8-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 8-K

                Current Report Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

                                January 25, 2005
                Date of Report (Date of Earliest Event Reported)

                                TASTY FRIES, INC.
             (Exact name of registrant as specified in its charter)

                                   ----------

             Nevada                   Commission No.          65-0259052
    State or other jurisdiction        33-4460NY           (I.R.S.Employer
    incorporation or organization                         Identification No.)

                          650 Sentry Parkway, Suite One
                          Blue Bell, Pennsylvania 19422
               (Address Of Principal Executive Offices)(Zip Code)

                                 (610) 941-2109
               (Registrant's telephone number, include area code)

Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):

|_|   Written communications pursuant to Rule 425 under the Securities Act (17
      CFR 230.425)

|_|   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
      240.14a-12)

|_|   Pre-commencement communications pursuant to Rule 14d-2(b) under the
      Exchange Act (17 CFR 240.14d-2(b))

|_|   Pre-commencement communications pursuant to Rule13e-4(c) under the
      Exchange Act (17CFR 240.13e-4(c))




ITEM 8.01 OTHER EVENTS.

      On January 18, 2005 the Registrant entered into a Subscription Agreement,
that closed on January 18, 2005 with various entities in accordance with and in
reliance upon the exemption from securities registration for offers and sales to
accredited investors afforded by the provisions of Section 4(2), Section 4(6)
and/or Regulation D as promulgated by the United States Securities and Exchange
Commission under the Securities Act of 1933, as amended. Under said Subscription
Agreement, the Registrant shall issue and sell to the Subscribers, and the
Subscribers, in the aggregate, shall purchase upto $1,100,000 of the principal
amount of 7% promissory notes of the Registrant convertible into shares of the
Registrants common stock, $.001 par value, at a per share conversion price of
the lesser of (i) 115% of the average of the closing bid prices of the common
stock of the Registrant for the five trading days preceding the Initial Closing
Date (as defined in the Subscription Agreement), or (ii) 80% of the average
closing bid prices of the common stock of the Registrant for the five trading
days preceding the Conversion Date (as defined in the Subscription Agreement).
The Registrant shall also issue to Subscribers four warrants for every ten
shares purchased at a exercise price of $.25 per share exercisable for three
years, subject to adjustments as provided in the warrant.

      In addition, the Registrant agreed to prepare and file with the SEC, at
the Registrant's expense, as soon as practicable after the January 19, 2005
closing date, but no later than forty-five days thereafter, a Registration
Statement registering for resale the securities sold. In accordance with Section
11 of the Subscription Agreement, the Registrant shall register a number of
shares of Common Stock which is at least equal to the sum of two hundred percent
(200%) of the sum of (i) the number of Subscribed Shares, and (ii) the number of
Warrant Shares covered by the Warrants. Unless otherwise specifically agreed to
in writing in advance by the Subscribers, the Registration Statement shall
include only the Registrable Securities, the shares issuable on exercise of
warrants issued to the Subscribers and securities disclosed on Schedule 11.1 of
the Subscription Agreement.

      The Registrant further agreed that it will use their reasonable best
efforts to cause such Registration Statement to be declared effective on a date
which is no later than the earlier of one day after oral or written notice by
the SEC that it may be declared effective or one hundred twenty days after the
Initial Closing Date (as defined in the Subscription Agreement).

      If the Registration Statement covering the Registrable Securities is not
filed as contemplated by this Agreement with the SEC by the Required Filing
Date, the Registration Rights Agreement provides for various penalties.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

      Exhibits:

               Exhibit  No.   Document  Description
               ------------   ---------------------

                     9.1      Subscription Agreement
                     9.2      Form of Warrant
                     9.3      Form Escrow Agreement
                     9.4      Form of Covertible Note
                     9.5      Security Interest and Pledge Agreement




                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

Dated: January 24, 2005                                      Tasty Fries, Inc.
                                                             -------------------
                                                             Registrant

                                                             /s/ Edward C. Kelly
                                                             -------------------
                                                             President & CEO

EX-10.1

                                                                    Exhibit 10.1

                             SUBSCRIPTION AGREEMENT

      THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of January ___,
2005, by and among Tasty Fries, Inc., a Nevada corporation (the "Company"), and
the subscribers identified on the signature page hereto (each a "Subscriber" and
collectively "Subscribers").

      WHEREAS, the Company and the Subscribers are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or 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 "1933 Act").

      WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase up to $1,100,000 (the "Purchase Price") of principal amount of 7%
promissory notes of the Company ("Note" or "Notes") convertible into shares of
the Company's common stock, $.001 par value (the "Common Stock") at a per share
conversion price of the lesser of (i) 115% of the average of the closing bid
prices of the Common Stock for the five trading days preceding the Initial
Closing Date (defined in Section 1 below) as reported by Bloomberg L.P. for the
OTC Bulletin Board, or (ii) 80% of the average of the closing bid prices of the
common stock for the five trading days preceding a Conversion Date (defined in
Section 7.1(b)) ("Conversion Price"); and share purchase warrants (the
"Warrants"), in the forms attached hereto as Exhibit A, to purchase shares of
Common Stock (the "Warrant Shares"). Five Hundred Thousand Dollars ($500,000) of
the Purchase Price shall be payable on the Initial Closing Date ("Initial
Closing Purchase Price"). Up to Six Hundred Thousand Dollars ($600,000) of the
Purchase Price will be payable within five (5) business days after the actual
effectiveness ("Actual Effective Date") of the Registration Statement as defined
in Section 11.1(iv) of this Agreement ("Second Closing Purchase Price"). The
Notes, shares of Common Stock issuable upon conversion of the Notes (the
"Shares"), the Warrants and the Warrant Shares are collectively referred to
herein as the "Securities"; and

      WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as Exhibit B (the "Escrow Agreement").

      NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscribers hereby
agree as follows:

            1. Initial Closing. Subject to the satisfaction or waiver of the
terms and conditions of this Agreement, on the Initial Closing Date, each
Subscriber shall purchase and the Company shall sell to each Subscriber a Note
in the principal amount designated on the signature page hereto ("Initial
Closing Notes"). The aggregate amount of the Notes to be purchased by the
Subscribers on the Initial Closing Date shall, in the aggregate, be equal to the
Initial Closing Purchase Price. The "Initial Closing Date" shall be the date
that subscriber funds representing the net amount due the Company from the
Initial Closing Purchase Price of the Offering is transmitted by wire transfer
or otherwise to or for the benefit of the Company.

            2. Second Closing.


                                       1


                  (a) Second Closing. The closing date in relation to the Second
Closing Purchase Price shall be the fifth (5th) business day after the Actual
Effective Date (the "Second Closing Date"). Subject to the satisfaction or
waiver of the terms and conditions of this Agreement on the Second Closing Date,
each Subscriber shall purchase and the Company shall sell to each Subscriber a
Note in the principal amount designated on the signature page hereto ("Second
Closing Notes"). The aggregate Purchase Price of the Second Closing Notes for
all Subscribers shall be equal to the Second Closing Purchase Price. The Second
Closing Note shall be identical to the Note issuable on the Initial Closing Date
except that the maturity date of such Notes shall be two (2) years after the
Second Closing Date. The Maximum Base Price (defined in Section 2.1 (6) of the
Note) shall be equitably adjusted to offset the effect of stock splits, stock
dividends, pro rata distributions of property or equity interests to the
Company's shareholders after the Initial Closing Date.

                  (b) Conditions to Second Closing. The occurrence of the Second
Closing is expressly contingent on

                  (i) the truth and accuracy, on the Effective Date, Actual
Effective Date and the Second Closing Date of the representations and warranties
of the Company and Subscriber contained in this Agreement, (ii) continued
compliance with the covenants of the Company set forth in this Agreement, (iii)
the non-occurrence of any Event of Default (as defined in the Note) or other
default by the Company of its obligations and undertakings contained in this
Agreement, (iv) the delivery on the Second Closing Date of Second Closing Notes
for which the Company Shares issuable upon conversion have been included in the
Registration Statement, which must be effective as of the Second Closing Date,
(v) the delivery of the Second Closing Warrants for which the Warrant Shares
issuable upon exercise have been included in the Registration Statement which
must be effective as of the Second Closing Date, (vi) the Company
contemporaneously with the Second Closing, employing not more than $250,000 of
the Second Closing Purchase Price to purchase an unencumbered one-half interest
in United States Patent Number 5,537,915 (the "Patent"), and (vii) the Company's
filing of all documents necessary to memorialize and effectuate the acquisition
of one-half interest in the Patent. The exercise prices of the Warrants issuable
on the Second Closing Date shall be adjusted to offset the effect of stock
splits, stock dividends, pro rata distributions of property or equity interests
to the Company's shareholders after the Initial Closing Date.

                  (c) Second Closing Deliveries. On the Second Closing Date, the
Company will deliver the Second Closing Notes and Second Closing Warrants to the
Escrow Agent and each Subscriber will deliver his portion of the respective
Purchase Price to the Escrow Agent. On the Second Closing Date, the Company will
deliver a certificate ("Second Closing Certificate") signed by its chief
executive officer or chief financial officer (i) representing the truth and
accuracy of all the representations and warranties made by the Company contained
in this Agreement, as of the Initial Closing Date, the Actual Effective Date,
and the Second Closing Date, as if such representations and warranties were made
and given on all such dates, (ii) adopting the covenants and conditions set
forth in Sections 9, 10, 11, and 12 of this Agreement in relation to the Second
Closing Notes and Second Closing Warrants, (iii) representing the timely
compliance by the Company with the Company's registration requirements set forth
in Section 11 of this Agreement, and (iv) certifying that an Event of Default
has not occurred. A legal opinion nearly identical to the legal opinion referred
to in Section 6 of this Agreement shall be delivered to each Subscriber at the
Second Closing in relation to the Company, Second Closing Notes, and Second
Closing Warrants ("Second Closing Legal Opinion"). The Second Closing Legal
Opinion must also state that all of the Registrable Securities have been
included for registration in an effective registration statement effective as of
the Actual Effective Date and Second Closing Date.

            3. Warrants. On each Closing Date the Company will issue and deliver
Warrants to the Subscribers. Four (4) Warrants will be issued for each ten (10)
Shares which would be issued on each Closing Date assuming the complete
conversion of the Notes issued on each such Closing Date at the lesser of the
Conversion Prices set forth in Sections 2.1(b)(i) and 2.1(b)(ii) of the Note.
The per Warrant


                                       2


Share exercise price to acquire a Warrant Share upon exercise of a Class A
Warrant shall be $0.25. The Warrants shall be exercisable until three (3) years
after the issue date of the Warrants.

            4. Subscriber's Representations and Warranties. Each Subscriber
hereby represents and warrants to and agrees with the Company only as to such
Subscriber that:

                  (a) Information on Company. The Subscriber has been furnished
with or has had access at the EDGAR Website of the Commission to the Company's
Form 10-KSB for the year ended January 31, 2004 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and filings made with
the Commission available at the EDGAR website (hereinafter referred to
collectively as the "Reports"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.

                  (b) Information on Subscriber. The Subscriber is, and will be
at the time of the conversion of the Notes and exercise of any of the Warrants,
an "accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the 1933 Act, is experienced in investments and business
matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof. The information set forth on the
signature page hereto regarding the Subscriber is accurate.

                  (c) Purchase of Notes and Warrants. On each Closing Date, the
Subscriber will purchase the Notes and Warrants as principal for its own account
for investment only and not with a view toward, or for resale in connection
with, the public sale or any distribution thereof.

                  (d) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in part
on the accuracy of the representations and warranties of Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. In any event, and subject to
compliance with applicable securities laws, the Subscriber may enter into lawful
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities.

                  (e) Shares Legend. The Shares and the Warrant Shares shall
bear the following or similar legend:


                                       3


            "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
            UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT
            BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
            AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR ANY
            APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
            SATISFACTORY TO TASTY FRIES, INC. THAT SUCH REGISTRATION IS NOT
            REQUIRED."

                  (f) Warrants Legend. The Warrants shall bear the following

or similar legend:

            "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
            WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
            AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
            EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
            OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
            STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE STATE
            SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
            TASTY FRIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

                  (g) Note Legend. The Note shall bear the following legend:

            "THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
            NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
            AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
            THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
            IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
            NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
            TO TASTY FRIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

                  (h) Communication of Offer. The offer to sell the Securities
was directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.

                  (i) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by the Subscriber and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has full corporate
power and authority necessary to enter into this Agreement and


                                       4


such other agreements and to perform its obligations hereunder and under all
other agreements entered into by the Subscriber relating hereto.

                  (j) Restricted Securities. Subscriber understands that the
Securities have not been registered under the 1933 Act and such Subscriber will
not sell, offer to sell, assign, pledge, hypothecate or otherwise transfer any
of the Securities unless pursuant to an effective registration statement under
the 1933 Act or an exemption from registration for such transfer is available.
Notwithstanding anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an "accredited investor" under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement. For
the purposes of this Agreement, an "Affiliate" of any person or entity means any
other person or entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such person or entity. For purposes
of this definition, "control" means the power to direct the management and
policies of such person or firm, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.

                  (k) No Governmental Review. Each Subscriber understands that
no United States federal or state agency or any other governmental or state
agency has passed on or made recommendations or endorsement of the Securities or
the suitability of the investment in the Securities nor have such authorities
passed upon or endorsed the merits of the offering of the Securities.

                  (l) Correctness of Representations. Each Subscriber represents
as to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and, unless a Subscriber otherwise notifies
the Company prior to each Closing Date shall be true and correct as of each
Closing Date.

                  (m) Survival. The foregoing representations and warranties
shall survive the Second Closing Date for a period of two years.

            5. Company Representations and Warranties. The Company represents
and warrants to and agrees with each Subscriber that:

                  (a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized,

                  validly existing and in good standing under the laws of the
respective jurisdictions of their incorporation and have the requisite corporate
power to own their properties and to carry on their business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a Material Adverse Effect. For purpose of this
Agreement, a "material adverse effect" shall mean a material adverse effect on
the financial condition, results of operations, properties or business of the
Company taken as a whole.

                  (b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable.

                  (c) Authority; Enforceability. This Agreement, the Note, the
Warrants, the Security Agreement described in Section 13 of this Agreement, the
Escrow Agreement and any other agreements delivered together with this Agreement
or in connection herewith (collectively "Transaction Documents") have been duly
authorized, executed and delivered by the Company and are valid and


                                       5


binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.

                  (d) Additional Issuances. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale, issuance or registration of any shares of common stock or
equity of the Company or other equity interest in any of the subsidiaries of the
Company except as described on Schedule 5(d).

                  (e) Consents. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its Affiliates, the OTC Bulletin Board ("Bulletin Board")
nor the Company's shareholders is required for the execution by the Company of
the Transaction Documents and compliance and performance by the Company of its
obligations under the Transaction Documents, including, without limitation, the
issuance and sale of the Securities.

                  (f) No Violation or Conflict. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, neither the
issuance and sale of the Securities nor the performance of the Company's
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:

                        (i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its Affiliates or subsidiaries is a party, by which the Company or any of its
Affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its Affiliates or subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its Affiliates or subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a Material
Adverse Effect on the Company; or

                        (ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its Affiliates; or

                        (iii) result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
creditor or equity holder of the Company, nor result in the acceleration of the
due date of any obligation of the Company; or

                        (iv) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.


                                       6


                  (g) The Securities. The Securities upon issuance:

                        (i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;

                        (ii) have been, or will be, duly and validly authorized
and on the date of conversion of the Notes and upon exercise of the Warrants,
the Shares and Warrant Shares will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted,
provided that each Subscriber complies with the prospectus delivery requirements
of the 1933 Act);

                        (iii) will not have been issued or sold in violation of
any preemptive or other similar rights

of the holders of any securities of the Company; and

                        (iv) will not subject the holders thereof to personal
liability by reason of being such holders.

                  (h) Litigation. There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its Affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under the Transaction
Documents. Except as disclosed in the Reports, there is no pending or, to the
best knowledge of the Company, basis for or threatened action, suit, proceeding
or investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its Affiliates which litigation
if adversely determined would have a Material Adverse Effect on the Company.

                  (i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and has a class of common
shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to the
provisions of the 1934 Act, the Company has timely filed all reports and other
materials required to be filed thereunder with the Commission during the
preceding twelve months.

                  (j) No Market Manipulation. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the Common Stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or
resold.

                  (k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in the
Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.

                  (l) Stop Transfer. The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws and
unless contemporaneous notice of such instruction is given to the Subscriber.


                                       7


                  (m) Defaults. The Company is not in violation of its articles
of incorporation or bylaws. The Company is (i) not in default under or in
violation of any other material agreement or instrument to which it is a party
or by which it or any of its properties are bound or affected, which default or
violation would have a Material Adverse Effect on the Company, (ii) not in
default with respect to any order of any court, arbitrator or governmental body
or subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade, unfair competition or
similar matters, or (iii) to its knowledge not in violation of any statute, rule
or regulation of any governmental authority which violation would have a
Material Adverse Effect on the Company.

                  (n) No Integrated Offering. Neither the Company, nor any of
its Affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its Affiliates or
subsidiaries take any action or steps that would cause the offer of the
Securities to be integrated with other offerings. The Company will not conduct
any offering other than the transactions contemplated hereby that will be
integrated with the offer or issuance of the Securities.

                  (o) No General Solicitation. Neither the Company, nor any of
its Affiliates, nor to its knowledge, 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 1933 Act) in connection with the offer or
sale of the Securities.

                  (p) Listing. The Company's common stock is quoted on the
Bulletin Board. The Company has not received any oral or written notice that its
common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies all the requirements
for the continued quotation of its common stock on the Bulletin Board.

                  (q) No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since January 31,
2004 and which, individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect other than as set forth in Schedule 5(q).

                  (r) No Undisclosed Events or Circumstances. Since January 31,
2004, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.

                  (s) Capitalization. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date are
set forth on Schedule 5(s). Except as set forth in the Reports and Other Written
Information and Schedule 5(d), there are no options, warrants, or rights to
subscribe to, securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable.


                                       8


                  (t) Dilution. The Company's executive officers and directors
understand the nature of the Securities being sold hereby and recognize that the
issuance of the Securities will have a potential dilutive effect on the equity
holdings of other holders of the Company's equity or rights to receive equity of
the Company. The board of directors of the Company has concluded, in its good
faith business judgment, that the issuance of the Securities is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Notes, and the Warrant
Shares upon exercise of the Warrants is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of
other shareholders of the Company or parties entitled to receive equity of the
Company.

                  (u) No Disagreements with Accountants and Lawyers. There are
no disagreements of any kind presently existing, or reasonably anticipated by
the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers.

                  (v) Investment Company. The Company is not an Affiliate of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.

                  (w) Patent. The Company represents and warrants that it has
the right to and upon the payment of not more than $250,000 to the registered
owner of the Patent the Company will acquire an unencumbered one-half interest
in the Patent. There are no impediments to nor defenses against the Company's
ability to exercise its right to acquire an unencumbered one-half interest in
the Patent.

                  (x) Correctness of Representations. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof in all material respects, and, unless the Company otherwise notifies
the Subscribers prior to each Closing Date, shall be true and correct in all
material respects as of each Closing Date.

                  (y) Survival. The foregoing representations and warranties
shall survive the Second Closing Date for a period of two years.

            6. Regulation D Offering. The offer and issuance of the Securities
to the Subscribers is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company's legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscribers. A form of the
legal opinion is annexed hereto as Exhibit C. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance and resale of the Common Stock issuable upon
conversion of the Notes and exercise of the Warrants.

            7.1. Conversion of Note.

                  (a) Upon the conversion of a Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action, including
obtaining and delivering, an opinion of counsel to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of
common stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the


                                       9


transfer agent of the Company's Common Stock and that, unless waived by the
Subscriber, the Shares will be free-trading, and freely transferable, and will
not contain a legend restricting the resale or transferability of the Shares
provided the Shares are being sold pursuant to an effective registration
statement covering the Shares or are otherwise exempt from registration.

                  (b) Subscriber will give notice of its decision to exercise
its right to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion (a form of which is annexed as Exhibit A to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date. The Company will
itself or cause the Company's transfer agent to transmit the Company's Common
Stock certificates representing the Shares issuable upon conversion of the Note
to the Subscriber via express courier for receipt by such Subscriber within
three (3) business days after receipt by the Company of the Notice of Conversion
(such third day being the "Delivery Date"). In the event the Shares are
electronically transferable, then delivery of the Shares must be made by
electronic transfer provided request for such electronic transfer has been made
by the Subscriber. A Note representing the balance of the Note not so converted
will be provided by the Company to the Subscriber if requested by Subscriber,
provided the Subscriber delivers an original Note to the Company. To the extent
that a Subscriber elects not to surrender a Note for reissuance upon partial
payment or conversion, the Subscriber hereby indemnifies the Company against any
and all loss or damage attributable to a third-party claim in an amount in
excess of the actual amount then due under the Note.

                  (c) The Company understands that a delay in the delivery of
the Shares in the form required pursuant to Section 7.1 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, later than two business days
after the Delivery Date or later than the Mandatory Redemption Payment Date (as
hereinafter defined) could result in economic loss to the Subscriber. As
compensation to the Subscriber for such loss, the Company agrees to pay (as
liquidated damages and not as a penalty) to the Subscriber for late issuance of
Shares in the form required pursuant to Section 7.1 hereof upon Conversion of
the Note in the amount of $100 per business day after the Delivery Date for each
$10,000 of Note principal amount being converted, of the corresponding Shares
which are not timely delivered. The Company shall pay any payments incurred
under this Section in immediately available funds upon demand. Furthermore, in
addition to any other remedies which may be available to the Subscriber, in the
event that the Company fails for any reason to effect delivery of the Shares by
the Delivery Date or make payment by the Mandatory Redemption Payment Date, the
Subscriber will be entitled to revoke all or part of the relevant Notice of
Conversion or rescind all or part of the notice of Mandatory Redemption by
delivery of a notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice, except that the liquidated damages
described above shall be payable through the date notice of revocation or
rescission is given to the Company.

                  (d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.

            7.2. Mandatory Redemption at Subscriber's Election. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note or in this Agreement) or for any reason


                                       10


other than pursuant to the limitations set forth in Section 7.3 hereof, then at
the Subscriber's election, the Company must pay to the Subscriber ten (10)
business days after request by the Subscriber, at the Subscriber's election, a
sum of money determined by (i) multiplying up to the outstanding principal
amount of the Note designated by the Subscriber by 120%, or (ii) multiplying the
number of Shares otherwise deliverable upon conversion of an amount of Note
principal and/or interest designated by the Subscriber (with the date of giving
of such designation being a "Deemed Conversion Date") at the then Conversion
Price that would be in effect on the Deemed Conversion Date by the highest
closing price of the Common Stock on the principal market for the period
commencing on the Deemed Conversion Date until the day prior to the receipt of
the Mandatory Redemption Payment, whichever is greater, together with accrued
but unpaid interest thereon ("Mandatory Redemption Payment"). The Mandatory
Redemption Payment must be received by the Subscriber on the same date as the
Company Shares otherwise deliverable or within ten (10) business days after
request, whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt
of the Mandatory Redemption Payment, the corresponding Note principal and
interest will be deemed paid and no longer outstanding. Liquidated damages
calculated pursuant to Section 7.1(c) hereof, that have been paid or accrued for
the thirty day period prior to the actual receipt of the Mandatory Redemption
Payment by the Subscriber shall be credited against the Mandatory Redemption
Payment.

            7.3. Maximum Conversion. The Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
Affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its Affiliates of more than 9.99% of
the outstanding shares of common stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 9.99% and aggregate conversions by the Subscriber may exceed
9.99%. The Subscriber may void the conversion limitation described in this
Section 7.3 upon and effective after 61 days prior written notice to the
Company. The Subscriber may allocate which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 9.99% amount
described above and which shall be allocated to the excess above 9.99%.

            7.4. Injunction - Posting of Bond. In the event a Subscriber shall
elect to convert a Note or part thereof or exercise the Warrant in whole or in
part, the Company may not refuse conversion or exercise based on any claim that
such Subscriber or any one associated or affiliated with such Subscriber has
been engaged in any violation of law, or for any other reason, unless, an
injunction from a court, on prior notice to Subscriber, restraining and or
enjoining conversion of all or part of said Note or exercise of all or part of
said Warrant shall have been sought and obtained by the Company and the Company
has posted a surety bond for the benefit of such Subscriber in the amount of
130% of the amount of the Note, or aggregate purchase price of the Warrant
Shares which are subject to the injunction, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment.

            7.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if seven (7)
business days after the Delivery Date the Subscriber purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Subscriber of the Common Stock which the
Subscriber was entitled to receive upon such conversion (a "Buy-In"), then the
Company shall pay in cash to the Subscriber (in addition to any remedies
available to


                                       11


or elected by the Subscriber) the amount by which (A) the Subscriber's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (B) the aggregate principal and/or interest
amount of the Note for which such conversion was not timely honored, together
with interest thereon at a rate of 15% per annum, accruing until such amount and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty). For example, if the Subscriber
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of note
principal and/or interest, the Company shall be required to pay the Subscriber
$1,000, plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.

            7.6 Adjustments. The Conversion Price, Warrant exercise price and
amount of Shares issuable upon conversion of the Notes and exercise of the
Warrants shall be equitably adjusted to offset the effect of stock splits, stock
dividends, pro rata distributions of property or equity interests to the
Company's shareholders.

            7.7. Optional Redemption. Provided an Event of Default (as defined
in this Agreement and the Note) has not occurred, whether or not such Event of
Default has been cured, the Company will have the option of prepaying the
outstanding principal amount of the Note ("Optional Redemption"), in whole or in
part, together with the interest accrued thereon, by paying to the Subscriber a
sum of money equal to one hundred twenty percent (120%) of the Principal Amount
to be redeemed, together with accrued but unpaid interest thereon and interest
that will accrue until the actual repayment date and any and all other sums due,
accrued or payable to the Subscriber arising under the Note, the Subscription
Agreement or any Transaction Document (the "Redemption Amount") on the day
written notice of redemption (the "Notice of Redemption") is given to the
Subscriber. The Notice of Redemption shall specify the date for such Optional
Redemption (the "Redemption Payment Date"), which date shall be not less than
fifteen (15) business days after the date of the Notice of Redemption (the
"Redemption Period"). A Notice of Redemption shall not be effective with respect
to any portion of the Note for which the Subscriber has a pending election to
convert, or for Conversion notices given by the Subscriber prior to the
Redemption Payment Date. On the Redemption Payment Date, the Redemption Amount
shall be paid in good funds to the Subscriber. In the event the Company fails to
pay the Redemption Amount on the Redemption Payment Date as set forth herein,
then (i) such Notice of Redemption will be null and void, (ii) Company will have
no further right to deliver another Notice of Redemption, and (iii) Company's
failure may be deemed by Subscriber to be a non-curable Event of Default.

            8. Finder/Legal Fees.

                  (a) Finder's Fee. The Company on the one hand, and each
Subscriber (for himself only) on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions, finder's fees or due diligence fees other than
the finders or designees identified on Schedule 8 hereto (each a "Finder") on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party's actions. The Company agrees
that it will pay the Finders on each Closing Date a cash finder's fee, in the
aggregate, equal to five percent (5%) of the Purchase Price ("Finder's Fees")
directly out of funds held pursuant to the Escrow Agreement. The Company
represents that there are no other parties entitled to receive fees,
commissions, or similar payments in connection with the Offering except the
Finders. On the Initial Closing Date, the Company will pay the party identified
on Schedule 8 hereto a sum of $2,300 as reimbursement for due diligence expenses
("Due Diligence Fee").


                                       12


                  (b) Legal Fees. The Company shall pay to             and two
percent (2%) of the Purchase Price ("Legal Fees") as reimbursement for services
rendered to the Subscribers in connection with this Agreement and the purchase
and sale of the Notes and Warrants (the "Offering") and acting as Escrow Agent
for the Offering. Twenty-Five Thousand Dollars (cash) ($25,000) will be payable
on the Initial Closing Date and $2,500 (cash) shall be payable on the Second
Closing Date. Two percent of the Purchase Price will be paid on each Closing
Date. Such portions of the Legal Fees will be payable out of funds held pursuant
to the Escrow Agreement.

            9. Covenants of the Company. The Company covenants and agrees with
the Subscribers as follows:

                  (a) Stop Orders. The Company will advise the Subscribers,
promptly after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.

                  (b) Listing. The Company shall promptly secure the listing of
the shares of Common Stock and the Warrant Shares upon each national securities
exchange, or automated quotation system upon which they are or become eligible
for listing (subject to official notice of issuance) and shall maintain such
listing so long as any Warrants are outstanding. The Company will maintain the
listing of its Common Stock on the American Stock Exchange, Nasdaq SmallCap
Market, Nasdaq National Market System, Bulletin Board, or New York Stock
Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.

                  (c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscribers and promptly provide copies
thereof to Subscriber.

                  (d) Reporting Requirements. From the date of this Agreement
and until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitation, the Company will (v) cause its Common Stock
to continue to be registered under Section 12(b) or 12(g) of the 1934 Act, (x)
comply in all respects with its reporting and filing obligations under the 1934
Act, (y) comply with all reporting requirements that are applicable to an issuer
with a class of shares registered pursuant to Section 12(b) or 12(g) of the 1934
Act, as applicable, and (z) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Second Closing Date.
Until the earlier of the resale of the Common Stock and the Warrant Shares by
each Subscriber or two (2) years after the Warrants have been exercised, the
Company will use its best efforts to continue the listing or quotation of the
Common Stock on the Principal Market or other market with the reasonable consent
of Subscribers holding a majority of the


                                       13


Shares and Warrant Shares, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the
Principal Market. The Company agrees to timely file a Form D with respect to the
Securities if required under Regulation D and to provide a copy thereof to each
Subscriber promptly after such filing.

                  (e) Use of Proceeds. The proceeds of the Offering will be
employed by the Company for the purposes set forth on Schedule 9(e) hereto. A
deviation of more than 10% of any single stated use of proceeds or a deviation
in the aggregate of more than 25% will be an Event of Default under the Note.
Except as set forth on Schedule 9(e), the Purchase Price may not and will not be
used for accrued and unpaid officer and director salaries, payment of financing
related debt, redemption of outstanding notes or equity instruments of the
Company nor non-trade obligations outstanding on a Closing Date.

                  (f) Reservation. Prior to the Closing Date, the Company
undertakes to reserve, pro rata, on behalf of each holder of a Note or Warrant,
from its authorized but unissued common stock, a number of common shares equal
to 200% of the amount of Common Stock necessary to allow each holder of a Note
to be able to convert all such outstanding Notes and interest and reserve the
amount of Warrant Shares issuable upon exercise of the Warrants. Failure to have
sufficient shares reserved pursuant to this Section 9(f) for three (3)
consecutive business days or ten (10) days in the aggregate shall be a material
default of the Company's obligations under this Agreement.

                  (g) Taxes. From the date of this Agreement and until the
sooner of (i) two (2) years after the Second Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will promptly pay and discharge, or cause to
be paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.

                  (h) Insurance. From the date of this Agreement and until the
sooner of (i) two (2) years after the Second Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, the Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers against
loss or damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.

                  (i) Books and Records. From the date of this Agreement and
until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company will keep true records and
books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its


                                       14


business and affairs in accordance with generally accepted accounting principles
applied on a consistent basis.

                  (j) Governmental Authorities. From the date of this Agreement
and until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall duly observe and conform
in all material respects to all valid requirements of governmental authorities
relating to the conduct of its business or to its properties or assets.

                  (k) Intellectual Property. From the date of this Agreement and
until the sooner of (i) two (2) years after the Second Closing Date, or (ii)
until all the Shares and Warrant Shares have been resold or transferred by all
the Subscribers pursuant to the Registration Statement or pursuant to Rule 144,
without regard to volume limitations, the Company shall maintain in full force
and effect its corporate existence, rights and franchises and all licenses and
other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.

                  (l) Properties. From the date of this Agreement and until the
sooner of (i) two (2) years after the Second Closing Date, or (ii) until all the
Shares and Warrant Shares have been resold or transferred by all the Subscribers
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitation, the Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all necessary and proper repairs, renewals, replacements, additions
and improvements thereto; and the Company will at all times comply with each
provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could reasonably be expected to have a
Material Adverse Effect.

                  (m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) two (2) years after the Second Closing
Date, or (ii) until all the Shares and Warrant Shares have been resold or
transferred by all the Subscribers pursuant to the Registration Statement or
pursuant to Rule 144, without regard to volume limitations, the Company agrees
that except in connection with a Form 8-K or the Registration Statement, it will
not disclose publicly or privately the identity of the Subscribers unless
expressly agreed to in writing by a Subscriber or only to the extent required by
law and then only upon five days prior notice to Subscriber. In any event and
subject to the foregoing, the Company undertakes to file a Form 8-K or make a
public announcement describing the Offering not later than the first business
day after each Closing Date. In the Form 8-K or public announcement, the Company
will specifically disclose the amount of common stock outstanding immediately
after each Closing. A form of the proposed Form 8-K or public announcement to be
employed in connection with each Closing Date is annexed hereto as Exhibit D.

                  (n) Further Registration Statements. Except for a registration
statement filed on behalf of the Subscribers pursuant to Section 11 of this
Agreement or in connection with the securities identified on Schedule 11.1
hereto, the Company will not file any registration statements or amend any
already filed registration statement, including but not limited to Form S-8,
with the Commission or with state regulatory authorities without the consent of
the Subscriber until the sooner of (i) the Registration Statement shall have
been current and available for use in connection with the unrestricted public
resale of the Shares and Warrant Shares for 180 days, (ii) until all the Shares
have been resold or transferred by the Subscribers pursuant to the Registration
Statement or Rule 144, without regard to volume limitations, or (iii) the date
the Note has been fully paid ("Exclusion Period").

                  (o) Blackout. The Company undertakes and covenants that until
the first to occur of (i) the end of the Exclusion Period, or (ii) until all the
Shares and Warrant Shares have been


                                       15


resold pursuant to a registration statement or Rule 144, the Company will not
enter into any acquisition, merger, exchange or sale or other transaction that
could have the effect of delaying the effectiveness of any pending registration
statement or causing an already effective registration statement to no longer be
effective or current for a period of fifteen (15) or more days.

                  (p) Non-Public Information. The Company covenants and agrees
that neither it nor any other Person acting on its behalf will provide any
Subscriber or its agents or counsel with any information that the Company
believes constitutes material non-public information, unless prior thereto such
Subscriber shall have agreed in writing to receive such information. The Company
understands and confirms that each Subscriber shall be relying on the foregoing
representations in effecting transactions in securities of the Company.

            10. Covenants of the Company and Subscriber Regarding
Indemnification.

                  (a) The Company agrees to indemnify, hold harmless, reimburse
and defend the Subscribers, the Subscribers' officers, directors, agents,
Affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.

                  (b) Each Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, Affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribers, relating hereto.

                  (c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds actually received by such Subscriber upon the sale of Registrable
Securities (as defined herein).

                  (d) The procedures set forth in Section 11.6 shall apply to
the indemnification set forth in Sections 10(a) and 10(b) above.

            11.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.

                  (i) On one occasion, for a period commencing one hundred and
twenty-one (121) days after the Closing Date, but not later than two (2) years
after the Closing Date ("Request Date"), upon a written request therefor from
any record holder or holders of more than 50% of the Shares issued and issuable
upon conversion of the Notes and Warrant Shares actually issued upon exercise of
the Warrants, the Company shall prepare and file with the Commission a
registration statement under the 1933 Act registering the Shares and Warrant
Shares (collectively "Registrable Securities") which are the


                                       16


subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall not
include (A) Securities which are registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, or (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act. Upon receipt
of such request, the Company shall promptly give written notice to all other
record holders of the Registrable Securities that such registration statement is
to be filed and shall include in such registration statement Registrable
Securities for which it has received written requests within ten (10) days after
the Company gives such written notice. Such other requesting record holders
shall be deemed to have exercised their demand registration right under this
Section 11.1(i).

                  (ii) If the Company at any time proposes to register any of
its securities under the 1933 Act for sale to the public, whether for its own
account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers or Holder pursuant to an effective registration statement, each
such time it will give at least fifteen (15) days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by the Company within ten (10) days
after the giving of any such notice by the Company, to register any of the
Registrable Securities not previously registered, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller" or "Sellers"). In the event
that any registration pursuant to this Section 11.1(ii) shall be, in whole or in
part, an underwritten public offering of common stock of the Company, the number
of shares of Registrable Securities to be included in such an underwriting may
be reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1(ii) without thereby incurring any
liability to the Seller.

                  (iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 11.1(ii).

                  (iv) The Company shall file with the Commission not later than
forty-five (45) days after the Initial Closing Date (the "Filing Date"), and
cause to be declared effective within one hundred and twenty (120) days after
the Initial Closing Date (the "Effective Date"), a Form SB-2 registration
statement (the "Registration Statement") (or such other form that it is eligible
to use) in order to register the Registrable Securities for resale and
distribution under the 1933 Act. The Company will register not less than a
number of shares of common stock in the aforedescribed registration statement
that is equal to 200% of the Shares issuable upon conversion of the Notes and
all of the Warrant Shares issuable pursuant to this Agreement. The Registrable
Securities shall be reserved and set aside exclusively for the benefit of each
Subscriber and Warrant holder, pro rata, and not issued, employed or reserved
for anyone other than each such Subscriber and Warrant holder. The Registration
Statement will immediately be amended or additional registration statements will
be immediately filed by the Company


                                       17


as necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Without the written consent of the Subscriber, no securities of the
Company other than the Registrable Securities will be included in the
Registration Statement except as disclosed on Schedule 11.1.

            11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1(i), 11.1(ii), or (iv) to effect the
registration of any Registrable Securities under the 1933 Act, the Company will,
as expeditiously as possible:

                  (a) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 11, with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment and notify Subscribers and (by telecopier and by
email to ) within one (1) business day after (i) notice that the Commission has
no comments or no further comments on the Registration Statement, and (ii) the
declaration of effectiveness of the registration statement, (failure to timely
provide notice as required by this Section 11.2(a) shall be a material breach of
the Company's obligation and an Event of Default as defined in the Notes);

                  (b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of two (2)
years, and comply with the provisions of the 1933 Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Sellers' intended method of disposition set
forth in such registration statement for such period;

                  (c) furnish to the Sellers, at the Company's expense, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;

                  (d) use its best efforts to register or qualify the Sellers'
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Sellers shall request
in writing, provided, however, that the Company shall not for any such purpose
be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;

                  (e) if applicable, list the Registrable Securities covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;

                  (f) immediately notify the Sellers when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and

                  (g) provided same would not be in violation of the provision
of Regulation FD under the 1934 Act, make available for inspection by the
Sellers, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's


                                       18


officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, attorney,
accountant or agent in connection with such registration statement.

                  11.3. Provision of Documents. In connection with each
registration described in this Section 11, each Seller will furnish to the
Company in writing such information and representation letters with respect to
itself and the proposed distribution by it as reasonably shall be necessary in
order to assure compliance with federal and applicable state securities laws.

                  11.4. Non-Registration Events. The Company and the Subscribers
agree that the Sellers will suffer damages if the Registration Statement is not
filed by the Filing Date and not declared effective by the Commission by the
Effective Date, and any registration statement required under Section 11.1(i) or
11.1(ii) is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or before the
Filing Date, (B) is not declared effective on or before the Effective Date, (C)
if the Registration Statement is not declared effective within three (3)
business days after receipt by the Company of a written or oral communication
from the Commission that the Registration Statement will not be reviewed or that
the Commission has no further comments, (D) if the registration statement
described in Sections 11.1(i) or 11.1(ii) is not filed within 60 days after such
written request, or is not declared effective within 120 days after such written
request, or (E) any registration statement described in Sections 11.1(i),
11.1(ii) or 11.1(iv) is filed and declared effective but shall thereafter cease
to be effective (without being succeeded within fifteen (15) business days by an
effective replacement or amended registration statement) for a period of time
which shall exceed 30 days in the aggregate per year (defined as a period of 365
days commencing on the date the Registration Statement is declared effective) or
more than 20 consecutive days (each such event referred to in clauses (A)
through (E) of this Section 11.4 is referred to herein as a "Non-Registration
Event"), then the Company shall deliver to the holder of Registrable Securities,
as Liquidated Damages, an amount equal to two percent (2%) for each thirty (30)
days or part thereof, of the Purchase Price of the Notes remaining unconverted
and purchase price of Shares issued upon conversion of the Notes owned of record
by such holder which are subject to such Non-Registration Event. The Company
must pay the Liquidated Damages in cash within ten (10) days after the end of
each thirty (30) day period or shorter part for which Liquidated Damages are
payable. In the event a Registration Statement is filed by the Filing Date but
is withdrawn prior to being declared effective by the Commission, then such
Registration Statement will be deemed to have not been filed. It shall be deemed
a Non-Registration Event if at any time after the Actual Effective Date the
Company has registered for unrestricted resale on behalf of the Subscriber fewer
than 150% of the amount of Common Shares issuable upon full conversion of all
sums due under the Notes and 100% of the Warrant Shares issuable upon exercise
of the Warrants. All oral or written and accounting comments received from the
Commission relating to the Registration Statement must be responded to within
fifteen (15) business days. Failure to timely respond is a Non-Registration
Event for which Liquidated Damages shall accrue and be payable by the Company to
the holders of Registrable Securities at the same rate set forth above.
Notwithstanding the foregoing, the Company shall not be liable to the Subscriber
under this Section 11.4 for any events or delays occurring as a consequence of
the acts or omissions of the Subscribers contrary to the obligations undertaken
by Subscribers in this Agreement. Liquidated Damages will not accrue or be
payable pursuant to this Section 11.4 nor will a Non-Registration Event be
deemed to have occurred for times during which Registrable Securities are
transferable by the holder of Registrable Securities pursuant to Rule 144(k)
under the 1933 Act.

                  11.5. Expenses. All expenses incurred by the Company in
complying with Section 11, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable


                                       19


counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance and
fee of one counsel for all Sellers are called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any additional
counsel to the Seller, are called "Selling Expenses." The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.

            11.6. Indemnification and Contribution.

                  (a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.

                  (b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not


                                       20


misleading, and will reimburse the Company and each such officer, director,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that the Seller will be
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such Seller, as such, furnished
in writing to the Company by such Seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
liability of the Seller hereunder shall be limited to the net proceeds actually
received by the Seller from the sale of Registrable Securities covered by such
registration statement.

                  (c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.

                  (d) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 11.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities sold by it pursuant
to such registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.


                                       21


            11.7. Delivery of Unlegended Shares.

                  (a) Within three (3) business days (such third (3rd) business
day being the "Unlegended Shares Delivery Date") after the business day on which
the Company has received (i) a notice that Registrable Securities have been sold
either pursuant to the Registration Statement or Rule 144 under the 1933 Act,
(ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber's broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to its transfer agent (with copies to Subscriber) an appropriate instruction and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(e) above,
issuable pursuant to any effective and current Registration Statement described
in Section 11 of this Agreement or pursuant to Rule 144 under the 1933 Act (the
"Unlegended Shares"); and (z) cause the transmission of the certificates
representing the Unlegended Shares together with a legended certificate
representing the balance of the unsold shares of Common Stock, if any, to the
Subscriber at the address specified in the notice of sale, via express courier,
by electronic transfer or otherwise on or before the Unlegended Shares Delivery
Date. Transfer fees shall be the responsibility of the Seller.

                  (b) In lieu of delivering physical certificates representing
the Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefor do not bear a
legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.

                  (c) The Company understands that a delay in the delivery of
the Unlegended Shares pursuant to Section 11 hereof later than two business days
after the Unlegended Shares Delivery Date could result in economic loss to a
Subscriber. As compensation to a Subscriber for such loss, the Company agrees to
pay late payment fees (as liquidated damages and not as a penalty) to the
Subscriber for late delivery of Unlegended Shares in the amount of $100 per
business day after the Delivery Date for each $10,000 of purchase price of the
Unlegended Shares subject to the delivery default. If during any 360 day period,
the Company fails to deliver Unlegended Shares as required by this Section 11.7
for an aggregate of thirty (30) days, then each Subscriber or assignee holding
Securities subject to such default may, at its option, require the Company to
redeem all or any portion of the Shares and Warrant Shares subject to such
default at a price per share equal to 120% of the Purchase Price of such Common
Stock and Warrant Shares. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand.

                  (d) In addition to any other rights available to a Subscriber,
if the Company fails to deliver to a Subscriber Unlegended Shares as required
pursuant to this Agreement, within seven (7) business days after the Unlegended
Shares Delivery Date and the Subscriber purchases (in an open market transaction
or otherwise) shares of common stock to deliver in satisfaction of a sale by
such Subscriber of the shares of Common Stock which the Subscriber was entitled
to receive from the Company (a "Buy-In"), then the Company shall pay in cash to
the Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate purchase price of the shares of Common Stock
delivered to the Company for reissuance as


                                       22


Unlegended Shares, together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.

                  (e) In the event a Subscriber shall request delivery of
Unlegended Shares as described in Section 11.7 and the Company is required to
deliver such Unlegended Shares pursuant to Section 11.7, the Company may not
refuse to deliver Unlegended Shares based on any claim that such Subscriber or
any one associated or affiliated with such Subscriber has been engaged in any
violation of law, or for any other reason, unless, an injunction or temporary
restraining order from a court, on notice, restraining and or enjoining delivery
of such Unlegended Shares or exercise of all or part of said Warrant shall have
been sought and obtained and the Company has posted a surety bond for the
benefit of such Subscriber in the amount of 130% of the amount of the aggregate
purchase price of the Common Stock and Warrant Shares which are subject to the
injunction or temporary restraining order, which bond shall remain in effect
until the completion of arbitration/litigation of the dispute and the proceeds
of which shall be payable to such Subscriber to the extent Subscriber obtains
judgment in Subscriber's favor.

            12. (a) Right of First Refusal. Until the Registration Statement has
been effective for the unrestricted public resale of the Shares and Warrant
Shares for three hundred and sixty-five (365) days or until one year after the
Notes have been fully paid, whichever is later, the Subscribers shall be given
not less than seven (7) business days prior written notice of any proposed sale
by the Company of its common stock or other securities or debt obligations,
except in connection with (i) employee stock options or compensation plans in
effect on the Initial Closing Date which have been disclosed to the Subscribers
in writing, (ii) as full or partial consideration in connection with merger,
consolidation or purchase of substantially all of the securities or assets of
any corporation or other entity, or (iii) as has been described in the Reports
or Other Written Information filed with the Commission or delivered to the
Subscribers prior to the Closing Date (collectively "Excepted Issuances"). The
Subscribers who exercise their rights pursuant to this Section 12(a) shall have
the right during the seven (7) business days following receipt of the notice to
purchase such offered common stock, debt or other securities in accordance with
the terms and conditions set forth in the notice of sale in the same proportion
to each other as their purchase of Notes in the Offering. No additional Finder's
Fees will be payable as a result of such transaction. In the event such terms
and conditions are modified during the notice period, the Subscribers shall be
given prompt notice of such modification and shall have the right during the
original notice period or for a period of seven (7) business days following the
notice of modification, whichever is longer, to exercise such right.

                  (b) Offering Restrictions. From the date of this Agreement and
until the end of the Exclusion Period, except in connection with the Excepted
Issuances, the Company will not enter into any agreement to, nor issue any
equity, convertible debt or other securities convertible into Common Stock
without the prior written consent of the Subscribers, which consent may be
withheld for any reason.

                  (c) Favored Nations Provision. Other than the Excepted
Issuances, if at any time Notes are outstanding the Company shall offer, issue
or agree to issue any common stock or securities convertible into or exercisable
for shares of common stock (or modify any of the foregoing which may be
outstanding) to any person or entity at a price per share or conversion or
exercise price per share which shall be less than the Conversion Price described
in Section 2.1(b)(i) or Section 2.1(b)(ii) of the Note in respect of the Shares,
or if less than the Warrant exercise price in respect of the Warrant Shares,
without the consent of each Subscriber holding Notes and/or Shares, then the
Company shall


                                       23


issue, for each such occasion, additional shares of Common Stock to each
Subscriber so that the average per share purchase price of the shares of Common
Stock issued to the Subscriber (of only the Common Stock or Warrant Shares still
owned by the Subscriber) is equal to such other lower price per share and the
Conversion Price and Warrant Exercise Price shall automatically be reduced to
such other lower price per share. The average Purchase Price of the Shares and
average exercise price in relation to the Warrant Shares shall be calculated
separately for the Shares and Warrant Shares. The foregoing calculation and
issuance shall be made separately for Shares received upon conversion of Notes
and separately for Warrant Shares. The delivery to the Subscriber of the
additional shares of Common Stock shall be not later than the closing date of
the transaction giving rise to the requirement to issue additional shares of
Common Stock. The Subscriber is granted the registration rights described in
Section 11 hereof in relation to such additional shares of Common Stock except
that the Filing Date and Effective Date vis-a-vis such additional common shares
shall be, respectively, the sixtieth (60th) and one hundred and twentieth
(120th) date after the closing date giving rise to the requirement to issue the
additional shares of Common Stock. For purposes of the issuance and adjustment
described in this paragraph, the issuance of any security of the Company
carrying the right to convert such security into shares of Common Stock or of
any warrant, right or option to purchase Common Stock shall result in the
issuance of the additional shares of Common Stock upon the issuance of such
convertible security, warrant, right or option and again at any time upon any
subsequent issuances of shares of Common Stock upon exercise of such conversion
or purchase rights if such issuance is at a price lower than the Conversion
Price in effect upon such issuance. The rights of the Subscriber set forth in
this Section 12 are in addition to any other rights the Subscriber has pursuant
to this Agreement, the Note, any Transaction Document, and any other agreement
referred to or entered into in connection herewith.

                  (d) Maximum Exercise of Rights. In the event the exercise of
the rights described in Sections 12(a) and 12(c) would result in the issuance of
an amount of common stock of the Company that would exceed the maximum amount
that may be issued to a Subscriber calculated in the manner described in Section
7.3 of this Agreement, then the issuance of such additional shares of common
stock of the Company to such Subscriber will be deferred in whole or in part
until such time as such Subscriber is able to beneficially own such common stock
without exceeding the maximum amount set forth calculated in the manner
described in Section 7.3 of this Agreement. The determination of when such
common stock may be issued shall be made by each Subscriber as to only such
Subscriber.

            13. Security Interest. The Subscribers will be granted a security
interest in all the assets of the Company to be memorialized in a "Security
Agreement", a form of which is annexed hereto as Exhibit E. The Company will
execute such other agreements, documents and financing statements to be filed at
the Company's expense with such jurisdictions, states and counties designated by
the Subscribers. The Company will also execute all such documents reasonably
necessary in the opinion of Subscribers to memorialize and further protect the
security interest described herein. The Subscribers will appoint a Collateral
Agent to represent them collectively in connection with the security interest to
be granted in the assets of the Company. The appointment will be pursuant to a
"Collateral Agent Agreement", a form of which is annexed hereto as Exhibit F.

            14. Miscellaneous.

                  (a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery


                                       24


by facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to: Tasty Fries, Inc., 650
Sentry Parkway, Suite 1, Blue Bell, PA 19422, Attn: Edward Kelly, CEO,
telecopier number: (610) 941-2108, with a copy by telecopier only to: Louis
Kelly, Esq., 650 Sentry Parkway, Suite 1, Blue Bell, PA 19422, telecopier
number: (610) 941-2108, (ii) if to the Subscribers, to: the one or more
addresses and telecopier numbers indicated on the signature pages hereto, with
an additional copy by telecopier only to: , and (iii) if to the Finder, to: the
one or more addresses and telecopier numbers indicated on Schedule 8 hereto.

                  (b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of               , upon the satisfaction
of all conditions to Closing set forth in this Agreement. Each of the Initial
Closing Date and Second Closing Date is referred to as a "Closing Date".

                  (c) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscribers have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
either party shall be assigned by that party without prior notice to and the
written consent of the other party.

                  (d) Counterparts/Execution. This Agreement may be executed in
any number of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.

                  (e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.

                  (f) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, this being in addition
to any other remedy to which any of them may be


                                       25


entitled by law or equity. Subject to Section 14(e) hereof, each of the Company,
Subscriber and any signator hereto in his personal capacity hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction in New York of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.

                  (g) Independent Nature of Subscribers. The Company
acknowledges that the obligations of each Subscriber under the Transaction
Documents are several and not joint with the obligations of any other
Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents. The Company acknowledges that the decision of each Subscriber to
purchase Securities has been made by such Subscriber independently of any other
Subscriber and independently of any information, materials, statements or
opinions as to the business, affairs, operations, assets, properties,
liabilities, results of operations, condition (financial or otherwise) or
prospects of the Company which may have been made or given by any other
Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions. The Company acknowledges that
nothing contained in any Transaction Document, and no action taken by any
Subscriber pursuant hereto or thereto (including, but not limited to, the (i)
inclusion of a Subscriber in the SB-2 Registration Statement and (ii) review by,
and consent to, such Registration Statement by a Subscriber) shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Transaction Documents. The Company acknowledges
that each Subscriber shall be entitled to independently protect and enforce its
rights, including without limitation, the rights arising out of the Transaction
Documents, and it shall not be necessary for any other Subscriber to be joined
as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscribers with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscribers. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscribers are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]


                                       26


                  SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

                                             TASTY FRIES, INC.
                                             a Nevada corporation

                                             By:________________________________
                                                      Name: Edward Kelly
                                                      Title: President and CEO

                                             Dated: January _____, 2005

- --------------------------------------------------------------------------------
SUBSCRIBER                       INITIAL CLOSING            SECOND CLOSING NOTE
                                 NOTE (INITIAL              (SECOND CLOSING
                                 CLOSING PURCHASE           PURCHASE PRICE)
                                 PRICE)
- --------------------------------------------------------------------------------
                                 $350,000.00                $420,000.00


- ----------------------
(Signature)

- ----------------------
Print Name and Title
- --------------------------------------------------------------------------------




                  SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (B)

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

                                             TASTY FRIES, INC.
                                             a Nevada corporation

                                             By:________________________________
                                                      Name: Edward Kelly
                                                      Title: President and CEO

                                             Dated: January _____, 2005

- --------------------------------------------------------------------------------
SUBSCRIBER                       INITIAL CLOSING            SECOND CLOSING NOTE
                                 NOTE (INITIAL              (SECOND CLOSING
                                 CLOSING PURCHASE           PURCHASE PRICE)
                                 PRICE)
- --------------------------------------------------------------------------------
                                 $125,000.00                $150,000.00


- ----------------------
(Signature)

- ----------------------
Print Name and Title
- --------------------------------------------------------------------------------




                  SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (C)

      Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.

                                             TASTY FRIES, INC.
                                             a Nevada corporation

                                             By:________________________________
                                                      Name: Edward Kelly
                                                      Title: President and CEO

                                             Dated: January _____, 2005

- --------------------------------------------------------------------------------
SUBSCRIBER                       INITIAL CLOSING            SECOND CLOSING NOTE
                                 NOTE (INITIAL              (SECOND CLOSING
                                 CLOSING PURCHASE           PURCHASE PRICE)
                                 PRICE)
- --------------------------------------------------------------------------------
                                 $25,000.00                 $30,000.00


- ----------------------
(Signature)

- ----------------------
Print Name and Title
- --------------------------------------------------------------------------------




                         LIST OF EXHIBITS AND SCHEDULES

Exhibit A               Form of A Warrant

Exhibit B               Escrow Agreement

Exhibit C               Form of Legal Opinion

Exhibit D               Form of Public Announcement or Form 8-K

Exhibit E               Form of Security Agreement

Exhibit F               Form of Collateral Agent Agreement

Schedule 5(d)           Additional Issuances

Schedule 5(q)           Undisclosed Liabilities

Schedule 5(s)           Capitalization

Schedule 8              Finder/Due Diligence Fee

Schedule 9(e)           Use of Proceeds

Schedule 11.1           Other Securities to be Registered




                                   SCHEDULE 8

                                     FINDER

- --------------------------------------------------------------------------------
FINDER                                                   FEES
- --------------------------------------------------------------------------------
                                                         2% of Purchase Price

- --------------------------------------------------------------------------------
                                                         3% of Purchase Price

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

                                DUE DILIGENCE FEE

                                                 Recipient of Due Diligence Fee:

EX-10.2

                                                                    Exhibit 10.2

THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO TASTY FRIES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

                    Right to Purchase _________ shares of Common Stock of
                    Tasty Fries, Inc. (subject to adjustment as provided herein)

                          COMMON STOCK PURCHASE WARRANT

No. 2005-003                                      Issue Date: January ____, 2005

      TASTY FRIES, INC., a corporation organized under the laws of the State of
Nevada (the "Company"), hereby certifies that, for value received, or its
assigns (the "Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company at any time after the Issue Date until 5:00 p.m.,
E.S.T on the third anniversary of the Issue Date (the "Expiration Date"), up to
________ fully paid and nonassessable shares of the common stock of the Company
(the "Common Stock"), $.001 par value per share at a per share purchase price of
$0.25. The aforedescribed purchase price per share, as adjusted from time to
time as herein provided, is referred to herein as the "Purchase Price." The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein. The Company may reduce the Purchase
Price without the consent of the Holder. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in that certain
Subscription Agreement (the "Subscription Agreement"), dated January ___, 2005,
entered into by the Company and the Holder.

      As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:

      (a) The term "Company" shall include Tasty Fries, Inc. and any corporation
which shall succeed or assume the obligations of Tasty Fries, Inc. hereunder.

      (b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Subscription Agreement,
and (b) any other securities into which or for which any of the securities
described in (a) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.

      (c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.




      1. Exercise of Warrant.

            1.1. Number of Shares Issuable upon Exercise. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.

            1.2. Full Exercise. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within three (3)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.

            1.3. Partial Exercise. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.

            1.4. Fair Market Value. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:

                  (a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ"), National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, LLC, then the closing or last sale price, respectively,
reported for the last business day immediately preceding the Determination Date;

                  (b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., but is traded in the over-the-counter market,
then the average of the closing bid and ask prices reported for the last
business day immediately preceding the Determination Date;

                  (c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or

                  (d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share




in respect of the Common Stock in liquidation under the charter, assuming for
the purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.

            1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.

            1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.

            1.7 Delivery of Stock Certificates, etc. on Exercise. The Company
agrees that the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the Holder hereof, or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct in compliance with
applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such Holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such Holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share of Common Stock, together with any other stock or other
securities and property (including cash, where applicable) to which such Holder
is entitled upon such exercise pursuant to Section 1 or otherwise.

      2. Cashless Exercise.

            (a) If a Registration Statement (as defined in the Subscription
Agreement) ("Registration Statement") is effective and the Holder may sell its
shares of Common Stock upon exercise hereof pursuant to the Registration
Statement, this Warrant may be exercisable in whole or in part for cash only as
set forth in Section 1 above. If no such Registration Statement is available,
then payment upon exercise may be made at the option of the Holder either in (i)
cash, wire transfer or by certified or official bank check payable to the order
of the Company equal to the applicable aggregate Purchase Price, (ii) by
delivery of Common Stock issuable upon exercise of the Warrants in accordance
with Section (b) below or (iii) by a combination of any of the foregoing
methods, for the number of Common Stock specified in such form (as such exercise
number shall be adjusted to reflect any adjustment in the total number of shares
of Common Stock issuable to the holder per the terms of this Warrant) and the
holder shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully-paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided herein.

            (b) Subject to the provisions herein to the contrary, if the Fair
Market Value of one share of Common Stock is greater than the Purchase Price (at
the date of calculation as set forth below), in lieu of exercising this Warrant
for cash, the holder may elect to receive shares equal to the value (as




determined below) of this Warrant (or the portion thereof being cancelled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Subscription Form in which event the Company shall issue
to the holder a number of shares of Common Stock computed using the following
formula:

         X=Y (A-B)
           -------
              A

   Where X=   the number of shares of Common Stock to be issued to the holder

         Y=   the number of shares of Common Stock purchasable under the Warrant
              or, if only a portion of the Warrant is being exercised, the
              portion of the Warrant being exercised (at the date of such
              calculation)

         A=   the Fair Market Value of one share of the Company's Common Stock
              (at the date of such calculation)

         B=   Purchase Price (as adjusted to the date of such calculation)

            (c) The Holder may employ the cashless exercise feature described in
Section (b) above only during the pendency of a Non-Registration Event as
described in Section 11 of the Subscription Agreement.

      For purposes of Rule 144 promulgated under the 1933 Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued pursuant to the Subscription
Agreement.

      3. Adjustment for Reorganization, Consolidation, Merger, etc.

            3.1. Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.

            3.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.




            3.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.

            3.4 Share Issuance. Until the Expiration Date, if the Company shall
issue any Common Stock except for the Excepted Issuances (as defined in the
Subscription Agreement), prior to the complete exercise of this Warrant for a
consideration less than the Purchase Price that would be in effect at the time
of such issue, then, and thereafter successively upon each such issue, the
Purchase Price shall automatically be reduced to such other lower issue price.
For purposes of this adjustment, the issuance of any security or debt instrument
of the Company carrying the right to convert such security or debt instrument
into Common Stock or of any warrant, right or option to purchase Common Stock
shall result in an adjustment to the Purchase Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option and again
at any time upon any subsequent issuances of shares of Common Stock upon
exercise of such conversion or purchase rights if such issuance is at a price
lower than the Purchase Price in effect upon such issuance. The reduction of the
Purchase Price described in this Section 3.4 is in addition to the other rights
of the Holder described in the Subscription Agreement.

      4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.

      5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to




have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).

      6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.

      7. Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor"). On the surrender
for exchange of this Warrant, with the Transferor's endorsement in the form of
Exhibit B attached hereto (the "Transferor Endorsement Form") and together with
an opinion of counsel reasonably satisfactory to the Company that the transfer
of this Warrant will be in compliance with applicable securities laws, the
Company at its expense, twice, only, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor. No such transfers shall result
in a public distribution of the Warrant.

      8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense, twice only, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.

      9. Registration Rights. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference. Upon the occurrence of a Non-Registration
Event, or in the event the Company is unable to issue Common Stock upon exercise
of this Warrant that has been registered in a Registration Statement described
in Section 11 of the Subscription Agreement, within the time periods described
in the Subscription Agreement, which Registration Statement must be effective
for the periods set forth in the Subscription Agreement, then upon written
demand made by the Holder, the Company will pay to the Holder of this Warrant,
in lieu of delivering Common Stock, a sum equal to the closing price of the
Company's Common Stock on the principal market or exchange upon which the Common
Stock is listed for trading on the trading date immediately preceding the date
notice is given by the Holder, less the Purchase Price, for each share of Common
Stock designated in such notice from the Holder.

      10. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date,




which would result in beneficial ownership by the Holder and its affiliates of
more than 9.99% of the outstanding shares of Common Stock on such date. For the
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Holder shall not be limited to aggregate exercises which would result in the
issuance of more than 9.99%. The restriction described in this paragraph may be
revoked upon sixty-one (61) days prior notice from the Holder to the Company.
The Holder may allocate which of the equity of the Company deemed beneficially
owned by the Subscriber shall be included in the 9.99% amount described above
and which shall be allocated to the excess above 9.99%.

      11. Warrant Agent. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.

      12. Transfer on the Company's Books. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.

      13. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company to: Tasty Fries, Inc., 650
Sentry Parkway, Suite 1, Blue Bell, PA 19422, Attn: Edward Kelly, CEO,
telecopier number: (610) 941-2108, with a copy by telecopier only to: Louis
Kelly, Esq., 650 Sentry Parkway, Suite 1, Blue Bell, PA 19422, telecopier
number: (610) 941-2108, and (ii) if to the Holder, to the address and telecopier
number listed on the first paragraph of this Warrant, with a copy by telecopier
only to:          .




      14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.

      IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.

                                              TASTY FRIES, INC.

                                              By: ______________________________
                                                    Name:
                                                    Title:

Witness:

______________________________




                                    Exhibit A

                              FORM OF SUBSCRIPTION
                   (to be signed only on exercise of Warrant)

TO: TASTY FRIES, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):

___ ________ shares of the Common Stock covered by such Warrant; or

___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):

___ $__________ in lawful money of the United States; and/or

___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or

___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is

________________________________________________________________________________

_______________________________________________________________________________.

The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.

Dated:___________________           ____________________________________________
                                    (Signature must conform to name of holder as
                                    specified on the face of the Warrant)

                                    ____________________________________________

                                    ____________________________________________
                                    (Address)




                                    Exhibit B

                         FORM OF TRANSFEROR ENDORSEMENT
                   (To be signed only on transfer of Warrant)

            For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of TASTY FRIES, INC. to which the within Warrant relates
specified under the headings "Percentage Transferred" and "Number Transferred,"
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of TASTY FRIES,
INC. with full power of substitution in the premises.

- --------------------------------------------------------------------------------
Transferees              Percentage Transferred               Number Transferred
- --------------------------------------------------------------------------------

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

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

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

Dated:  ______________, ___________
                                              __________________________________
                                              (Signature must conform to name of
                                              holder as specified on the face of
                                              the warrant)

Signed in the presence of:

___________________________________           __________________________________
         (Name)
                                              __________________________________
                                                (address)

ACCEPTED AND AGREED:
[TRANSFEREE]                                  __________________________________

                                              __________________________________
                                                (address)

___________________________________
         (Name)

EX-10.3

                                                                    Exhibit 10.3

                             FUNDS ESCROW AGREEMENT

      This Agreement is dated as of the ____ day of January, 2005 among Tasty
Fries, Inc., a Nevada corporation (the "Company"), the Subscribers identified on
Schedule A hereto (each a "Subscriber" and collectively "Subscribers"), and (the
"Escrow Agent"):

                              W I T N E S S E T H:
                               - - - - - - - - - -

      WHEREAS, the Company and Subscribers have entered into a Subscription
Agreement calling for the sale by the Company to the Subscriber of 7% Promissory
Notes and Warrants for an aggregate purchase price of up to $1,100,000 in the
amounts set forth on Schedule A hereto; and

      WHEREAS, the parties hereto require the Company to deliver the Notes and
Warrants against payment therefor, with such Notes, Warrants and the Escrowed
Funds to be delivered to the Escrow Agent to be held in escrow and released by
the Escrow Agent in accordance with the terms and conditions of this Agreement;
and

      WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to
the terms and conditions of this Agreement;

      NOW THEREFORE, the parties agree as follows:

                                    ARTICLE I

                                 INTERPRETATION

      1.1. Definitions. Capitalized terms used and not otherwise defined herein
that are defined in the Subscription Agreement shall have the meanings given to
such terms in the Subscription Agreement. Whenever used in this Agreement, the
following terms shall have the following respective meanings:

            (a) "Agreement" means this Agreement and all amendments made hereto
and thereto by written agreement between the parties;

            (b) "Collateral Agent Agreement" shall have the meaning set forth in
Section 13 of the Subscription Agreement;

            (c) "Due Diligence Fee" shall have the meaning set forth in Section
8(a) of the Subscription Agreement;

            (d) "Escrowed Payment" means an aggregate cash payment of up to
$1,100,000 which is, collectively, the Initial Closing Purchase Price and Second
Closing Purchase Price;

            (e) "Finder" shall have the meaning set forth in Section 8(a) of the
Subscription Agreement;

            (f) "Finder's Fee" shall have the meaning set forth in Section 8(a)
of the Subscription Agreement and set forth on Schedule 8 to the Subscription
Agreement;

            (g) "Initial Closing Date" shall have the meaning set forth in
Section 1 of the Subscription Agreement;


                                       1


            (h) "Initial Closing Legal Opinion" means the original signed legal
opinion referred to in Section 6 of the Subscription Agreement;

            (i) "Initial Closing Notes" shall have the meaning set forth in
Section 1 of the Subscription Agreement;

            (j) "Initial Closing Purchase Price" shall mean up to $500,000;

            (k) "Legal Fees" shall have the meaning set forth in Section 8(b) of
the Subscription Agreement;

            (l) "Second Closing Certificate" shall have the meaning set forth in
Section 2(c) of the Subscription Agreement;

            (m) "Second Closing Date" shall have the meaning set forth in
Section 2(a) of the Subscription Agreement;

            (n) "Second Closing Legal Opinion" shall have the meaning set forth
in Section 2(c) of the Subscription Agreement;

            (o) "Second Closing Notes" shall have the meaning set forth in
Section 2(a) of the Subscription Agreement;

            (p) "Second Closing Purchase Price" shall mean up to $600,000;

            (q) "Security Agreement" shall have the meaning set forth in Section
13 of the Subscription Agreement;

            (r) "Subscription Agreement" means the Subscription Agreement (and
the exhibits thereto) entered into or to be entered into by the parties in
reference to the sale and purchase of the Initial Closing Notes, Second Closing
Notes and Warrants;

            (s) "Warrants" " shall have the meaning set forth in Section 3 of
the Subscription Agreement;

            (t) Collectively, the executed Subscription Agreement, Initial
Closing Notes, Initial Closing Legal Opinion, Second Closing Notes, Second
Closing Legal Opinion, Second Closing Certificates, Security Agreement,
Collateral Agent Agreement, and Warrants are referred to as "Company Documents";
and

            (u) Collectively, the Escrowed Payment and the executed Subscription
Agreement are referred to as "Subscriber Documents".

      1.2. Entire Agreement. This Agreement along with the Company Documents and
the Subscriber Documents constitute the entire agreement between the parties
hereto pertaining to the Company Documents and Subscriber Documents and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. There are no warranties,
representations and other agreements made by the parties in connection with the
subject matter hereof except as specifically set forth in this Agreement, the
Company Documents and the Subscriber Documents.


                                       2


      1.3. Extended Meanings. In this Agreement words importing the singular
number include the plural and vice versa; words importing the masculine gender
include the feminine and neuter genders. The word "person" includes an
individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.

      1.4. Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties, or, in the
case of a waiver, by the party waiving compliance. Except as expressly stated
herein, no delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder preclude any
other or future exercise of any other right, power or privilege hereunder.

      1.5. Headings. The division of this Agreement into articles, sections,
subsections and paragraphs and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement.

      1.6. Law Governing this Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of New York or in the federal courts located in
the state of New York. Both parties and the individuals executing this Agreement
and other agreements on behalf of the Company agree to submit to the
jurisdiction of such courts and waive trial by jury. The prevailing party (which
shall be the party which receives an award most closely resembling the remedy or
action sought) shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Agreement or
any other agreement delivered in connection herewith is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.

      1.7. Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injuction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 1.6 hereof, each of the Company and Subscriber hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.

                                   ARTICLE II

                         DELIVERIES TO THE ESCROW AGENT

      2.1. Initial Closing Company Deliveries. On or about the date hereof, the
Company shall deliver to the Escrow Agent the executed Subscription Agreement,
the Initial Closing Notes, Warrants, Initial Closing Legal Opinion, Security
Agreement and Collateral Agent Agreement (collectively, the "Initial Closing
Company Documents").


                                       3


      2.2. Second Closing Company Deliveries. On or prior to the Second Closing
Date the Company will deliver to the Escrow Agent the Second Closing Notes,
Warrants, Second Closing Certificate, and Second Closing Legal Opinion
(collectively, the "Second Closing Company Documents").

      2.3. Subscriber Deliveries. On or before the Initial Closing Date, each
Subscriber shall deliver to the Escrow Agent such Subscriber's portion of the
Initial Closing Purchase Price and the executed Subscription Agreement. On or
before the Second Closing Date, each Subscriber will deliver such Subscriber's
portion of the Second Closing Purchase Price to the Escrow Agent. The Escrowed
Payment will be delivered pursuant to the following wire transfer instructions:

      2.4. Intention to Create Escrow Over Company Documents and Subscriber
Documents. The Subscriber and Company intend that the Company Documents and
Subscriber Documents shall be held in escrow by the Escrow Agent pursuant to
this Agreement for their benefit as set forth herein.

      2.5. Escrow Agent to Deliver Company Documents and Subscriber Documents.
The Escrow Agent shall hold and release the Company Documents and Subscriber
Documents only in accordance with the terms and conditions of this Agreement.

                                   ARTICLE III

              RELEASE OF COMPANY DOCUMENTS AND SUBSCRIBER DOCUMENTS

      3.1. Release of Escrow. Subject to the provisions of Section 4.2, the
Escrow Agent shall release the Company Documents and Subscriber Documents as
follows:

            (a) On the Initial Closing Date, the Escrow Agent will
simultaneously release the Initial Closing Company Documents to the Subscriber
and release the Subscription Agreement and the Initial Closing Purchase Price to
the Company except that the Security Agreement and Collateral Agent Agreement
will also be released to the Collateral Agent; Legal Fees will be released to
the Subscriber's attorneys and the Finder's Fee and Due Diligence Fee in
connection with the Initial Closing Purchase Price will be released to the
recipients identified on Schedule 8 to the Subscription Agreement.

            (b) On the Second Closing Date, the Escrow Agent will simultaneously
release the Second Closing Company Documents to the Subscriber and release the
Second Closing Purchase Price to the Company except that the Legal Fees will be
released to the Subscriber's attorneys and Finder's Fee in connection with the
Second Closing Purchase Price will be delivered to the Finder.

            (c) All funds to be delivered to the Company shall be delivered
pursuant to the wire instructions to be provided in writing by the Company to
the Escrow Agent.

            (d) Notwithstanding the above, upon receipt by the Escrow Agent of
joint written instructions ("Joint Instructions") signed by the Company and the
Subscriber, it shall deliver the Company Documents and Subscriber Documents in
accordance with the terms of the Joint Instructions.

            (e) Notwithstanding the above, upon receipt by the Escrow Agent of a
final and non-appealable judgment, order, decree or award of a court of
competent jurisdiction (a "Court Order"), the


                                       4


Escrow Agent shall deliver the Company Documents and Subscriber Documents in
accordance with the Court Order. Any Court Order shall be accompanied by an
opinion of counsel for the party presenting the Court Order to the Escrow Agent
(which opinion shall be satisfactory to the Escrow Agent) to the effect that the
court issuing the Court Order has competent jurisdiction and that the Court
Order is final and non-appealable.

      3.2. Acknowledgement of Company and Subscriber; Disputes. The Company and
the Subscriber acknowledge that the only terms and conditions upon which the
Company Documents and Subscriber Documents are to be released are set forth in
Sections 3 and 4 of this Agreement. The Company and the Subscriber reaffirm
their agreement to abide by the terms and conditions of this Agreement with
respect to the release of the Company Documents and Subscriber Documents. Any
dispute with respect to the release of the Company Documents and Subscriber
Documents shall be resolved pursuant to Section 4.2 or by agreement between the
Company and Subscriber.

                                   ARTICLE IV

                           CONCERNING THE ESCROW AGENT

      4.1. Duties and Responsibilities of the Escrow Agent. The Escrow Agent's
duties and responsibilities shall be subject to the following terms and
conditions:

            (a) The Subscriber and Company acknowledge and agree that the Escrow
Agent (i) shall not be responsible for or bound by, and shall not be required to
inquire into whether either the Subscriber or Company is entitled to receipt of
the Company Documents and Subscriber Documents pursuant to, any other agreement
or otherwise; (ii) shall be obligated only for the performance of such duties as
are specifically assumed by the Escrow Agent pursuant to this Agreement; (iii)
may rely on and shall be protected in acting or refraining from acting upon any
written notice, instruction, instrument, statement, request or document
furnished to it hereunder and believed by the Escrow Agent in good faith to be
genuine and to have been signed or presented by the proper person or party,
without being required to determine the authenticity or correctness of any fact
stated therein or the propriety or validity or the service thereof; (iv) may
assume that any person believed by the Escrow Agent in good faith to be
authorized to give notice or make any statement or execute any document in
connection with the provisions hereof is so authorized; (v) shall not be under
any duty to give the property held by Escrow Agent hereunder any greater degree
of care than Escrow Agent gives its own similar property; and (vi) may consult
counsel satisfactory to Escrow Agent, the opinion of such counsel to be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by Escrow Agent hereunder in good faith and in accordance with the
opinion of such counsel.

            (b) The Subscriber and Company acknowledge that the Escrow Agent is
acting solely as a stakeholder at their request and that the Escrow Agent shall
not be liable for any action taken by Escrow Agent in good faith and believed by
Escrow Agent to be authorized or within the rights or powers conferred upon
Escrow Agent by this Agreement. The Subscriber and Company, jointly and
severally, agree to indemnify and hold harmless the Escrow Agent and any of
Escrow Agent's partners, employees, agents and representatives for any action
taken or omitted to be taken by Escrow Agent or any of them hereunder, including
the fees of outside counsel and other costs and expenses of defending itself
against any claim or liability under this Agreement, except in the case of gross
negligence or willful misconduct on Escrow Agent's part committed in its
capacity as Escrow Agent under this Agreement. The Escrow Agent shall owe a duty
only to the Subscriber and Company under this Agreement and to no other person.


                                       5


            (c) The Subscriber and Company jointly and severally agree to
reimburse the Escrow Agent for outside counsel fees, to the extent authorized
hereunder and incurred in connection with the performance of its duties and
responsibilities hereunder.

            (d) The Escrow Agent may at any time resign as Escrow Agent
hereunder by giving five (5) days prior written notice of resignation to the
Subscriber and the Company. Prior to the effective date of the resignation as
specified in such notice, the Subscriber and Company will issue to the Escrow
Agent a Joint Instruction authorizing delivery of the Company Documents and
Subscriber Documents to a substitute Escrow Agent selected by the Subscriber and
Company. If no successor Escrow Agent is named by the Subscriber and Company,
the Escrow Agent may apply to a court of competent jurisdiction in the State of
New York for appointment of a successor Escrow Agent, and to deposit the Company
Documents and Subscriber Documents with the clerk of any such court.

            (e) The Escrow Agent does not have and will not have any interest in
the Company Documents and Subscriber Documents, but is serving only as escrow
agent, having only possession thereof. The Escrow Agent shall not be liable for
any loss resulting from the making or retention of any investment in accordance
with this Escrow Agreement.

            (f) This Agreement sets forth exclusively the duties of the Escrow
Agent with respect to any and all matters pertinent thereto and no implied
duties or obligations shall be read into this Agreement.

            (g) The Escrow Agent shall be permitted to act as counsel for the
Subscriber in any dispute as to the disposition of the Company Documents and
Subscriber Documents, in any other dispute between the Subscriber and Company,
whether or not the Escrow Agent is then holding the Company Documents and
Subscriber Documents and continues to act as the Escrow Agent hereunder.

            (h) The provisions of this Section 4.1 shall survive the resignation
of the Escrow Agent or the termination of this Agreement.

      4.2. Dispute Resolution: Judgments. Resolution of disputes arising under
this Agreement shall be subject to the following terms and conditions:

            (a) If any dispute shall arise with respect to the delivery,
ownership, right of possession or disposition of the Company Documents and
Subscriber Documents, or if the Escrow Agent shall in good faith be uncertain as
to its duties or rights hereunder, the Escrow Agent shall be authorized, without
liability to anyone, to (i) refrain from taking any action other than to
continue to hold the Company Documents and Subscriber Documents pending receipt
of a Joint Instruction from the Subscriber and Company, or (ii) deposit the
Company Documents and Subscriber Documents with any court of competent
jurisdiction in the State of New York, in which event the Escrow Agent shall
give written notice thereof to the Subscriber and the Company and shall
thereupon be relieved and discharged from all further obligations pursuant to
this Agreement. The Escrow Agent may, but shall be under no duty to, institute
or defend any legal proceedings which relate to the Company Documents and
Subscriber Documents. The Escrow Agent shall have the right to retain counsel if
it becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult counsel.

            (b) The Escrow Agent is hereby expressly authorized to comply with
and obey any Court Order. In case the Escrow Agent obeys or complies with a
Court Order, the Escrow Agent shall not be liable to the Subscriber and Company
or to any other person, firm, corporation or entity by reason of such
compliance.


                                       6


                                    ARTICLE V

                                 GENERAL MATTERS

      5.1. Termination. This escrow shall terminate upon the release of all of
the Company Documents and Subscriber Documents or at any time upon the agreement
in writing of the Subscriber and Company.

      5.2. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:

(a)   If to the Company, to:

                        Tasty Fries, Inc.
                        650 Sentry Parkway, Suite 1
                        Blue Bell, PA 19422
                        Attn: Edward Kelly, CEO
                        Fax: (610) 941-2108

      With  a copy by telecopier only to:

                        Louis Kelly, Esq.
                        650 Sentry Parkway, Suite 1
                        Blue Bell, PA 19422
                        Fax: (610) 941-2108

(b)   If to the Subscribers, to: the addresses and fax numbers listed on
      Schedule A hereto

(c)   If to the Finder, to the addresses and fax numbers listed on Schedule 8 to
      the Subscription Agreement.

(d)   If to the Escrow Agent, to:


                                       7


or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.

      5.3. Interest. The Escrowed Payment shall not be held in an interest
bearing account nor will interest be payable in connection therewith. In the
event the Escrowed Payment is deposited in an interest bearing account, the
Subscriber shall be entitled to receive any accrued interest thereon, but only
if the Escrow Agent receives from the Subscriber the Subscriber's United States
taxpayer identification number and other requested information and forms.

      5.4. Assignment; Binding Agreement. Neither this Agreement nor any right
or obligation hereunder shall be assignable by any party without the prior
written consent of the other parties hereto. This Agreement shall enure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.

      5.5. Invalidity. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal, or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.


                                       8


      5.6. Conflict of Interest. The Company and each Subscriber hereby waive
any conflict of interest that may arise, exist or appear to exist based on the
Escrow Agent having provided legal services to the Company in the past and to
the Subscribers in connection with the Offering and Private Equity Credit Line,
including any conflict that may arise, exist or appear to exist by virtue of
Escrow Agent also being an Investor under the Private Equity Credit Line.

      5.7. Counterparts/Execution. This Agreement may be executed in any number
of counterparts and by different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile transmission and delivered by facsimile
transmission.

      5.8. Agreement. Each of the undersigned states that he has read the
foregoing Funds Escrow Agreement and understands and agrees to it.

                                          TASTY FRIES, INC.
                                          the "Company"

                                          By:___________________________________

                                          ______________________________________
                                           "Subscriber"

                                          ______________________________________
                                           "Subscriber"

                                          ______________________________________

                                           "Subscriber"

                                          ESCROW AGENT:

                                          ______________________________________


                                       9


                      SCHEDULE A TO FUNDS ESCROW AGREEMENT

- --------------------------------------------------------------------------------
SUBSCRIBER                         INITIAL CLOSING           SECOND CLOSING
                                   NOTE (INITIAL             NOTE (SECOND
                                   CLOSING PURCHASE          CLOSING PURCHASE
                                   PRICE)                    PRICE)
- --------------------------------------------------------------------------------
                                   $350,000.00                   $420,000.00


- --------------------------------------------------------------------------------
                                   $125,000.00                   $150,000.00


- --------------------------------------------------------------------------------
                                   $25,000.00                    $30,000.00


- --------------------------------------------------------------------------------
TOTALS                             $500,000.00                   $600,000.00
- --------------------------------------------------------------------------------


                                       10

EX-10.4

                                                                    Exhibit 10.4

              THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
              NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
              AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
              OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
              HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
              AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
              SATISFACTORY TO TASTY FRIES, INC. THAT SUCH REGISTRATION IS NOT
              REQUIRED.

                                CONVERTIBLE NOTE

      FOR VALUE RECEIVED, TASTY FRIES, INC., a Nevada corporation (hereinafter
called "Borrower"), hereby promises to pay to (the "Holder") or order, without
demand, the sum of Three Hundred and Fifty Thousand Dollars ($350,000.00), with
simple interest accruing at the annual rate of 7%, on January ____, 2007 (the
"Maturity Date").

      This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:

                                    ARTICLE I

                               GENERAL PROVISIONS

      1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.

      1.2 Conversion Privileges. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full regardless of the occurrence of an Event of
Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred, the Borrower may not pay
this Note, without the consent of the Holder, until one year after the later of
the date the Event of Default has been cured or one year after the Maturity
Date.

      1.3 Interest Rate. Simple interest payable on this Note shall accrue at
the annual rate of seven percent (7%) and be payable upon each Conversion, June
30, 2005 and semi-annually thereafter, and on the Maturity Date, accelerated or
otherwise, when the principal and remaining accrued but unpaid interest shall be
due and payable, or sooner as described below.




              THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
              NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
              AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
              OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
              HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
              AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
              SATISFACTORY TO TASTY FRIES, INC. THAT SUCH REGISTRATION IS NOT
              REQUIRED.

                                CONVERTIBLE NOTE

      FOR VALUE RECEIVED, TASTY FRIES, INC., a Nevada corporation (hereinafter
called "Borrower"), hereby promises to pay to (the "Holder") or order, without
demand, the sum of One Hundred and Twenty-Five Thousand Dollars ($125,000.00),
with simple interest accruing at the annual rate of 7%, on January ____, 2007
(the "Maturity Date").

      This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:

                                    ARTICLE I

                               GENERAL PROVISIONS

      1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.

      1.2 Conversion Privileges. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full regardless of the occurrence of an Event of
Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred, the Borrower may not pay
this Note, without the consent of the Holder, until one year after the later of
the date the Event of Default has been cured or one year after the Maturity
Date.

      1.3 Interest Rate. Simple interest payable on this Note shall accrue at
the annual rate of seven percent (7%) and be payable upon each Conversion, June
30, 2005 and semi-annually thereafter, and on the Maturity Date, accelerated or
otherwise, when the principal and remaining accrued but unpaid interest shall be
due and payable, or sooner as described below.




              THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS
              NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
              AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION
              OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
              HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
              AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
              SATISFACTORY TO TASTY FRIES, INC. THAT SUCH REGISTRATION IS NOT
              REQUIRED.

                                CONVERTIBLE NOTE

      FOR VALUE RECEIVED, TASTY FRIES, INC., a Nevada corporation (hereinafter
called "Borrower"), hereby promises to pay to (the "Holder") or order, without
demand, the sum of Twenty-Five Thousand Dollars ($25,000.00), with simple
interest accruing at the annual rate of 7%, on January ____, 2007 (the "Maturity
Date").

      This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:

                                    ARTICLE I

                               GENERAL PROVISIONS

      1.1 Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.

      1.2 Conversion Privileges. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full regardless of the occurrence of an Event of
Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred, the Borrower may not pay
this Note, without the consent of the Holder, until one year after the later of
the date the Event of Default has been cured or one year after the Maturity
Date.

      1.3 Interest Rate. Simple interest payable on this Note shall accrue at
the annual rate of seven percent (7%) and be payable upon each Conversion, June
30, 2005 and semi-annually thereafter, and on the Maturity Date, accelerated or
otherwise, when the principal and remaining accrued but unpaid interest shall be
due and payable, or sooner as described below.




                                   ARTICLE II

                                CONVERSION RIGHTS

      The Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock, $.001 par value per share
("Common Stock") as set forth below.

            2.1. Conversion into the Borrower's Common Stock.

            (a) The Holder shall have the right from and after the date of the
issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and accrued
interest, at the election of the Holder (the date of giving of such notice of
conversion being a "Conversion Date") into fully paid and nonassessable shares
of Common Stock as such stock exists on the date of issuance of this Note, or
any shares of capital stock of Borrower into which such Common Stock shall
hereafter be changed or reclassified, at the conversion price as defined in
Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein.
Upon delivery to the Borrower of a completed Notice of Conversion, a form of
which is annexed hereto, Borrower shall issue and deliver to the Holder within
three (3) business days from the Conversion Date (such third day being the
"Delivery Date") that number of shares of Common Stock for the portion of the
Note converted in accordance with the foregoing. At the election of the Holder,
the Borrower will deliver accrued but unpaid interest on the Note in the manner
provided in Section 1.3 through the Conversion Date directly to the Holder on or
before the Delivery Date (as defined in the Subscription Agreement). The number
of shares of Common Stock to be issued upon each conversion of this Note shall
be determined by dividing that portion of the principal of the Note and interest
to be converted, by the Conversion Price.

            (b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be lesser of (i) one hundred and fifteen
percent (115%) of the average of the closing bid prices of the Common Stock for
the five trading days preceding the issue date of this Note as reported by
Bloomberg L.P. for the OTC Bulletin Board ("Maximum Base Price"), or (ii) eighty
percent (80%) of the average of the five (5) lowest closing bid prices of the
Common Stock as reported by Bloomberg L.P. for the five trading days preceding a
Conversion Date. Provided an Event of Default has not occurred, the Maximum Base
Price shall be $0.10 until one hundred and eighty days (180) after the issue
date of this Note.

            (c) The Maximum Base Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a),
shall be subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:

                  A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.




                  B. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes that may be issued or
outstanding, this Note, as to the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to evidence the right to purchase
an adjusted number of such securities and kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.

                  C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event..

                  D. Share Issuance. So long as this Note is outstanding, if the
Borrower shall offer, issue or agree to issue any shares of Common Stock except
for the Excepted Issuances (as defined in the Subscription Agreement) for a
consideration less than the Conversion Price [determined as being the lesser of
the Conversion Price set forth in Sections 2.1(b)(i) and 2.1(b)(ii) above,
without regard to the last sentence of Section 2.1(b)] in effect at the time of
such issue, then, and thereafter successively upon each such issue, the Maximum
Base Price shall be reduced to such other lower issue price. For purposes of
this adjustment, the issuance of any security carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of the above-described security and again upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then applicable Maximum Base Price.
The reduction of the Conversion Price described in this paragraph is in addition
to other rights of the Holder described in this Note and the Subscription
Agreement.

            (d) Whenever the Conversion Price is adjusted pursuant to Section
2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a statement
of the facts requiring such adjustment.

            (e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note, but not less than the amount of shares of Common Stock required to be
reserved pursuant to the Subscription Agreement. Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid and
non-assessable. Borrower agrees that its issuance of this Note shall constitute
full authority to its officers, agents, and transfer agents who are charged with
the duty of executing and issuing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the conversion of this
Note.

            2.2 Method of Conversion. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.

            2.3 Maximum Conversion. The Holder shall not be entitled to convert
on a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock




which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates on a Conversion Date, (ii)
any Common Stock issuable in connection with the unconverted portion of the
Note, and (iii) the number of shares of Common Stock issuable upon the
conversion of the Note with respect to which the determination of this provision
is being made on a Conversion Date, which would result in beneficial ownership
by the Holder and its affiliates of more than 9.99% of the outstanding shares of
Common Stock of the Borrower on such Conversion Date. For the purposes of the
provision to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the
Holder shall not be limited to aggregate conversions of only 9.99% and aggregate
conversion by the Holder may exceed 9.99%. The Holder shall have the authority
and obligation to determine whether the restriction contained in this Section
2.3 will limit any conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may void the conversion
limitation described in this Section 2.3 upon and effective after 61 days prior
written notice to the Borrower. The Holder may allocate which of the equity of
the Borrower deemed beneficially owned by the Holder shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.

            2.4. Optional Redemption. Provided an Event of Default (as defined
in this Agreement and the Note) has not occurred, whether or not such Event of
Default has been cured, the Borrower will have the option of prepaying the
outstanding principal amount of this Note ("Optional Redemption"), in whole or
in part, together with interest accrued thereon, by paying to the Holder a sum
of money equal to one hundred twenty percent (120%) of the principal amount to
be redeemed, together with accrued but unpaid interest thereon and interest that
will accrue until the actual repayment date and any and all other sums due,
accrued or payable to the Holder arising under the Note, the Subscription
Agreement or any Transaction Document (the "Redemption Amount") on the day
written notice of redemption (the "Notice of Redemption") is given to the
Holder. The Notice of Redemption shall specify the date for such Optional
Redemption (the "Redemption Payment Date"), which date shall be not less than
thirty (30) business days after the date of the Notice of Redemption (the
"Redemption Period"). A Notice of Redemption shall not be effective with respect
to any portion of the Note for which the Holder has a pending election to
convert, or for Conversion Notices by the Holder prior to the Redemption Payment
Date. On the Redemption Payment Date, the Redemption Amount shall be paid in
good funds to the Holder. In the event the Borrower fails to pay the Redemption
Amount on the Redemption Payment Date as set forth herein, then (i) such Notice
of Redemption will be null and void, (ii) Borrower will have no further right to
deliver another Notice of Redemption, and (iii) Borrower's failure may be deemed
by Holder to be a non-curable Event of Default.

            2.5. Mandatory Conversion. Provided an Event of Default has not
occurred, then commencing after the Actual Effective Date (as defined in the
Subscription Agreement), the Borrower will have the option by written notice to
the Holder ("Notice of Mandatory Conversion") of compelling the Holder to
convert the outstanding and unpaid principal of this Note into Common Stock at
the Conversion Price then in affect ("Mandatory Conversion"). The Notice of
Mandatory Conversion must be given, if at all, within ten trading days following
a consecutive twenty (20) day trading period ("Lookback Period") during which
the closing bid price for the Company's Common Stock as reported by Bloomberg,
LP for the Principal Market is higher than 200% of the Maximum Base Price each
day during the Lookback Period and the average daily volume during the Lookback
Period is not less than 200,000 shares of Common Stock. The date the Notice of
Mandatory Conversion is given is the "Mandatory Conversion Date." The Notice of
Mandatory Conversion shall specify the aggregate principal amount of the Note
which is subject to Mandatory Conversion. Mandatory Conversion Notices must be
given proportionately to all Holders of Notes who hold Notes similar in term and
tenure as this Note. A Notice of Mandatory




Conversion may not be given unless the Registration Statement described in
Section 11.1 (iv) of the Subscription Agreement has been effective for the
unrestricted public resale of Common Stock each day during the Lookback Period.
Each Mandatory Conversion Date shall be a deemed Conversion Date and the Company
will be required to deliver the Common Stock issuable pursuant to a Mandatory
Conversion Notice in the same manner and time period as described in Section 2.2
of this Note. In no event may a Mandatory Conversion Notice be given in
connection with an amount of Common Stock which would cause the Holder to exceed
the maximum amount designated in Section 2.3 above.

                                   ARTICLE III

                                EVENT OF DEFAULT

            The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:

            3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
any installment of principal, interest or other sum due under this Note when due
and such failure continues for a period of ten (10) days after the due date. The
ten (10) day period described in this Section 3.1 is the same ten (10) day
period described in Section 1.1 hereof.

            3.2 Breach of Covenant. The Borrower breaches any material covenant
or other term or condition of the Subscription Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) business days after written notice to the Borrower from the Holder.

            3.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date.

            3.4 Receiver or Trustee. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.

            3.5 Judgments. Any money judgment, writ or similar final process
shall be entered or filed against Borrower or any of its property or other
assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.

            3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law, or the issuance of any notice in relation to such event, for the
relief of debtors shall be instituted by or against the Borrower and if
instituted against Borrower are not dismissed within 45 days of initiation.

            3.7 Delisting. Delisting of the Common Stock from the OTC Bulletin
Board ("Bulletin Board") or such other principal exchange on which the Common
Stock is listed for trading; failure to comply with the requirements for
continued listing on the Bulletin Board for a period of three consecutive
trading days; or notification from the Bulletin Board or any Principal Market
that the Borrower




is not in compliance with the conditions for such continued listing on the
Bulletin Board or other Principal Market.

            3.8 Non-Payment. A default by the Borrower under any one or more
obligations in an aggregate monetary amount in excess of $75,000 for more than
twenty days after the due date.

            3.9 Stop Trade. An SEC or judicial stop trade order or Principal
Market trading suspension that lasts for five or more consecutive trading days.

            3.10 Failure to Deliver Common Stock or Replacement Note. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.

            3.11 Non-Registration Event. The occurrence of a Non-Registration
Event as described in Section 11.4 of the Subscription Agreement.

            3.12 Reverse Splits. The Borrower effectuates a reverse split of its
Common Stock without the prior written consent of the Holder.

            3.13 Reservation Default. Failure by the Borrower to have reserve
for issuance upon conversion of the Note the amount of Common stock as set forth
in the Subscription Agreement.

            3.14 Cross Default. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement which is not cured after any required notice and/or
cure period.

                                   ARTICLE IV

                                SECURITY INTEREST

            4. Security Interest/Waiver of Automatic Stay. This Note is secured
by a security interest granted to the Collateral Agent for the benefit of the
Holder pursuant to a Security Agreement, as delivered by Borrower to Holder. The
Borrower acknowledges and agrees that should a proceeding under any bankruptcy
or insolvency law be commenced by or against the Borrower, or if any of the
Collateral (as defined in the Security Agreement) should become the subject of
any bankruptcy or insolvency proceeding, then the Holder should be entitled to,
among other relief to which the Holder may be entitled under the Transaction
Documents and any other agreement to which the Borrower and Holder are parties
(collectively, "Loan Documents") and/or applicable law, an order from the court
granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section
362 to permit the Holder to exercise all of its rights and remedies pursuant to
the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE
BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE
BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362
NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE
(INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT,
CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY
OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The
Borrower hereby consents to any motion for relief from stay that may be filed by
the Holder in any bankruptcy or insolvency proceeding initiated by or against
the Borrower and, further, agrees not to file any opposition to any motion for
relief from stay filed by the Holder. The Borrower represents, acknowledges and
agrees that




this provision is a specific and material aspect of the Loan Documents, and that
the Holder would not agree to the terms of the Loan Documents if this waiver
were not a part of this Note. The Borrower further represents, acknowledges and
agrees that this waiver is knowingly, intelligently and voluntarily made, that
neither the Holder nor any person acting on behalf of the Holder has made any
representations to induce this waiver, that the Borrower has been represented
(or has had the opportunity to he represented) in the signing of this Note and
the Loan Documents and in the making of this waiver by independent legal counsel
selected by the Borrower and that the Borrower has discussed this waiver with
counsel.

                                    ARTICLE V

                                  MISCELLANEOUS

            5.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

            5.2 Notices. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing
and, unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Borrower to: Tasty Fries, Inc., 650
Sentry Parkway, Suite 1, Blue Bell, PA 19422, Attn: Edward Kelly, CEO,
telecopier number: (610) 941-2108, with a copy by telecopier only to: Louis
Kelly, Esq., 650 Sentry Parkway, Suite 1, Blue Bell, PA 19422, telecopier
number: (610) 941-2108, and (ii) if to the Holder, to the name, address and
telecopy number set forth on the front page of this Note, with a copy by
telecopier only to .

            5.3 Amendment Provision. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.

            5.4 Assignability. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.

            5.5 Cost of Collection. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.

            5.6 Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or




in the federal courts located in the state of New York. Both parties and the
individual signing this Agreement on behalf of the Borrower agree to submit to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.

            5.7 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.

            5.8 Redemption. This Note may not be redeemed or paid without the
consent of the Holder except as described in this Note or in the Subscription
Agreement.

            5.9 Shareholder Status. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have all the rights of a shareholder of the Borrower
with respect to the shares of Common Stock to be received by Holder after
delivery by the Holder of a Conversion Notice to the Borrower.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]




      IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by an authorized officer as of the ____ day of January, 2005.

                                              TASTY FRIES, INC.

                                              By:_______________________________
                                                       Name:
                                                       Title:

WITNESS:

________________________________




                              NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)


      The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by TASTY FRIES, INC. on
January ___, 2005 into Shares of Common Stock of TASTY FRIES, INC. (the
"Borrower") according to the conditions set forth in such Note, as of the date
written below.

Date of Conversion:_____________________________________________________________

Conversion Price:_______________________________________________________________

Shares To Be Delivered:_________________________________________________________

Signature:______________________________________________________________________

Print Name:_____________________________________________________________________

Address:________________________________________________________________________

        ________________________________________________________________________

EX-10.5

                                                                    Exhibit 10.5

                          SECURITY AND PLEDGE AGREEMENT
                               (Tasty Fries, Inc.)

1.    Identification.

      This Security and Pledge Agreement (the "Agreement"), dated as of January
___, 2005, is entered into by and between Tasty Fries, Inc., a Nevada
corporation ("Debtor"), and , as collateral agent acting in the manner and to
the extent described in the Collateral Agent Agreement defined below (the
"Collateral Agent"), for the benefit of the parties identified on Schedule A
hereto (collectively, the "Lenders").

2.    Recitals.

      2.1 The Lenders have made or are making loans and will make additional
loans to Debtor (the "Loans"). It is beneficial to Debtor that the Loans were
made, are being made and will be made.

      2.2 The Loans are evidenced by certain variable interest rate convertible
promissory notes (each a "Convertible Note") issued by Debtor on or about the
date of this Agreement and issuable after the date of this Agreement, pursuant
to subscription agreements (each a "Subscription Agreement") to which Debtor and
Lenders are parties. The Notes are further identified on Schedule A hereto and
were and will be executed by Debtor as "Borrower" or "Debtor" for the benefit of
each Lender as the "Holder" or "Lender" thereof.

      2.3 In consideration of the Loans made by Lenders to Debtor and for other
good and valuable consideration, and as security for the performance by Debtor
of its obligations under the Notes and as security for the repayment of the
Loans and all other sums due from Debtor to Lenders arising under the Notes
presently outstanding or to be outstanding in the future, Subscription
Agreements, and any other agreement between or among them (collectively, the
"Obligations"), Debtor, for good and valuable consideration, receipt of which is
acknowledged, has agreed to grant to the Collateral Agent, for the benefit of
the Lenders, a security interest in the Collateral (as such term is hereinafter
defined), on the terms and conditions hereinafter set forth. Obligations include
all future advances by Lenders to Debtor advanced on a pro rata basis by all
Lenders on substantially the same terms.

      2.4 The Lenders have appointed as Collateral Agent pursuant to that
certain Collateral Agent Agreement dated at or about January ____, 2005
("Collateral Agent Agreement"), among the Lenders and Collateral Agent.

      2.5 The following defined terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Inventory and Proceeds.

3.    Grant of General Security Interest in Collateral.

      3.1 As security for the Obligations of Debtor, Debtor hereby grants the
Collateral Agent, for the benefit of the Lenders, a security interest in the
Collateral.

      3.2 "Collateral" shall mean all of the following property of Debtor:


                                       1


            (A) All now owned and hereafter acquired right, title and interest
of Debtor in, to and in respect of all Accounts, Goods, real or personal
property, all present and future books and records relating to the foregoing and
all products and Proceeds of the foregoing, and as set forth below:

                  (i) Accounts: All now owned and hereafter acquired right,
title and interest of Debtor in, to and in respect of all: Accounts, interests
in goods represented by Accounts, returned, reclaimed or repossessed goods with
respect thereto and rights as an unpaid vendor; contract rights; Chattel Paper;
investment property; General Intangibles (including but not limited to, tax and
duty claims and refunds, registered and unregistered patents, trademarks,
service marks, certificates, copyrights trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, chooses in action and other
claims, and existing and future leasehold interests in equipment, real estate
and fixtures); Documents; Instruments; letters of credit, bankers' acceptances
or guaranties; cash moneys, deposits; securities, bank accounts, deposit
accounts, credits and other property now or hereafter owned or held in any
capacity by Debtor including the right to acquire any of the foregoing by way of
option, right, entitlement or agreement, as well as its affiliates, agreements
or property securing or relating to any of the items referred to above;

                  (ii) Goods: All now owned and hereafter acquired right, title
and interest of Debtor in, to and in respect of goods, including, but not
limited to:

                        (a) All Inventory, wherever located, whether now owned
or hereafter acquired, of whatever kind, nature or description, including all
raw materials, work-in-process, finished goods, and materials to be used or
consumed in Debtor' business; and all names or marks affixed to or to be affixed
thereto for purposes of selling same by the seller, manufacturer, lessor or
licensor thereof and all Inventory which may be returned to Debtor by its
customers or repossessed by Debtor and all of Debtor' right, title and interest
in and to the foregoing (including all of Debtor' rights as a seller of goods);

                        (b) All Equipment and fixtures, wherever located,
whether now owned or hereafter acquired, including, without limitation, all
machinery, motor vehicles, furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts), and accessions thereof and
thereto (including, but not limited to Debtor' rights to acquire any of the
foregoing, whether by exercise of a purchase option or otherwise);

                  (iii) Property: All now owned and hereafter acquired right,
title and interests of Debtor in, to and in respect of any real or other
personal property in or upon which Debtor has or may hereafter have a security
interest, lien or right of setoff;

                  (iv) Books and Records: All present and future books and
records relating to any of the above including, without limitation, all computer
programs, printed output and computer readable data in the possession or control
of the Debtor, any computer service bureau or other third party; and

                  (v) Products and Proceeds: All products and Proceeds of the
foregoing in whatever form and wherever located, including, without limitation,
all insurance proceeds and all claims against third parties for loss or
destruction of or damage to any of the foregoing.

            (B) All now owned and hereafter acquired right, title and interest
of Debtor in, to and in respect of the following:


                                       2


                  (i) the shares of stock, partnership interests, member
interests or other equity interests at any time and from time to time acquired
by Debtor of any and all entities now or hereafter existing, all or a portion of
such stock or other equity interests which are acquired by such entities at any
time (such entities, together with the existing issuers, being hereinafter
referred to collectively as the "Pledged Issuers" and individually as a "Pledged
Issuer"), the certificates representing such shares, partnership interests,
member interests or other interests all options and other rights, contractual or
otherwise, in respect thereof and all dividends, distributions, cash,
instruments, investment property and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares, partnership interests, member interests or other interests;

                  (ii) all additional shares of stock, partnership interests,
member interests or other equity interests from time to time acquired by Debtor,
of any Pledged Issuer, the certificates representing such additional shares, all
options and other rights, contractual or otherwise, in respect thereof and all
dividends, distributions, cash, instruments, investment property and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such additional shares, interests or
equity; and

                  (iii) all security entitlements of Debtor in, and all Proceeds
of any and all of the foregoing in each case, whether now owned or hereafter
acquired by Debtor and howsoever its interest therein may arise or appear
(whether by ownership, security interest, lien, claim or otherwise).

      3.3 Collateral shall not include United States Patent Number 5,537,915.

      3.4 The Collateral Agent is hereby specifically authorized, after the
Maturity Date (defined in the Notes) accelerated or otherwise, or after an Event
of Default (as defined herein) and the expiration of any applicable cure period,
to transfer any Collateral into the name of the Collateral Agent and to take any
and all action deemed advisable to the Collateral Agent to remove any transfer
restrictions affecting the Collateral.

4.    Perfection of Security Interest.

      4.1 Debtor shall prepare, execute and deliver to the Collateral Agent
UCC-1 Financing Statements. The Collateral Agent is instructed to prepare and
file at Debtor's cost and expense, financing statements in such jurisdictions
deemed advisable to the Collateral Agent, including but not limited to Nevada
and Pennsylvania. The Financing Statements are deemed to have been filed for the
benefit of the Collateral Agent and Lenders identified on Schedule A hereto.

      4.2 All other certificates and instruments constituting Collateral from
time to time required to be pledged to Collateral Agent pursuant to the terms
hereof (the "Additional Collateral") shall be delivered to Collateral Agent
promptly upon receipt thereof by or on behalf of Debtor. All such certificates
and instruments shall be held by or on behalf of Collateral Agent pursuant
hereto and shall be delivered in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment or
undated stock powers executed in blank, all in form and substance satisfactory
to Collateral Agent. If any Collateral consists of uncertificated securities,
unless the immediately following sentence is applicable thereto, Debtor shall
cause Collateral Agent (or its custodian, nominee or other designee) to become
the registered holder thereof, or cause each issuer of such securities to agree
that it will comply with instructions originated by Collateral Agent with
respect to such securities without further consent by Debtor. If any Collateral
consists of security entitlements, Debtor shall transfer such security
entitlements to Collateral Agent (or its custodian, nominee or other designee)
or cause the applicable securities


                                       3


intermediary to agree that it will comply with entitlement orders by Collateral
Agent without further consent by Debtor.

      4.3 Within five (5) days after the receipt by Debtor of any Additional
Collateral, a Pledge Amendment, duly executed by Debtor, in substantially the
form of Annex I hereto (a "Pledge Amendment"), shall be delivered to Collateral
Agent in respect of the Additional Collateral to be pledged pursuant to this
Agreement. Debtor hereby authorizes Collateral Agent to attach each Pledge
Amendment to this Agreement and agrees that all certificates or instruments
listed on any Pledge Amendment delivered to Collateral Agent shall for all
purposes hereunder constitute Collateral.

      4.4 If Debtor shall receive, by virtue of Debtor's being or having been an
owner of any Collateral, any (i) stock certificate (including, without
limitation, any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off), promissory note or other instrument, (ii) option or right, whether
as an addition to, substitution for, or in exchange for, any Collateral, or
otherwise, (iii) dividends payable in cash (except such dividends permitted to
be retained by Debtor pursuant to Section 5.2 hereof) or in securities or other
property or (iv) dividends or other distributions in connection with a partial
or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, Debtor shall receive such stock
certificate, promissory note, instrument, option, right, payment or distribution
in trust for the benefit of Collateral Agent, shall segregate it from Debtor's
other property and shall deliver it forthwith to Collateral Agent, in the exact
form received, with any necessary endorsement and/or appropriate stock powers
duly executed in blank, to be held by Collateral Agent as Collateral and as
further collateral security for the Obligations.

5.    Distribution on Liquidation.

      5.1 If any sum is paid as a liquidating distribution on or with respect to
the Collateral, Debtor shall deliver same to the Collateral Agent to be applied
to the Obligations, then due, in accordance with the terms of the Convertible
Notes.

      5.2 So long as no Event of Default exists, Debtor shall be entitled (i) to
exercise all voting power pertaining to any of the Collateral, provided such
exercise is not contrary to the interests of the Lenders and does not impair the
Collateral and (ii) may receive and retain any and all dividends, interest
payments or other distributions paid in respect of the Collateral.

      5.3. Upon the occurrence and during the continuation of an Event of
Default, all rights of Debtor, upon notice given by Collateral Agent, to
exercise the voting power and receive payments, which it would otherwise be
entitled to pursuant to Section 5.2, shall cease and all such rights shall
thereupon become vested in Collateral Agent, which shall thereupon have the sole
right to exercise such voting power and receive such payments.

      5.4 All dividends, distributions, interest and other payments which are
received by Debtor contrary to the provisions of Section 5.3 shall be received
in trust for the benefit of Collateral Agent, shall be segregated from other
funds of Debtor, and shall be forthwith paid over to Collateral Agent as
Collateral in the exact form received with any necessary endorsement and/or
appropriate stock powers duly executed in blank, to be held by Collateral Agent
as Collateral and as further collateral security for the Obligations.

6.    Further Action By Debtor; Covenants and Warranties.


                                       4


      6.1 Collateral Agent at all times shall have a perfected security interest
in the Collateral. Subject to the security interests described herein, Debtor
has and will continue to have full title to the Collateral free from any liens,
leases, encumbrances, judgments or other claims. Collateral Agent's security
interest in the Collateral constitutes and will continue to constitute a first,
prior and indefeasible security interest in favor of Collateral Agent. Debtor
will do all acts and things, and will execute and file all instruments
(including, but not limited to, security agreements, financing statements,
continuation statements, etc.) reasonably requested by Collateral Agent to
establish, maintain and continue the perfected security interest of Collateral
Agent in the Collateral, and will promptly on demand, pay all costs and expenses
of filing and recording, including the costs of any searches reasonably deemed
necessary by Collateral Agent from time to time to establish and determine the
validity and the continuing priority of the security interest of Collateral
Agent, and also pay all other claims and charges that, in the opinion of
Collateral Agent, exercised in good faith, are reasonably likely to materially
prejudice, imperil or otherwise affect the Collateral or Collateral Agent's or
Lenders' security interests therein.

      6.2 Other than in the ordinary course of business, and except for
Collateral which is substituted by assets of identical or greater value or which
has become obsolete or is of inconsequential in value, Debtor will not sell,
transfer, assign or pledge those items of Collateral (or allow any such items to
be sold, transferred, assigned or pledged), without the prior written consent of
Collateral Agent other than a transfer of the Collateral to a wholly-owned
subsidiary on prior notice to Collateral Agent, and provided the Collateral
remains subject to the security interest herein described. Although Proceeds of
Collateral are covered by this Agreement, this shall not be construed to mean
that Collateral Agent consents to any sale of the Collateral, except as provided
herein. Sales of Collateral in the ordinary course of business shall be free of
the security interest of Lenders and Collateral Agent and Lenders and Collateral
Agent shall promptly execute such documents (including without limitation
releases and termination statements) as may be required by Debtor to evidence or
effectuate the same.

      6.3 Debtor will, at all reasonable times and upon reasonable notice, allow
Collateral Agent or its representatives free and complete access to the
Collateral and all of Debtor's records which in any way relate to the
Collateral, for such inspection and examination as Collateral Agent reasonably
deems necessary.

      6.4 Debtor, at its sole cost and expense, will protect and defend this
Security Agreement, all of the rights of Collateral Agent and Lenders hereunder,
and the Collateral against the claims and demands of all other persons.

      6.5 Debtor will promptly notify Collateral Agent of any levy, distraint or
other seizure by legal process or otherwise of any part of the Collateral, and
of any threatened or filed claims or proceedings that are reasonably likely to
affect or impair any of the rights of Collateral Agent under this Security
Agreement in any material respect.

      6.6 Debtor, at its own expense, will obtain and maintain in force
insurance policies covering losses or damage to those items of Collateral which
constitute physical personal property. The insurance policies to be obtained by
Debtor shall be in form and amounts reasonably acceptable to Collateral Agent.
Debtor shall make the Collateral Agent first a loss payee thereon to the extent
of its interest in the Collateral. Collateral Agent is hereby irrevocably (until
the Obligations are paid in full) appointed Debtor' attorney-in-fact to endorse
any check or draft that may be payable to Debtor so that Collateral Agent may
collect the proceeds payable for any loss under such insurance. The proceeds of
such insurance (subject to the rights of senior secured parties), less any costs
and expenses incurred or paid by Collateral Agent in the collection thereof,
shall be applied either toward the cost of the repair or replacement of the
items damaged or destroyed, or on account of any sums secured hereby, whether or
not then due or payable.


                                       5


      6.7 Collateral Agent may, at its option, and without any obligation to do
so, pay, perform and discharge any and all amounts, costs, expenses and
liabilities herein agreed to be paid or performed by Debtor. Upon Debtor's
failure to do so, all amounts expended by Collateral Agent in so doing shall
become part of the Obligations secured hereby, and shall be immediately due and
payable by Debtor to Collateral Agent upon demand and shall bear interest at the
lesser of 15% per annum or the highest legal amount from the dates of such
expenditures until paid.

      6.8 Upon the request of Collateral Agent, Debtor will furnish to
Collateral Agent within five (5) business days thereafter, or to any proposed
assignee of this Security Agreement, a written statement in form reasonably
satisfactory to Collateral Agent, duly acknowledged, certifying the amount of
the principal and interest and any other sum then owing under the Obligations,
whether to its knowledge any claims, offsets or defenses exist against the
Obligations or against this Security Agreement, or any of the terms and
provisions of any other agreement of Debtor securing the Obligations. In
connection with any assignment by Collateral Agent of this Security Agreement,
Debtor hereby agrees to cause the insurance policies required hereby to be
carried by Debtor, if any, to be endorsed in form satisfactory to Collateral
Agent or to such assignee, with loss payable clauses in favor of such assignee,
and to cause such endorsements to be delivered to Collateral Agent within ten
(10) calendar days after request therefor by Collateral Agent.

      6.9 Debtor will, at its own expense, make, execute, endorse, acknowledge,
file and/or deliver to the Collateral Agent from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other reasonable assurances or instruments and take further steps relating to
the Collateral and other property or rights covered by the security interest
hereby granted, as the Collateral Agent may reasonably require to perfect its
security interest hereunder.

      6.10 Debtor represents and warrants that it is the true and lawful
exclusive owner of the Collateral, free and clear of any liens and encumbrances.

      6.11 Debtor hereby agrees not to divest itself of any right under the
Collateral except as permitted herein absent prior written approval of the
Collateral Agent, except to a subsidiary organized and located in the United
States on prior notice to Collateral Agent provided the Collateral remains
subject to the security interest herein described.

      6.12 Debtor shall cause each Subsidiary of Debtor not in existence on the
date hereof to execute and deliver to Collateral Agent promptly and in any event
within 10 days after the formation, acquisition or change in status thereof (A)
a guaranty guaranteeing the Obligations and (B) a security and pledge agreement
substantially in the form of this Agreement together with (x) certificates
evidencing all of the capital stock of any entity owned by such Subsidiary, (y)
undated stock powers executed in blank with signature guaranteed, and (z) such
opinion of counsel and such approving certificate of such Subsidiary as
Collateral Agent may reasonably request in respect of complying with any legend
on any such certificate or any other matter relating to such shares and (E) such
other agreements, instruments, approvals, legal opinions or other documents
reasonably requested by Collateral Agent in order to create, perfect, establish
the first priority of or otherwise protect any lien purported to be covered by
any such pledge and security agreement or otherwise to effect the intent that
all property and assets of such Subsidiary shall become Collateral for the
Obligations. For purposes of this Agreement, "Subsidiary" means, with respect to
any entity at any date, any corporation, limited or general partnership, limited
liability company, trust, estate, association, joint venture or other business
entity) of which more than 50% of (A) the outstanding capital stock having (in
the absence of contingencies) ordinary voting power to elect a majority of the
board of directors or other managing body of such entity, (B) in the case of a
partnership


                                       6


or limited liability company, the interest in the capital or profits of such
partnership or limited liability company or (C) in the case of a trust, estate,
association, joint venture or other entity, the beneficial interest in such
trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such entity.

7.    Power of Attorney.

      After the occurrence and during the uncured continuation of an Event of
Default as defined in Section 9 below, Debtor hereby irrevocably constitutes and
appoints the Collateral Agent as the true and lawful attorney of Debtor, with
full power of substitution, in the place and stead of Debtor and in the name of
Debtor or otherwise, at any time or times, in the discretion of the Collateral
Agent, to take any action and to execute any instrument or document which the
Collateral Agent may deem necessary or advisable to accomplish the purposes of
this Agreement. This power of attorney is coupled with an interest and is
irrevocable until the Obligations are satisfied.

8.    Performance By The Collateral Agent.

      If Debtor fails to perform any material covenant, agreement, duty or
obligation of Debtor under this Agreement, the Collateral Agent may, after any
applicable cure period, at any time or times in its discretion, take action to
effect performance of such obligation. All reasonable expenses of the Collateral
Agent incurred in connection with the foregoing authorization shall be payable
by Debtor as provided in Paragraph 12.1 hereof. No discretionary right, remedy
or power granted to the Collateral Agent under any part of this Agreement shall
be deemed to impose any obligation whatsoever on the Collateral Agent with
respect thereto, such rights, remedies and powers being solely for the
protection of the Collateral Agent.

9.    Event of Default.

      An event of default ("Event of Default") shall be deemed to have occurred
hereunder upon the occurrence of any event of default as defined and described
in this Agreement, in the Notes, Subscription Agreement, and any other agreement
to which Debtor and a Lender are parties. Upon and after any Event of Default,
after the applicable cure period, if any, any or all of the Obligations shall
become immediately due and payable at the option of the Collateral Agent, for
the benefit of the Lenders, and the Collateral Agent may dispose of Collateral
as provided below. A default by Debtor of any of its material obligations
pursuant to this Agreement shall be an Event of Default hereunder and an event
of default as defined in the Notes, and Subscription Agreement.

10.   Disposition of Collateral.

      Upon and after any Event of Default which is then continuing,

      10.1 The Collateral Agent may exercise its rights with respect to each and
every component of the Collateral, without regard to the existence of any other
security or source of payment for the Obligations. In addition to other rights
and remedies provided for herein or otherwise available to it, the Collateral
Agent shall have all of the rights and remedies of a lender on default under the
Uniform Commercial Code then in effect in the State of New York.

      10.2 If any notice to Debtor of the sale or other disposition of
Collateral is required by then applicable law, five business (5) days prior
written notice (which Debtor agrees is reasonable notice within the meaning of
Section 9.612(a) of the Uniform Commercial Code) shall be given to Debtor of the
time and place of any sale of Collateral which Debtor hereby agrees may be by
private sale. The rights granted


                                       7


in this Section are in addition to any and all rights available to Collateral
Agent under the Uniform Commercial Code.

      10.3 The Collateral Agent is authorized, at any such sale, if the
Collateral Agent deems it advisable to do so, in order to comply with any
applicable securities laws, to restrict the prospective bidders or purchasers to
persons who will represent and agree, among other things, that they are
purchasing the Collateral for their own account for investment, and not with a
view to the distribution or resale thereof, or otherwise to restrict such sale
in such other manner as the Collateral Agent deems advisable to ensure such
compliance. Sales made subject to such restrictions shall be deemed to have been
made in a commercially reasonable manner.

      10.4 All proceeds received by the Collateral Agent for the benefit of the
Lenders in respect of any sale, collection or other enforcement or disposition
of Collateral, shall be applied (after deduction of any amounts payable to the
Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations pro
rata among the Lenders in proportion to their interests in the Obligations. Upon
payment in full of all Obligations, Debtor shall be entitled to the return of
all Collateral, including cash, which has not been used or applied toward the
payment of Obligations or used or applied to any and all costs or expenses of
the Collateral Agent incurred in connection with the liquidation of the
Collateral (unless another person is legally entitled thereto). Any assignment
of Collateral by the Collateral Agent to Debtor shall be without representation
or warranty of any nature whatsoever and wholly without recourse. To the extent
allowed by law, each Lender may purchase the Collateral and pay for such
purchase, in part, by offsetting up to such Lender's pro rata portion of the
proceeds of the Collateral.

      11. Waiver of Automatic Stay. Debtor acknowledges and agrees that should a
proceeding under any bankruptcy or insolvency law be commenced by or against
Debtor, or if any of the Collateral should become the subject of any bankruptcy
or insolvency proceeding, then the Collateral Agent should be entitled to, among
other relief to which the Collateral Agent or Lenders may be entitled under the
Note, Subscription Agreement and any other agreement to which the Debtor,
Lenders or Collateral Agent are parties, (collectively "Loan Documents") and/or
applicable law, an order from the court granting immediate relief from the
automatic stay pursuant to 11 U.S.C. Section 362 to permit the Collateral Agent
to exercise all of its rights and remedies pursuant to the Loan Documents and/or
applicable law. Debtor EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY
IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, Debtor EXPRESSLY ACKNOWLEDGES AND
AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE
BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11
U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY
WAY THE ABILITY OF THE COLLATERAL AGENT TO ENFORCE ANY OF ITS RIGHTS AND
REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. Debtor hereby consents
to any motion for relief from stay which may be filed by the Collateral Agent in
any bankruptcy or insolvency proceeding initiated by or against Debtor, and
further agrees not to file any opposition to any motion for relief from stay
filed by the Collateral Agent. Debtor represents, acknowledges and agrees that
this provision is a specific and material aspect of this Agreement, and that the
Collateral Agent would not agree to the terms of this Agreement if this waiver
were not a part of this Agreement. Debtor further represents, acknowledges and
agrees that this waiver is knowingly, intelligently and voluntarily made, that
neither the Collateral Agent nor any person acting on behalf of the Collateral
Agent has made any representations to induce this waiver, that Debtor has been
represented (or has had the opportunity to be represented) in the signing of
this Agreement and in the making of this waiver by independent legal counsel
selected by Debtor and that Debtor has had the opportunity to discuss this
waiver with counsel. Debtor further agrees that any bankruptcy or insolvency
proceeding initiated by Debtor will only be brought in the Federal Court within
the Southern District of New York.


                                       8


12.   Miscellaneous.

      12.1 Expenses. Debtor shall pay to the Collateral Agent, on demand, the
amount of any and all reasonable expenses, including, without limitation,
attorneys' fees, legal expenses and brokers' fees, which the Collateral Agent
may incur in connection with (a) sale, collection or other enforcement or
disposition of Collateral; (b) exercise or enforcement of any the rights,
remedies or powers of the Collateral Agent hereunder or with respect to any or
all of the Obligations upon breach or threatened breach; or (c) failure by
Debtor to perform and observe any agreements of Debtor contained herein which
are performed by the Collateral Agent.

      12.2 Waivers, Amendment and Remedies. No course of dealing by the
Collateral Agent and no failure by the Collateral Agent to exercise, or delay by
the Collateral Agent in exercising, any right, remedy or power hereunder shall
operate as a waiver thereof, and no single or partial exercise thereof shall
preclude any other or further exercise thereof or the exercise of any other
right, remedy or power of the Collateral Agent. No amendment, modification or
waiver of any provision of this Agreement and no consent to any departure by
Debtor therefrom, shall, in any event, be effective unless contained in a
writing signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. The rights, remedies and powers of the Collateral Agent, not only
hereunder, but also under any instruments and agreements evidencing or securing
the Obligations and under applicable law are cumulative, and may be exercised by
the Collateral Agent from time to time in such order as the Collateral Agent may
elect.

      12.3 Notices. All notices or other communications given or made hereunder
shall be in writing and shall be personally delivered or deemed delivered the
first business day after being faxed (provided that a copy is delivered by first
class mail) to the party to receive the same at its address set forth below or
to such other address as either party shall hereafter give to the other by
notice duly made under this Section:

To Debtor:                              Tasty Fries, Inc.
                                        650 Sentry Parkway, Suite 1
                                        Blue Bell, PA 19422
                                        Attn: Edward Kelly, CEO
                                        Fax: (610) 941-2108

With a copy by telecopier only to:

                                        Louis Kelly, Esq.
                                        650 Sentry Parkway, Suite 1
                                        Blue Bell, PA 19422
                                        Fax: (610) 941-2108

To Lenders:                             To the addresses and telecopier numbers
                                        set forth on Schedule A

                                        To the Collateral Agent:


                                       9


Any party may change its address by written notice in accordance with this
paragraph.

      12.4 Term; Binding Effect. This Agreement shall (a) remain in full force
and effect until payment and satisfaction in full of all of the Obligations; (b)
be binding upon Debtor, and its successors and permitted assigns; and (c) inure
to the benefit of the Collateral Agent, for the benefit of the Lenders and their
respective successors and assigns. All the rights and benefits granted by Debtor
to the Collateral Agent and Lenders in the Loan Documents and other agreements
and documents delivered in connection therewith are deemed granted to both the
Collateral Agent and Lenders.

      12.5 Captions. The captions of Paragraphs, Articles and Sections in this
Agreement have been included for convenience of reference only, and shall not
define or limit the provisions hereof and have no legal or other significance
whatsoever.

      12.6 Governing Law; Venue; Severability. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to conflicts of laws principles that would result in the application of
the substantive laws of another jurisdiction, except to the extent that the
perfection of the security interest granted hereby in respect of any item of
Collateral may be governed by the law of another jurisdiction. Any legal action
or proceeding against Debtor with respect to this Agreement may be brought in
the courts in the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, Debtor
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Debtor hereby
irrevocably waives any objection which they may now or hereafter have to the
laying of venue of any of the aforesaid actions or proceedings arising out of or
in connection with this Agreement brought in the aforesaid courts and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum. If any provision of this Agreement, or the application
thereof to any person or circumstance, is held invalid, such invalidity shall
not affect any other provisions which can be given effect without the invalid
provision or application, and to this end the provisions hereof shall be
severable and the remaining, valid provisions shall remain of full force and
effect.

      12.7 Counterparts/Execution. This Agreement may be executed in any number
of counterparts and by the different signatories hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument. This
Agreement may be executed by facsimile signature and delivered by facsimile
transmission.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]


                                       10


      IN WITNESS WHEREOF, the undersigned have executed and delivered this
Security Agreement, as of the date first written above.

"DEBTOR"                                    "THE COLLATERAL AGENT"
TASTY FRIES, INC.
a Nevada corporation

By: ________________________________        ____________________________________

Its: _______________________________

                             APPROVED BY "LENDERS":

____________________________________        ____________________________________

____________________________________        ____________________________________

        This Security Agreement may be signed by facsimile signature and
                 delivered by confirmed facsimile transmission.


                                       11


                   SCHEDULE A TO SECURITY AND PLEDGE AGREEMENT

- --------------------------------------------------------------------------------
LENDER                           INITIAL CLOSING           SECOND CLOSING NOTE
                                 NOTE (INITIAL             (SECOND CLOSING
                                 CLOSING PURCHASE          PURCHASE PRICE)
                                 PRICE)
- --------------------------------------------------------------------------------
                                 $350,000.00               $420,000.00


- --------------------------------------------------------------------------------
                                 $125,000.00               $150,000.00


- --------------------------------------------------------------------------------
                                 $25,000.00                $30,000.00


- --------------------------------------------------------------------------------
TOTALS                           $500,000.00               $600,000.00
- --------------------------------------------------------------------------------


                                       12


                                     ANNEX I

                                       TO

                          SECURITY AND PLEDGE AGREEMENT

                                PLEDGE AMENDMENT

      This Pledge Amendment, dated _________ __ 200_, is delivered pursuant to
Section 4.3 of the Security and Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Security and Pledge Agreement, dated January ___, 2005, as it may heretofore
have been or hereafter may be amended, restated, supplemented or otherwise
modified from time to time and that the shares listed on this Pledge Amendment
shall be hereby pledged and assigned to Collateral Agent and become part of the
Collateral referred to in such Security and Pledge Agreement and shall secure
all of the Obligations referred to in such Security and Pledge Agreement.

- --------------------------------------------------------------------------------
                                      Number                       Certificate
Name of Issuer                       of Shares         Class        Number(s)
- --------------                       ---------         -----        ---------
- --------------------------------------------------------------------------------

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

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

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

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

                                               TASTY FRIES, INC.

                                               By: _____________________________
                                                     Edward Kelly
                                                     President and CEO


                                       13