Document:

Exhibit 10.1

NEITHER
THIS SECURITY NOR ANY SECURITY INTO WHICH IT MAY BE CONVERTED HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)
OR APPLICABLE STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY SECURITY
INTO WHICH IT MAY BE CONVERTED NOR ANY INTEREST OR PARTICIPATION HEREIN OR
THEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF AT ANY TIME IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. 

NOTICE
OF SUBORDINATION

          THIS
NOTE IS SUBORDINATED TO ALL SENIOR INDEBTEDNESS (AS DEFINED HEREIN) OWING TO
WELLS FARGO FOOTHILL, LLC, AND CERTAIN OTHER LENDERS. BY ACCEPTANCE OF THIS
NOTE, THE HOLDER HEREOF AGREES TO BE BOUND BY THE SUBORDINATION PROVISIONS SET
FORTH HEREIN.

VELOCITY
INVESTMENTS, LLC

a New Jersey limited liability company

14%
SUBORDINATED NOTE

	
No. __

	
 

	
$_______

	
May __, 2008

          FOR VALUE RECEIVED, VELOCITY INVESTMENTS, LLC,
a New Jersey limited liability company (the “Company”), hereby promises to pay
to ________________, (hereinafter referred to as the “Holder”), or registered
assigns, the principal sum of _____________ Dollars ($_______), with interest
at a rate of fourteen percent (14.0%) per annum.

1.       This Note. Unless this subordinated
note (“Note”) is otherwise redeemed pursuant to Section 5 hereof, interest and
principal on this Note shall be payable at the address indicated in the
Subscription Agreement executed by the Holder in connection with the investment
in this Note or any such other address as the Holder may from time to time
designate in writing to the Company, regardless of whether payment becomes due
on the Maturity Date (as defined below) or upon the occurrence of an Event of
Default (as defined below). 

2.       Payment of Principal and Interest.
This
Note will mature on November __, 2011 (the “Maturity Date”). Interest shall be
payable quarterly in arrears beginning on the last day of the month that is
four months from the date of this Note (each, an “Interest Payment Date”).
Interest shall be computed based on the actual number of days elapsed, but on
the basis of a 360-day year of twelve 30-day months calculated on the unpaid
balance of the principal sum from the date of issue. Principal shall be due and
payable upon the Maturity Date or upon the occurrence of an Event of Default
(as defined below). Except as provided herein, all payments of principal and
interest by the Company under this Note shall be made in United States dollars
in immediately available funds to an account specified by the Holder.

3.       Security Interest

          (a)      To
secure the prompt and complete payment and performance when due (whether at
stated maturity, by acceleration or otherwise) of all of the obligations and
liabilities of the Company to the Holder under this Note (the “Obligations’),
the Company hereby assigns, pledges and grants to Holder, a continuing
subordinated security interest in and lien upon all of the Company’s property
and assets (the “Collateral”), whether real or personal, tangible or
intangible, and whether now owned or hereafter acquired, or in which it now has
or at any time in the future may acquire any right, title or interest,
including without limitation, all of the following property in which it now has
or at any time in the future may acquire any right, title or interest: all
accounts, inventory, equipment, goods, documents, instruments (including,
without limitation, promissory notes), contract rights, general intangibles (including,
without limitation, payment intangibles), chattel paper, supporting
obligations, investment property, letter-of-credit rights, trademarks,
tradestyles, patents and copyrights in which the Company now has or hereafter
may acquire any right, title or interest, all books, records, computer
programs, tapes, disks, and related data processing software that at any time
evidence or contain information relating to Collateral or are otherwise
necessary or helpful in the collection thereof or realization thereof; all
proceeds and products thereof (including, without limitation, proceeds of
insurance) and all additions, accessions and substitutions thereto or therefor.
The Company authorizes the Holder to file such financing statements and
amendments thereto and all other documents and instruments and to do such other
acts and things as are reasonably necessary to establish and maintain a valid,
enforceable, perfected security interest in the Collateral as provided herein
and the other ·rights and security contemplated hereby all in accordance with
the Uniform Commercial Code of the State of New Jersey as in effect from time
to time. The security interest granted hereby shall be prior in right to all
other security interests granted by the Maker in its assets, except that such
security interest will be junior in right to the security interest held by
Wells Fargo Foothill, LLC as set forth in Section 4 of this Note. 

4.       Subordination. The Holder hereby
irrevocably and unconditionally subordinates his, her or its right of payment
and collection under this Note to all Senior Indebtedness of the Company.
“Senior Indebtedness” shall mean all indebtedness of the Company, including,
without limitation, the Company’s obligations under that certain Loan and Security
Agreement, dated as of January 27, 2005 (as heretofore or hereafter amended,
from time to time, the “WFF Loan Agreement”), among Velocity Asset Management,
Inc., the Company and WFF, but “Senior Indebtedness” shall not include any
other indebtedness of the Company incurred following the issuance of this Note
that qualifies as long-term debt in accordance with U.S. generally accepted
accounting principles. In furtherance of the foregoing, except as expressly
permitted herein, the Company will not make, and no Holder of this Note will
accept or receive, any payment of this Note until all the Senior Indebtedness
has been indefeasibly paid in full in cash. If any Holder of this Note shall
receive any payment on account of this Note in violation of the subordination
provisions of this Note, it shall hold such payment in trust for the benefit of
the holders of the Senior Indebtedness and, promptly upon discovery or notice
of such violation, pay it over to such holders for application in payment of
the Senior Indebtedness. So long as no Default or Event of Default (as such
terms are defined in the WFF Loan Agreement) shall have occurred and be
continuing, or would result therefrom, the Company may pay to the Holder and
the Holder may accept and retain, (i) regularly scheduled payments of interest
and principal as and at the times when due and payable under this Note, as
originally executed and delivered, or, with the prior written consent of WFF,
as amended and (ii) with the prior written consent of WFF, other payments prior
to the due date thereof, including, but not limited to, those arising upon the
acceleration of the Company’s obligations hereunder pursuant to Section 9
herof. The holders of the Senior Indebtedness are intended to be third-party
beneficiaries of this Note. As such, this Note may not be modified except by an
instrument in writing signed by the holders of the Senior Indebtedness.

5.       Call of Notes by the Company. The
Company shall not, directly or indirectly, call for redemption, redeem, prepay,
repurchase, or otherwise acquire (any such event referred to herein as a
“call”) this Note or any portion thereof except as set forth in this Section 6.

          a.       Optional
Redemption Upon Call by the Company. Beginning on the date hereof, the
Company may, at its option, call this Note at a price equal to the outstanding
principal sum of, plus accrued but unpaid interest on, any late charges
associated with this Note and a call premium as follows:

	
 

	
 

	
 

	
 

	
(i)

	
From the date hereof through [________ __,] 2009 -
  104.0% of the principal amount

	
 

	
 

	
(ii)

	
From [________ __, ___] through [________ __, ___] -
  103.0% of the principal amount

	
 

	
 

	
(iii)

	
From [________ __, ___] through [________ __, ___] -
  102.0% of the principal amount

	
 

	
 

	
(iv)

	
From [________ __, ___] through [________ __, ___] -
  101.0% of the principal amount

	
 

	
 

	
(v)

	
From [________ __, ___] through [________ __, ___] -
  100.5% of the principal amount

          b.       Notice
of Call. The right of the Company to call this Note pursuant to this
Section 6 shall be conditioned upon the Company’s giving notice of such call
(the “Call Notice”, and the date the Call Notice is given being referred to as
the “Call Notice Date”), by personal delivery, overnight courier, certified
mail or by facsimile, signed by an authorized officer, to the Holder of this
Note, not less than sixty (60) days prior to the date upon which the call is to
be effective (the “Call Effective Date”). The Call Notice shall be irrevocable
and shall specify the Call Effective Date, which may not be less than 60 days
after the Call Notice Date. 

6.       Transfer. Subject to the
provisions of
the legend above, this Note is freely transferable, in whole or in part, by the
Holder, and such transferee shall have the same rights hereunder as the Holder.
The Company may not assign or delegate any of its obligations under this Note
without the prior written consent of the Holder (or its successor, transferee
or assignee). Upon surrender of this Note for transfer or exchange, a new Note
or new Notes of the same tenor, dated the date to which interest has been paid
on the surrendered Note and in an aggregate principal amount equal to the
unpaid principal amount of this Note so surrendered, will be issued to and
registered in the name of the transferee or transferees. The Company may treat
the person in whose name this Note is registered as the owner hereof for the
purpose of receiving payments and for all other purposes.

7.       Note Register. This Note is
transferable only upon the books of the Company which it shall cause to be
maintained for such purpose. The Company may treat the registered holder of
this Note as the Holder appears on the Company’s books at any time as the
Holder for all purposes.

8.       Defaults and Remedies. The entire
unpaid principal of this Note shall become and be immediately due and payable
upon written demand by the Holder, without any other notice or demand of any
kind or any presentment or protest, if any one of the following events (each,
an “Event of Default”) shall occur and be continuing at the time of such
demand, whether voluntarily or involuntarily, or, without limitation, occurring
or brought about by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of any
governmental body:

          a.       the
Company is delinquent in payment of any interest for a period of more than 30
days or the Company fails to pay the entire principal amount of this Note
within ten days after the Maturity Date;

          b.       the
Company defaults in any of its other financial obligations in excess of
$500,000 that are not cured within 30 days; 

          c.       the
Company, pursuant to or within the meaning of any applicable U.S. federal
and state laws relating to bankruptcy, insolvency, winding up, administration,
receivership and other similar matters for the relief of creditors (each, a
“Bankruptcy Law”):

                    i.       commences
a voluntary case;

                    ii.      consents
to the entry of an order for relief against it in an involuntary case;

                    iii.     consents
to the appointment of a custodian of it or for any substantial part of its
property;

                    iv.      makes
a general assignment for the benefit of its creditors; or

                    v.       is
unable to, or admits in writing its inability to, pay its debts as they become
due.

          d.       there
shall be commenced against the Company any case, proceeding or action of the
type referred to below or a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:

                    i.       is
for relief against the Company in an involuntary case;

                    ii.      appoints
a custodian of the Company or for any substantial part of its property; or

                    iii.     orders
the winding up or liquidation of the Company.

Upon an Event of Default, without any further notice
or demand, in addition to and not in limitation of any other rights or remedies
which the Holder may otherwise have, the Company shall pay the Holder a late
charge computed at the rate of 18% per annum of the amount not paid.
Notwithstanding the foregoing, an Event of Default under Section 9(b) hereof
shall not constitute an Event of Default without written notice from the
holders of a majority of the principal amount of the Notes then outstanding.

9.       Parity of Notes. In the event any
other
holder of notes issued contemporaneously with this Note (each, and “Offering
Note” and, collectively, the “Offering Notes”) elects to accelerate the
Offering Note held by such holder as a result of an Event of Default, the
Company shall notify the Holder of this Note of such event and all holders of
Offering Notes shall be deemed to have equal parity.

10.      Loss, Etc., of Note. Upon receipt
of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and of indemnity reasonably satisfactory, to the
Company if lost, stolen or destroyed, and upon surrender and cancellation of
this Note if mutilated, and upon reimbursement of the Company’s reasonable
incidental expenses, the Company shall execute and deliver to the Holder a new
Note of like date, tenor and denomination.

11.      Amendment, Waiver Etc., By
Holder. The
terms of this Note may be amended or waived upon the written consent of the
Company and the Holder.

12.      Governing Law. This Note shall be
governed by and construed in accordance with the laws of the State of New
Jersey.

13.      Waiver. The Company hereby waives
presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note. If an action is brought for collection under this Note, the
Holder shall be entitled to receive all costs of collection, including, but not
limited to, its reasonable attorneys’ fees.<PAGE>

EXHIBIT 10.1

                    SALE OF ACCOUNTS AND SECURITY AGREEMENT

Date: October 24, 2008.

I/OMAGIC CORPORATION ("Seller")

Seller and Rexford Funding, LLC, a Delaware Limited Liability Company ("Factor"
or "Purchaser"), hereby agree to the terms and conditions set forth in this
Accounts Purchase and Security Agreement ("Agreement"):

Section 1.1 Definitions. For the purposes of this Agreement and unless defined
otherwise herein, all terms used shall have the meanings assigned to them on
Exhibit "1.1."

Section 1.2 Other Referential Provisions.

         (a) Except as otherwise expressly provided herein, all accounting terms
not specifically defined or specified herein shall have the meanings generally
attributed to such terms under GAAP including, without limitation, applicable
statements and interpretations issued by the Financial Accounting Standards
Board and bulletins, opinions, interpretations and statements issued by the
American Institute of Certified Public Accountants or its committees.

         (b) All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all other genders; the
singular shall include the plural, and the plural shall include the singular.

         (c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provisions of this Agreement.

         (d) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither limit nor
amplify the provisions of this Agreement, and all references in this Agreement
to Articles, Sections, Subsections, paragraphs, clauses, sub clauses, Schedules
or Exhibits shall refer to the corresponding Article, Section, Subsection,
paragraph, clause or sub clause of, or Schedule or Exhibit attached to, this
Agreement, unless specific reference is made to the articles, sections or other
subdivisions or divisions of, or to schedules or exhibits to, another document
or instrument.

         (e) Each definition of a document in this Agreement shall include such
document as amended, modified, supplemented or restated from time to time in
accordance with the terms of this Agreement.

         (f) Except where specifically restricted, reference to a party to this
Agreement includes that party and its successors and assigns.

         (g) All capitalized terms in this Agreement shall have the meanings
given those terms in the UCC.

         Section 1.3 Exhibits and Schedules. All Exhibits and Schedules attached
hereto are by reference made a part hereof.

Section 2. Purchase & Sale of Accounts.

         (a) Seller hereby offers to sell, assign, transfer, convey and deliver
to Factor, as absolute owner, in accordance with the procedure detailed herein,
all of Seller's right, title and interest in and to Seller's Accounts.

         (b) All Accounts shall be submitted to Factor on a Schedule of Accounts
Sold/Bill of Sale listing each Account separately. The Schedule of Accounts
Sold/Bill of Sale shall be in the form attached hereto as Exhibit "2(b)," or in
such other form as required by Factor, and shall be signed by a person acting or
purporting to act on behalf of Seller. At the time the Schedule of Accounts
Sold/Bill of Sale is presented, Seller shall also deliver to Factor one copy of
an invoice for each Account together with evidence of shipment, furnishing
and/or delivery of the Goods or rendition of service(s). All invoices shall
plainly state on their face the amounts payable hereunder are payable to Factor
at the remittance address set forth below.

         (c) Any and all Purchased Accounts shall be purchased on a Full
Recourse basis.

         (d) Factor shall have no liability of any kind for exercising or
failing to exercise any rights or remedies Factor may have under this Agreement
or otherwise. In the event Factor declines to purchase or make advances against
Accounts owing from a Customer and in advising Seller of such decline Factor

<PAGE>

furnishes Seller with information as to the credit standing of the Customer,
such information shall be deemed to have been requested of Factor by Seller and
Factor's advice containing such information is recognized as a privileged
communication. Seller agrees that such information shall not be given to
Seller's Customer or to Seller's sales representative(s). Factor shall have the
right to charge back to Seller's Reserve Account the amount of such Full
Recourse Receivables at any time and from time to time either before or after
their maturity. Seller agrees to pay Factor upon demand the full amount thereof,
together with all expenses incurred by Factor up to the date of such payment,
including reasonable attorney's fees in attempting to collect or enforce such
payment or payment of such Account(s)s

Section 3. Purchase Price and Commissions.

         (a) The purchase price that Factor shall pay to Seller for each
Purchased Account shall equal the Net Invoice Amount thereof less Factor's
factoring commission, as specified below. No discount, credit, allowance or
deduction with respect to any Purchased Account, except for those incurred in
the ordinary course of business with respect to no more than fifteen percent
(15%) of purchased Accounts or unless shown on the face of an invoice, shall be
granted or approved by Seller to any Customer without Factor's prior written
consent.

         (b) The purchase price (as computed above), less (i) any Required
Reserve Amount or credit balance that Factor, in Factor's sole discretion,
determines to hold, (ii) moneys remitted, paid, or otherwise advanced by Factor
to or on behalf of Seller (including any amounts which Seller may reasonably be
obligated to pay in the future), and (iii) any other charges provided for by
this Agreement, shall be payable by Seller to Factor on the Date of Collection.
To the extent that Factor has sufficient collected funds to cover the charges
provided for by this Agreement, Factor shall use the available collected funds
to offset these charges.

         (c) Factor shall be entitled to withhold a Required Reserve Amount, and
may revise the Required Reserve Account or Reserve Percentage at any time and
from time to time if Factor deems it necessary to do so in order to protect
Factor's interests. In no event shall Seller permit a Reserve Shortfall to
occur. Factor may charge against the Required Reserve Account any amount for
which Seller may be obligated to Factor at any time, whether under the terms of
this Agreement, or otherwise, including but not limited to the repayment of any
over advance, any damages suffered by Factor as a result of Seller's breach of
any provision of Section 4 hereof (whether intentional or unintentional), any
adjustments due and any attorneys' fees, costs and disbursements due. Seller
recognizes that the Required Reserve Account may, to the extent Purchased
Accounts remain uncollected, represent bookkeeping entries only and not cash
funds. It is further agreed that with respect to the balance in the Required
Reserve Account, Factor is authorized to withhold, without giving prior notice
to Seller, such payments and credits otherwise due to Seller under the terms of
this Agreement for reasonably anticipated claims or to adequately satisfy
reasonably anticipated obligation(s) Seller may owe Factor. If an Event of
Default has occurred and is continuing, or, in the event Seller shall cease
selling Accounts to Factor, Factor shall be under no obligation to pay the
amount in the Required Reserve Account until Factor has determined, in its sole
discretion, that it will make no further efforts to collect any Accounts and all
sums due Factor hereunder have been paid.

         (d) In Factor's sole discretion, in accordance with the terms of this
Agreement, Factor may from time to time advance to Seller against the purchase
price of Purchased Accounts purchased by Factor hereunder, sums up to seventy
five percent (75%); except Staples which shall be sums up to sixty percent
(60%), of the aggregate purchase price of Purchased Accounts outstanding at the
time any such advance is made, less: (1) Any such Purchased Accounts that are in
dispute; (2) any such Purchased Accounts that Factor, in its sole discretion,
deems are owing from a Customer that is not credit worthy; (3) any such
Purchased Accounts that are unpaid in excess of sixty (60) days past the due
date as specified on the original invoice; (4) any such Purchased Accounts that
are owing from a Customer for which the amount of Accounts that are unpaid in
excess of sixty (60) days past the due date as specified on the original invoice
is equal to or greater than twenty-five percent (25%) of the total amount of all
Accounts owing from that Customer; (5) any such Purchased Accounts which Factor,
in its sole discretion, deems to be ineligible; and (6) any fees, actual or
estimated, that are chargeable to the Reserve Account. Any advance shall be
payable on demand.

                                       2

<PAGE>

         (e) For Factor's services hereunder, Seller shall pay and Factor shall
be entitled to receive a factoring commission equal to thirty three one
thousandths of one percent (.033%) of the gross invoice amount of each Purchased
Account, which commission shall be due and payable to Factor on the date such
Purchased Account arises; plus, for any Purchased Account which remains unpaid
in excess of one (1) day from invoice date, an additional thirty three
thousandths of one percent (.033%) for each one (1) day period or portion
thereof thereafter until the Purchased Account is paid or charged back by
Factor, in its sole discretion. Factoring commissions shall be chargeable to
Seller's Required Reserve Amount.

         (f) Factor will charge seller a collection clearance charge on all cash
collections equal to five (5) business days, multiplied by the Interest Rate.
All clearance charges shall be chargeable to Seller's Required Reserve Amount.

         (g) Factor will charge Seller interest on outstanding Advances at the
annualized Interest Rate. Interest charges shall be chargeable to Seller's
Required Reserve Amount.

         (h) Factor's commission is based upon Seller's maximum selling terms of
net seventy five (75) days, and Seller will not grant additional dating to any
customer without Factor's prior written approval. If and when such extended
terms or additional dating are given to Seller's customers, Factor's commission
with respect to the Purchased Accounts represented thereby shall be increased by
one half of one percent (0.5%) for each 30 days, or portion thereof, of extended
or additional dating.

         (i) IT IS THE INTENTION OF THE PARTIES HERETO THAT AS TO ALL PURCHASED
ACCOUNTS, THE TRANSACTIONS CONTEMPLATED HEREBY SHALL CONSTITUTE A TRUE PURCHASE
AND SALE OF ACCOUNT(S) UNDER SECTION 9-318 OF THE UCC AND AS SUCH, THE SELLER
SHALL HAVE NO LEGAL OR EQUITABLE INTEREST IN THE ACCOUNTS SOLD. NEVERTHELESS, IN
THE EVENT ANY PORTION OF THIS TRANSACTION IS CHARACTERIZED AS A LOAN, THE
PARTIES HERETO INTEND TO CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW
FROM TIME TO TIME IN EFFECT. IN FURTHERANCE THEREOF SUCH PARTIES STIPULATE AND
AGREE THAT NONE OF THE TERMS AND PROVISIONS CONTAINED IN THIS AGREEMENT SHALL
EVER BE CONSTRUED TO CREATE A CONTRACT TO PAY, FOR THE USE, FORBEARANCE OR
DETENTION OF MONEY, INTEREST IN EXCESS OF THE MAXIMUM RATE (AS HEREINAFTER
DEFINED) FROM TIME TO TIME IN EFFECT. NEITHER SELLER, ANY PRESENT OR FUTURE
GUARANTOR OR ANY OTHER PERSON HEREAFTER BECOMING LIABLE FOR THE PAYMENT OF THE
ADVANCES, SHALL EVER BE LIABLE FOR ANY OBLIGATION THAT MAY BE CHARACTERIZED AS
UNEARNED INTEREST THEREON OR SHALL EVER BE REQUIRED TO PAY ANY OBLIGATION THAT
MAY BE CHARACTERIZED AS INTEREST THEREON IN EXCESS OF THE MAXIMUM AMOUNT THAT
MAY BE LAWFULLY CHARGED UNDER APPLICABLE LAW FROM TIME TO TIME IN EFFECT, AND
THE PROVISIONS OF THIS SECTION SHALL CONTROL OVER ALL OTHER PROVISIONS OF THIS
AGREEMENT WHICH MAY BE IN CONFLICT THEREWITH. IF ANY INDEBTEDNESS OR OBLIGATION
OWED BY SELLER HEREUNDER IS DETERMINED TO BE IN EXCESS OF THE LEGAL MAXIMUM, OR
FACTOR SHALL OTHERWISE COLLECT MONEYS WHICH ARE DETERMINED TO CONSTITUTE
INTEREST WHICH WOULD OTHERWISE INCREASE THE INTEREST ON ALL OR ANY PART OF SUCH
OBLIGATIONS TO AN AMOUNT IN EXCESS OF THAT PERMITTED TO BE CHARGED BY APPLICABLE
LAW THEN IN EFFECT, THEN ALL SUCH SUMS DETERMINED TO CONSTITUTE INTEREST IN
EXCESS OF SUCH LEGAL LIMIT SHALL, WITHOUT PENALTY, BE PROMPTLY APPLIED TO REDUCE
THE THEN OUTSTANDING OBLIGATIONS OR, AT FACTOR'S OPTION, RETURNED TO SELLER OR
THE OTHER PAYOR THEREOF UPON SUCH DETERMINATION. IF AT ANY TIME THE RATE AT
WHICH INTEREST IS PAYABLE HEREUNDER EXCEEDS THE MAXIMUM RATE, THE AMOUNT
OUTSTANDING HEREUNDER SHALL CEASE BEARING INTEREST UNTIL SUCH TIME AS THE TOTAL
AMOUNT OF INTEREST ACCRUED HEREUNDER EQUALS (BUT DOES NOT EXCEED) THE MAXIMUM
RATE APPLICABLE HERETO. AS USED IN THIS SECTION, THE TERM "APPLICABLE LAW" MEANS
THE LAWS OF THE

                                       3

<PAGE>

STATE OF ARIZONA OR, IF DIFFERENT, THE LAWS OF THE STATE OR TERRITORY IN WHICH
THE SELLER RESIDES, WHICHEVER LAW ALLOWS THE GREATER RATE OF INTEREST, AS SUCH
LAWS NOW EXIST OR MAY BE CHANGED OR AMENDED OR COME INTO EFFECT IN THE FUTURE
AND THE TERM "MAXIMUM RATE" MEANS THE MAXIMUM NONUSURIOUS RATE OF INTEREST THAT
FACTOR IS PERMITTED UNDER APPLICABLE LAW TO CONTRACT FOR, TAKE, CHARGE OR
RECEIVE WITH RESPECT TO THE ADVANCES.

         (j) Transfer. Upon Factor's acceptance of each Purchased Account,
Factor shall be the sole owner and holder of such Purchased Account. Seller
hereby sells, transfers, conveys and assigns to Factor all of its right, title
and interest in and to each Purchased Account effective at the time of
acceptance thereof by Factor. Seller agrees to execute and deliver to each
Account Debtor obligated under an Account and/or a Purchased Account such
written notice of sale of the Purchased Account as Factor may request.

         (k) Accounting Information. Factor shall provide Seller with
information on the Purchased Accounts and a monthly reconciliation of the
factoring relationship relating to billing, collection and account maintenance
such as aging, posting, error resolution and mailing of statements, as of the
last day of each month. All of the foregoing shall be in a format and in such
detail, as Factor, in its sole discretion, deems appropriate. Factor's books and
records shall be admissible in evidence without objection as prima facie
evidence of the status of the Purchased and non-purchased Accounts and Required
Reserve Account between Factor and Seller. Each statement, report, or accounting
rendered or issued by Factor to Seller shall be deemed conclusively accurate and
binding on Seller unless within fifteen (15) days after the date of issuance
Seller notifies Factor to the contrary by registered or certified mail, setting
forth with specificity the reasons why Seller believes such statement, report,
or accounting is inaccurate, as well as what Seller believes to be correct
amount(s) therefore. Seller's failure to receive any monthly statement shall not
relieve it of the responsibility to request such statement and Seller's failure
to do so shall nonetheless bind Seller to whatever Factor's records would have
reported.

Section 4. Seller's Representations and Covenants. Seller, as well as each of
Seller's principals, represent, warrant and covenant to Factor that:

         (a) Seller is either a corporation, limited liability company, limited
partnership or other form of Registered Organization, is duly organized, validly
existing and in good standing under the laws of the state of its incorporation
or organization and is qualified and authorized to do business and is in good
standing in all states in which such qualification and good standing are
necessary or desirable.

         (b) The execution, delivery and performance by Seller of this Agreement
does not and will not constitute a violation of any applicable law, violation of
Seller's articles of incorporation or organization or bylaws or any material
breach of any other document, agreement or instrument to which Seller is a party
or by which Seller is bound.

         (c) The Agreement is a legal, valid and binding obligation of Seller
enforceable against it in accordance with its terms.

         (d) Immediately prior to the execution and at the time of delivery of
each Schedule of Account, Seller is the sole owner and holder of each of the
Account described thereon and that upon Factor's acceptance of each Purchased
Account; it shall become the sole owner and holder of such Purchased Account(s).

         (e) No Purchased Account shall have been previously sold or transferred
or be subject to any lien, encumbrance, security interest or other claim of any
kind of nature. Seller will not factor, sell, transfer, pledge or give a
security interest in any of its Accounts to anyone other than Factor. There are
no financing statements now on file in any public office covering any Collateral
of Seller of any kind, real or personal, in which Seller is named in or has
signed as the debtor, except the financing statement or statements filed or to
be filed in respect of this Agreement or those statements now on file that have
been disclosed in writing by Seller to Factor as reflected on the attached
Exhibit 4(e). Seller will not execute any financing statement in favor of any
other Person, except Factor, during the Term of this agreement.

         (f) The amount of each Purchased Account is due and owing to Seller and
represents an accurate statement of a bona fide sale, delivery and acceptance of

                                       4

<PAGE>

Goods or performance of service by Seller to or for an Account Debtor. The terms
for payment of Purchased Accounts are not more than sixty (60) days from receipt
of goods and the payment of such Purchased Accounts is not contingent upon the
fulfillment by Seller of any further performance of any nature whatsoever. Each
Account Debtor's business is solvent to the best of Seller's knowledge.

         (g) There are and shall be no set-offs, allowances, discounts,
deductions, counterclaims, or disputes with respect to any Purchased Account,
either at the time it is accepted by Factor for Factor or prior to the date it
is to be paid, other than sales promotions and offsets that shall be disclosed
to Factor prior to the purchase of any Account that would be potentially
affected by such offset.. Seller shall inform Factor, in writing, immediately
upon learning that there exists any Account, which is subject to a potential
offset. Seller shall accept no returns and shall grant no allowance or credit to
any Account Debtor in an amount greater than fifteen percent (15%) of total
value of all Accounts then outstanding without notice to and the prior written
approval of Factor. Seller shall provide to Factor for each Account Debtor who
is indebted on a Purchased Account that has been purchased, a weekly report in a
form and substance satisfactory to Factor itemizing all such returns and
allowances made during the previous week with respect such Purchased Accounts
and at Factor's option a check (or wire transfer) payable or additional
collateral to Factor for the amount thereof or in Factor's sole and exclusive
discretion, Factor may accept the issuance of a Credit Memo and apply same to
Seller's Required Reserve Account.

         (h) Seller's address, as set forth in any Application submitted to
Factor, is Seller's mailing address, its chief executive office, principal place
of business and the office where all of the books and records concerning the
Purchased Accounts are maintained which shall not be changed without giving
thirty (30) days prior written notice to Factor.

         (i) Seller shall maintain its books and records in accordance with GAAP
and shall reflect on its books the absolute sale of the Purchased Accounts to
Factor. Seller shall furnish Factor, upon request, such information and
statements, as Factor shall request from time to time regarding Seller's
business affairs, financial condition and results of its operations. Without
limiting the generality of the foregoing, Seller shall provide Factor, on or
prior to the 30- day of each month, unaudited financial statements with respect
to the prior month and, within ninety (90) days after the end of each of
Seller's fiscal years, annual financial statements and such certificates
relating to the foregoing as Factor may request including, without limitation, a
monthly certificate from the president and chief financial officer of Seller
stating whether any Events of Default have occurred and stating in detail the
nature of the Events of Default. Seller will furnish to Factor upon request a
current listing of all open and unpaid accounts payable and Accounts, and such
other items of information that Factor may deem necessary or appropriate from
time to time, unless such request would be an unreasonable burden to Seller..
Unless otherwise expressly provided herein or unless Factor otherwise consents,
all financial statements and reports furnished to Factor hereunder shall be
prepared and all financial computations and determinations pursuant hereto shall
be made in accordance with GAAP, consistently applied.

         (j) Seller has paid and will pay all taxes and governmental charges
imposed with respect to sale of Goods and furnish to Factor upon request
satisfactory proof of payment and compliance with all federal, state and local
tax requirements.

         (k) Seller will promptly notify Factor of (i) the filing of any lawsuit
against Seller involving amounts greater than $10,000.00, and (ii) any
attachment or any other legal process levied against Seller.

         (1) To the best of Seller's knowledge, the Application made or
delivered by or on behalf of Seller in connection with this Agreement, and the
statements made therein are true and correct at the time that this Agreement is
executed. There is no fact which Seller has not disclosed to Factor in writing
which could materially adversely affect the properties, business or financial
condition of Seller, or any of the Purchased Accounts or Collateral, or which is
necessary to disclose in order to keep the foregoing representations and
warranties from being misleading.

         (m) The Statement of Authorized Signatures for Sale/Assignment of
Accounts, the form of which is annexed as Exhibit 4(m) and any change in the
persons so authorized shall be given to factor not less than fifteen (15) days
prior to such change.

                                       5

<PAGE>

         (n) In no event shall the funds paid to Seller hereunder be used
directly or indirectly for personal, family, household or agricultural purposes.

         (o) Seller does business under no trade or assumed names except as
indicated below: N/A

         (p) Any invoice or written communication that is issued by Seller to
Factor by facsimile transmission is a duplicate of the original.

         (q) Any electronic communication of data, whether by e-mail, tape,
disk, or otherwise, Seller remits or causes to be remitted to Factor shall be
authentic and genuine.

Section 5. Notice of Purchase. Seller shall authorize to Factor to file at such
times and places as Factor may designate such financing statements,
continuations and amendments thereto as are necessary or desirable to give
notice of Factor's purchase of the Purchased Accounts under the UCC in effect in
any applicable jurisdiction and Factor's security interest in Seller's
Collateral as provided in Section 6 below.

Section 6. Collateral. In order to secure the payment of all indebtedness and
obligations of Seller to Factor, in addition to the sale of Purchased Accounts,
Seller hereby grants to Factor a Security Interest in and lien upon all of
Seller's right, title and interest in and to all of Seller's Collateral. Seller
agrees to comply with all appropriate laws in order to perfect Factor's security
interest in and to the Collateral and to execute such documents as Factor may,
from time to time, require and to deliver to Factor a list of all locations of
its Inventory, Equipment and Goods. Seller shall provide written notice to
Factor of any change in the locations at which it keeps its Inventory, Equipment
and Goods at least thirty (30) days prior to any such change. The occurrence of
any Event of Default shall entitle Factor to all of the default rights and
remedies (without limiting the other rights and remedies exercisable by Factor
either prior or subsequent to an Event of Default) as available to a Secured
Party under the UCC in effect in any applicable jurisdiction.

Section 7. Collection.

         (a) Seller shall notify all Account Debtors for those Accounts
purchased by Factor and take other necessary or appropriate means to insure that
such purchased Accounts, shall be paid directly to Factor at a remittance
address designated by Factor. Factor shall have the right at any time to notify
any or all Account Debtors for which factor has purchased Accounts of the
assignment to Factor and to direct such Account Debtors to make payment of all
amounts due or to become due directly to Factor. In an Event of Default, factor
shall have the right at any time, and without notice to Seller, to notify any or
all Account Debtors of the assignment to Factor and to direct such Account
Debtors to make payment of all amounts due or to become due to Seller directly
to Factor. As to any Account proceeds that do not represent Purchased Accounts
and are not allocated to the Reserve Account, and so long as Seller is not in
default, Factor shall be deemed to have received any such proceeds of Accounts
as a pure pass-through for and on account of Seller.

         (b) Factor, as the sole and absolute owner of the Purchased Accounts,
shall have the sole and exclusive power and authority to collect each such
Purchased Account, through legal action or otherwise, and Factor may, in its
sole discretion, settle, compromise, or assign (in whole or in part) any of such
Purchased Accounts, or otherwise exercise, to the maximum extent permitted by
applicable law, any other right now existing or hereafter arising with respect
to any of such Purchased Accounts. If Seller receives payment of all or any
portion of any of such Purchased Accounts or any other Account, Seller shall
notify Factor immediately and shall hold all checks and other instruments so
received in trust for Factor and shall deliver to Factor such checks and other
instruments without delay.

Section 8. Payments Received by Seller. Should Seller receive payment of all or
any portion of any Purchased Account, Seller shall immediately notify Factor of
the receipt of the payment, hold said payment in trust for Factor separate and
apart from Seller's own property and funds, and shall deliver said payment to
Factor without delay in the identical form in which received. Should Seller
receive any check or other payment instrument with respect to a Purchased
Account or after default any Account and fail to surrender and deliver to Factor
said check or payment instrument within two (2) business days after notice from

                                       6

<PAGE>

Seller's bank that said check has cleared,, Factor shall be entitled to charge
Seller a Misdirected Payment Fee to compensate Factor for the additional
administrative expenses that the parties acknowledge is likely to be incurred as
a result of such breach. In the event any Goods, the sale of which gave rise to
a Purchased Account, are returned to or repossessed by Seller, such Goods shall
be held by Seller in trust for Factor, separate and apart from Seller's own
property and subject to Factor's sole direction and control.

Section 9. Power of Attorney. Seller grants to Factor an irrevocable power of
attorney authorizing and permitting Factor, at its option, with or without
notice to Seller to do any or all of the following:

         (a) Endorse the name of Seller on any checks or other evidences of
payment whatsoever that may come into the possession of Factor regarding
Purchased Accounts or Collateral, including checks received by Factor pursuant
to Section 7 hereof;

         (b) Receive, open and dispose of any mail addressed to Seller, provided
that Factor shall forward any mail to Seller that does not pertain to purchased
Accounts or Factor's Collateral,, and put Factor's address on any statements
mailed to Account Debtors;

         (c) Pay, settle, compromise, prosecute or defend any action, claim,
conditional waiver and release, or proceeding relating to Purchased Accounts or
Collateral;

         (d) Five (5) days after the occurrence of an Event of Default, or
immediately upon confirming that Seller has ceased business operations, notify
in the name of the Seller, the U.S. Post Office to change the address for
delivery of mail addressed to Seller to such address as Factor may designate,
however, Factor shall turn over to Seller all such mail not relating to
Purchased Accounts or Collateral;

         (e) File any financing statement deemed necessary or appropriate by
Factor to protect Factor's interest in and to the Purchased Accounts or
Collateral, or under any provision of this Agreement;

         (f) Effect debits to any Demand Deposit or other account that Seller
maintains at any Bank for any sums due to or from the Seller under this
Agreement;

         (g) demand, in the Client's name, that any bank that does business with
Client confirm the existence of any Control Agreement;

         (h) request in the Client's name, any tax or information return,
declaration of estimated tax, or claim for refund, and any amendment or
supplement thereto, including supporting schedules, attachments or lists which
are supplemental to, or a part of, the return filed, with irrevocable authority,
which authority shall be deemed duly designated by the Client's board of
directors by resolution and as attorney-in-fact as authorized by Title 26 of the
United States Code; and

         (i) to do all other things necessary and proper in order to carry out
this Agreement. The authority granted to Factor herein is irrevocable until this
Agreement is terminated and all Obligations are fully satisfied.

Section 10. Default and Remedies. An Event of Default shall be deemed to have
occurred hereunder and Factor may immediately exercise its rights and remedies
with respect to the Purchased Accounts and the Collateral under this Agreement,
upon the happening of one or more of the following:

         (a) Seller shall fail to pay as and when due any amount owed to Factor;

         (b) There shall be commenced by or against Seller any voluntary or
involuntary case under the Federal Bankruptcy Code, or any assignment for the
benefit of creditors, or appointment of a receiver or custodian;

         (c) Seller shall become insolvent in that its debts are greater than
the fair value of its assets, or Seller is generally not paying its debts as
they become due;

         (d) Any involuntary lien, garnishment, attachment or the like shall be
issued against or shall attach to the Purchased Accounts, the Collateral or any
portion thereof and the same is not released within ten (10) days;

         (e) Seller suffers the entry against it for a final judgment for the
payment of money in excess of $10,000.00, other than such judgments or
settlements identified on Schedule 10 herewith, unless the same is discharged
within thirty (30) days after the date of entry thereof or an appeal or
appropriate proceeding for review thereof is taken within such periods and a
stay of execution pending such appeal is obtained;

         (f) Seller shall breach any covenant, warranty or representation set
forth herein or same shall be untrue when made;

         (g) Any report, certificate, schedule, financial statement, profit and
loss statement or other statement furnished by Seller, or by any other person on
behalf of Seller, to Factor is not true and correct in any material respect;

         (h) Seller shall have a federal or state tax lien filed against any of
its properties, or shall fail to pay any federal or state tax when due, or shall
fail to file any federal or state tax form as and when due;

         (i) A material adverse change shall have occurred in Seller's financial
conditions, business or operations; or

         (j) A change in ownership occurs with respect to twenty five percent
(25%) or more of Seller's capital stock. Upon an Event of Default, all
obligations due Factor shall become immediately due and owing and Factor shall
be entitled to any form of equitable relief that may be appropriate without
having to establish any inadequate remedy at law or other grounds other than to
establish that its Collateral is subject to being improperly used, moved,

                                       7

<PAGE>

dissipated or withheld from Factor. Factor shall be entitled to freeze, debit
and/or effect a set-off against any fund or account Seller may maintain with any
Bank. In the event Factor deems it necessary to seek equitable relief,
including, but not limited to, injunctive or receivership remedies, as a result
of and Event of Default, Seller waives any requirement that Factor post or
otherwise obtain or procure any bond. Alternatively, in the event Factor, in its
sole and exclusive discretion, desires to procure and post a bond, Factor may
procure and file with the court a bond in an amount up to and not greater than
$10,000.00 notwithstanding any common or statutory law requirement to the
contrary. Upon Factor's posting of such bond it shall be entitled to all
benefits as if such bond was posted in compliance with state law. Seller also
waives any right it may be entitled to, including an award of attorney's fees or
costs, in the event any equitable relief sought by and awarded to Factor is
thereafter, for whatever reason(s), vacated, dissolved or reversed. All
post-judgment interest shall bear interest at either the contract rate, 18% per
annum or such higher rate as may be allowed by law.

Upon an Event of Default, all of Seller's rights of access to any online,
internet services that Purchaser makes available to Seller, shall be provisional
pending Seller's curing of all such Events of Default. During such period of
time, Purchaser may limit or terminate Seller's access to Purchaser's online
services. Seller acknowledges that the information Purchaser makes available to
Seller constitutes and satisfies any duty to respond to a Request for an
Accounting or Request regarding a Statement of Account that is referenced in
Section 9-210 of the UCC.

After an Event of default, the Parties acknowledge that it shall be presumed
commercially reasonable and Purchaser shall have no duty to undertake to collect
any Account or Account Purchased including those in which Purchaser receives
information from an Account Debtor that a Dispute exists. Furthermore, in the
event Purchaser undertakes to collect from or enforce an obligation of an
Account Debtor or other person obligated on Collateral and ascertains that the
possibility of collection is outweighed by the likely costs and expenses that
will be incurred, Purchaser may at any such time cease any further collection
efforts and such action shall be considered commercially reasonable. Before
Seller may, under any circumstances, seek to hold Purchaser responsible for
taking any uncommercially reasonable action, Seller shall be required to first
notify Purchaser, in writing, of all reasons why Seller believes Purchaser has
acted in any uncommercially reasonable manner and advise Purchaser of the action
that Seller believes Purchaser should take.

Seller's sole remedy for any breach alleged to have been committed by Purchaser
of any obligation or duty owed under the Agreement, any other agreement between
Seller and Purchaser or any duty or obligation arising out of or related to this
Agreement shall be limited to any amount in the Reserve Account at the time
notice of such breach is first given to Purchaser, in writing. Under no
circumstances shall Purchaser be liable for any incidental, special or
consequential damages, including, but not limited to, loss of goodwill, loss of
profit, or any other losses associated therewith, whether Purchaser did or did
not have any reason to know of a loss that may result from any general or
particular requirement of Seller.

Section 11. Cumulative Rights; Waivers. All rights, remedies and powers granted
to Factor in this Agreement, or in any other instrument or agreement given to
Seller or Factor or otherwise available to Factor in equity or at law, are
cumulative and may be exercised singularly or concurrently with such other
rights as Factor may have. These rights may be exercised from time to time as to
all or any part of the Purchased Accounts purchased hereunder or the Collateral
as Factor in its discretion may determine. In the event that any part of this
transaction between Seller and Factor is construed to be a loan from Factor to
Seller, any advances or payments made as the Purchase Price for all Purchased
Accounts shall be secured by the Purchased Accounts and the Collateral and
Factor shall have all rights and remedies available to Factor in addition to its
rights and remedies hereunder. Factor may not be held to have waived its rights
and remedies unless the waiver is in writing and signed by Factor. A waiver by
Factor of a right, remedy or default under this Agreement on one occasion is not
a waiver of any right, remedy or default on any subsequent occasion. Any failure
by Factor to exercise, or any delay by Factor of such right or any other right,
nor in any manner impair the subsequent exercise by Factor of any of its rights.

Section 12. Notices. Any notice or communication with respect to this Agreement
shall be given in writing, sent by (i) personal delivery, or (ii) expedited

                                       8

<PAGE>

delivery service with proof of delivery, or (iii) United States mail, postage
prepaid, registered or certified mail, or (iv) prepaid telegram, telex or
telecopy, addressed to each party hereto at its address set forth below or to
such other address or to the attention of such other person as hereafter shall
be designated in writing by the applicable party sent in accordance herewith.
Any such notice or communication shall be deemed to have been given either at
the time of personal delivery or, in the case of delivery service or mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telegram, telex or telecopy, upon receipt.

Section 13. Term. The Original Term of this Agreement shall be from the date
hereof until April 30, 2009, provided that this Agreement shall be extended
automatically on a six (6) month basis thereafter, unless written notice of
termination is given by one party hereto to the other party hereto at least
sixty (60) days, but not more than ninety (90) days, prior to the end of the
Original Term or any extension thereof. Should Seller terminate this Agreement
for any reason prior to the end of any Term, Seller shall pay Factor an early
termination fee equal to Factor's average monthly commission and/or deficiency
charges for the preceding six (6) month period, or the entire period from the
date of this Agreement if the preceding period is less than six (6) months,
multiplied by the number of months remaining in the Term. Any such notice of
termination, however, and notwithstanding payment in full of all Obligations by
Seller, is conditioned on Seller's delivery, to Factor, of a general release in
a form reasonably satisfactory to Purchaser. Seller understands that this
provision constitutes a waiver of its rights under Section 9-513 of the UCC.
Factor shall not be required to record any terminations or satisfactions of any
of Factor's liens on the Collateral unless and until Seller has executed and
delivered to Factor said general release and Seller shall have no authority to
do so without Factor's express written consent. Any termination of this
Agreement shall not affect Factor's security interest in the Collateral and
Factor's ownership of the Purchased Accounts, and this Agreement shall continue
to be effective, until all transactions entered into and obligations incurred
hereunder have been completed and satisfied in full. Notwithstanding anything to
the contrary, and assuming no default by Seller in which event Factor may
terminate without notice, Factor may terminate this Agreement at any time by
giving not less than thirty (30) days notice in which event, Seller shall not be
obligated to pay any Termination Fee.

Section 14. Attorney's Fees. Seller agrees to reimburse Factor upon demand for
all reasonable attorney's fees, court costs and other expenses incurred by
Factor in preparation, negotiation and enforcement of this Agreement and
protecting or enforcing its interest in the Accounts or the Collateral, in
collecting the Accounts or the Collateral, or in the representation of Factor in
connection with any bankruptcy case or insolvency proceeding involving Seller,
the Collateral, any Account Debtor or any Accounts including any defense of any
Avoidance Claims. Seller hereby authorizes Factor, at Factor's sole discretion,
to deduct such fees, costs and expenses from the Required Reserve Account or may
make demand therefore. Notwithstanding the existence of any law, statute or
rule, in any jurisdiction which may provide Seller with a right to attorney's
fees or costs, Seller hereby waives any and all rights to hereafter seek
attorney's fees or costs hereunder and Seller agrees that Factor exclusively
shall be entitled to indemnification and recovery of any and all attorney's fees
or costs in respect to any litigation based hereon, arising out of, or related
hereto, whether under, or in connection with, this and/or any agreement executed
in conjunction herewith, or any course of conduct, course of dealing, statements
(whether verbal or written) or actions of either party.

Section 15. Indemnity. Seller hereby indemnifies and agrees to hold harmless and
defend Factor from and against any and all claims, judgments, liabilities, fees
and expenses (including attorney's fees) which may be imposed upon, threatened
or asserted against Factor at any time and from time to time in any way
connected with this Agreement or the Collateral. The foregoing indemnification
shall apply whether or not such indemnified claims are in any way or to any
extent owed, in whole or in part, under any claim or theory of strict liability,
or are caused, in whole or in part, by any willful negligent act or omission of
Factor.

Section 16. Severability. Each and every provision, condition, covenant and
representation contained in this Agreement is, and shall be construed to be, a
separate and independent covenant and agreement. If any term or provision of
this Agreement shall to any extent be invalid or unenforceable, the remainder of
the Agreement shall not be affected thereby.

                                       9

<PAGE>

Section 17. Parties in Interest. All grants, covenants and agreements contained
in this Agreement shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns; provided, however, that Seller may not
delegate or assign any of its duties or obligations under this Agreement without
the prior written consent of Factor. Factor reserves the right to assign its
rights and obligations under this agreement in whole or in part to any person or
entity.

Section 18. Governing Law: Submission to Process and Venue. This agreement shall
be deemed a contract made under the laws of the State of Arizona and shall be
construed and enforced in accordance with and governed by the internal laws of
the State of Arizona, without reference to the rules thereof relating to
conflicts of law. Seller hereby irrevocably submits itself to the exclusive
jurisdiction of the state and federal courts located in either Arizona or
California, and agrees and consents that service of process may be made upon it
in any legal proceeding relating to this agreement, the purchase of Accounts or
any other relationship between Factor and Seller by any means allowed under
state or federal law. Any legal proceeding arising out of or in any way related
to this Agreement, the purchase of Accounts or any other relationship between
Factor and Seller shall be brought and litigated in any the state or federal
courts located in the State of Arizona in any county in which Factor has a
business location, the selection of which shall be in the exclusive discretion
of Factor. Seller hereby waives and agrees not to assert, by way of motion, as a
defense or otherwise, that any such proceeding, is brought in any inconvenient
forum or that the venue thereof is improper.

Section 19. Complete Agreement. This Agreement, the written documents executed
pursuant to this Agreement, if any, and the acknowledgment delivered in
connection herewith set forth the entire understanding and agreement of the
parties hereto with respect to the transactions contemplated herein and may not
be contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements of the parties. No modification or amendment of or supplement to this
Agreement shall be valid or effective unless the same is in writing and signed
by the party against whom it is sought to be enforced.

Section 20. Miscellaneous.

         (a) Seller acknowledges that there is no, and it will not seek or
attempt to establish any, fiduciary relationship between Factor and Seller, and
Seller waives any right to assert, now or in the future, the existence or
creation of any fiduciary relationship between Factor and Seller in any action
or proceeding (whether by way of claim, counterclaim, crossclaim or otherwise)
for damages.

         (b) This Agreement shall be deemed to be one of financial accommodation
and not assumable by any debtor, trustee or debtor-inpossession in any
bankruptcy proceeding without Factor's express written consent and may be
suspended in the event a petition in bankruptcy is filed by or against Seller.

         (c) In the event Seller's principals, officers or directors form a new
entity, whether corporate, partnership, limited liability company or otherwise,
similar to that of Seller during the term of this Agreement, such entity shall
be deemed to have expressly assumed the obligations due Factor by Seller under
this Agreement. Upon the formation of any such entity, Factor shall be deemed to
have been granted an irrevocable power of attorney with authority to execute, on
behalf of the newly formed successor business, a new UCC-1 or UCC-3 financing
statement and have it filed with the appropriate secretary of state or UCC
filing office. Factor shall be held-harmless and be relieved of any liability
statement or the resulting perfection of a lien in any of the successor entity's
assets. In addition, Factor shall have the right to notify the successor
entity's account debtors of Factor's lien rights, its right to collect all
Accounts, and to notify any new Factor or lender who has sought to procure a
competing lien of Factor's right is in such successor entity's assets.

         (d) Seller expressly authorizes Factor to access the systems of and/or
communicate with any shipping or trucking company in order to obtain or verify
tracking, shipment or delivery status of any Goods regarding a Purchased
Account.

         (e) Seller's principal(s) acknowledge that the duty to accurately
complete each Schedule of Accounts is critical to this Agreement and as such all
obligations with respect thereto are non- delegable. Each of Seller's
principal(s) acknowledge that he/she shall remain fully responsible for the
accuracy of each Schedule of Accounts delivered to Factor regardless of who is
delegated the responsibility to prepare and/or complete such Schedule of
Accounts.

                                       10

<PAGE>

         (f) Seller shall indemnify Factor from any loss arising out of the
assertion of any Avoidance Claim. Seller shall notify Factor within two business
days of it becoming aware of the assertion of an Avoidance Claim.

         (g) Seller agrees to execute any and all forms (i.e. Forms 8821 and/or
2848) that Factor may require in order to enable Factor to obtain and receive
tax information issued by the Department of the Treasury, Internal Revenue
Service, or receive refund checks.

         (h) In an event of default, and in order to satisfy any of the
Obligations, Seller (as Receiver) authorizes Purchaser (as Originator) to
initiate electronic debit entries to Payment Processors through the Automated
Clearing House Network to any Receiving Depository Financial Institution where a
deposit account is maintained by Seller.

Section 21. Waiver of Jury Trial, Punitive and Consequential Damages, Etc.
Seller and Factor hereby (a) irrevocably waive any right either may have to a
trial by jury in respect of any litigation directly or indirectly at any time
arising out of, under or in connection with this Agreement or any transaction
contemplated hereby or associated herewith; (b) Seller irrevocably waives, to
the maximum extent not prohibited by law, any right it may have to claim or
recover in any such litigation any special, exemplary, punitive or consequential
damages, or damages other than, or in addition to, actual damages and Seller
hereby releases and exculpates Factor, its officers, employees and designees,
from any liability arising from any acts under this Agreement or in furtherance
thereof whether of omission or commission, and whether based upon any error of
judgment or mistake of law or fact, except for gross negligence or willful
misconduct ; (c) and Seller certifies that no party hereto nor any
representative or agent or counsel for any party hereto has represented,
expressly or otherwise, or implied that such party would not, in the event of
litigation, seek to enforce the foregoing waivers; and (d) Seller acknowledges
that Factor has been induced to enter into this Agreement and the transactions
contemplated hereby, in part, as a result of the mutual waivers and
certifications contained in this Section.

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                                       11

<PAGE>

         In Witness Whereof, the parties have set their hands and seals on the
day and year first hereinabove written.

                                      REXFORD FUNDING LLC

                                      By:  /s/ William F. Elliott
                                           -------------------------------------
                                      Name: William F. Elliott
                                      Title: President

                                      Address: 2301 Rosecrans Avenue, Ste. 4110
                                               El Segundo, CA 90245

                                      I/OMAGIC CORPORATION

                                      By:  /s/ Tony Shahbaz
                                           -------------------------------------
                                      Name:  Tony Shahbaz
                                      Title: President, CEO

                                      Address: 4 Marconi
                                               Irvine, CA 92618

                                       12

<PAGE>

                                  EXHIBIT "1.1"

             Definitions to Sale of Accounts and Security Agreement
               dated October 24, 2008 between Rexford Funding LLC
                            and I/0MAGIC Corporation

         "Account(s)" includes a right to payment of a monetary obligation,
whether or not earned by performance, (i) for property that has been or is to be
sold, leased, licensed, assigned, or otherwise disposed of or (ii) for services
rendered or to be rendered.

         "Account Debtor" or "Customer" means any Person who is obligated on an
Account, Chattel Paper or General Intangible.

         "Advance" means amounts advanced by Factor to the Seller under this
Agreement.

         "Agreement" means the Sale of Accounts and Security Agreement,
including the Exhibits and any Schedules hereto, and all amendments,
modifications and supplements hereto and thereto and restatements hereof and
thereof.

         "Application" means each application made by Seller in connection with
this Agreement.

         "Avoidance Claim" means any claim that any payment received by Factor
from or for the account of an Account Debtor is avoidable under the Bankruptcy
Code or any other debtor relief statute.

         "Chattel Paper" means a record or records that evidence both a monetary
obligation and a security interest in specific goods, a security interest in
specific goods and software used in the goods, a security interest in specific
goods and license of software used in the goods, a lease of specific goods, or a
lease of specific goods and license of software used in the goods.

         "Collateral" means and includes all of the Sellers' right, title and
interest in and to each of the following, wherever located and whether now or
hereafter existing or now owned or hereafter acquired or arising: All Accounts
and Proceeds, and, with respect thereto, all Chattel Paper; Commercial Tort
Claims; Deposit Accounts; Documents; ; General Intangibles; Goods (including but
not limited to all files, correspondence, computer programs, tapes, disks and
related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof); Letters of Credit and Letter of Credit
rights; and all Supporting Obligations.

         "Commercial Tort Claim" means a claim arising in tort with respect to
which: (A) The claimant is an organization; or (B) The claimant is an individual
and the claim: (i) arose in the course of the claimant's business or profession;
and (ii) does not include damages arising out of personal injury to or the death
of an individual.

         "Date of Collection" means the date a check, draft or other item
representing payment on an invoice is received by Factor.

         "Default" means any of the events specified in Section 10 of this
Agreement that, with the passage of time or giving of notice or both, would
constitute an Event of Default.

         "Deposit Account" means any demand, time, savings, passbook or like
account maintained with a bank, savings and loan association, credit union or
like organization, other than an account evidenced by a certificate of deposit
that is an instrument under the UCC.

         "Dispute or Disputed Account" means any claim, whether or not provable,
bona fide, or with or without support, made by an Account Debtor as a basis for
refusing to pay a Purchased Account, either in whole or in part, including, but
not limited to, any contract dispute, charge back, credit, right to return
Goods, or other matter which diminishes or may diminish the dollar amount or
timely collection of such Account.

                                 Page 1 of 3

<PAGE>

         "Documents" means a document of title or a receipt of the type
described in UCC 7-201(2).

         "Equipment" means Goods other than Inventory.

         "Event of Default" means any of the events specified in Section 10 of
this Agreement.

         "Financial Inability to Pay" means an Account Debtor's insolvency such
that the value of its assets are exceeded by its fixed, liquidated and
non-contingent liabilities.

         "Financing Statement" means each Uniform Commercial Code financing
statement naming the Factor as purchaser/secured party and the Seller as
Seller/debtor, in connection with this Agreement.

         "Full Recourse" means that each Account(s) assigned to and purchased by
Factor is with full recourse to Seller and at Seller's sole credit risk.

         "GAAP" means generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with the
prior financial practice of the Person referred to.

         "General Intangible" means any personal property, including things in
action, other than Accounts, Chattel Paper, Commercial Tort Claims, Deposit
Accounts, Documents, Goods, Inventory, Investment Property, Letters of Credit
rights, Letters of Credit and Money. Payment Intangibles and software, however,
are included.

         "Goods" means all things that are movable when a security interest
attaches. The term does not include Accounts, Chattel Paper, Commercial Tort
Claims, Deposit Accounts, Documents, General Intangibles, Instruments,
Investment Property, Letter of Credit Rights, Letters of Credit or Money.

         "Instrument" means a negotiable instrument or any other writing that
evidences a right to the payment of a monetary obligation, is not itself a
security agreement or lease, and is of a type that in ordinary course of
business is transferred by delivery with any necessary endorsement or
assignment. The term does not include (i) Investment Property, (ii) Letters of
Credit, or (iii) writings that evidence a right to payment arising out of the
use of a credit or charge card or information contained on or for us with the
card.

         "Interest Rate" means the Prime Rate as reported in the Wall Street
Journal, plus one percent (1%), but in no case less than 5.5%.

         "Inventory" means Goods which are leased by Seller as lessor, are held
by Seller for sale or lease or to be furnished under a contract of service or
raw materials, work in process, or materials used or consumed in Seller's
business.

         "Investment Property" means a security, whether certificated or
uncertificated, security entitlement, securities account, commodity contract, or
commodity account.

         "Letter of Credit Right" a right to payment or performance under a
Letter of Credit, whether or not the beneficiary has demanded or is at the time
entitled to demand payment or performance. The term does not include the right
of a beneficiary to demand payment or performance under a Letter of Credit.

         "Lien" means, as applied to the property of any Person, the filing of,
or any agreement to give, any financing statement under the UCC or its
equivalent in any jurisdiction.

         "Maximum Line Amount" means one million dollars ($1,000,000).

         "Misdirected Payment Fee" means fifteen percent (15%) of the amount of
any payment on account of a Purchased Account which has been received by Seller
and not delivered in kind to Factor on the next business day following the date
of receipt by Seller.

                                  Page 2 of 3

<PAGE>

         "Net Invoice Amount" means the invoice amount of the Purchased Account,
less returns (whenever made), all selling discounts (at Factor's option,
calculated on shortest terms), and credit or deductions of any kind allowed or
granted to or taken by the customer at any time.

         "Obligations" means all present and future obligations owing by Seller
to Factor whether or not for the payment of money, whether or not evidenced by
any note or other instrument, whether direct or indirect, absolute or
contingent, due or to become due, joint or several, primary or secondary,
liquidated or unliquidated, secured or unsecured, original or renewed or
extended, whether arising before, during or after the commencement of any
Bankruptcy Case in which Seller is a Debtor, including but not limited to any
obligations arising pursuant to letters of credit or acceptance transactions or
any other financial accommodations.

         "Original Term" means the term of this Agreement as reflected in
section 13 and "Term" means the Original Term and any extensions thereof.

         "Person" means an individual, corporation, partnership, association,
trust or unincorporated organization or a government or any agency or political
subdivision thereof.

         "Purchase Price" means the price that Factor pays Seller for each
Purchased Account which price shall equal the Net Invoice Amount less Factor's
factoring commission.

         "Purchased Account(s)" means an Account which is deemed acceptable for
purchase as determined by Factor in the exercise of its reasonable sole credit
or business judgment and for which Factor has made payment of the sum specified
in Section 2 of the Agreement constituting Factor's acceptance of an Account.

         "Reserve Account" means a bookkeeping account on the books of the
Factor representing an unpaid portion of the Purchase Price, maintained by
Factor to ensure Seller's performance with the provisions hereof.

         "Reserve Percentage" means twenty five (25%), except Staples which
shall be forty percent (40%) of the face amount of the Purchased Accounts and as
such percent may change in accordance herewith.

         "Reserve Shortfall" means the amount by which the Reserve Account is
less than the Required Reserve Amount.

         "Required Reserve Amount" means the Reserve Percentage multiplied by
the unpaid balance of all Purchased Accounts.

         "Schedule of Accounts" - a form supplied by Factor from time to time
wherein Seller lists those Accounts it requests Factor purchase under the terms
of this Agreement.

         "Security Interest" means the Liens of Factor on and in the Collateral
affected hereby or pursuant to the terms hereof or thereof.

         "Supporting Obligation" means a Letter of Credit Right or secondary
obligation that supports the payment or performance of an Account, Chattel
paper, a Document, a General Intangible, an Instrument, or Investment Property.

         "Termination Fee" means a fee payable to Factor in the event Seller
terminates this Agreement prior to maturity of the Original Term or Term of this
Agreement.

         "UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Arizona.

                                  Page 3 of 3

<PAGE>

              Exhibit 2(b) Schedule of Accounts Sold/Bill of Sale

Client's Name: 1/0Magic Corporation                   Schedule Number _________

Page ___ of _____  Date ________________  200_

Invoice  Invoice    Name of Account                   Invoice
Date     Number       Debtor          Location         Amount

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

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

-------------------------------------------------------------------
TOTAL:
--------------------------------------------------------------------

ASSIGNMENT:

         KNOW ALL MEN BY THESE PRESENTS, that the undersigned for value received
has sold transferred and assigned and does hereby sell, transfer and assign to
Rexford Funding, LLC (hereinafter called the "Buyer"), its successors and
assigns, in accordance with the provision of that certain Sale of Accounts and
Security Agreement heretofore duly executed and delivered by the undersigned and
duly accepted by the Buyer, and any amendments thereto (hereinafter called the
"Agreement"), each Account, listed hereon, and all right, title and interest of
the undersigned in and to such Account(s) and in and to all merchandise, the
sale of which shall have given rise to such Account(s), including all of the
undersigned's right of stoppage in transit replevin and reclamation as an unpaid
vendor. Each Account is made a part hereof as if attached or incorporated herein
for specific terms, conditions, provisions and description of said Account(s).

         For the purpose of inducing the Buyer to purchase such Account(s), the
undersigned hereby reaffirms all warranties under the Agreement applicable to
such Account(s) and account debtors. In the event of any breach of any such
warranty, the Buyer, its successors and assigns, shall have such rights, inter
alia, as are provided in the Agreement.

                                  Page 1 of 2

<PAGE>

<TABLE>
<CAPTION>
<S>     <C>

                                                          EXHIBIT "4(e)"
                                                          DISCLOSED LIENS

------------------------------------------------------------------------------------------------------------------------------------
                                                           Date/Time  Initial Filing
Secured Parties                  Secured Parties Address   of Filing     Number       Filing Description        Collateral
------------------------------------------------------------------------------------------------------------------------------------
Dell Financial Services L.P.     12234 N. IH-35, Bldg. B,  1/4/2007   2007000404-2   Initial Financing Statement  Servers
                                 Austin TX 75753
------------------------------------------------------------------------------------------------------------------------------------
Dell Financial Services L.P.     12234 N. IH-35, Bldg. B,  1/25/2007  2007002543-8   Initial Financing Statement Servers
                                 Austin TX 75753
------------------------------------------------------------------------------------------------------------------------------------
Dell Financial Services L.P.     12234 N. IH-35, Bldg. B,  1/7/2007   2008000500-8   Initial Financing Statement Servers
                                 Austin TX 75753
------------------------------------------------------------------------------------------------------------------------------------
General Electric Capital         10 Riverview Drive,      3/12/2007   4482077-001    UUC Financing Statement     1 - Cosmos/0KW
Corporation                      Danbury, CT 06810                                                               RF sealing machine
------------------------------------------------------------------------------------------------------------------------------------
CIT Communications Finance Corp. 1 CIT Drive,             2/2/2007    23,608,688     UCC Financing Statement     Telephone
                                 Livingston, NJ 07039                                                            equipment
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                                  EXHIBIT 4(m)

            STATEMENT OF AUTHORIZED SIGNATURES FOR SALE/ASSIGNMENT OF
                                    ACCOUNTS
Gentlemen:

         This is to advise you that the persons whose signatures appear below
are hereby authorized to execute, on behalf of the undersigned corporation, any
Schedule of Accounts Sold/Bill of Sale of accounts pursuant to the terms of the
Sale of Accounts and Security Agreement between Rexford Funding, LLC and
I/OMagic Corporation dated as of October 24, 2008, and you are hereby authorized
to accept the said signatures of such persons until such authorization is
revoked in writing. Each of the persons below have been advised that the
execution of the Schedule of Accounts Sold is a non-delegable duty and that each
is deemed to have made the representations, warranties and covenants as provided
in the Sale of Accounts and Security Agreement with each Schedule.

                                               Very truly yours,

                                               I/OMagic Corporation

                                               By: /s/ Tony Shahbaz
                                                  ------------------
                                                  Tony Shahbaz, CEO

                                              Date: _____________, 2008.

AUTHORIZED SIGNATURES:

/s/ Thomas L. Gruber                          /s/ Thomas L. Gruber
------------------------------                -------------------------
Typed or Printed Name                                Signature

Seldon Reese                                  /s/ Seldon Reese
------------------------------                -------------------------
Typed or Printed Name                                Signature

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