BUSINESS FINANCING AGREEMENT

1.

FINANCED RECEIVABLES .

1.1

Funding Requests .  Borrower may request that Lender finance Receivables by delivering to Lender a Funding Request for the Receivables for which a request for financing is made. Lender shall be entitled to rely on all the information provided by Borrower to Lender on or with the Funding Request.  The Lender may honor Funding Requests, instructions or repayments given by the Borrower (if an individual) or by an Authorized Person.

1.2

Acceptance of Receivables .  Upon acceptance by Lender of any Receivable described in a Funding Request, Lender shall make an Advance to Borrower in an amount equal to the Advance Rate multiplied by the Receivable Amount of such Receivable. Upon Lender’s acceptance of the Receivable and payment to Borrower of the Advance, the Receivable shall become a “Financed Receivable.”  It shall be a condition to each Advance that (a) all of the representations and warranties set forth in Section 5 are true and correct on the date of such Advance as though made at and as of each such date and (b) no Default has occurred and is continuing, or would result from such Advance.  Lender has no obligation to finance any Receivable and may exercise its sole discretion in determining whether any Receivable is an Eligible Receivable before financing such Receivable.  In no event shall the Lender be obligated to make any Advance that results in an Overadvance or while any Overadvance is outstanding.

1.3

Rights in Respect of Financed Receivables .  Effective upon Lender’s payment of an Advance, Lender shall have the exclusive right to receive all Collections on the Financed Receivable.  Lender shall have, with respect to any goods related to the Financed Receivable, all the rights and remedies of an unpaid seller under the California Uniform Commercial Code and other applicable law, including the rights of replevin, claim and delivery, reclamation and stoppage in transit.

1.4

Reserve .  The Reserve is a book balance maintained on the records of Lender and shall not be a segregated fund and is not the property of Borrower.

1.5

Due Diligence .  Lender may audit Borrower’s Receivables and any and all records pertaining to the Collateral, at Lender’s sole discretion and at Borrowers expense.  Lender may at any time and from time to time contact Account Debtors and other persons obligated or knowledgeable in respect of Receivables to confirm the Receivable Amount of such Receivables, to determine whether Receivables constitute Eligible Receivables, and for any other purpose in connection with this Agreement.  If any of the Collateral or Borrower's books or records pertaining to the Collateral are in the possession of a third party, Borrower authorizes that third party to permit Lender or its agents to have access to perform inspections or audits thereof and to respond to Lender's requests for information concerning such Collateral and records.

2.

COLLECTIONS, CHARGES AND REMITTANCES .

2.1

Collections .  Subject to the Lender’s timely receipt of accurate application instructions from the Borrower with respect to the source and application of Collections, Lender shall credit to Collections with respect to Financed Receivables received by Lender to Borrower’s Account Balance within three business days of the date good funds are received.  If no Default has occurred and is continuing, Lender agrees to credit the Refundable Reserve with the amount of Collections it receives with respect to Receivables other than Financed Receivables; provided that upon the occurrence and during the continuance of any Default, Lender may apply all Collections to the Obligations in such order and manner as Lender may determine.  Lender has no duty to do any act other than to turnover such amounts as required above.  If an item of Collections is not honored or Lender does not receive good funds for any reason, the amount shall be included in the Account Balance as if the Collections had not been received and Finance Charges shall accrue thereon.

2.2

Financed Receivables Activity Report .  Within 15 days after the end of each Monthly Period, Lender shall send to Borrower a report covering the transactions for that Monthly Period, including the amount of all Financed Receivables, all Collections, Adjustments, Finance Charges, and other fees and charges.  The accounting shall be deemed correct and conclusive unless Borrower makes written objection to Lender within 30 days after the Lender sends the accounting to Borrower.

2.3

Reconciliations .  Unless a Default has occurred and is continuing, Lender shall refund to Borrower after each Month End, the Refundable Reserve, if positive, calculated for such Month End, subject to Lender’s rights under Section 3.3 and Lender’s rights of offset and recoupment.  If the Refundable Reserve is negative, Borrower shall immediately pay such amount in the same manner as set forth in Section 3.3 for Overadvances.

2.4

Adjustments .  In the event of a breach of Sections 5 or 6, or in the event any Adjustment or dispute is asserted by any Account Debtor, Borrower shall promptly advise Lender and shall, subject to the Lender’s approval, resolve such disputes and advise Lender of any Adjustments; provided that in no case will the aggregate Adjustments made with respect to any Financed Receivable exceed 2% of its original Receivable Amount unless Borrower has obtained the prior written consent of Lender.  Unless the Advance for the disputed Financed Receivable is repaid in full, Lender shall have the right, at any time, to take possession of any rejected, returned, or recovered personal property. If such possession is not taken by Lender, Borrower is to resell it for Lender’s account at Borrower’s expense with the proceeds made payable to Lender. While Borrower retains possession of any returned goods, Borrower shall segregate said goods and mark them as property of Lender.

2.5

Remittances; Lockbox Account Collection Services .  All proceeds of Receivables and Collateral shall be deposited into a lockbox or dominion account with Lender pursuant to an agreement acceptable to Lender (the “Blocked Account”).  Borrower shall use the Blocked Account address as the remit to and payment address for all proceeds of Receivables and Collateral and it will be considered an immediate Event of Default if this does not occur or is not operational within 60 days of the date of this Agreement.  All proceeds of Receivables and Collateral received to the Blocked Account will be deposited to a non-interest bearing bank-control account maintained with Lender and Borrower will not have access to that account.  Borrower shall (i) immediately notify, transfer and deliver to Lender all Collections Borrower receives, and (ii) deliver to Lender a detailed cash receipts journal on Friday of each week until the Blocked Account is operational.

3.

RECOURSE AND OVERADVANCES .

3.1

Recourse .  Advances and the other Obligations shall be with full recourse against Borrower. If any Advance is not repaid in full within 90 days from the earlier of (a) invoice date, or (b) the date on which such Advance is made, Borrower shall immediately pay the outstanding amount thereof to Lender.

3.2

Overadvances .  Upon any occurrence of an Overadvance, Borrower shall immediately pay down the Advances so that, after giving effect to such payments, no Overadvance exists.

3.3

Borrower’s Payment .  When any Overadvance or other amount owing to Lender becomes due, Lender shall inform Borrower of the manner of payment which may be any one or more of the following in Lender’s sole discretion: (a) in cash immediately upon demand therefore; (b) by delivery of substitute invoices and a Funding Request acceptable to Lender which shall thereupon become Financed Receivables; (c) by deduction from or offset against the Refundable Reserve that would otherwise be due and payable to Borrower; (d) by deduction from or offset against the amount that otherwise would be forwarded to Borrower in respect of any further Advances that may be made by Lender; or (e) by any combination of the foregoing as Lender may from time to time choose.

4.

FEES AND FINANCE CHARGES .

4.1

Finance Charges .  Lender may, but is not required to, deduct the amount of accrued Finance Charge from Collections received by Lender.  On each Month End Borrower shall pay to Lender any accrued and unpaid Finance Charge as of such Month End.  Lender may deduct the accrued Finance Charges in calculating the Refundable Reserve.

4.2

Fees .

(a)

Termination Fee .  In the event this Agreement is terminated prior to the first anniversary of the date of this Agreement, Borrower shall pay the Termination Fee to Lender provided such Termination Fee shall be waived if this Agreement is terminated in connection with Borrower’s entry into another financing agreement with Lender or if Borrower is acquired by a third party on terms and conditions acceptable to Lender.

(b)

Facility Fee .  Borrower shall pay the Facility Fee to Lender promptly upon the execution of this Agreement and annually thereafter.

(c)

Recovery Fee .  If Borrower fails to remit any Collections to Lender as provided in Section 2.5, Borrower shall in each case pay to Lender the Recovery Fee for such Collections.

(d)

(e)

Due Diligence Fee .  Borrower shall pay the Due Diligence Fee to Lender promptly upon the first anniversary of this Agreement and annually thereafter.

(f)

Fee in Lieu of Warrant.   Unless Borrower delivers a warrant in a form and substance acceptable to Lender, Borrower must pay the Fee in Lieu of Warrant to Lender promptly upon the execution of this Agreement.

5.

REPRESENTATIONS AND WARRANTIES .  Borrower represents and warrants:

5.1

With respect to each Financed Receivable:

(a)

It is the owner with legal right to sell, transfer and assign it;

(b)

The correct Receivable Amount is on the Funding Request and is not disputed;

(c)

Such Financed Receivable is an Eligible Receivable;

(d)

Lender has the right to endorse and/ or require Borrower to endorse all payments received on Financed Receivables and all proceeds of Collateral; and

(e)

No representation, warranty or other statement of Borrower in any certificate or written statement given to Lender contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained in the certificates or statement not misleading.

5.2

Borrower is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be qualified.

5.3

The execution, delivery and performance of this Agreement has been duly authorized, and does not conflict with Borrower’s organizational documents, nor constitute an Event of Default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which it is bound.

5.4

Borrower has good title to the Collateral and all inventory is in all material respects of good and marketable quality, free from material defects.

5.5

Borrower’s name, form of organization, chief executive office, and the place where the records concerning all Financed Receivables and Collateral are kept is set forth at the beginning of this Agreement, Borrower is located at its address for notices set forth in this Agreement.

5.6

If Borrower owns, holds or has any interest in, any copyrights (whether registered, or unregistered), patents or trademarks, and licenses of any of the foregoing, such interest has been specifically disclosed and identified to Lender in writing.

6.

MISCELLANEOUS PROVISIONS .  Borrower will:

6.1

Maintain its corporate existence and good standing in its jurisdictions of incorporation and maintain its qualification to do business in each jurisdiction necessary to Borrower’s business or operations.

6.2

Give Lender at least 30 days prior written notice of changes to its name, organization, chief executive office or location of records.

6.3

Pay all its taxes including gross payroll, withholding and sales taxes when due and will deliver satisfactory evidence of payment to Lender if requested.

6.4

If requested, provide to Lender a written report within 10 days, if payment of any Financed Receivable does not occur by its due date and include the reasons for the delay.

6.5

If applicable, give Lender copies of all Forms 10-K, 10-Q and 8-K (or equivalents) within 5 days of filing with the Securities and Exchange Commission, while any Financed Receivable is outstanding.

6.6

Execute any further instruments and take further action as Lender requests to perfect or continue Lender’s security interest in the Collateral or to affect the purposes of this Agreement.

6.7

Provide Lender with a Compliance Certificate no later than 30 days following each quarter end or as requested by Lender.

6.8

Immediately notify, transfer and deliver to Lender all Collections Borrower receives.

6.9

Not create, incur, assume, or be liable for any indebtedness, other than normal payables and accruals in the normal course of business and Permitted Indebtedness.

6.10

Immediately notify Lender if Borrower hereafter obtains any interest in any copyrights, patents, trademarks or licenses that are significant in value or are material to the conduct of its business or the value of any Financed Receivable.

6.11

At all times when any Advances are outstanding or upon request, provide to Lender no later than 30 days after the end of each month the following with respect to Borrower’s financial condition and results of operations for such month and the period then ending: balance sheet, income statement; statement of cash flows, accounts receivable and payable aging, deferred revenue report, and such other matters as Lender may request.

6.12

Maintain its primary depository and operating accounts with Lender and, in the case of any deposit accounts not maintained with Lender, grant to Lender a first priority perfected security interest in and “control” (within the meaning of Section 9104 of the California Uniform Commercial Code) of such deposit account pursuant to documentation acceptable to Lender.

6.13

Provide to Lender within 120 days of the fiscal year end, Borrower’s consolidated annual financial statements, certified and dated by an authorized financial officer and reviewed by an independent Certified Public Accountant acceptable to Lender.

6.14

Provide to Lender promptly upon the execution hereof, the following documents which shall be in form satisfactory to Lender:  unless the Fee in Lieu of Warrant has been paid to Lender, a warrant to purchase a number of common shares of Borrower equal in aggregate share value to 2.5 (%) percent of the Formula Account Balance at a share price equal to the five day average trading price prior to the execution of this Agreement.

6.15

Promptly provide to Lender such additional information and documents regarding the finances, properties, business or books and records of Borrower or any guarantor or any other obligor as Lender may request.

6.16

Maintain:

(a)

insurance satisfactory to Lender as to amount, nature and carrier covering property damage (including loss of use and occupancy) to any of the Borrower's properties, business interruption insurance, public liability insurance including coverage for contractual liability, product liability and workers' compensation, and any other insurance which is usual for the Borrower's business.  Each such policy shall provide for at least thirty (30) days prior notice to Lender of any cancellation thereof and must include Lender as an additional insured.

(b)

all risk property damage insurance policies (including without limitation windstorm coverage, and hurricane coverage as applicable) covering the tangible property comprising the collateral.  Each insurance policy must be   in an amount acceptable to Lender.  The insurance must be issued by an insurance company acceptable to Lender and must include a lender's loss payable endorsement in favor of Lender in a form acceptable to Lender.

7.

SECURITY INTEREST .  To secure the prompt payment and performance to Lender of all of the Obligations, Borrower hereby grants to Lender a continuing security interest in the Collateral.  Borrower is not authorized to sell, assign, transfer or otherwise convey any Collateral without Lender’s prior written consent, except for the sale of finished inventory in the Borrower’s usual course of business.  Borrower agrees to sign any instruments and documents requested by Lender to evidence, perfect, or protect the interests of Lender in the Collateral.  Borrower agrees to deliver to Lender the originals of all instruments, chattel paper and documents evidencing or related to Financed Receivables and Collateral.  Borrower shall not grant or permit any lien or security in the Collateral or any interest therein other than Permitted Liens.

8.

POWER OF ATTORNEY .  Borrower irrevocably appoints Lender and its successors and as true and lawful attorney in fact, and authorizes Lender (a) to, whether or not there has been an Event of Default, (i) demand, collect, receive, sue, and give releases to any Account Debtor for the monies due or which may become due upon or with respect to the Receivables and to compromise, prosecute, or defend any action, claim, case or proceeding relating to the Receivables, including the filing of a claim or the voting of such claims in any bankruptcy case, all in Lender’s name or Borrower’s name, as Lender may choose; (ii) prepare, file and sign Borrower’s name on any notice, claim, assignment, demand, draft, or notice of or satisfaction of lien or mechanics’ lien or similar document; (iii) notify all Account Debtors with respect to the Receivables to pay Lender directly; (iv) receive and open all mail addressed to Borrower for the purpose of collecting the Receivables; (v) endorse Borrower’s name on any checks or other forms of payment on the Receivables; (vi) execute on behalf of Borrower any and all instruments, documents, financing statements and the like to perfect Lender’s interests in the Receivables and Collateral; (vii) debit any Borrower’s deposit accounts maintained with Lender for any and all Obligations due under this Agreement; and (viii) do all acts and things necessary or expedient, in furtherance of any such purposes, and (b) to, upon the occurrence and during the continuance of an Event of Default, sell, assign, transfer, pledge, compromise, or discharge the whole or any part of the Receivables.  Upon the occurrence and continuation of an Event of Default, all of the power of attorney rights granted by Borrower to Lender hereunder shall be applicable with respect to all Receivables and all Collateral.

9.

DEFAULT AND REMEDIES .

9.1

Events of Default .  The occurrence of any one or more of the following shall constitute an Event of Default hereunder.

(a)

Failure to Pay .  Borrower fails to make a payment under this Agreement after demand therefor.

(b)

Lien Priority .  Lender fails to have an enforceable first lien (except for any prior liens to which Lender has consented in writing) on or security interest in the Collateral.

(c)

False Information .  Borrower (or any guarantor) has given Lender any materially false or misleading information or representations or has failed to disclose any material fact relating to the subject matter of this Agreement.

(d)

(Intentionally omitted)

(e)

Bankruptcy .  Borrower (or any guarantor) files a bankruptcy petition, a bankruptcy petition is filed against Borrower (or any guarantor) or Borrower (or any guarantor) makes a general assignment for the benefit of creditors.

(f)

Receivers .  A receiver or similar official is appointed for a substantial portion of Borrower’s (or any guarantor’s) business, or the business is terminated.

(g)

Judgments .  Any judgments or arbitration awards are entered against Borrower (or any guarantor), or Borrower (or any guarantor) enters into any settlement agreements with respect to any litigation or arbitration and the aggregate amount of all such judgments, awards, and agreements exceeds $50,000, unless such judgment is satisfied or subject to a stay of enforcement pending appeal within five (5) days of entry.

(h)

Material Adverse Change .  A material adverse change occurs, or is reasonably likely to occur, in Borrower’s (or any guarantor’s) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

(i)

Cross-default .  Any default occurs under any agreement in connection with any credit Borrower (or any guarantor) or any of Borrower’s related entities or affiliates has obtained from anyone else or which Borrower (or any guarantor) or any of Borrower’s related entities or affiliates has guaranteed (other than trade amounts payable incurred in the ordinary course of business and not more than 60 days past due).

(j)

Default under Related Documents .  Any default occurs under any guaranty, subordination agreement, security agreement, deed of trust, mortgage, or other document required by or delivered in connection with this Agreement or any such document is no longer in effect.

(k)

Other Agreements .  Borrower (or any guarantor) or any of Borrower’s related entities or affiliates fails to meet the conditions of, or fails to perform any obligation under any other agreement Borrower (or any guarantor) or any of Borrower’s related entities or affiliates has with Lender or any affiliate of Lender.

(l)

Change of Control .  The holders of the capital ownership of the Borrower as of the date hereof cease to own and control, directly and indirectly, at least 80% of the capital ownership of the Borrower.

(m)

Other Breach Under Agreement .  Borrower fails to meet the conditions of, or fails to perform any obligation under, any term of this Agreement not specifically referred to above, after notice thereof.

9.2

Remedies . Upon the occurrence of an Event of Default, (1) without implying any obligation to do so, Lender may cease making Advances or extending any other financial accommodations to Borrower; (2) all or a portion of the Obligations shall be, at the option of and upon demand by Lender, or with respect to an Event of Default described in Section 9.1(e), automatically and without notice or demand, due and payable in full; and (3) Lender shall have and may exercise all the rights and remedies under this Agreement and under applicable law, including the rights and remedies of a secured party under the California Uniform Commercial Code, all the power of attorney rights described in Section 8 with respect to all Collateral, and the right to collect, dispose of, sell, lease, use, and realize upon all Financed Receivables and all Collateral in any commercial reasonable manner.

10.

ACCRUAL OF INTEREST.   All interest and finance charges hereunder calculated at an annual rate shall be based on a year of 360 days, which results in a higher effective rate of interest than if a year of 365 or 366 days were used.  If any amount due under Section 4.2, amounts due under Section 11, and any other Obligations not otherwise bearing interest hereunder is not paid when due, such amount shall bear interest at a per annum rate equal to the Finance Charge Percentage until the earlier of (i) payment in good funds or (ii) entry of a trial judgment thereof, at which time the principal amount of any money judgment remaining unsatisfied shall accrue interest at the highest rate allowed by applicable law.

11.

FEES, COSTS AND EXPENSES; INDEMNIFICATION . The Borrower will pay to Lender upon demand all fees, costs and expenses (including fees of attorneys and professionals and their costs and expenses) that Lender incurs or may from time to time impose in connection with any of the following: (a) preparing, negotiating, administering, and enforcing this Agreement or any other agreement executed in connection herewith, including any amendments, waivers or consents in connection with any of the foregoing, (b) any litigation or dispute (whether instituted by Lender, Borrower or any other person) in any way relating to the Financed Receivables, the Collateral, this Agreement or any other agreement executed in connection herewith or therewith, (c) enforcing any rights against Borrower or any guarantor, or any Account Debtor, (d) protecting or enforcing its interest in the Financed Receivables or the Collateral, (e) collecting