EXHIBIT 10.1 SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

Stock Purchase Agreement

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XSTREAM BEVERAGE GROUP, INC.

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Title: EXHIBIT 10.1 SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Governing Law: New York Date: 8/5/2004
Law Firm: Newman, Pollock & Klein, LLP; Jenkens & Gilchrist Parker Chapin LLP

EXHIBIT 10.1

SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE

AGREEMENT

DATED AS OF JULY 30, 2004

AMONG

XSTREAM BEVERAGE GROUP, INC.

AND

THE PURCHASERS LISTED ON EXHIBIT A

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TABLE OF CONTENTS

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ARTICLE I Purchase and Sale of Preferred Stock......................................................................1

Section 1.1 Purchase and Sale of Preferred Stock and Warrants........................................1

Section 1.2 The Conversion Shares....................................................................2

Section 1.3 Purchase Price and Closing...............................................................2

ARTICLE II Representations and Warranties...........................................................................2

Section 2.1 Representations and Warranties of the Company............................................2

Section 2.2 Representations and Warranties of the Purchasers........................................13

ARTICLE III Covenants..............................................................................................16

Section 3.1 Securities Compliance...................................................................16

Section 3.2 Registration and Listing................................................................16

Section 3.3 Inspection Rights.......................................................................16

Section 3.4 Compliance with Laws....................................................................16

Section 3.5 Keeping of Records and Books of Account.................................................16

Section 3.6 Reporting Requirements..................................................................17

Section 3.7 Amendments..............................................................................17

Section 3.8 Other Agreements........................................................................17

Section 3.9 Distributions...........................................................................17

Section 3.10 Status of Dividends.....................................................................17

Section 3.11 Use of Proceeds.........................................................................18

Section 3.12 Future Financings; Right of First Offer and Refusal.....................................18

Section 3.13 Reservation of Shares...................................................................20

Section 3.14 Transfer Agent Instructions.............................................................20

Section 3.15 Disposition of Assets...................................................................21

Section 3.16 Reporting Status........................................................................21

Section 3.17 Disclosure of Transaction ..............................................................21

Section 3.18 Disclosure of Material Information......................................................21

Section 3.19 Pledge of Securities....................................................................21

Section 3.20 Charter Amendment.......................................................................22

Section 3.21 Warrant Listing.........................................................................22

ARTICLE IV Conditions..............................................................................................22

Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the

Shares..................................................................................22

Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase

the Shares..............................................................................23

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ARTICLE V Stock Certificate Legend.................................................................................25

Section 5.1 Legend..................................................................................25

ARTICLE VI Indemnification.........................................................................................26

Section 6.1 General Indemnity.......................................................................26

Section 6.2 Indemnification Procedure...............................................................27

ARTICLE VII Miscellaneous..........................................................................................28

Section 7.1 Fees and Expenses.......................................................................28

Section 7.2 Specific Enforcement, Consent to Jurisdiction...........................................28

Section 7.3 Entire Agreement; Amendment.............................................................29

Section 7.4 Notices.................................................................................29

Section 7.5 Waivers.................................................................................30

Section 7.6 Headings................................................................................30

Section 7.7 Successors and Assigns..................................................................30

Section 7.8 No Third Party Beneficiaries............................................................30

Section 7.9 Governing Law...........................................................................30

Section 7.10 Survival................................................................................30

Section 7.11 Counterparts............................................................................31

Section 7.12 Publicity...............................................................................31

Section 7.13 Severability............................................................................31

Section 7.14 Further Assurances......................................................................31

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SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

This SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the

"Agreement") is dated as of July 30, 2004 by and among XStream Beverage Group,

Inc., a Nevada corporation (the "Company"), and each of the Purchasers of shares

of Series B Convertible Preferred Stock of the Company whose names are set forth

on Exhibit A hereto (individually, a "Purchaser" and collectively, the

"Purchasers").

The parties hereto agree as follows:

ARTICLE I

PURCHASE AND SALE OF PREFERRED STOCK

Section 1.1 Purchase and Sale of Preferred Stock and Warrants.

(a) Upon the following terms and conditions, the Company shall

issue and sell to the Purchasers and each of the Purchasers shall purchase from

the Company, the number of shares of the Company's Series B Convertible

Preferred Stock, par value $.001 per share (the "Preferred Shares"), at a

purchase price of $50,000 per share, set forth opposite such Purchaser's name on

Exhibit A hereto. The aggregate purchase price for the Preferred Shares and the

Warrants shall be up to $4,000,000. The designation, rights, preferences and

other terms and provisions of the Series B Convertible Preferred Stock are set

forth in the Certificate of Designation of the Relative Rights and Preferences

of the Series B Convertible Preferred Stock attached hereto as Exhibit B (the

"Certificate of Designation"). The Company and the Purchasers are executing and

delivering this Agreement in accordance with and in reliance upon the exemption

from securities registration afforded by Rule 506 of Regulation D ("Regulation

D") as promulgated by the United States Securities and Exchange Commission (the

"Commission") under the Securities Act of 1933, as amended (the "Securities

Act") or Section 4(2) of the Securities Act.

(b) Upon the following terms and conditions, each of the

Purchasers shall be issued (i) Series A Warrants, in substantially the form

attached hereto as Exhibit C (the "Series A Warrants"), to purchase the number

of shares of the Company's Common Stock, par value $.001 per share (the "Common

Stock") equal to one hundred percent (100%) of the number of shares of Common

Stock issuable upon conversion of the Preferred Shares purchased pursuant to the

terms hereof, such amount to be set forth opposite such Purchaser's name on

Exhibit A hereto, and (ii) Series B Warrants, in substantially the form attached

hereto as Exhibit D (the "Series B Warrants" and together with the Series A

Warrants, the "Warrants"), to purchase the number of shares of Common Stock

equal to fifty percent (50%) of the number of shares of Common Stock issuable

upon conversion of the Preferred Shares purchased pursuant to the terms hereof,

such amount to be set forth opposite such Purchaser's name on Exhibit A attached

hereto. The Warrants shall have an exercise price equal to the Warrant Price (as

defined in the respective Warrant) and shall be exercisable as stated therein.

The Warrants shall expire five (5) years from the Closing Date, as defined

below.

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Section 1.2 The Conversion Shares. Upon the filing of an

amendment to the Company's Articles (as defined in Section 2.1(c) hereof) with

the Nevada Secretary of State increasing the number of authorized shares of

Common Stock of the Company (the "Charter Amendment"), the Company will

authorize and will reserve and covenants to continue to reserve, free of

preemptive rights and other similar contractual rights of stockholders, such

number of shares of Common Stock as shall from time to time be sufficient to

effect the conversion of all of the Preferred Shares and exercise of the

Warrants then outstanding. Any shares of Common Stock issuable upon conversion

of the Preferred Shares are herein referred to as the "Conversion Shares". Any

shares of Common Stock issuable upon exercise of the Warrants (and such shares

when issued) are herein referred to as the "Warrant Shares". The Preferred

Shares, the Conversion Shares and the Warrant Shares are sometimes collectively

referred to as the "Shares".

Section 1.3 Purchase Price and Closing. The Company agrees to

issue and sell to the Purchasers and, in consideration of and in express

reliance upon the representations, warranties, covenants, terms and conditions

of this Agreement, the Purchasers, severally but not jointly, agree to purchase

that number of the Preferred Shares and Warrants set forth opposite their

respective names on Exhibit A. The aggregate purchase price of the Preferred

Shares and Warrants being acquired by each Purchaser is set forth opposite such

Purchaser's name on Exhibit A (for each such Purchaser, the "Purchase Price" and

collectively referred to as the "Purchase Prices"). The closing of the purchase

and sale of the Preferred Shares and Warrants shall take place at the offices of

Jenkens & Gilchrist Parker Chapin LLP, The Chrysler Building, 405 Lexington

Avenue, New York, New York 10174 (the "Closing") at 1:00 p.m. (eastern time)

upon the satisfaction of each of the conditions set forth in Article IV hereof

(the "Closing Date"). Funding with respect to the Closing shall take place by

wire transfer of immediately available funds on or prior to the Closing Date.

ARTICLE II

REPRESENTATIONS AND WARRANTIES

Section 2.1 Representations and Warranties of the Company. The

Company hereby makes the following representations and warranties to the

Purchasers, except as set forth in the Company's disclosure schedule delivered

with this Agreement as follows:

(a) Organization, Good Standing and Power. The Company is a

corporation duly incorporated, validly existing and in good standing under the

laws of the State of Nevada and has the requisite corporate power to own, lease

and operate its properties and assets and to conduct its business as it is now

being conducted. The Company does not have any subsidiaries except as set forth

in the Company's Form 10-KSB for the year ended December 31, 2003, including the

accompanying financial statements (the "Form 10-KSB"), or in the Company's Form

10-QSB for the fiscal quarters ended March 31, 2004, September 30, 2003, June

30, 2003 or March 31, 2003 (collectively, the "Form 10-QSB"), or on Schedule

2.1(a) hereto. The Company and each such subsidiary is duly qualified as a

foreign corporation to do business and is in good standing in every jurisdiction

in which the nature of the business conducted or property owned by it makes such

qualification necessary except for any jurisdiction(s) (alone or in the

aggregate) in which the failure to be so qualified will not have a Material

Adverse Effect (as defined in Section 2.1(c) hereof) on the Company's financial

condition.

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(b) Authorization; Enforcement. Subject to the approval of

Laurus Master Fund, Ltd. ("Laurus") and the filing of the Charter Amendment, the

Company has the requisite corporate power and authority to enter into and

perform this Agreement, the Registration Rights Agreement attached hereto as

Exhibit E (the "Registration Rights Agreement"), the Irrevocable Transfer Agent

Instructions (as defined in Section 3.14), the Certificate of Designation, and

the Warrants (collectively, the "Transaction Documents") and to issue and sell

the Shares and the Warrants in accordance with the terms hereof. The execution,

delivery and, subject to the filing of the Charter Amendment, the performance of

the Transaction Documents by the Company and the consummation by it of the

transactions contemplated hereby and thereby have been duly and validly

authorized by all necessary corporate action, and no further consent or

authorization of the Company or its Board of Directors or stockholders is

required. This Agreement has been duly executed and delivered by the Company.

The other Transaction Documents will have been duly executed and delivered by

the Company at the Closing. Each of the Transaction Documents constitutes, or

shall constitute when executed and delivered, a valid and binding obligation of

the Company enforceable against the Company in accordance with its terms, except

as such enforceability may be limited by applicable bankruptcy, insolvency,

reorganization, moratorium, liquidation, conservatorship, receivership or

similar laws relating to, or affecting generally the enforcement of, creditor's

rights and remedies or by other equitable principles of general application.

Company and the shares thereof currently issued and outstanding as of July 19,

2004 are set forth on Schedule 2.1(c) hereto. All of the outstanding shares of

the Company's Common Stock and Series B Convertible Preferred Stock have been

duly and validly authorized. Except as set forth in this Agreement and the

Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no

shares of Common Stock are entitled to preemptive rights or registration rights

and there are no outstanding options, warrants, scrip, rights to subscribe to,

call or commitments of any character whatsoever relating to, or securities or

rights convertible into, any shares of capital stock of the Company.

Furthermore, except as set forth in this Agreement and the Registration Rights

Agreement or on Schedule 2.1(c), there are no contracts, commitments,

understandings, or arrangements by which the Company is or may become bound to

issue additional shares of the capital stock of the Company or options,

securities or rights convertible into shares of capital stock of the Company.

Except for customary transfer restrictions contained in agreements entered into

by the Company in order to sell restricted securities or as set forth on

Schedule 2.1(c) hereto, the Company is not a party to any agreement granting

registration or anti-dilution rights to any person with respect to any of its

equity or debt securities. The Company is not a party to, and it has no

knowledge of, any agreement restricting the voting or transfer of any shares of

the capital stock of the Company. Except as set forth on Schedule 2.1(c) hereto,

the offer and sale of all capital stock, convertible securities, rights,

warrants, or options of the Company issued prior to the Closing complied with

all applicable Federal and state securities laws, and no stockholder has a right

of rescission or claim for damages with respect thereto which would have a

Material Adverse Effect (as defined below) on the Company's financial condition

or operating results. The Company has furnished or made available to the

Purchasers true and correct copies of the Company's Articles of Incorporation as

in effect on the date hereof (the "Articles"), and the Company's Bylaws as in

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effect on the date hereof (the "Bylaws"). For the purposes of this Agreement,

"Material Adverse Effect" means any material adverse effect on the business,

operations, properties, prospects, or financial condition of the Company and its

subsidiaries and/or any condition, circumstance, or situation that would

prohibit or otherwise materially interfere with the ability of the Company to

perform any of its obligations under this Agreement in any material respect.

(d) Issuance of Shares. Subject to the filing of the Charter

Amendment, the Preferred Shares and the Warrants to be issued at the Closing

have been duly authorized by all necessary corporate action and the Preferred

Shares, when paid for or issued in accordance with the terms hereof, shall be

validly issued and outstanding, fully paid and nonassessable and entitled to the

rights and preferences set forth in the Certificate of Designation. When the

Conversion Shares and the Warrant Shares are issued in accordance with the terms

of the Certificate of Designation and the Warrants, respectively, such shares

will be duly authorized by all necessary corporate action and validly issued and

outstanding, fully paid and nonassessable, and the holders shall be entitled to

all rights accorded to a holder of Common Stock.

(e) No Conflicts. The execution, delivery and, subject to the

filing of the Charter Amendment, the performance of the Transaction Documents by

the Company, the performance by the Company of its obligations under the

Certificate of Designation and the consummation by the Company of the

transactions contemplated herein and therein do not and will not (i) violate any

provision of the Company's Articles or Bylaws, (ii) conflict with, or constitute

a default (or an event which with notice or lapse of time or both would become a

default) under, or give to others any rights of termination, amendment,

acceleration or cancellation of, any agreement, mortgage, deed of trust,

indenture, note, bond, license, lease agreement, instrument or obligation to

which the Company is a party or by which it or its properties or assets are

bound, (iii) create or impose a lien, mortgage, security interest, charge or

encumbrance of any nature on any property of the Company under any agreement or

any commitment to which the Company is a party or by which the Company is bound

or by which any of its respective properties or assets are bound, or (iv) result

in a violation of any federal, state, local or foreign statute, rule,

regulation, order, judgment or decree (including Federal and state securities

laws and regulations) applicable to the Company or any of its subsidiaries or by

which any property or asset of the Company or any of its subsidiaries are bound

or affected, except, in all cases other than violations pursuant to clauses (i)

and (iv) above, for such conflicts, defaults, terminations, amendments,

accelerations, cancellations and violations as would not, individually or in the

aggregate, have a Material Adverse Effect. The business of the Company and its

subsidiaries is not being conducted in violation of any laws, ordinances or

regulations of any governmental entity, except for possible violations which

singularly or in the aggregate do not and will not have a Material Adverse

Effect. The Company is not required under Federal, state or local law, rule or

regulation to obtain any consent, authorization or order of, or make any filing

or registration with, any court or governmental agency in order for it to

execute, deliver or perform any of its obligations under the Transaction

Documents, or issue and sell the Preferred Shares, the Warrants, the Conversion

Shares and the Warrant Shares in accordance with the terms hereof or thereof

(other than any filings which may be required to be made by the Company with the

Commission or state securities administrators subsequent to the Closing, any

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registration statement which may be filed pursuant hereto, and the Certificate

of Designation); provided that, for purposes of the representation made in this

sentence, the Company is assuming and relying upon the accuracy of the relevant

representations and agreements of the Purchasers herein.

(f) Commission Documents, Financial Statements. The Common

Stock is registered pursuant to Section 12(b) or 12(g) of the Securities

Exchange Act of 1934, as amended (the "Exchange Act"), and, since March 31,

2004, the Company has timely filed all reports, schedules, forms, statements and

other documents required to be filed by it with the Commission pursuant to the

reporting requirements of the Exchange Act, including material filed pursuant to

Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including

filings incorporated by reference therein being referred to herein as the

"Commission Documents"). The Company has delivered or made available to each of

the Purchasers true and complete copies of the Commission Documents filed with

the Commission since March 31, 2004. The Company has not provided to the

Purchasers any material non-public information or other information which,

according to applicable law, rule or regulation, was required to have been

disclosed publicly by the Company but which has not been so disclosed, other

than with respect to the transactions contemplated by this Agreement. At the

times of their respective filings, the Form 10-KSB and the Form 10-QSB complied

in all material respects with the requirements of the Exchange Act and the rules

and regulations of the Commission promulgated thereunder and other federal,

state and local laws, rules and regulations applicable to such documents, and,

as of their respective dates, none of the Form 10-KSB and the Form 10-QSB

contained any untrue statement of a material fact or omitted to state a material

fact required to be stated therein or necessary in order to make the statements

therein, in light of the circumstances under which they were made, not

misleading. The financial statements of the Company included in the Commission

Documents comply as to form in all material respects with applicable accounting

requirements and the published rules and regulations of the Commission or other

applicable rules and regulations with respect thereto. Such financial statements

have been prepared in accordance with United States generally accepted

accounting principles ("GAAP") applied on a consistent basis during the periods

involved (except (i) as may be otherwise indicated in such financial statements

or the notes thereto or (ii) in the case of unaudited interim statements, to the

extent they may not include footnotes or may be condensed or summary

statements), and fairly present in all material respects the financial position

of the Company and its subsidiaries as of the dates thereof and the results of

operations and cash flows for the periods then ended (subject, in the case of

unaudited statements, to normal year-end audit adjustments).

(g) Subsidiaries. Schedule 2.1(g) hereto sets forth each

subsidiary of the Company, showing the jurisdiction of its incorporation or

organization and showing the percentage of each person's ownership. For the

purposes of this Agreement, "subsidiary" shall mean any corporation or other

entity of which at least a majority of the securities or other ownership

interest having ordinary voting power (absolutely or contingently) for the

election of directors or other persons performing similar functions are at the

time owned directly or indirectly by the Company and/or any of its other

subsidiaries. All of the outstanding shares of capital stock of each subsidiary

have been duly authorized and validly issued, and are fully paid and

nonassessable. There are no outstanding preemptive, conversion or other rights,

options, warrants or agreements granted or issued by or binding upon any

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subsidiary for the purchase or acquisition of any shares of capital stock of any

subsidiary or any other securities convertible into, exchangeable for or

evidencing the rights to subscribe for any shares of such capital stock. Neither

the Company nor any subsidiary is subject to any obligation (contingent or

otherwise) to repurchase or otherwise acquire or retire any shares of the

capital stock of any subsidiary or any convertible securities, rights, warrants

or options of the type described in the preceding sentence. Except as set forth

on Schedule 2.1(g) hereto, neither the Company nor any subsidiary is party to,

nor has any knowledge of, any agreement restricting the voting or transfer of

any shares of the capital stock of any subsidiary.

(h) No Material Adverse Change. Since March 31, 2004, the

Company has not experienced or suffered any Material Adverse Effect, except as

disclosed on Schedule 2.1(h) hereto.

(i) No Undisclosed Liabilities. Except as set forth on

Schedule 2.1(i) hereto, or in the Commission Documents, neither the Company nor

any of its subsidiaries has any liabilities, obligations, claims or losses

(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,

contingent or otherwise) other than those incurred in the ordinary course of the

Company's or its subsidiaries respective businesses since March 31, 2004 and

which, individually or in the aggregate, do not or would not have a Material

Adverse Effect on the Company or its subsidiaries.

(j) No Undisclosed Events or Circumstances. Except as set

forth on Schedule 2.1(j) hereto, no event or circumstance has occurred or exists

with respect to the Company or its subsidiaries or their respective businesses,

properties, prospects, operations or financial condition, which, under

applicable law, rule or regulation, requires public disclosure or announcement

by the Company but which has not been so publicly announced or disclosed.

(k) Indebtedness. The Form 10-KSB, Form 10-QSB or Schedule

2.1(k) hereto sets forth as of a recent date all outstanding secured and

unsecured Indebtedness of the Company or any subsidiary, or for which the

Company or any subsidiary has commitments. For the purposes of this Agreement,

"Indebtedness" shall mean (a) any liabilities for borrowed money or amounts owed

in excess of $100,000 (other than trade accounts payable incurred in the

ordinary course of business), (b) all guaranties, endorsements and other

contingent obligations in respect of Indebtedness of others, whether or not the

same are or should be reflected in the Company's balance sheet (or the notes

thereto), except guaranties by endorsement of negotiable instruments for deposit

or collection or similar transactions in the ordinary course of business; and

leases required to be capitalized in accordance with GAAP. Except as set forth

on Schedule 2.1(k), neither the Company nor any subsidiary is in default with

respect to any Indebtedness.

(l) Title to Assets. Except as disclosed on Schedule 2.1(l)

hereto, each of the Company and the subsidiaries has good and marketable title

to all of its real and personal property reflected in the Form 10-KSB, free and

clear of any mortgages, pledges, charges, liens, security interests or other

encumbrances, except for those indicated in the Form 10-KSB, Form 10-QSB or on

Schedule 2.1(l) hereto or such that, individually or in the aggregate, do not

cause a Material Adverse Effect on the Company's financial condition or

operating results. All said leases of the Company and each of its subsidiaries

are valid and subsisting and in full force and effect.

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(m) Actions Pending. There is no action, suit, claim,

investigation, arbitration, alternate dispute resolution proceeding or any other

proceeding pending or, to the knowledge of the Company, threatened against the

Company or any subsidiary which questions the validity of this Agreement or any

of the other Transaction Documents or the transactions contemplated hereby or

thereby or any action taken or to be taken pursuant hereto or thereto. Except as

set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(m) hereto, there is

no action, suit, claim, investigation, arbitration, alternate dispute resolution

proceeding or any other proceeding pending or, to the knowledge of the Company,

threatened, against or involving the Company, any subsidiary or any of their

respective properties or assets. Except as set forth in the Form 10-KSB, Form

10-QSB or Schedule 2.1(m) hereto, there are no outstanding orders, judgments,

injunctions, awards or decrees of any court, arbitrator or governmental or

regulatory body against the Company or any subsidiary or any officers or

directors of the Company or subsidiary in their capacities as such.

(n) Compliance with Law. The business of the Company and the

subsidiaries has been and is presently being conducted in accordance with all

applicable federal, state and local governmental laws, rules, regulations and

ordinances, except as set forth in the Form 10-KSB, Form 10-QSB, or such that,

individually or in the aggregate, do not cause a Material Adverse Effect. The

Company and each of its subsidiaries have all franchises, permits, licenses,

consents and other governmental or regulatory authorizations and approvals

necessary for the conduct of its business as now being conducted by it unless

the failure to possess such franchises, permits, licenses, consents and other

governmental or regulatory authorizations and approvals, individually or in the

aggregate, could not reasonably be expected to have a Material Adverse Effect.

(o) Taxes. The Company and each of the subsidiaries has

accurately prepared and filed all federal, state and other tax returns required

by law to be filed by it, has paid or made provisions for the payment of all

taxes shown to be due and all additional assessments, and adequate provisions

have been and are reflected in the financial statements of the Company and the

subsidiaries for all current taxes and other charges to which the Company or any

subsidiary is subject and which are not currently due and payable. None of the

federal income tax returns of the Company or any subsidiary have been audited by

the Internal Revenue Service. The Company has no knowledge of any additional

assessments, adjustments or contingent tax liability (whether federal or state)

of any nature whatsoever, whether pending or threatened against the Company or

any subsidiary for any period, nor of any basis for any such assessment,

adjustment or contingency.

(p) Certain Fees. Except as set forth in this Agreement or on

Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or

commissions will be payable by the Company or any subsidiary or any Purchaser

with respect to the transactions contemplated by this Agreement.

(q) Disclosure. To the best of the Company's knowledge,

neither this Agreement or the Schedules hereto nor any other documents,

certificates or instruments furnished to the Purchasers by or on behalf of the

Company or any subsidiary in connection with the transactions contemplated by

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this Agreement contain any untrue statement of a material fact or omit to state

a material fact necessary in order to make the statements made herein or

therein, in the light of the circumstances under which they were made herein or

therein, not misleading.

(r) Operation of Business. The Company and each of the

subsidiaries owns or possesses, subject to the intellectual property pledge

rights granted to Laurus in certain agreements entered into between the Company

and Laurus on May 14, 2004, all patents, trademarks, domain names (whether or

not registered) and any patentable improvements or copyrightable derivative

works thereof, websites and intellectual property rights relating thereto,

service marks, trade names, copyrights, licenses and authorizations as set forth

in the Form 10-KSB, Form 10-QSB and on Schedule 2.1(r) hereto, and all rights

with respect to the foregoing, which are necessary for the conduct of its

business as now conducted without any conflict with the rights of others.

(s) Environmental Compliance. The Company and each of its

subsidiaries have obtained all material approvals, authorization, certificates,

consents, licenses, orders and permits or other similar authorizations of all

governmental authorities, or from any other person, that are required under any

Environmental Laws. The Form 10-KSB or Form 10-QSB describes all material

permits, licenses and other authorizations issued under any Environmental Laws

to the Company or its subsidiaries. "Environmental Laws" shall mean all

applicable laws relating to the protection of the environment including, without

limitation, all requirements pertaining to reporting, licensing, permitting,

controlling, investigating or remediating emissions, discharges, releases or

threatened releases of hazardous substances, chemical substances, pollutants,

contaminants or toxic substances, materials or wastes, whether solid, liquid or

gaseous in nature, into the air, surface water, groundwater or land, or relating

to the manufacture, processing, distribution, use, treatment, storage, disposal,

transport or handling of hazardous substances, chemical substances, pollutants,

contaminants or toxic substances, material or wastes, whether solid, liquid or

gaseous in nature. The Company has all necessary governmental approvals required

under all Environmental Laws and used in its business or in the business of any

of its subsidiaries. The Company and each of its subsidiaries are also in

compliance with all other limitations, restrictions, conditions, standards,

requirements, schedules and timetables required or imposed under all

Environmental Laws. Except for such instances as would not individually or in

the aggregate have a Material Adverse Effect, there are no past or present

events, conditions, circumstances, incidents, actions or omissions relating to

or in any way affecting the Company or its subsidiaries that violate or may

violate any Environmental Law after the Closing Date or that may give rise to

any environmental liability, or otherwise form the basis of any claim, action,

demand, suit, proceeding, hearing, study or investigation (i) under any

Environmental Law, or (ii) based on or related to the manufacture, processing,

distribution, use, treatment, storage (including without limitation underground

storage tanks), disposal, transport or handling, or the emission, discharge,

release or threatened release of any hazardous substance.

(t) Books and Record Internal Accounting Controls. The books

and records of the Company and its subsidiaries accurately reflect in all

material respects the information relating to the business of the Company and

the subsidiaries, the location and collection of their assets, and the nature of

all transactions giving rise to the obligations or accounts receivable of the

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Company or any subsidiary. The Company and each of its subsidiaries maintain a

system of internal accounting controls sufficient, in the judgment of the

Company, to provide reasonable assurance that (i) transactions are executed in

accordance with management's general or specific authorizations, (ii)

transactions are recorded as necessary to permit preparation of financial

statements in conformity with GAAP and to maintain asset accountability, (iii)

access to assets is permitted only in accordance with management's general or

specific authorization and (iv) the recorded accountability for assets is

compared with the existing assets at reasonable intervals and appropriate

actions is taken with respect to any differences.

(u) Material Agreements. Except as set forth in the Form

10-KSB, Form 10-QSB or on Schedule 2.1(u) hereto, neither the Company nor any

subsidiary is a party to any written or oral contract, instrument, agreement,

commitment, obligation, plan or arrangement, a copy of which would be required

to be filed with the Commission as an exhibit to a registration statement on

Form S-3 or applicable form (collectively, "Material Agreements") if the Company

or any subsidiary were registering securities under the Securities Act. Except

as set forth on Schedule 2.1(u) or in the Commission Documents, the Company and

each of its subsidiaries has in all material respects performed all the

obligations required to be performed by them to date under the foregoing

agreements, have received no notice of default and, to the best of the Company's

knowledge are not in default under any Material Agreement now in effect, the

result of which could cause a Material Adverse Effect. Except as set forth on

Schedule 2.1(u) or in the Commission Documents, no written or oral contract,

instrument, agreement, commitment, obligation, plan or arrangement of the

Company or of any subsidiary limits or shall limit the payment of dividends on

the Company's Preferred Shares, other Preferred Stock, if any, or its Common

Stock. (v) Transactions with Affiliates. Except as set forth in the Form 10-KSB,

Form 10-QSB or on Schedule 2.1

(v) hereto, there are no loans, leases, agreements, contracts,

royalty agreements, management contracts or arrangements or other continuing

transactions between (a) the Company, any subsidiary or any of their respective

customers or suppliers on the one hand, and (b) on the other hand, any officer,

employee, consultant or director of the Company, or any of its subsidiaries, or

any person owning any capital stock of the Company or any subsidiary or any

member of the immediate family of such officer, employee, consultant, director

or stockholder or any corporation or other entity controlled by such officer,

employee, consultant, director or stockholder, or a member of the immediate

family of such officer, employee, consultant, director or stockholder.

(w) Securities Act of 1933. Based in material part upon the

representations herein of the Purchasers, the Company has complied and will

comply with all applicable federal and state securities laws in connection with

the offer, issuance and sale of the Shares and the Warrants hereunder. Neither

the Company nor anyone acting on its behalf, directly or indirectly, has or will

sell, offer to sell or solicit offers to buy any of the Shares, the Warrants or

similar securities to, or solicit offers with respect thereto from, or enter

into any preliminary conversations or negotiations relating thereto with, any

person, or has taken or will take any action so as to bring the issuance and

sale of any of the Shares and the Warrants under the registration provisions of

the Securities Act and applicable state securities laws, and neither the Company

nor any of its affiliates, nor any person acting on its or their behalf, has

engaged in any form of general solicitation or general advertising (within the

meaning of Regulation D under the Securities Act) in connection with the offer

or sale of any of the Shares and the Warrants.

<PAGE>

(x) Governmental Approvals. Except as set forth in the Form

10-KSB or Form 10-QSB, and except for the filing of any notice prior or

subsequent to the Closing Date that may be required under applicable state

and/or Federal securities laws (which if required, shall be filed on a timely

basis), including the filing of a Form D and a registration statement or

statements pursuant to the Registration Rights Agreement, and the filing of the

Certificate of Designation with the Secretary of State for the State of Nevada,

no authorization, consent, approval, license, exemption of, filing or

registration with any court or governmental department, commission, board,

bureau, agency or instrumentality, domestic or foreign, is or will be necessary

for, or in connection with, the execution or delivery of the Preferred Shares

and the Warrants, or for the performance by the Company of its obligations under

the Transaction Documents.

(y) Employees. Neither the Company nor any subsidiary has any

collective bargaining arrangements or agreements covering any of its employees,

except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule 2.1(y)

hereto. Except as set forth in the Form 10-KSB, Form 10-QSB or on Schedule

2.1(y) hereto, neither the Company nor any subsidiary has any employment

contract, agreement regarding proprietary information, non-competition

agreement, non-solicitation agreement, confidentiality agreement, or any other

similar contract or restrictive covenant, relating to the right of any officer,

employee or consultant to be employed or engaged by the Company or such

subsidiary. Since September 30, 2003, no officer, consultant or key employee of

the Company or any subsidiary whose termination, either individually or in the

aggregate, could have a Material Adverse Effect, has terminated or, to the

knowledge of the Company, has any present intention of terminating his or her

employment or engagement with the Company or any subsidiary.

(z) Absence of Certain Developments. Except as provided on

Schedule 2.1(z) hereto, since March 31, 2004, neither the Company nor any

subsidiary has:

(i) issued any stock, bonds or other corporate securities or

any right, options or warrants with respect thereto;

(ii) borrowed any amount in excess of $300,000 or incurred

or become subject to any other liabilities in excess of $100,000 (absolute or

contingent) except current liabilities incurred in the ordinary course of

business which are comparable in nature and amount to the current liabilities

incurred in the ordinary course of business during the comparable portion of its

prior fiscal year, as adjusted to reflect the current nature and volume of the

business of the Company and its Subsidiaries;

(iii) discharged or satisfied any lien or encumbrance in

excess of $250,000 or paid any obligation or liability (absolute or contingent)

in excess of $250,000, other than current liabilities paid in the ordinary

course of business;

<PAGE>

(iv) declared or made any payment or distribution of cash or

other property to stockholders with respect to its stock, or purchased or

redeemed, or made any agreements so to purchase or redeem, any shares of its

capital stock, in each case in excess of $50,000 individually or $100,000 in the

aggregate;

(v) sold, assigned or transferred any other tangible assets,

or canceled any debts or claims, in each case in excess of $250,000, except in

the ordinary course of business;

(vi) sold, assigned or transferred any patent rights,

trademarks, trade names, copyrights, trade secrets or other intangible assets or

intellectual property rights in excess of $250,000, or disclosed any proprietary

confidential information to any person except to customers in the ordinary

course of business or to the Purchasers or their representatives;

(vii) suffered any material losses or waived any rights of

material value, whether or not in the ordinary course of business, or suffered

the loss of any material amount of prospective business;

(viii) made any changes in employee compensation except in

the ordinary course of business and consistent with past practices;

(ix) made capital expenditures or commitments therefor that

aggregate in excess of $100,000;

(x) entered into any material transaction, whether or not in

the ordinary course of business;

(xi) made charitable contributions or pledges in excess of

$25,000;

(xii) suffered any material damage, destruction or casualty

loss, whether or not covered by insurance;

(xiii) experienced any material problems with labor or

management in connection with the terms and conditions of their employment; or

(xiv) entered into an agreement, written or otherwise, to

take any of the foregoing actions.

(aa) Public Utility Holding Company Act and Investment Company

Act Status. The Company is not a "holding company" or a "public utility company"

as such terms are defined in the Public Utility Holding Company Act of 1935, as

amended. The Company is not, and as a result of and immediately upon the Closing

will not be, an "investment company" or a company "controlled" by an "

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