertible  into or  exercisable  for Common Stock and the material
rights of the holders thereof in respect thereto other than stock options issued
to employees and consultants.

                                       6
<PAGE>

                  (d) Issuance of  Securities.  The  Convertible  Debentures are
duly authorized and, upon issuance in accordance with the terms hereof, shall be
duly issued,  fully paid and  nonassessable,  are free from all taxes, liens and
charges with respect to the issue thereof.  The Conversion  Shares issuable upon
conversion of the Convertible  Debentures have been duly authorized and reserved
for issuance.  Upon  conversion or exercise in accordance  with the  Convertible
Debentures  the  Conversion   Shares  will  be  duly  issued,   fully  paid  and
nonassessable.

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

                  (f) Financial  Statements.  As of their respective  dates, the
financial  statements of the Company (the  "Financial  Statements")  for the two
most recently  completed fiscal years and any subsequent interim period complied
as to form in all material respects with applicable accounting  requirements and
the  published  rules and  regulations  of the SEC with  respect  thereto.  Such
financial  statements have been prepared in accordance  with generally  accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise  indicated  in such  Financial  Statements  or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they

                                       7
<PAGE>

may exclude  footnotes or may be condensed or summary  statements)  and,  fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of its  operations  and cash flows for the periods
then ended  (subject,  in the case of unaudited  statements,  to normal year-end
audit adjustments). No other information provided by or on behalf of the Company
to the Buyer,  including,  without limitation,  information  referred to in this
Agreement,  contains any untrue  statement of a material  fact or omits to state
any material  fact  necessary in order to make the  statements  therein,  in the
light of the circumstances under which they were made, not misleading.

                  (g)  Absence  of  Litigation.   There  is  no  action,   suit,
proceeding,  inquiry  or  investigation  before or by any court,  public  board,
government  agency,  self-regulatory  organization  or body  pending  against or
affecting the Company,  the Common Stock or any of the  Company's  subsidiaries,
wherein an  unfavorable  decision,  ruling or finding  would (i) have a material
adverse effect on the transactions contemplated hereby (ii) adversely affect the
validity or  enforceability  of, or the  authority  or ability of the Company to
perform  its  obligations   under,  this  Agreement  or  any  of  the  documents
contemplated  herein,  or (iii) have a material  adverse effect on the business,
operations,  properties,  financial  condition or results of  operations  of the
Company and its subsidiaries taken as a whole.

                  (h)   Acknowledgment   Regarding   Buyer's   Purchase  of  the
Convertible Debentures. The Company acknowledges and agrees that the Buyer(s) is
acting solely in the capacity of an arm's length  purchaser with respect to this
Agreement  and  the  transactions   contemplated  hereby.  The  Company  further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar  capacity)  with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective  representatives or agents in connection with this Agreement
and the transactions  contemplated  hereby is merely  incidental to such Buyer's
purchase of the  Convertible  Debentures or the Conversion  Shares.  The Company
further  represents to the Buyer that the Company's  decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.

                  (i) No General  Solicitation.  Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general  solicitation  or general  advertising  (within  the  meaning of
Regulation D under the Securities  Act) in connection  with the offer or sale of
the Convertible Debentures or the Conversion Shares.

                  (j) No Integrated  Offering.  Neither the Company,  nor any of
its  affiliates,  nor any person acting on its or their behalf has,  directly or
indirectly,  made any offers or sales of any security or solicited any offers to
buy any security,  under  circumstances  that would require  registration of the
Convertible  Debentures or the  Conversion  Shares under the  Securities  Act or
cause this offering of the Convertible Debentures or the Conversion Shares to be
integrated  with prior  offerings by the Company for purposes of the  Securities
Act.

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

                                       8
<PAGE>

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

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

                  (n) Title.  Any real property and facilities  held under lease
by the Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such  property and buildings by the
Company and its subsidiaries.

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

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

                                       9
<PAGE>

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

                  (r) No Material Adverse Breaches, etc. Neither the Company nor
any of its  subsidiaries  is subject to any  charter,  corporate  or other legal
restriction,  or any judgment,  decree,  order,  rule or regulation which in the
judgment of the  Company's  officers  has or is expected in the future to have a
material  adverse  effect on the  business,  properties,  operations,  financial
condition,   results  of   operations   or  prospects  of  the  Company  or  its
subsidiaries.  Neither the Company nor any of its  subsidiaries  is in breach of
any  contract or  agreement  which  breach,  in the  judgment  of the  Company's
officers,  has or is expected to have a material adverse effect on the business,
properties,  operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.

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

                  (t) Certain  Transactions.  Except (i) as noted in the Budget,
(ii) arm's-length  transactions  pursuant to which the Company makes payments in
the ordinary  course of business upon terms no less  favorable  than the Company
could obtain from third parties,  or (iii) the grant of stock options  disclosed
in the Disclosure Schedule, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than for
services  as  employees,  officers  and  directors),   including  any  contract,
agreement or other  arrangement  providing for the  furnishing of services to or
by,  providing for rental of real or personal  property to or from, or otherwise
requiring payments to or from any officer,  director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer,  director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

                  (u) Fees and  Rights  of First  Refusal.  The  Company  is not
obligated to offer the securities  offered hereunder on a right of first refusal
basis or otherwise to any third parties  including,  but not limited to, current
or former shareholders of the Company,  underwriters,  brokers,  agents or other
third parties.

                                       10
<PAGE>

                  (v) The Company  acknowledges that the Buyer is relying on the
representations  and  warranties  made by the  Company  hereunder  and that such
representations and warranties are a material inducement to the Buyer purchasing
the Convertible  Debentures.  The Company further acknowledges that without such
representations  and warranties of the Company made  hereunder,  the Buyer would
not enter into this Agreement.

            4. COVENANTS.

                  (a) Best  Efforts.  Each party  shall use its best  efforts to
timely  satisfy  each of the  conditions  to be  satisfied  by it as provided in
Sections 6 and 7 of this Agreement.

                  (b) Form D. The Company  agrees to file a Form D with  respect
to the Conversion  Shares as required  under  Regulation D and to provide a copy
thereof to each Buyer  promptly  after such  filing.  The Company  shall,  on or
before the  Closing  Date,  take such  action as the  Company  shall  reasonably
determine is necessary to qualify the Conversion  Shares, or obtain an exemption
for the Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement  under  applicable  securities or "Blue Sky" laws of the states of the
United  States,  and shall  provide  evidence of any such action so taken to the
Buyers on or prior to the Closing Date.

                  (c) Reporting  Status.  Commencing on the effectiveness of the
Registration  Statement  and until the  earlier  of (i) the date as of which the
Buyer(s) may sell all of the Conversion Shares without  restriction  pursuant to
Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Buyer(s) shall have sold all the Conversion Shares and
(B)  none of the  Convertible  Debentures  are  outstanding  (the  "Registration
Period"),  the Company shall file in a timely manner all reports  required to be
filed with the SEC pursuant to the Exchange Act and the  regulations  of the SEC
thereunder, and the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would otherwise permit such termination.

                  (d) Use of Proceeds.  The Company  will use the proceeds  from
the sale of the Convertible Debentures for general corporate and working capital
purposes in a manner  consistent  with the uses described in the budget attached
hereto as Exhibit B (the "Budget").  The Company,  in its discretion and without
prior  consent of or notice to the Buyers,  may deviate up to ten percent  (10%)
for any single line item described in the Budget.

                  (e)  Reservation of Shares.  The Company shall take all action
reasonably  necessary  to at all times have  authorized,  and  reserved  for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares. If at any time the Company does
not have  available  such  shares of Common  Stock as shall from time to time be
sufficient to effect the conversion of all of the Conversion Shares, the Company
shall call and hold a special meeting of the shareholders within sixty (60) days
of such  occurrence,  for the sole  purpose of  increasing  the number of shares
authorized. The Company's management shall recommend to the shareholders to vote
in favor of  increasing  the  number  of  shares  of  Common  Stock  authorized.
Management  shall also vote all of its shares in favor of increasing  the number
of authorized shares of Common Stock.

                                       11
<PAGE>

                  (f) Listings or  Quotation.  The Company  shall,  concurrently
with the effectiveness of the registration statement filed with the SEC pursuant
to the Investor  Registration Rights Agreement,  secure the listing or quotation
of its Common Stock (including,  without limitation, the Conversion Shares) upon
a   national   securities   exchange,   automated   quotation   system   or  the
Over-The-Counter Bulletin Board ("OTCBB") maintained by the National Association
of Securities Dealers,  Inc. The Company shall maintain the listing or quotation
of the  Common  Stock  for so long as the Buyer is the  beneficial  owner of any
Common Stock or Conversion Shares (whether obtained or to be obtained under this
Agreement),  the  Convertible  Debentures  or any other  agreement  between  the
Company  and  the  Buyer.   The  Company  shall   maintain  the  Common  Stock's
authorization  for  quotation  on the  OTCBB.  It shall  be an event of  default
hereunder if the Company  fails to strictly  comply with its  obligations  under
this Section 4(f).

                  (g) Fees and  Expenses.  Each of the Company and the  Buyer(s)
shall pay all costs and expenses  incurred by such party in connection  with the
negotiation,   investigation,   preparation,   execution  and  delivery  of  the
Transaction Documents.  The Company shall pay Yorkville Advisors LLC a fee equal
to $40,000 at the Closing.

                  (h) The Company shall be solely  responsible  for the contents
of the Registration  Statement,  prospectus or other filing made with the SEC or
otherwise  used in the  offering  of the  Company's  securities  (except as such
disclosure  relates  solely to the Buyer and then only to the  extent  that such
disclosure  conforms with  information  furnished in writing by the Buyer to the
Company),  even if the Buyer or its agents as an  accommodation  to the  Company
participate  or  assist  in the  preparation  of  such  Registration  Statement,
prospectus  or other SEC filing.  The Company shall retain its own legal counsel
to review,  edit,  confirm and do all things such  counsel  deems  necessary  or
desirable  to such  Registration  Statement,  prospectus  or other SEC filing to
ensure that it does not contain an untrue  statement or alleged untrue statement
of material  fact or omit or alleged to omit a material  fact  necessary to make
the  statements  made  therein,  in light of the  circumstances  under which the
statements were made, not misleading.

                  (i)  Corporate  Existence.  So long as any of the  Convertible
Debentures  remain  outstanding,  the Company  shall not directly or  indirectly
consummate  any  merger,  reorganization,  restructuring,  reverse  stock  split
consolidation,  sale of all or substantially  all of the Company's assets or any
similar  transaction  or  related   transactions  (each  such  transaction,   an
"Organizational  Change") unless,  prior to the  consummation an  Organizational
Change, the Company obtains the written consent of each Buyer. In any such case,
the Company will make appropriate provision with respect to such holders' rights
and interests to insure that the provisions of this Section 4(h) will thereafter
be applicable to the Convertible Debentures.

                  (j) Transactions  With Affiliates.  So long as any Convertible
Debentures are  outstanding,  the Company shall not, and shall cause each of its
subsidiaries  not to, enter into,  amend,  modify or  supplement,  or permit any
subsidiary  to  enter  into,   amend,   modify  or  supplement   any  agreement,
transaction,  commitment,  or  arrangement  with any of its or any  subsidiary's
officers,  directors,  person who were  officers or directors at any time during
the previous two (2) years,  stockholders who beneficially own five percent (5%)
or more of the  Common  Stock,  or  Affiliates  (as  defined  below) or with any
individual  related by blood,  marriage,  or adoption to any such  individual or
with any entity in which any such entity or individual  owns a five percent (5%)

                                       12
<PAGE>

or more beneficial  interest (each a "Related Party"),  except for (a) customary
employment  arrangements  and benefit  programs  on  reasonable  terms,  (b) any
investment  in an  Affiliate  of the Company,  (c) any  agreement,  transaction,
commitment,  or arrangement on an arm's-length  basis on terms no less favorable
than  terms  which  would  have been  obtainable  from a person  other than such
Related Party, (d) any agreement, transaction,  commitment, or arrangement which
is approved by a majority of the  disinterested  directors of the  Company;  for
purposes  hereof,  any  director  who is also an officer  of the  Company or any
subsidiary of the Company shall not be a disinterested  director with respect to
any such agreement,  transaction,  commitment,  or arrangement.  "Affiliate" for
purposes hereof means,  with respect to any person or entity,  another person or
entity that, directly or indirectly,  (i) has a ten percent (10%) or more equity
interest  in that person or entity,  (ii) has ten  percent  (10%) or more common
ownership with that person or entity,  (iii) controls that person or entity,  or
(iv) shares common  control with that person or entity.  "Control" or "controls"
for  purposes  hereof  means that a person or entity  has the  power,  direct or
indirect, to conduct or govern the policies of another person or entity.

                  (k) Transfer Agent. The Company  covenants and agrees that, in
the event that the Company's agency  relationship with the transfer agent should
be  terminated  for any reason  prior to a date which is two (2) years after the
Closing Date,  the Company shall  immediately  appoint a new transfer  agent and
shall  require that the new transfer  agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).

                  (l)  Restriction on Issuance of the Capital Stock.  So long as
any Convertible  Debentures are outstanding,  the Company shall not, without the
prior written consent of the Buyer(s),  (i) issue or sell shares of Common Stock
or Preferred Stock without  consideration or for a consideration  per share less
than the fair market value of the Common Stock determined  immediately  prior to
its issuance,  (ii) issue any warrant,  option, right, contract,  call, or other
security  instrument  granting the holder  thereof,  the right to acquire Common
Stock without consideration or for a consideration less than such Common Stock's
fair market value  determined  immediately  prior to it's issuance,  (iii) enter
into any security  instrument granting the holder a security interest in any and
all assets of the  Company,  except in  connection  with the Company  leasing or
purchasing  office  equipment,  computer and networking  equipment,  co-location
equipment  and  other  equipment  and  supplies  in the  ordinary  course of the
Company's  business,  provided  such  equipment  and  supplies  do  not,  in the
aggregate,  exceed fifty thousand  dollars  ($50,000.00) per annum, or (iv) file
any registration statement on Form S-8.

                  (m) Lock-up  Agreement.  On the date hereof, the Company shall
obtain from each officer and director of the Company a lock-up  agreement.  Such
lock-up agreement shall prohibit sales of the Company's Common Stock for so long
as any portion of the Convertible Debenture is outstanding.

                  (n) No Payment of Management Fees.  Except as disclosed in the
Budget,  the Company  shall not make any  payments of (i)  salaries,  management
fees,  commissions  or any other  remuneration  to officers or  directors of the
Company or any person or entity  that is an  "affiliate"  of any such  person or
entity (the "Management Group") or (ii) on any notes,  accounts payable or other
obligations  or  liabilities  owed to any member of  Management  Group until the
Registration  Statement has been  effective (as declared by the  Securities  and
Exchange  Commission)  for a  period  of at  least  90  days  (the  "Prohibition
Period").

                                       13
<PAGE>

                  (o) No Indebtedness.  For so long as the Convertible Debenture
is outstanding,  the Company shall not incur any indebtedness for borrowed money
or become a guarantor or otherwise contingently liable for any such indebtedness
except for (i) trade  payables or  purchase  money  obligations  incurred in the
ordinary course of business,  or (ii) amounts not to exceed one hundred thousand
dollars ($100,000).

                  (p) No Other Registration Statements. Except for the filing of
the  registration  statements  contemplated in this  transaction (the "Permitted
Registration  Statements"),   for  so  long  as  the  Convertible  Debenture  is
outstanding, the Company shall not file any other registration statements on any
form  (including  but not limited to forms S-1,  SB-2,  S-3 and S-8) without the
prior written consent of the Buyer.  Further, the Company shall not register for
sale or resale of any  shares of  capital  stock in the  Permitted  Registration
Statements other than the capital stock beneficially owned by the Buyer or to be
issued to the Buyer upon conversion of the Convertible  Debentures,  exercise of
warrants or issuance  under the Standby  Equity  Distribution  Agreement of even
date herewith.

                  (q) Neither the  Buyer(s)  nor any of its  affiliates  have an
open short position in the Common Stock of the Company,  and the Buyer(s) agrees
that it shall not, and that it will cause its  affiliates  not to, engage in any
short sales of or hedging  transactions with respect to the Common Stock as long
as any  Convertible  Debenture or warrants to purchase the Warrant  Shares shall
remain outstanding.

            5. TRANSFER AGENT INSTRUCTIONS.

                  (a) The Company  shall issue the  Irrevocable  Transfer  Agent
Instructions to its transfer agent irrevocably  appointing David Gonzalez,  Esq.
as the Company's agent for purpose of having certificates issued,  registered in
the name of the Buyer(s) or its respective nominee(s), for the Conversion Shares
representing  such amounts of  Convertible  Debentures as specified from time to
time  by the  Buyer(s)  to  the  Company  upon  conversion  of  the  Convertible
Debentures, for interest owed pursuant to the Convertible Debenture, and for any
and all Liquidated Damages (as this term is defined in the Investor Registration
Rights  Agreement).  David  Gonzalez,  Esq.  shall  be paid a cash  fee of Fifty
Dollars ($50) for every occasion they act pursuant to the  Irrevocable  Transfer
Agent Instructions.  The Company shall not change its transfer agent without the
express written  consent of the Buyer(s),  which may be withheld by the Buyer(s)
in its sole discretion. Prior to registration of the Conversion Shares under the
Securities  Act,  all  such  certificates  shall  bear  the  restrictive  legend
specified  in Section  2(g) of this  Agreement.  The  Company  warrants  that no
instruction other than the Irrevocable  Transfer Agent Instructions  referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(g)
hereof  (in the case of the  Conversion  Shares  prior to  registration  of such
shares  under the  Securities  Act) will be given by the Company to its transfer
agent and that the Conversion  Shares shall otherwise be freely  transferable on
the books and  records  of the  Company as and to the  extent  provided  in this
Agreement  and the  Investor  Registration  Rights  Agreement.  Nothing  in this
Section 5 shall  affect in any way the  Buyer's  obligations  and  agreement  to

                                       14
<PAGE>

comply with all applicable  securities laws upon resale of Conversion Shares. If
the Buyer(s) provides the Company with an opinion of counsel, in form, scope and
substance  customary for opinions of counsel in comparable  transactions  to the
effect that  registration  of a resale by the Buyer(s) of any of the  Conversion
Shares is not required  under the  Securities  Act, the Company shall within two
(2) business days instruct its transfer agent to issue one or more  certificates
in such name and in such  denominations  as specified by the Buyer.  The Company
acknowledges  that  a  breach  by it of its  obligations  hereunder  will  cause
irreparable  harm to the  Buyer by  vitiating  the  intent  and  purpose  of the
transaction contemplated hereby. Accordingly,  the Company acknowledges that the
remedy  at law for a breach  of its  obligations  under  this  Section 5 will be
inadequate  and  agrees,  in the event of a breach or  threatened  breach by the
Company  of the  provisions  of this  Section  5,  that  the  Buyer(s)  shall be
entitled,  in  addition  to  all  other  available  remedies,  to an  injunction
restraining any breach and requiring  immediate  issuance and transfer,  without
the necessity of showing  economic  loss and without any bond or other  security
being required.

            6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

      The obligation of the Company  hereunder to issue and sell the Convertible
Debentures to the Buyer(s) at the Closings is subject to the satisfaction, at or
before the Closing  Dates,  of each of the following  conditions,  provided that
these  conditions  are for the  Company's  sole benefit and may be waived by the
Company at any time in its sole discretion:

                  (a) Each Buyer shall have executed the  Transaction  Documents
and delivered them to the Company.

                  (b) The Buyer(s)  shall have  delivered the Purchase Price for
Convertible  Debentures in respective amounts as set forth next to each Buyer as
outlined on Schedule I attached hereto by wire transfer of immediately available
U.S. funds pursuant to the wire instructions provided by the Company.

                  (c) The  representations  and warranties of the Buyer(s) shall
be true and correct in all material  respects as of the date when made and as of
the Closing  Dates as though made at that time (except for  representations  and
warranties  that  speak as of a  specific  date),  and the  Buyer(s)  shall have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied with by the Buyer(s) at or prior to the Closing Dates.

            7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

                  (a) The  obligation of the Buyer(s)  hereunder to purchase the
Convertible  Debentures  at the  Closing is subject to the  satisfaction,  at or
before the Closing Date, of each of the following conditions:

                        (i) The  Company  shall have  executed  the  Transaction
Documents and delivered the same to the Buyer(s).

                                       15
<PAGE>

                        (ii) The  representations  and warranties of the Company
shall be true and correct in all  material  respects  (except to the extent that
any  of  such   representations  and  warranties  is  already  qualified  as  to
materiality  in  Section  3  above,  in which  case,  such  representations  and
warranties  shall be true and correct without further  qualification)  as of the
date when made and as of the Closing  Date as though  made at that time  (except
for  representations  and  warranties  that speak as of a specific date) and the
Company shall have  performed,  satisfied and complied in all material  respects
with the covenants,  agreements and conditions  required by this Agreement to be
performed,  satisfied or complied with by the Company at or prior to the Closing
Date. If requested by the Buyer,  the Buyer shall have  received a  certificate,
executed by the  President of the Company,  dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably  requested by
the  Buyer  including,  without  limitation  an update  as of the  Closing  Date
regarding the representation contained in Section 3(c) above.

                        (iii) The Company  shall have  executed and delivered to
the  Buyer  a  Convertible  Debentures  in the  amount  of One  Million  Dollars
($1,000,000).

                        (iv) The  Buyer(s)  shall  have  received  an opinion of
counsel from in a form satisfactory to the Buyer(s).

                        (v) The Company  shall have  provided to the  Buyer(s) a
certificate of good standing from the secretary of state from the state in which
the company is incorporated.

                        (vi) The  Company  or the Buyer  shall have filed a form
UCC-1 or such other forms as may be required to perfect the Buyer's  interest in
the Pledged Property as detailed in the Security Agreement dated the date hereof
and provided proof of such filing to the Buyer(s).

                        (vii) Barry  Brookstein  and Dean  Garfinkel  shall have
delivered  to the  Escrow  Agent  the  Pledged  Shares  as well as any  transfer
documents as required pursuant to the Pledge and Escrow Agreement.

                        (viii) The Company  shall have  provided to the Buyer an
acknowledgement,   to  the  satisfaction  of  the  Buyer,   from  the  Company's
independent  certified  public  accountants  as to its  ability to  provide  all
consents  required in order to file a registration  statement in connection with
this transaction.

                        (ix)  The  Company   shall  have  reserved  out  of  its
authorized  and unissued  Common Stock,  solely for the purpose of effecting the
conversion of the Convertible  Debentures,  shares of Common Stock to effect the
conversion of all of the Conversion Shares then outstanding.

                        (x) The Irrevocable Transfer Agent Instructions, in form
and  substance  satisfactory  to the  Buyer,  shall have been  delivered  to and
acknowledged in writing by the Company's transfer agent.

                                       16
<PAGE>

            8. INDEMNIFICATION.

                  (a) In consideration of the Buyer's  execution and delivery of
this  Agreement and  acquiring the  Convertible  Debentures  and the  Conversion
Shares  hereunder,  and in addition to all of the  Company's  other  obligations
under this  Agreement,  the Company  shall defend,  protect,  indemnify and hold
harmless the Buyer(s) and each other holder of the  Convertible  Debentures  and
the  Conversion  Shares,  and all of their  officers,  directors,  employees and
agents  (including,  without  limitation,  those retained in connection with the
transactions   contemplated  by  this  Agreement)   (collectively,   the  "Buyer
Indemnitees")  from and against any and all  actions,  causes of action,  suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection  therewith  (irrespective  of whether any such Buyer  Indemnitee is a
party  to the  action  for  which  indemnification  hereunder  is  sought),  and
including  reasonable   attorneys'  fees  and  disbursements  (the  "Indemnified
Liabilities"),  incurred by the Buyer Indemnitees or any of them as a result of,
or arising  out of, or relating  to (a) any  misrepresentation  or breach of any
representation  or  warranty  made  by  the  Company  in  this  Agreement,   the
Convertible  Debentures  or the Investor  Registration  Rights  Agreement or any
other certificate,  instrument or document  contemplated hereby or thereby,  (b)
any breach of any covenant,  agreement or obligation of the Company contained in
this  Agreement,  or the  Investor  Registration  Rights  Agreement or any other
certificate,  instrument or document  contemplated hereby or thereby, or (c) any
cause of action,  suit or claim  brought or made  against  such  Indemnitee  and
arising  out of or  resulting  from  the  execution,  delivery,  performance  or
enforcement  of this  Agreement or any other  instrument,  document or agreement
executed pursuant hereto by any of the parties hereto, any transaction  financed
or to be financed in whole or in part, directly or indirectly, with the proceeds
of the  issuance  of the  Convertible  Debentures  or the status of the Buyer or
holder  of the  Convertible  Debentures  the  Conversion  Shares,  as a Buyer of
Convertible  Debentures  in  the  Company.  To the  extent  that  the  foregoing
undertaking  by the Company  may be  unenforceable  for any reason,  the Company
shall make the maximum  contribution to the payment and  satisfaction of each of
the Indemnified Liabilities, which is permissible under applicable law.

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

                                       17
<PAGE>

            9. GOVERNING LAW: MISCELLANEOUS.

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

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

                  (c)  Headings.   The  headings  of  this   Agreement  are  for
convenience   of   reference   and  shall  not  form  part  of,  or  affect  the
interpretation of, this Agreement.

                  (d) Severability.  If any provision of this Agreement shall be
invalid   or   unenforceable   in   any   jurisdiction,   such   invalidity   or
unenforceability  shall  not  affect  the  validity  or  enforceability  of  the
remainder  of  this   Agreement  in  that   jurisdiction   or  the  validity  or
enforceability of any provision of this Agreement in any other jurisdiction.

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

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

                                       18
<PAGE>

If to the Company, to:          Compliance Systems Corporation
                                90 Pratt Oval
                                Glen Cove, NY 11542
                                Attention:  Dean Garfinkel
                                Telephone:  (516) 656-5155
                                Facsimile:  (516) 676-2420

With a copy to:                 Kirkpatrick & Lockhart Nicholson Graham, LLP
                                201 South Biscayne Boulevard, Suite 2000
                                Miami, Florida 33131
                                Attention:  Clayton E. Parker, Esq.
                                Telephone:  (305) 539-3306
                                Facsimile:  (305) 328-7095

      If to the  Buyer(s),  to its address and  facsimile  number on Schedule I,
with copies to the Buyer's  counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written  notice to the other party of any change in
address or facsimile number.

                  (g)  Successors and Assigns.  This Agreement  shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns.  Neither the Company nor any Buyer shall  assign this  Agreement or any
rights or obligations  hereunder  without the prior written consent of the other
party hereto.

                  (h) No Third Party  Beneficiaries.  This Agreement is intended
for the benefit of the parties hereto and their respective  permitted successors
and  assigns,  and is not for the  benefit of, nor may any  provision  hereof be
enforced by, any other person.

                  (i)  Survival.  Unless  this  Agreement  is  terminated  under
Section 9(l), the representations and warranties of the Company and the Buyer(s)
contained  in  Sections  2 and 3, the  agreements  and  covenants  set  forth in
Sections 4, 5 and 9, and the indemnification  provisions set forth in Section 8,
shall  survive the Closing for a period of two (2) years  following  the date on
which the  Convertible  Debentures  are converted in full. The Buyer(s) shall be
responsible  only  for  its  own  representations,  warranties,  agreements  and
covenants hereunder.

                  (j)  Publicity.  The Company and the  Buyer(s)  shall have the
right to  approve,  before  issuance  any  press  release  or any  other  public
statement  with  respect to the  transactions  contemplated  hereby  made by any
party; provided,  however, that the Company shall be entitled, without the prior
approval of the Buyer(s),  to issue any press release or other public disclosure
with respect to such transactions  required under applicable securities or other
laws or  regulations  (the  Company  shall use its best  efforts to consult  the
Buyer(s) in connection  with any such press  release or other public  disclosure
prior to its release and  Buyer(s)  shall be provided  with a copy  thereof upon
release thereof).

                  (k) Further  Assurances.  Each party shall do and perform,  or
cause to be done and  performed,  all such  further  acts and things,  and shall
execute and deliver all such other  agreements,  certificates,  instruments  and
documents,  as the other party may reasonably  request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

                                       19
<PAGE>

                  (l) Termination.  In the event that the Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date  hereof  due to the  Company's  or  the  Buyer's  failure  to  satisfy  the
conditions  set forth in Sections 6 and 7 above (and the  non-breaching  party's
failure to waive such unsatisfied  condition(s)),  the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of  business  on such date  without  liability  of any party to any
other party;  provided,  however,  that if this  Agreement is  terminated by the
Company  pursuant to this Section 9(l),  the Company  shall remain  obligated to
reimburse  the Buyer(s) for the fees and  expenses of  Yorkville  Advisors,  LLC
described in Section 4(g) above.

                  (m)  No  Strict  Construction.   The  language  used  in  this
Agreement  will be deemed to be the  language  chosen by the  parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.

         [SIGNATURE PAGE FOLLOWS; REMAINDER PAGE INTENTIONALLY BLANK]

                                       20
<PAGE>

      IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.

                                         COMPANY:

                                         COMPLIANCE SYSTEMS CORPORATION

                                         By:---------------------------
                                         Name:  Dean Garfinkel
                                         Title: Chairman

                                       21
<PAGE>

                                    EXHIBIT A

                               DISCLOSURE SCHEDULE

      3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

            (c)  Capitalization.  As of the date hereof,  the authorized capital
stock of the  Company  consists  of  500,000,000  shares of Common  Stock and no
shares of Preferred Stock, of which 50,000,000 shares of Common Stock are issued
and outstanding.

            In August 2004, the Company entered into a consulting agreement with
Leonard Neuhaus for his services in connection with obtaining suitable financing
for the Company.  Under the terms of the consulting agreement,  Mr. Neuhaus will
receive:  (x) a fee equal to 5% of the  initial  $1  million  of gross  proceeds
received by the Company or its  subsidiaries,  with such fee to be paid entirely
in cash; and (y) a fee equal to 5% of any amounts in excess of the $1 million of
gross proceeds received by the Company or its subsidiaries,  with such fee to be
paid 50% in cash and 50% in common stock of the Company.  All fees shall be paid
at the closing of the transaction to which they relate.  The share price for all
fees to be paid to Mr.  Neuhaus in the form of common  stock of the Company will
be equal to the conversion price paid by Montgomery Equity Partners, Ltd. to the
Company in connection with  Montgomery's  conversion of any principal  amount in
excess  of the  initial  $1  million  debenture  issued  by the  Company  or any
successor to  Montgomery.  If there is more than one such  conversion,  then the
conversion  price for purposes of calculating  the fee to be paid to Mr. Neuhaus
under the cosnulting agreement will be the last one in time. Notwithstanding the
foregoing, in its sole and absolute discretion, the Company may pay Mr. Neuhaus'
fee as calculated above entirely in the form of cash. All common stock issued to
Mr.  Neuhaus as a fee under the  consulting  agreement  in  connection  with any
transaction  with Montgomery will either be registered and freely tradable or be
included and  registered  for resale  pursuant to the Securities Act of 1933, as
amended, in the first registration  statement filed by the Company following the
transaction with /Montgomery for which such fees were earned.

            As of the date hereof,  there are  outstanding  warrants to purchase
580,000 shares of Common Stock at $1.50 per share. These warrants will expire on
September 30, 2008.

            Please refer to Schedule F-1 below for a list of the Company's  debt
securities.

            (t) Certain  Transactions.  Dean Garfinkel and Alison Garfinkel each
loaned the Company  $125,000.  Barry M. Brookstein  loaned the Company $750,000,
and his  wholly-owned  company,  Spirits  Management,  Inc.,  loaned the Company
$125,000.  In addition,  monies totaling $500,000 were borrowed from Amanuensis,
an independent third-party,  with Barry M. Brookstein acting as an intermediary.
Although Mr.  Brookstein is President of Tele-Serv Inc.,  Telemax Co., Inc., and
Phone-Tel New Corp., he is not a shareholder of any of these companies.

            4. COVENANTS

            (d) Use of Proceeds.  Please refer to Exhibit H attached  hereto for
the Company's Budget, which details the proposed use of Proceeds by the Company.

                                       2
<PAGE>

                                  Schedule F-1

                         Compliance Systems Corporation

                           Schedule of Debt Securities

                               as of March 8, 2006

--------------------------------------------------------------------------------
                                                                      Balance
                                                                    ------------
--------------------------------------------------------------------------------
Secured Debt (UCC's Filed):
--------------------------------------------------------------------------------
  Notes Payable - Robert Lippe                                         27,794.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  Capitalized Leases Payable:

--------------------------------------------------------------------------------
   Dell Financial Services                                              7,452.00
--------------------------------------------------------------------------------
   Bank of the West                                                    29,898.00
--------------------------------------------------------------------------------
   GE Capital                                                          19,518.00
--------------------------------------------------------------------------------
   Axis Capital Inc.                                                   12,885.00
--------------------------------------------------------------------------------
   M&T Credit Services LLC                                             13,884.00
--------------------------------------------------------------------------------
   Netbank Business Finance (formerly Republic Leasing)                24,392.00
--------------------------------------------------------------------------------
   US Bancorp                                                          29,346.00
                                                                    ------------
--------------------------------------------------------------------------------
  Total Leases Payable                                                137,375.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
  Secured Lease - Ford Credit                                           5,850.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Total Secured Debt                                                    171,019.00
                                                                    ------------
--------------------------------------------------------------------------------

                                                                      Balance
                                                                    ------------
Unsecured Debt:

  AMGRO                                                                13,420.00
  Brad Friedman                                                        50,000.00
  Henry Ponzio                                                        237,500.00
  HSBC Bank                                                           100,000.00
  Phone-Tel New Corp                                                  163,376.00
  Spirits Management Inc.                                             163,376.00
  Tele-Serv Inc.                                                      108,917.00
  Telmax Co. Inc.                                                     108,917.00
  Amanuensis Ltd.                                                     500,000.00
  Spirits Management Inc.                                              11,826.00
  Alison Garfinkel                                                    125,000.00
  Dean Garfinkel                                                      125,000.00
  Barry M. Brookstein                                                 750,000.00
  Stock Repurchase Payable to Alison Garfinkel                         82,800.00
  Spirits Management Inc.                                             125,000.00
                                                                    ------------
Total Unsecured Debt                                                2,665,132.00
                                                                    ------------

Total                                                               2,877,147.00
                                                                    ============

                                       3
<PAGE>

                                    EXHIBIT B

                                     BUDGET

                      [to be manually inserted at Closing]

                                       4
<PAGE>

                                   SCHEDULE I

                               SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                                                                                 Address/Facsimile             Amount of
                Name                              Signature                       Number of Buyer             Subscription
--------------------------------       -------------------------------   --------------------------------     ------------

<S>                                    <C>                               <C>                       <C>          <C>
Montgomery Equity Partners, Ltd.       By:     Yorkville Advisors, LLC   101 Hudson Street - Suite 3700         $1,000,000
                                       Its:    General Partner           Jersey City, NJ  07303
                                                                         Facsimile:   (201) 985-8266

                                       By: --------------------------
                                       Name:    Mark Angelo
                                       Its:     Portfolio Manager

With a copy to:                        David Gonzalez, Esq.              101 Hudson Street - Suite 3700
                                                                         Jersey City, NJ 07302
                                                                         Facsimile:   (201) 985-8266
</TABLE>

                                       5

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