8-K

                                  UNITED STATES
                       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

        Date of Report (Date of Earliest Event Reported): MARCH 21, 2005
                                (MARCH 15, 2005)

                              SYSCAN IMAGING, INC.
             (Exact name of Registrant as Specified in its Charter)

                                    DELAWARE
                 (State or Other Jurisdiction of Incorporation)

       000-27773                                        59-3134518
(Commission File Number)                 (I.R.S. Employer Identification Number)

                              1772 TECHNOLOGY DRIVE
                           SAN JOSE, CALIFORNIA 95110
          (Address of Principal Executive Offices, including Zip Code)

                                 (408) 436-9888
              (Registrant's Telephone Number, including Area Code)

          (Former Name or Former Address, if Changed Since Last Report)

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 Rule 13e-4(c) under the
      Exchange Act (17 CFR 240.13e-4(c)).


ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

On March 15, 2005, Syscan Imaging, Inc. (the "COMPANY") sold $1,865,000 of its
Series A Convertible Preferred Stock ("PREFERRED STOCK") to institutional and
accredited retail investors ("INVESTORS") in a private offering pursuant to
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "SECURITIES ACT"). The Company intends to use the net proceeds from
the financing for sales, marketing, research and development and for working
capital and general corporate purposes. Starboard Capital Markets, LLC, an NASD
member firm, acted as placement agent in the sale of the Preferred Stock, for
which it received $186,500 in commissions and 186,500 warrants to purchase
shares of the Company common stock, par value $.001 per share ("COMMON STOCK")
at an exercise price equal $2.00 per share. The Company also paid legal fees of
$25,000 to counsel for the Investors. The net proceeds of this offering to the
Company after the payment of commissions, fees and other expenses of the
offering were approximately $1,653,500.

In connection with the financing, the Company also issued to the Investors
common stock purchase warrants (the "WARRANTS") to purchase up to an aggregate
of 932,500 shares of the Company's Common Stock at an exercise price of $2.00
per share. The Warrants are exercisable for a period of five years from the date
of issuance. The Company has agreed, pursuant to a registration rights
agreement, to register the shares of Common Stock issuable upon conversion of
the Preferred Stock and upon exercise of the Warrants with the Securities and
Exchange Commission ("REGISTRATION RIGHTS AGREEMENT").

The following describes certain of the material terms of the financing
transaction with the Investors. The description below is not a complete
description of the material terms of the financing transaction and is qualified
in its entirety by reference to the agreements entered into in connection with
the financing which are included as exhibits to this Current Report on Form 8-K:

PREFERRED STOCK CONVERSION RIGHTS. All or any portion of the stated value of
Preferred Stock outstanding may be converted into Common Stock at anytime by the
Investors. The initial fixed conversion price of the Preferred Stock is $1.00
per share ("CONVERSION PRICE"). The Conversion Price is subject to anti-dilution
protection adjustments, on a weighted average basis, at anytime that the
Preferred Stock is outstanding and prior to the effective date of the
Registration Statement required to be filed pursuant to the Registration Rights
Agreement, upon the Company's issuance of additional shares of Common Stock, or
securities convertible into Common Stock, at a price that is less than the then
Conversion Price.

DIVIDENDS. The Preferred Stock shall accrue dividends at a rate of 5% per annum,
payable semiannually on July 1 and January 1 in cash, by accretion of the stated
value or in shares of Common Stock. Subject to certain terms and conditions, the
decision whether to accrete dividends to the stated value of the Preferred Stock
or to pay for dividends in cash or in shares of Common Stock, shall be at the
discretion of the Company.

REDEMPTION. On March 14, 2008 (the "REDEMPTION DATE"), all of the outstanding
Preferred Stock shall be redeemed for a per share redemption price equal to the
stated value on the Redemption Date (the "REDEMPTION PRICE"). The Redemption
Price is payable by the Company in cash or in shares of Common Stock at the
Company's discretion and shall be paid within five trading days after the
Redemption Date. In the event the Company elects to pay all or some of the
Redemption Price in shares of Common Stock, the shares of Common Stock to be
delivered to the Investors shall be valued at 85% of the fifteen-day volume
weighted average price of the Common Stock on the Redemption Date.

RIGHT TO COMPEL CONVERSION. If, on any date after March 14, 2006, (A) the
closing market price for a share of Common Stock for ten (10) consecutive
trading days equals at least $4.00 (subject to adjustment for certain events),
and (B) the average reported daily trading volume during such ten-day period
equals or exceeds 100,000 shares, then the Company shall have the right, at its
option, to convert, all, but not less than all, of the outstanding shares of
Preferred Stock at the Conversion Price; provided that the Registration
Statement shall be effective at all times during such 10-day period and during
the 30-day notice period to the Investors.

WARRANT TERMS. The Warrants grant Investors the right to purchase up to an
aggregate of 932,500 shares of common stock of the Company at an exercise price
of $2.00 per share. The Warrants expire on March 14, 2010 and must be exercised
by the payment of cash, except if there is no effective registration statement
covering the resale of the shares of Common Stock underlying the Warrants, at
which time an investor may exercise their Warrants on a cashless basis.


RESTRICTIONS ON CONVERSION OF PREFERRED STOCK AND EXERCISE OF WARRANT. No
individual Investor is entitled to receive shares upon payment of dividends on
the Preferred Stock, or upon conversion of the Preferred Stock held by such
Investor if such receipt would cause such Investor to be deemed to beneficially
own in excess of 4.999% of the outstanding shares of our Common Stock on the
date of issuance of such shares (such provision may be waived by such Investor
upon 61 days prior written notice to the Company). In addition, no individual
Investor is entitled to receive shares upon payment of dividends on the
Preferred Stock, or upon conversion of the Preferred Stock held by such Investor
if such receipt would cause such Investor to be deemed to beneficially own in
excess of 9.999% of the outstanding shares of our Common Stock on the date of
issuance of such shares (such provision may be waived by such Investor upon 61
days prior written notice to the Company).

None of the individual holders of the Warrants are entitled to exercise any such
Warrant held by them, if such exercise would cause such Investor to be deemed to
beneficially own in excess of 4.999% of the outstanding shares of our Common
Stock on the date of issuance of such shares

REGISTRATION RIGHTS. Pursuant to the terms of a Registration Rights Agreement
between the Investors and the Company, the Company is obligated to file a
registration statement on Form SB-2 (or if Form SB-2 is not available another
appropriate form) registering the resale of shares of the Company's Common Stock
issuable upon conversion of the Preferred Stock and exercise of the Warrants.
The Company is required to file the registration statement within 40 days of
March 15, 2005 and have the registration statement declared effective within 120
days of March 15, 2005. If the registration statement is not timely filed, or
declared effective within the timeframe described, or if the registration is
suspended other than as permitted, in the Registration Rights Agreement, the
Company will be obligated to pay each Investor a fee equal to 1.0% of such
Investor's purchase price of the Preferred Stock during the first 90 days, and
2.0% for each 30 day period thereafter (pro rated for partial periods), that
such registration conditions are not satisfied.

RIGHT OF FIRST REFUSAL. Subject to certain conditions, the Company has granted
the Investors a right of first refusal, for a period of one (1) year from the
effective date of the registration statement required to be filed in connection
with this transaction, to participate in any subsequent financing that the
Company conducts.

VOTING RIGHTS. Holders of the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the holders of a majority of the
shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend
the Series A Certificate of Designation, (b) authorize or create any class of
stock ranking as to dividends or distribution of assets upon a liquidation
senior to or otherwise PARI PASSU with the Preferred Stock, (c) amend its
certificate or articles of incorporation or other charter documents so as to
affect adversely any rights of the holders of the Preferred Stock, (d) increase
the authorized number of shares of Preferred Stock, or (e) enter into any
agreement with respect to the foregoing.

LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (a "LIQUIDATION"), the holders of the
Preferred Stock shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the stated value per share before any distribution or payment
shall be made to the holders of any securities of the Company with rights junior
to the Preferred Stock, and if the assets of the Company shall be insufficient
to pay in full such amounts, then the entire assets to be distributed to the
holders of the Preferred Stock shall be distributed among such holders ratably
in accordance with the respective amounts that would be payable on such shares
if all amounts payable thereon were paid in full.


ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES

See Item 1.01 of this Current Report on Form 8-K, which Item is incorporated
herein by this reference, for a description of the terms of the financing
transaction that included the issuance of Preferred Stock and Warrants, each of
which are convertible into shares of the Company's common stock.

ITEM 3.03. MATERIAL MODIFICATION TO RIGHTS OF SECURITY HOLDERS

On March 15, 2005, the Company filed a certificate of designation authorizing
the Preferred Stock.

See Item 1.01 of this Current Report on Form 8-K, which Item is incorporated
herein by this reference, for a more detailed description of the terms of the
Preferred Stock.

ITEM 7.01. REGULATION FD DISCLOSURE.

On March 15, 2005, the Company issued a press release announcing the sale of
$1,865,000 of Preferred Stock described in Item 1.01 above.

The press release is attached hereto as Exhibit 99.1 and is incorporated herein
by this reference. The press release and the information in Item 7.01 of this
Form 8-K shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, nor shall they be deemed incorporated by
reference in any filing under the Securities Act, except as shall be expressly
set forth by specific reference in such filing.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

Set forth below is a list of Exhibits included as part of this Current Report.

10.1  Form of Convertible Preferred Stock and Common Stock Warrant Purchase
      Agreement entered into by and between the Company and the purchasers

10.2  Form of Common Stock Purchase Warrant

10.3  Form of Registration Rights Agreement

10.4  Certificate of Designation of Preferences, Rights and Limitations of
      Series A Preferred Stock as filed with the Secretary of State of the State
      of Delaware on March 15, 2005

99.1  Press Release of the Company, dated March 15, 2005, with respect to the
      sale of the Series A Preferred Stock

This Current Report on Form 8-K may contain, among other things, certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including, without limitation, (i) statements
with respect to the Company's plans, objectives, expectations and intentions;
and (ii) other statements identified by words such as "may", "could", "would",
"should", "believes", "expects", "anticipates", "estimates", "intends", "plans"
or similar expressions. These statements are based upon the current beliefs and
expectations of the Company's management and are subject to significant risks
and uncertainties. Actual results may differ from those set forth in the
forward-looking statements. These forward-looking statements involve certain
risks and uncertainties that are subject to change based on various factors
(many of which are beyond the Company's control).


                                   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.

                                          SYSCAN IMAGING, INC.


Date: March 21, 2005                      By: /s/ Darwin Hu
                                          ----------------------------
                                          Darwin Hu, Chief Executive Officer

EX-10.1

                                                                    EXHIBIT 10.1

     CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANT PURCHASE AGREEMENT

         THIS CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANT PURCHASE
AGREEMENT (this "AGREEMENT"), dated as of March 15, 2005, is entered into by and
among Syscan Imaging, Inc., a Delaware corporation (the "COMPANY"), and the
investors signatory hereto (each such investor is a "PURCHASER" and all such
investors are, collectively, the "PURCHASERS").

         WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), the Company desires to issue and sell to the Purchasers
and the Purchasers, severally and not jointly, desire to purchase from the
Company (i) shares of the Company's Series A Convertible Preferred Stock, par
value $.001 per share (the "PREFERRED STOCK"), which are convertible into shares
of the Company's common stock, par value $.001 per share (the "COMMON STOCK"),
and (ii) warrants to purchase shares of Common Stock as more fully described in
this Agreement.

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:

                                    ARTICLE I
                                PURCHASE AND SALE

      1.1 THE CLOSING.

            (a) THE CLOSING (i) Subject to the terms and conditions set forth in
this Agreement, the Company shall issue and sell to the Purchasers and the
Purchasers shall, severally and not jointly, purchase an aggregate of up to
60,000 shares of Preferred Stock ("SHARES") and certain Common Stock purchase
warrants as described below in this Section for an aggregate purchase price of
up to $6,000,000. The purchase and sale of such securities shall take place at
one or more closings (collectively, the "CLOSING") at the offices of Ellenoff
Grossman & Schole LLP ("EG&S"), 370 Lexington Avenue, New York, New York 10017,
immediately following the execution hereof or such later date or dates as the
parties shall agree. The date of each Closing is hereinafter referred to as a
"CLOSING DATE."

            (ii) At each Closing, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser (1) a
stock certificate registered in the name of such Purchaser, representing a
number of Shares equal to the quotient obtained by dividing the purchase price
indicated below such Purchaser's name on the signature page to this Agreement
("PURCHASE PRICE") by 100, (2) a Common Stock purchase warrant, in the form of
EXHIBIT C, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire the number of Warrant Shares (as
defined in the Warrant) indicated below such Purchaser's name on the signature
page to this Agreement (collectively, the "WARRANTS"), (3) an executed copy of
this Agreement and an executed Registration Rights Agreement, dated as of the


date hereof, among the Company and the Purchasers, in the form of EXHIBIT B (the
"REGISTRATION RIGHTS AGREEMENT"), (4) Transfer Agent Instructions, in the form
of EXHIBIT E, executed by the Company and delivered to and acknowledged by the
Company's transfer agent (the "TRANSFER AGENT INSTRUCTIONS"), (5) a legal
opinion of EG&S, in the form of EXHIBIT F attached hereto, (6) a certified copy
of the certificate of incorporation of the Company, as certified by the
Secretary of State of Delaware, and (7) copies of the executed Lock-Up
Agreements, in the form of EXHIBIT G (the "LOCK-UP AGREEMENTS"), as more fully
described in this Agreement; and (B) each Purchaser shall deliver (1) the
purchase price indicated below such Purchaser's name on the signature page to
this Agreement in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose,
and (2) an executed copy of this Agreement and Registration Rights Agreement.

      1.2 TERMS OF PREFERRED STOCK. The Preferred Stock shall have the rights,
preferences and privileges set forth in EXHIBIT A, and shall be incorporated
into a Certificate of Designation (the "CERTIFICATE OF DESIGNATION") to be filed
on or prior to the initial Closing by the Company with the Secretary of State of
Delaware, in form and substance mutually agreed to by the parties.

      1.3 CERTAIN DEFINED TERMS. For purposes of this Agreement, "ORIGINAL ISSUE
DATE" and "TRADING DAY" shall have the meanings set forth in EXHIBIT A and
"BUSINESS DAY" shall mean any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close. A "PERSON" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES

      2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
makes the following representations and warranties to the Purchasers:

            (a) ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company has no subsidiaries other than as set forth in SCHEDULE
2.1(a) (collectively, the "SUBSIDIARIES"). Each of the Subsidiaries is an
entity, duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted. Each
of the Company and the Subsidiaries is duly qualified to do business and is in


                                       2


good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Securities (as
defined below) or any of this Agreement, the Registration Rights Agreement, the
Certificate of Designation, the Transfer Agent Instructions, the Lock-Up
Agreements or the Warrants (collectively, the "TRANSACTION DOCUMENTS"), (y) have
or result in a material adverse effect on the results of operations, assets,
prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "MATERIAL ADVERSE EFFECT").

            (b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents has been duly executed by the Company and, when
delivered (or filed, as the case may be) in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. Neither the Company nor any
subsidiary of the Company (each, a "SUBSIDIARY") is in violation of any of the
provisions of its respective certificate or articles of incorporation, by-laws
or other organizational or charter documents.

            (c) CAPITALIZATION. The number of authorized, issued and outstanding
capital stock of the Company is set forth in SCHEDULE 2.1(c). Except as
disclosed in SCHEDULE 2.1(c), the Company owns all of the capital stock of each
Subsidiary. No shares of Common Stock are entitled to preemptive or similar
rights, nor is any holder of the securities of the Company or any Subsidiary
entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company or any Subsidiary by virtue of any of the
Transaction Documents. Except as a result of the purchase and sale of the Shares
and the Warrants and except as disclosed in SCHEDULE 2.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Shares, Warrants or Underlying Shares (as hereinafter
defined) will not obligate the Company to issue shares of Common Stock or other
securities to any Person other than the Purchaser and will not result in a right
of any holder of Company's securities to adjust the exercise or conversion or
reset price under such securities.

            (d) ISSUANCE OF THE SHARES AND THE WARRANTS. The Shares and the
Warrants are duly authorized and, when issued and paid for in accordance with
the terms hereof, will be duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "LIENS"). The Company has on the date hereof and will, at
all times while the Shares and the Warrants are outstanding, maintain an
adequate reserve of duly authorized shares of Common Stock, reserved for
issuance to the holders of the Shares and the Warrants, to enable it to perform
its conversion, exercise and other obligations under this Agreement, the
Certificate of Designation and the Warrants. As of the date hereof, the Company


                                       3


has reserved for issuance the sum of 1,119,000 Warrant Shares and 1,865,000
shares of Common Stock for issuance upon conversion of Shares and payment of
dividends thereon in shares of Common Stock (the "INITIAL MINIMUM"). All such
authorized shares of Common Stock shall be duly reserved for issuance to the
holders of the Shares and the Warrants. The shares of Common Stock issuable upon
conversion of the Shares and upon exercise of the Warrants are collectively
referred to herein as the "UNDERLYING SHARES." The Shares, the Warrants and the
Underlying Shares are collectively referred to herein as, the "SECURITIES." When
issued in accordance with the Certificate of Designation and the Warrants, the
Underlying Shares will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all Liens.

            (e) NO CONFLICTS. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other charter documents (each as amended
through the date hereof), or (ii) subject to obtaining the Required Approvals
(as defined below), conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected, or (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction of
any court or governmental authority to which the Company or a Subsidiary is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), as could not, individually
or in the aggregate, have or result in a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for violations which,
individually or in the aggregate, could not have or result in a Material Adverse
Effect.

            (f) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of the Certificate of
Designation with the Secretary of State of Delaware, (ii) the filings required
pursuant to Section 3.8, (iii) the filing with the Securities and Exchange
Commission (the "COMMISSION") of a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchasers (the "UNDERLYING SHARES
REGISTRATION STATEMENT"), (iv) applicable Blue Sky filings, and (v) in all other
cases where the failure to obtain such consent, waiver, authorization or order,
or to give such notice or make such filing or registration could not have or
result in, individually or in the aggregate, a Material Adverse Effect
(collectively, the "REQUIRED APPROVALS").


                                       4


            (g) LITIGATION; PROCEEDINGS. There is no action, suit, inquiry,
notice of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an "ACTION") which (i)
adversely affects or challenges the legality, validity or enforceability of any
of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, individually or in the aggregate, have or result in a
Material Adverse Effect. Except as described in the SEC Documents, (i) neither
the Company nor any Subsidiary, nor any director or officer thereof, is or has
been the subject of any Action involving (A) a claim of violation of or
liability under federal or state securities laws or (B) a claim of breach of
fiduciary duty; (ii) the Company does not have pending before the Commission any
request for confidential treatment of information and the Company has no
knowledge of any expected request that would be made prior to the Effectiveness
Date (as defined in the Registration Rights Agreement); and (iii) there has not
been, and to the best of the Company's knowledge there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company.

            (h) NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
(i) is in default under or in violation of (and no event has occurred which has
not been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
in violation of, any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other charter documents (each as amended
through the date hereof), any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, in each case of clauses (i), (ii) or
(iii) above, except as could not individually or in the aggregate, have or
result in a Material Adverse Effect.

            (i) PRIVATE OFFERING. Assuming the accuracy of the representations
and warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration and prospectus delivery requirements of the
Securities Act. Neither the Company nor, to its knowledge, any Person acting on
its behalf has taken or is contemplating taking any action which could subject
the offering, issuance or sale of the Securities to the registration
requirements of the Securities Act including soliciting any offer to buy or sell
the Securities by means of any form of general solicitation or advertising.


                                       5


            (j) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), including pursuant to Section 13(a) or 15(d)
thereof, since April 2, 2004 (or such shorter period as the Company was required
by law to file such material) (the foregoing materials being collectively
referred to herein as the "SEC DOCUMENTS" and, together with the Schedules to
this Agreement, the "DISCLOSURE MATERIALS") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Documents
prior to the expiration of any such extension. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All material agreements to which the Company is a party or to which
the property or assets of the Company are subject have been filed as exhibits to
the SEC Documents as required under the Exchange Act. The financial statements
of the Company included in the SEC Documents comply in all material respects
with applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
("GAAP"), except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Since September 30, 2004, except as specifically
disclosed in the SEC Documents and other than the issuance of an aggregate of
4,000,000 options to purchase shares of the Company's Common Stock at an
exercise price of $0.01 per share to officers, directors and consultants of the
Company, (a) there has been no event, occurrence or development that has or that
could result in a Material Adverse Effect, (b) the Company has not incurred any
liabilities (contingent or otherwise) other than (x) liabilities incurred in the
ordinary course of business consistent with past practice and (y) liabilities
not required to be reflected in the Company's financial statements pursuant to
GAAP or otherwise required to be disclosed in filings made with the Commission,
(c) the Company has not altered its method of accounting or the identity of its
auditors and (d) the Company has not declared or made any payment or
distribution of cash or other property to its stockholders or officers or
directors (other than in compliance with existing Company stock option plans)
with respect to its capital stock, or purchased, redeemed (or made any
agreements to purchase or redeem) any shares of its capital stock.

            (k) INVESTMENT COMPANY. The Company is not, and is not an Affiliate
(as defined in Rule 405 under the Securities Act) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.

            (l) CERTAIN FEES. No fees or commissions will be payable by the
Company to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other similar Person with respect to the transactions
contemplated by this Agreement, except for Starboard Capital Markets, LLC which
will receive a ten percent (10%) cash commission and warrants to purchase up to
10% of the number of shares into which the Preferred Stock sold hereunder is
initially convertible at an exercise price of $2.00 per share. The Purchasers


                                       6


shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless the Purchasers, their
employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
costs of preparation and attorney's fees) and expenses suffered in respect of
any such claimed or existing fees, as such fees and expenses are incurred.

            (m) FORM SB-2 ELIGIBILITY. The Company is eligible to register
securities for resale with the Commission under Form SB-2 promulgated under the
Securities Act.

            (n) SENIORITY. No outstanding class of equity securities of the
Company is equal to or senior to the Shares in right of payment, whether upon
liquidation or dissolution, or otherwise.

            (o) LISTING AND MAINTENANCE REQUIREMENTS. Except as set forth in the
SEC Documents, the Company has not, since April 2, 2004 and, to the best of its
knowledge, for the two years preceding the date hereof, received notice (written
or oral) from the OTC, any stock exchange, market or trading facility on which
the Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange, market or trading facility. The Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements.

            (p) PATENTS AND TRADEMARKS. The Company and its Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights which
are necessary or material for use in connection with their respective businesses
as described in the SEC Documents and which the failure to so have would have a
Material Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
Neither the Company nor any Subsidiary has received a written notice that the
Intellectual Property Rights used by the Company or its Subsidiaries violates or
infringes upon the rights of any Person. Except as specified in SCHEDULE 2.1(p),
to the best knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.

            (q) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. The Company has
not granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which have not been satisfied. No
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents.


                                       7


            (r) REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Documents, except where the failure to
possess such permits could not, individually or in the aggregate, have or result
in a Material Adverse Effect ("MATERIAL PERMITS"), and neither the Company nor
any such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.

            (s) TITLE. The Company and the Subsidiaries have good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries. Any real property and facilities held under lease
by the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and its Subsidiaries are in compliance
and do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries.

            (t) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company.

            (u) SHAREHOLDERS RIGHTS PLAN. Neither the consummation of the
transactions contemplated hereby nor the issuance of the Underlying Shares will
cause the Purchasers to be deemed an "Acquiring Person" under any existing or
hereafter adopted shareholders rights plan or similar arrangement.

            (v) DISCLOSURE. The Company confirms that neither it nor any other
Person acting on its behalf has provided any of the Purchasers or its agents or
counsel with any information that constitutes or might constitute material
non-public information. The Company understands and confirms that the Purchasers
shall be relying on the foregoing representations in effecting transactions in
securities of the Company. All representations and warranties of the Company
contained in this Agreement, and all disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company are true and correct and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made herein and therein, in light of the circumstances under which
they were made, not misleading, except as would otherwise not have a Material
Adverse Effect on the Company.

      2.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby for itself and for no other Purchaser represents and warrants to the
Company as follows:


                                       8


            (a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except as such enforceability may be limited by, or subject to, any
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and subject to general principles of
equity.

            (b) INVESTMENT INTENT. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of this
Agreement, the Registration Rights Agreement and the Warrants, at all times to
sell or otherwise dispose of all or any part of such Securities pursuant to an
effective registration statement under the Securities Act or under an exemption
from such registration and in compliance with applicable federal and state
securities laws. Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold Securities for any period of time. Such
Purchaser is acquiring the Securities hereunder in the ordinary course of its
business. Such Purchaser does not have any agreement or understanding, directly
or indirectly, with any Person to distribute the Securities.

            (c) PURCHASER STATUS. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, an "ACCREDITED INVESTOR" as
defined in Rule 501(a) under the Securities Act.

            (d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.

            (e) ABILITY OF SUCH PURCHASER TO BEAR RISK OF INVESTMENT. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.

            (f) ACCESS TO INFORMATION. Such Purchaser acknowledges that it has
reviewed the Disclosure Materials and has been afforded (i) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the


                                       9


opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.

            (g) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

            (h) RELIANCE. Such Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.

            (i) Purchaser acknowledges that Purchaser is aware of the following
Telephone Interpretation in the SEC Manual of Publicly Available Telephone
Interpretations (July 1997):

            A.65. Section 5

                  An issuer filed a Form S-3 registration statement for a
            secondary offering of common stock which is not yet effective. One
            of the selling shareholders wanted to do a short sale of common
            stock "against the box" and cover the short sale with registered
            shares after the effective date. The issuer was advised that the
            short sale could not be made before the registration statement
            becomes effective, because the shares underlying the short sale are
            deemed to be sold at the time such sale is made. There would,
            therefore, be a violation of Section 5 if the shares were
            effectively sold prior to the effective date.

            The Company acknowledges and agrees that no Purchaser makes or has
made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.


                                       10


                                   ARTICLE III
                         OTHER AGREEMENTS OF THE PARTIES

      3.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements of the Securities Act, and in compliance with any
applicable federal and state securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or to the
Company, except as otherwise set forth herein, an opinion of counsel will be
required, to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act. Any such transferee shall agree
in writing to be bound by the terms of this Agreement and shall have the rights
of a Purchaser under this Agreement and the Registration Rights Agreement.

            (b) The Purchasers agree to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:

      NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES
      MAY BE CONVERTIBLE OR EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES
      AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
      RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
      1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
      OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
      UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
      A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
      COMPANY TO THAT EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE
      UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
      FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

            The Company shall cause its counsel to issue the legal opinion
included in the Transfer Agent Instructions to the Company's transfer agent on
the day that the Underlying Shares Registration Statement is declared effective
by the Commission.

            (c) The Securities shall not be required to contain any restrictive
legend (including the legend set forth in Section 3.1(b) of this Agreement): (i)
while a registration statement (including the Underlying Shares Registration
Statement) covering the resale of such securities is effective under the
Securities Act; (ii) following any sale of such securities pursuant to Rule 144
under the Securities Act; (iii) if such securities are eligible for sale under
Rule 144(k) under the Securities Act; or (iv) if such legend is not required
under applicable law, or, in the opinion of the Company's counsel, in accordance
with Rule 502(d) under the Securities Act, or other interpretations and
pronouncements of the Commission. Upon request of the holder, the Company shall
cause its counsel to issue a legal opinion to the Company's transfer agent
promptly to effect the removal of such legend pursuant to the foregoing
sentence. If all or any shares of Preferred Stock or any portion of a Warrant is
converted or exercised (as applicable) at a time when there is an effective
registration statement (including the Underlying Shares Registration Statement)


                                       11


covering the resale of the Underlying Shares under the Securities Act, or if
such Underlying Shares may be sold under Rule 144(k) or if such legend is not
otherwise required under applicable law, then the certificate evidencing such
Underlying Shares shall be issued free of all restrictive legends. The Company
agrees that at such time as such restrictive legend is not required as provided
in this Section 3.1(c), it will, as soon as practicable following the delivery
by the holder to the Company's transfer agent of the Securities, as the case may
be, deliver or cause to be delivered to such holder replacement Securities free
from all restrictive legends. Unless otherwise required by law or judicial
order, the Company shall not make any notation on its records or give any
instructions to its transfer agent that enlarge the restrictions on transfer set
forth in this Agreement. Certificates for securities subject to legend removal
hereunder shall be transmitted by the transfer agent of the Company to the
holder's prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (DWAC) system, if the Company's transfer agent is a
participant in such system. The Company agrees to cause its transfer agent to be
a participant in such system (or engage a new transfer agent which is a
participant in such system) within 60 days after the initial Closing.

      3.2 ACKNOWLEDGMENT OF DILUTION. The Company acknowledges that the issuance
of the Underlying Shares upon (i) conversion of the Shares in accordance with
the terms of the Certificate of Designation, and (ii) exercise of the Warrants
in accordance with their terms, will result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Underlying Shares upon (x) conversion of the Shares in accordance with the terms
of the Certificate of Designation, and (y) exercise of the Warrants in
accordance with their terms, is unconditional and absolute, subject to the
limitations set forth herein, in the Certificate of Designation or pursuant to
the Warrants, regardless of the effect of any such dilution.

      3.3 FURNISHING OF INFORMATION. As long as any Purchaser owns Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to such sections, it will prepare and furnish
to the Purchasers and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act such information as is required for the
Purchasers to sell the Securities under Rule 144 promulgated under the
Securities Act. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
causing its attorneys to render and deliver any legal opinion required in order
to permit a Purchaser to receive Underlying Shares free of all restrictive
legends and to subsequently sell Underlying Shares under Rule 144 upon receipt
of a notice of an intention to sell or other form of notice having a similar
effect. Upon the request of any such Person, the Company shall deliver to such
Person a written certification of a duly authorized officer as to whether it has
complied with such requirements.


                                       12


      3.4 INTEGRATION. The Company shall not, and shall use its best efforts to
ensure that, no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers.

      3.5 INCREASE IN AUTHORIZED SHARES. If on any date the Company would be, if
a notice of conversion or exercise (as the case may be) were to be delivered on
such date, precluded from issuing (a) the number of Underlying Shares as would
then be issuable upon a conversion in full of the Shares, and (b) the number of
Underlying Shares as would then be issuable upon exercise of the Warrants (the
"CURRENT REQUIRED MINIMUM"), in either case, due to the unavailability of a
sufficient number of authorized but unissued or reserved shares of Common Stock,
then the Board of Directors of the Company shall promptly prepare and mail to
the stockholders of the Company proxy materials requesting authorization to
amend the Company's certificate or articles of incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to at
least such number of shares as reasonably requested by the Purchasers in order
to provide for such number of authorized and unissued shares of Common Stock to
enable the Company to comply with its issuance, conversion, exercise and
reservation of shares obligations as set forth in this Agreement, the
Certificate of Designation and the Warrants (the sum of (x) the number of shares
of Common Stock then outstanding plus all shares of Common Stock issuable upon
exercise of all outstanding options, warrants and convertible instruments, and
(y) the Current Required Minimum, shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the earlier to occur of the
60th day after delivery of the proxy materials relating to such meeting and the
90th day after request by a holder of Securities to issue the number of
Underlying Shares in accordance with the terms hereof) and (c) within five
Business Days of obtaining such stockholder authorization, file an appropriate
amendment to the Company's certificate or articles of incorporation to evidence
such increase.

      3.6 RESERVATION AND LISTING OF UNDERLYING SHARES. (a) If, after the date
hereof, the Company shall list the Common Stock on any of the New York Stock
Exchange, American Stock Exchange, NASDAQ National Market or NASDAQ SmallCap
Market (each, a "SUBSEQUENT MARKET"), then the Company shall include in such
listing for the benefit of the Purchasers for issuance upon exercise of the
Warrants and conversion of the Shares a number of shares of Common Stock equal
to not less than the then Current Required Minimum. If the number of Underlying
Shares issuable upon conversion in full of the then outstanding Shares, as
payment of dividends thereon, and upon exercise of the then unexercised portion
of the Warrants exceed the number of Underlying Shares previously listed on
account thereof with a Subsequent Market, then the Company shall take the
necessary actions to immediately list a number of Underlying Shares as equals no
less than the then Current Required Minimum.


                                       13


            (b) The Company shall maintain a reserve of shares of Common Stock
for issuance upon conversion of the Shares in full and upon exercise in full of
the Warrants in accordance with this Agreement, the Certificate of Designation
and the Warrants, respectively, in such amount as may be required to fulfill its
obligations in full under the Transaction Documents, which reserve shall equal
no less than the then Current Required Minimum.

      3.7 CONVERSION AND EXERCISE OBLIGATIONS AND PROCEDURES. The Company shall
honor conversion of the Shares and exercise of the Warrants and shall deliver
Underlying Shares in accordance with the respective terms, conditions and time
periods set forth in the Certificate of Designation and Warrants. The Transfer
Agent Instructions, Conversion Notice (as defined in the Certificate of
Designation) and Notice of Exercise under the Warrants set forth the totality of
the procedures with respect to the conversion of the Shares and exercise of the
Warrants, including the form of legal opinion, if necessary, that shall be
rendered to the Company's transfer agent and such other information and
instructions as may be reasonably necessary to enable the Purchasers to convert
their Shares and exercise their Warrants as contemplated in the Certificate of
Designation and the Warrants (as applicable).

      3.8 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company shall: (i)
by 9:00 a.m. (Eastern Time) on the first Business Day following the initial
Closing Date issue a press release acceptable to the Purchasers disclosing the
transactions contemplated hereby, (ii) file with the Commission a Report on Form
8-K disclosing the transactions contemplated hereby within four Business Days
after the initial Closing Date, and (iii) timely file with the Commission a Form
D promulgated under the Securities Act. The Company shall, no less than two
Business Days prior to the filing of any disclosure required by clauses (ii) and
(iii) above, provide a copy thereof to the Purchasers. The Company and the
Purchasers shall consult with each other in issuing any other press releases or
otherwise making public statements or filings and other communications with the
Commission or any regulatory agency or stock market or trading facility with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement, filings or
other communications without the prior written consent of the other, except if
such disclosure is required by law or stock market or trading facility
regulation, in which such case the disclosing party shall promptly provide the
other party with prior notice of such public statement, filing or other
communication. Notwithstanding the foregoing, the Company shall not publicly
disclose the names of the Purchasers, or include the names of the Purchasers in
any filing with the Commission or any regulatory agency, trading facility or
stock market without the prior written consent of the Purchasers, except to the
extent such disclosure is required by law or stock market regulations or in the
Registration Statement, in which case the Company shall provide the Purchasers
with prior notice of such disclosure.

      3.9 USE OF PROCEEDS. The Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities, to settle any
outstanding litigation, or to make any loans or advances to any Affiliate.


                                       14


      3.10 TRANSFER OF INTELLECTUAL PROPERTY RIGHTS. Except in connection with
the sale of all or substantially all of the assets of the Company or licensing
arrangements in the ordinary course of the Company's business, the Company shall
not transfer, sell or otherwise dispose of any Intellectual Property Rights, or
allow any of the Intellectual Property Rights to become subject to any Liens, or
fail to renew such Intellectual Property Rights (if renewable and it would
otherwise lapse if not renewed), without the prior written consent of the
Purchasers.

      3.11 EXCLUSIVITY. The Company shall not issue and sell the Shares to any
Person other than to the Purchasers pursuant to this Agreement.

      3.12 SHAREHOLDER RIGHTS PLAN. No claim will be made or enforced by the
Company or any other Person that any Purchaser is an "ACQUIRING PERSON" under
any shareholders rights plan or similar plan or arrangement in effect or
hereafter adopted by the Company, or that any Purchaser could be deemed to
trigger the provisions of any such plan or arrangement, by virtue of receiving
Securities or shares of Common Stock under the Transaction Documents.

      3.13 LOCK-UP AGREEMENTS. (a) Prior to the initial Closing Date, the
Company and Syscan Imaging Limited, HK shall have executed and delivered the
Parent Lock-Up Agreement, in the form of EXHIBIT G

            (b) Prior to the initial Closing Date, the Company and each of the
persons and entities listed on SCHEDULE 3.13 hereto shall have executed and
delivered Non-Parent Lock-Up Agreements, in the form of EXHIBIT H.

      3.14 NON-PUBLIC INFORMATION. The Company covenants and agrees that from
and after the initial Closing Date, neither it nor any other Person acting on
its behalf will provide any Purchaser or its agents or counsel with any
information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written
agreement regarding the confidentiality and use of such information. The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transaction in securities of the Company. In complying
with this Section 3.14, the Company shall not be deemed to be in breach of this
Agreement solely because of its failure to provide information to Purchaser
which the Company believes constitutes material non-public information.

      3.15 PARTICIPATION IN FUTURE FINANCINGS. (a) From the date hereof until
the one-year anniversary of the Effectiveness Date (as defined in the
Registration Rights Agreement), upon any financing by the Company or any
Subsidiary of Common Stock or Common Stock Equivalents (as defined in EXHIBIT A)
(a "SUBSEQUENT FINANCING"), each Purchaser shall have the right, subject to
Section 3.15(c), to participate in up to 100% of the Subsequent Financing (the
"PARTICIPATION MAXIMUM").


                                       15


            (b) At least five Business Days prior to the closing of the
Subsequent Financing, the Company shall deliver to each Purchaser a written
notice of its intention to effect a Subsequent Financing ("Pre-Notice"), which
Pre-Notice shall ask such Purchaser if it wants to review the detail of such
financing (such additional notice, a "SUBSEQUENT FINANCING NOTICE"). Upon the
request of a Purchaser for a Subsequent Financing Notice, the Company shall
promptly, but no later than one Business Day after such request, deliver a
Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing is proposed to be effected, and attached to
which shall be a term sheet of similar document relating thereto.

            (c) Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than 5:30 p.m.
(Eastern Time) on the third Business Day after such Purchaser has received the
Pre-Notice that the Purchaser is willing to participate in the Subsequent
Financing, the amount of such Purchaser's participation, and that the Purchaser
has such funds ready, willing and available for investment on the terms set
forth in the Subsequent Financing Notice. If the Company receives no notice from
a Purchaser as of such fourth Business Day, such Purchaser shall be deemed to
have notified the Company it does not elect to participate.

            (d) Each participating Purchaser may elect, in its sole discretion,
in satisfaction of some or all of its participation in the Subsequent Financing,
to exchange some or all of any of its Shares then held by it for any securities
issued in the Subsequent Financing (such exchange to be made at the same time
as, and pursuant to, the closing of the Subsequent Financing) based on the
then-outstanding Stated Value (as defined in EXHIBIT A) of the Preferred Stock
plus accrued but unpaid dividends and other fees owed, and the effective price
at which such securities are sold in the Subsequent Financing.

            (e) In the event the Company receives responses to the Subsequent
Financing Notices from Purchasers seeking to purchase more than the aggregate
amount of the Subsequent Financing, each such Purchaser shall have the right to
purchase their Pro Rata Portion (as defined below) of the Participation Maximum.
"PRO RATA PORTION" is the ratio of (x) the Purchase Price paid by such
participating Purchaser and (y) the aggregate Purchase Price paid by all
participating Purchasers.

            (f) If by 5:30 p.m. (Eastern Time) on the fourth Business Day after
the Purchasers have received the Pre-Notice, notifications by the Purchasers of
their willingness to participate in the Subsequent Financing (or to cause their
designees to participate) is, in the aggregate, less than the total amount of
the Subsequent Financing, then the Company may effect the remaining portion of
such Subsequent Financing on the terms and to the Persons set forth in the
Subsequent Financing Notice.


                                       16


            (g) The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation
set forth in this Section 3.15, if the Subsequent Financing subject to the
initial Subsequent Financing Notice is not consummated for any reason on the
terms set forth in such Subsequent Financing Notice within 60 calendar days
after the date of the initial Subsequent Financing Notice.

            (h) Notwithstanding the foregoing, this Section 3.15 shall not apply
in respect of any shares of Common Stock or Common Stock Equivalents issued to
or to be issued pursuant to: (A) an underwritten public offering of the
Company's securities; (B) employees, consultants, officers or directors of the
Company pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors of the Company; (C)
the acquisition of another business entity or business segment of any such
entity by the Company by merger, purchase of substantially all of the assets or
other reorganization whereby the Company will own more than fifty (50%) of the
voting power of such business segment of any such entity; (D) vendors or
customers or to other persons in similar commercial situations with the Company
if such issuance is approved by the Board of Directors; (E) corporate partnering
transactions on terms approved by the Board of Directors; (F) the terms of any
of the Company's preferred stock, warrants or other convertible securities
outstanding on the date hereof; (G) borrowings, direct or indirect, from
financial institutions regularly engaged in the business of lending money,
whether or not presently authorized which include an equity component which is
not a major component of such borrowing; (H) a merger, consolidation,
reorganization, recapitalization, sale of assets, stock purchase, contribution
or other similar transaction that involves the Company, on the one hand, and any
corporation or other entity that controls, directly or indirectly, the Company,
on the other hand; or (I) other non-cash transactions.

      3.16 LIMITATION ON FUTURE FINANCINGS. For a period of eighteen months from
the date of this Agreement, the Company shall be prohibited from effecting or
entering into an agreement (other than this Agreement) to effect any Subsequent
Financing involving a Variable Rate Transaction or an MFN Transaction (each as
defined below). The term "VARIABLE RATE TRANSACTION" shall mean a transaction in
which the Company issues or sells (i) any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after
the initial issuance of such debt or equity securities, provided there is no
floor on the conversion price of such security at the time of issuance, or (B)
with a conversion, exercise or exchange price that is subject to being reset at
some future date after the initial issuance of such debt or equity securities or
upon the occurrence of specified or contingent events directly or indirectly
related to the business of the Company or the market for the Common Stock,
provided there is no floor on the conversion price of such security at the time
of issuance, or (ii) enters into any agreement, including but not limited to, an
equity line of credit, whereby the Company may sell securities at a future
determined price. The term "MFN TRANSACTION" shall mean a transaction or series
of related transactions which grants to an investor the right to receive
additional shares based upon future transactions of the Company on terms more
favorable than those granted to such investor in such offering.


                                       17


                                   ARTICLE IV
                                 INDEMNIFICATION

      4.1 INDEMNIFICATION. Each Purchaser (including its officers, directors,
employees, affiliates, agents, successors and assigns (each, an "INDEMNIFIED
PARTY")) shall be indemnified and held harmless by the Company for any and all
liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable attorneys'
fees and expenses) actually suffered or incurred by them (hereinafter a "LOSS"),
arising out of or resulting from the breach of any representation, warranty,
agreement or covenant made by the Company contained in this Agreement.

      4.2 INDEMNIFICATION PROCEDURE. The obligations and liabilities of the
Company under this Article IV with respect to Losses arising from claims of any
third party which are subject to the indemnification provided for in this
Article IV ("THIRD PARTY CLAIMS") shall be governed by and contingent upon the
following additional terms and conditions: if an Indemnified Party shall receive
notice of any Third Party Claim, the Indemnified Party shall give the Company
notice of such Third Party Claim promptly after the receipt by the Indemnified
Party of such notice (which notice shall include the amount of the Loss, if
known, and method of computation thereof, and containing a reference to the
provisions of this Agreement in respect of which such right of indemnification
is claimed or arises); provided, however, that the failure to provide such
notice shall not release the Company from any of its obligations under this
Article IV except to the extent the Company is materially prejudiced by such
failure and shall not relieve the Company from any other obligation or liability
that it may have to any Indemnified Party otherwise than under this Article IV.
Upon written notice to the Indemnified Party within five (5) days of the receipt
of such notice, the Company shall be entitled to assume and control the defense
of such Third Party Claim at its expense and through counsel of its choice;
provided, however, that, if there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate in the reasonable judgment
of such counsel for the same counsel to represent both the Indemnified Party and
the Company, then the Indemnified Party shall be entitled to retain its or his
own counsel in each jurisdiction for which the Indemnified Party reasonably
determines counsel is required, at the expense of the Company. In the event the
Company exercises the right to undertake any such defense against any such Third
Party Claim as provided above, the Indemnified Party shall cooperate with the
Company in such defense and make available to the Company, at the Company's
expense, all witnesses, pertinent records, materials and information in the
Indemnified Party's possession or under the Indemnified Party's control relating
thereto as is reasonably required by the Company. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Company shall cooperate with the Indemnified Party
in such defense and make available to the Indemnified Party, at the Company's
expense, all such witnesses (including himself), records, materials and
information in the Company's possession or under the Company's control relating
thereto as is reasonably required by the Indemnified Party. No such Third Party
Claim may be settled by the Company on behalf of the Indemnified Party without
the prior written consent of the Indemnified Party (which consent shall not be
unreasonably withheld); provided, however, in the event that the Indemnified
Party does not consent to any such settlement that would provide it with a full
release from indemnified Losses and would not require it to take, or refrain
from taking, any action, the Company's liability for indemnification shall not
exceed the amount of such proposed settlement. The Indemnified Party will
refrain from any act or omission that is inconsistent with the position taken by
the Company in the defense of a Third Party Claim unless the Indemnified Party
determines that such act or omission is reasonably necessary to protect its own
interest.


                                       18


                                    ARTICLE V
                                  MISCELLANEOUS

      5.1 FEES AND EXPENSES. Except as otherwise set forth in this Section 5.1
or the Registration Rights Agreement, each party shall pay the fees and expenses
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Securities. The Company agrees to pay the reasonable fees, costs and expenses of
Browne Rosedale & Lanouette LLP in connection with the preparation, negotiation
and documenting of the Transaction Documents and other matters related hereto,
up to $25,000, to be paid at the initial Closing.

      5.2 ENTIRE AGREEMENT; AMENDMENTS. The Transaction Documents, together with
the Exhibits and Schedules thereto and the Transfer Agent Instructions contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the parties acknowledge have been merged
into such documents, exhibits and schedules.

      5.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section at or prior to 5:00 p.m. (Eastern
Time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Agreement later than 5:00 p.m. (Eastern Time)
on any date and earlier than 11:59 p.m. (Eastern Time) on such date, (iii) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as follows:

      If to the Company:            Syscan Imaging, Inc.
                                    1772 Technology Drive
                                    San Jose, California 95110
                                    Facsimile No.: (408) 436-6151
                                    Attn: Chief Executive Officer


                                       19


      With copies to:               Ellenoff Grossman & Schole LLP
                                    370 Lexington Avenue
                                    New York, New York 10017
                                    Attn: Jody R. Samuels, Esq.
                                    Facsimile No.: (212) 370-7889

      If to a Purchaser:            To the address set forth under such
                                    Purchaser's name on the signature pages
                                    hereto.

      With copies to:               Browne Rosedale & Lanouette LLP
                                    31 St. James Avenue, Suite 850
                                    Boston, Massachusetts 02116
                                    Attn: Kevin P. Lanouette, Esq.
                                    Facsimile No.: (617) 399-6930

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

      5.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and each of the Purchasers or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.

      5.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

      5.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company. This
provision shall not limit any Purchaser's right to transfer securities or
transfer or assign rights under the Registration Rights Agreement.

      5.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.


                                       20


      5.8 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflicts of law thereof.

      5.9 SURVIVAL. The representations, warranties, agreements and covenants of
the Company contained herein shall survive the initial Closing for a period of
two years.

      5.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

      5.11 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.

      5.12 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance of each
other's obligations under the Transaction Documents. The parties agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of obligations described in the foregoing sentence and
hereby agree to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.

      5.13 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document is several and not
joint with the obligations of any other Purchaser and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document. Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser has been represented by its own separate legal counsel in their review
and negotiation of the Transaction Documents. For reasons of administrative
convenience only, Purchasers and their respective counsel have chosen to
communicate with the Company through Browne Rosedale & Lanouette LLP, who do not
represent any of the Purchasers.


                                       21


                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                             SIGNATURE PAGES FOLLOW]


                                       22


      IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock and Common Stock Warrant Purchase Agreement to be duly executed
by their respective authorized signatories as of the date first indicated above.

                                    SYSCAN IMAGING, INC.


                                    By: /s/ Darwin Hu
                                    Name: Darwin Hu
                                    Title: Chief Executive Officer


                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                      SIGNATURE PAGES OF PURCHASERS FOLLOW]


                                       23


         [PURCHASER SIGNATURE PAGE TO SYSCAN IMAGING PURCHASE AGREEMENT]

      IN WITNESS WHEREOF, the undersigned have caused this Convertible Preferred
Stock and Common Stock Warrant Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.

Name of Purchaser: ____________________

Signature of Authorized Signatory of Purchaser:___________________________
Name of Authorized Signatory: ____________________________________
Title of Authorized Signatory: ___________________________________
Email Address of Authorized Signatory: ___________________________

Address for Notice of Purchaser:

With copies to:

Name of Counsel for Purchaser: ________________________
Address of Counsel for Purchaser:

Address for Delivery of Securities for Purchaser (if different than above):

Purchase Price: $___________

Shares of Preferred Stock: ___________

Number of Warrants: __________________


                                       24


                                                                       EXHIBIT F

                              LEGAL OPINION OF EG&S

      1. The Company is a corporation duly incorporated and validly existing as
a corporation under the laws of the state of its incorporation with full
corporate power to own its properties and to conduct its businesses as currently
conducted.

      2. The issuance and sale of the Securities in accordance with the
provisions of the Purchase Agreement have been duly authorized by all necessary
corporate action on the part of the Company and, when issued and delivered by
the Company against payment therefor in accordance with the provisions of the
Purchase Agreement, will be duly and validly issued, fully paid and
non-assessable.

      3. The shares of Common Stock issuable upon conversion of the Preferred
Stock have been reserved for issuance upon such exercise and such shares of
Common Stock, when issued and delivered by the Company upon such conversion in
accordance with the terms of the Certificate of Designations and upon payment of
the consideration therefor, will be validly issued, fully paid and
non-assessable.

      4. The shares of Common Stock issuable upon exercise of the Warrants have
been reserved for issuance upon such exercise and such shares of Common Stock,
when issued and delivered by the Company upon such exercise in accordance with
the terms of the Warrants and upon payment of the consideration therefor, will
be validly issued, fully paid and non-assessable.

      5. The Company has the corporate power to execute, deliver and perform the
transactions contemplated by the Purchase Agreement. The Purchase Agreement has
been duly authorized by all requisite corporate action by the Company and
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms (subject to applicable bankruptcy, insolvency, and
other laws affecting the enforceability of creditors' rights generally).

      6. Assuming the Company and its agents and representatives have complied
with the manner of sale requirements of Regulation D under the Securities Act of
1933, as amended, and assuming that the representations of the Purchasers in the
Purchase Agreement are correct and complete, the offer and sale of the
Securities are exempt from registration under such act.


                                       25


              CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANT
                               PURCHASE AGREEMENT

                                      AMONG

                              SYSCAN IMAGING, INC.

                                       AND

                         THE PURCHASERS SIGNATORY HERETO


                           DATED AS OF MARCH 15, 2005


                                       26


                  SCHEDULES TO CONVERTIBLE PREFERRED STOCK AND
                    COMMON STOCK WARRANT PURCHASE AGREEMENT

Schedule 2.1(a) - Subsidiaries

Syscan, Inc., a California corporation

Schedule 2.1(c) - Capitalization

Capital Stock:

Authorized common stock - 50,000,000
Common stock issued and outstanding - 23,110,515

Authorized preferred stock - 2,000,000
Preferred stock issued and outstanding - 0

Options and Warrants:

2,035,000 options exercisable at $2.00 per share issued pursuant to the
Company's Amended and Restated 2002 Stock Option Plan

50,000 options exercisable at $0.90 per share exercisable through December 2005

10,000 options exercisable at $2.50 per share exercisable through December 2005

4,000,000 options exercisable at $0.01 per share to be issued to officers,
directors and consultants


                                       27

EX-10.2

                                                                    EXHIBIT 10.2

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

                              SYSCAN IMAGING, INC.

                                     WARRANT

Warrant No. __                         Date of Original Issuance: March 15, 2005

      Syscan Imaging, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for value received, __ or its registered assigns (the "HOLDER"),
has the right to purchase from the Company up to a total of __ shares of common
stock, $0.001 par value per share (the "COMMON STOCK"), of the Company (each
such share, a "WARRANT SHARE" and all such shares, the "WARRANT SHARES") at an
exercise price equal to $2.00 per share (as adjusted from time to time as
provided in Section 8, the "EXERCISE PRICE"), at any time and from time to time
from and after the date hereof and through and including March 14, 2010 (the
"EXPIRATION DATE"), and subject to the following terms and conditions. The
Warrant Shares possess certain registration rights pursuant to that certain
Registration Rights Agreement, dated as of March 15, 2005, by and between the
Company and the investors signatory thereto (the "REGISTRATION RIGHTS
Agreement").

      1. REGISTRATION OF WARRANT. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "WARRANT
REGISTER"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.

      2. REGISTRATION OF TRANSFERS. The Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed,
to the Company's transfer agent or to the Company at its address specified
herein. Upon any such registration or transfer, a new warrant to purchase Common
Stock, in substantially the form of this Warrant (any such new warrant, a "NEW
WARRANT"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.


      3. EXERCISE AND DURATION OF WARRANTS.

            (a) This Warrant shall be exercisable by the registered Holder at
any time and from time to time on or after the date hereof to and including the
Expiration Date. At 11:59 p.m., Eastern Time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value.

            (b) If on any date after the effectiveness of the initial
Registration Statement (as defined below), the closing price of the Common
Stock, as quoted on the OTC, any stock exchange, market or trading facility on
which the Common Stock is then listed, for 20 consecutive trading days equals at
least $3.50 (subject to adjustment in the event of any subdivision, combination
or reclassification affecting the Common Stock), the Company shall have the
right, at its option and upon 30 days written notice to the Holder, to terminate
this Warrant; provided that (i) the Holder shall have the right to exercise this
Warrant pursuant to Section 3(a) at any time prior to the termination of the
30-day notice period, and (ii) the Registration Statement shall be effective at
all times during such 30-day notice period, except if Holder may sell all
Warrant Shares covered hereby pursuant to Rule 144(k) of the Securities Act.
Upon such termination, the Holder shall have no further rights hereunder.

            (c) At any time after March 14, 2006 that a Registration Statement
(as defined in the Registration Rights Agreement) covering the resale of the
Warrant Shares is not effective or is suspended, or that the related Prospectus
(as defined in the Registration Rights Agreement) is outdated, defective or
requires a supplement or amendment for any reason, including upon the occurrence
of any event contemplated by Section 6(e) of the Registration Rights Agreement,
the Holder may, at its option during such time, elect to pay some or all of the
Exercise Price payable upon an exercise of this Warrant by canceling a portion
of this Warrant exercisable for such number of Warrant Shares as is determined
by dividing (i) the total Exercise Price payable in respect of the number of
Warrant Shares being purchased upon such exercise by (ii) the excess of the Fair
Market Value per share of Common Stock as of the effective date of exercise, as
determined pursuant to Section 3(d) below (the "Exercise Date") over the
Exercise Price per share. If the Holder wishes to exercise this Warrant pursuant
to this method of payment with respect to the maximum number of Warrant Shares
purchasable pursuant to this method, then the number of Warrant Shares so
purchasable shall be equal to the total number of Warrant Shares, minus the
product obtained by multiplying (x) the total number of Warrant Shares by (y) a
fraction, the numerator of which shall be the Exercise Price per share and the
denominator of which shall be the Fair Market Value per share of Common Stock as
of the Exercise Date.


                                       2


            (d) For purposes of this Warrant, "Fair Market Value" shall mean, on
any day:

                  (i) the closing price of the Common Stock on a national
securities exchange or as quoted on the Nasdaq National Market or the Nasdaq
SmallCap Market on such day, as reported by the Wall Street Journal; or

                  (ii) if the Common Stock is quoted on the Nasdaq National
Market or the Nasdaq SmallCap Market but no sale occurs on such day, the average
of the closing bid and asked prices of the Common Stock on the Nasdaq National
Market or the Nasdaq SmallCap Market on such day, as reported by the Wall Street
Journal; or

                  (iii) if the Common Stock is not so listed or quoted, the
average of the closing bid and asked prices of the Common Stock in the U.S.
over-the-counter market; or

                  (iv) if no such trading market is readily available, the fair
market value of the Common Stock as determined in good faith and certified by a
majority of the members of the Board of Directors of the Company.

      4. DELIVERY OF WARRANT SHARES.

            (a) Upon delivery of the Form of Election to Purchase to the Company
(with the attached Warrant Shares Exercise Log) at its address for notice set
forth in Section 14 and upon payment of the Exercise Price multiplied by the
number of Warrant Shares that the Holder intends to purchase hereunder, the
Company shall promptly (but in no event later than three trading days after the
Date of Exercise (as defined herein)) issue and deliver to the Holder, a
certificate for the Warrant Shares issuable upon such exercise free of all
restrictive or other legends, other than as required under Section 4(d).
Notwithstanding, at any time when there is an effective Registration Statement,
certificates for Warrant Shares shall be transmitted by the transfer agent of
the Company to the Holder by crediting the account of the Holder's prime broker
with the Depository Trust Company through its Deposit Withdrawal Agent
Commission (DWAC) system, if the Company's transfer agent is a participant in
such system. The Company agrees to cause its transfer agent to be a participant
in such system (or engage a new transfer agent which is a participant in such
system) within 60 days after the date hereof. Any person so designated by the
Holder to receive Warrant Shares shall be deemed to have become holder of record
of such Warrant Shares as of the Date of Exercise of this Warrant.

            A "DATE OF EXERCISE" means the date on which the Holder shall have
delivered to the Company (i) the Form of Election to Purchase attached hereto
(with the Warrant Exercise Log attached to it), appropriately completed and duly
signed and (ii) payment of the Exercise Price for the number of Warrant Shares
so indicated by the Holder to be purchased.

            (b) If the Company fails to deliver to the Holder a certificate or
certificates representing the Warrant Shares issuable upon an exercise by the
third trading day after the Date of Exercise, then the Holder will have the
right to rescind such exercise.


                                       3


            (c) The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other person, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof. If the Company
breaches its obligations under this Warrant, then, in addition to any other
liabilities the Company may have hereunder and under applicable law, the Company
shall pay or reimburse the Holder on demand for all costs of collection and
enforcement (including reasonable attorneys fees and expenses).

            (d) Transfer Restrictions.

                  (i) This Warrant and the Warrant Shares may only be disposed
of pursuant to an effective registration statement under the Securities Act, to
the Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal and state securities laws. In connection
with any transfer of this Warrant or any Warrant Shares other than pursuant to
an effective registration statement or to the Company, except as otherwise set
forth herein, the Company may require the transferor to obtain an opinion of
counsel reasonably acceptable to the Company to the effect that such transfer
does not require registration under the Securities Act, it being agreed that
Browne Rosedale & Lanouette LLP is reasonably acceptable to the Company.
Notwithstanding the foregoing, the Company, without requiring a legal opinion as
described in the immediately preceding sentence, hereby consents to and agrees
to register on the books of the Company and with any transfer agent for the
securities of the Company any transfer of this Warrant and the Warrant Shares by
the Holder to an Affiliate (as defined in Rule 405 under the Securities Act) of
the Holder or to one or more funds or managed accounts under common management
with such Holder, and any transfer among any such Affiliates or one or more
funds or managed accounts, provided that the transferee certifies to the Company
that it is an "accredited investor" as defined in Rule 501(a) under the
Securities Act and that it is acquiring the Warrant and the Warrant Shares
solely for investment purposes (subject to the qualifications hereof).

                  (ii) Warrant Shares issued while there is not an effective
registration statement covering the resale by the Holder of the Warrant Shares
(a "REGISTRATION STATEMENT") or while the Holder may not resell such Warrant
Shares pursuant to Rule 144(k) under the Securities Act shall be issued with the
following legend:

                  THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. HOWEVER, THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY
SUCH SECURITIES.


                                       4


                  (iii) Notwithstanding anything to the contrary contained
herein, Warrant Shares issued when there is an effective Registration Statement,
or at a time when the Holder may resell such Warrant Shares under Rule 144(k)
under the Securities Act, or when such legend is not required under the
Securities Act (including judicial interpretations and pronouncements issued by
the Staff of the Securities and Exchange Commission) shall be issued free of all
restrictions and other legends. The Company agrees that following the date on
which a Registration Statement is first declared effective by the Securities and
Exchange Commission and the date on which Warrant Shares may be resold under
144(k), it will, no later than five trading days following the delivery by a
Holder to the Company of a certificate or certificates representing any Warrant
Shares issued with a restrictive legend, deliver to such Holder certificates
representing such Warrant Shares which shall be free from all restrictive
legends. The Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge the restrictions
of transfer set forth in this Section.

      5. CHARGES, TAXES AND EXPENSES. Issuance and delivery of certificates for
shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.

      6. REPLACEMENT OF WARRANT. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction, if requested.
Applicants for a New Warrant under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other reasonable
third-party costs as the Company may prescribe.


                                       5


      7. RESERVATION OF WARRANT SHARES. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable.

      8. CERTAIN ADJUSTMENTS. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 8.

            (a) STOCK DIVIDENDS AND SPLITS. If the Company, at any time while
this Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.

            (b) PRO RATA DISTRIBUTIONS. If the Company, at any time while this
Warrant is outstanding, distributes to all holders of Common Stock (i) evidences
of its indebtedness, (ii) any security (other than a distribution of Common
Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe
for or purchase any security, or (iv) any other asset (in each case,
"DISTRIBUTED PROPERTY"), then in each such case the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution shall be adjusted (effective on such
record date) to equal the product of such Exercise Price times a fraction of
which the denominator shall be such Exercise Price and of which the numerator
shall be such Exercise Price less the then fair market value of the Distributed
Property distributed in respect of one outstanding share of Common Stock, as
determined by the Company's independent certified public accountants that
regularly examine the financial statements of the Company (an "APPRAISER"). In
such event, the Holder, after receipt of the determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such appraiser. As an alternative to the foregoing adjustment to
the Exercise Price, at the request of the Holder delivered before the 90th day
after such record date, the Company will deliver to such Holder, within five
trading days after such request (or, if later, on the effective date of such
distribution), the Distributed Property that such Holder would have been
entitled to receive in respect of the Warrant Shares for which this Warrant
could have been exercised immediately prior to such record date.


                                       6


            (c) SUBSEQUENT SALES. If the Company at any time prior to the
Effectiveness Date shall sell shares of Common Stock (or securities convertible
into shares of Common Stock) at a price per share (or having a conversion price
per share, if a security convertible into Common Stock) which is less than
$2.00, then the Warrant Exercise Price shall be reduced to equal the lower
offering price. Notwithstanding anything to the contrary herein, the provisions
of this Section 8(c) shall not apply to any such securities issued or to be
issued pursuant to: (i) employees, consultants, officers or directors of the
Company pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors; (ii) the
acquisition of another business entity or business segment of any such entity by
the Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company will own more than fifty (50%) of the voting
power of such business segment of any such entity; (iii) vendors or customers or
to other persons in similar commercial situations with the Company if such
issuance is approved by the Board of Directors; (iv) corporate partnering
transactions on terms approved by the Board of Directors; (v) the terms of any
of the Company's preferred stock, warrants or other convertible securities
outstanding on the date hereof; (vi) borrowings, direct or indirect, from
financial institutions regularly engaged in the business of lending money,
whether or not presently authorized which include an equity component which is
not a major component of such borrowing; (vii) a merger, consolidation,
reorganization, recapitalization, sale of assets, stock purchase, contribution
or other similar transaction that involves the Company, on the one hand, and any
corporation or other entity that controls, directly or indirectly, the Company,
on the other hand; or (viii) other non-cash transactions.

            (d) FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a
"FUNDAMENTAL TRANSACTION"), then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the "ALTERNATE CONSIDERATION").
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction. In addition, at
the Holder's request, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to the Holder a new warrant consistent with
the foregoing provisions and evidencing the Holder's right to purchase the


                                       7


Alternate Consideration for the aggregate Exercise Price upon exercise thereof.
The terms of any agreement pursuant to which a Fundamental Transaction is
affected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this paragraph (c) and insuring that the Warrant
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Transaction. If any
Fundamental Transaction constitutes or results in a Change of Control, then at
the request of the Holder delivered before the 90th day after such Fundamental
Transaction, the Company (or any such successor or surviving entity) will
purchase the Warrant from the Holder for a purchase price, payable in cash
within five trading days after such request (or, if later, on the effective date
of the Fundamental Transaction), equal to the Black Scholes value of the
remaining unexercised portion of this Warrant on the date of such request. As
used in this Warrant, "CHANGE OF CONTROL" means the occurrence of any of (i) an
acquisition after the date hereof by any Person or "GROUP" (as described in Rule
13d-5(b)(1) promulgated under the Exchange Act) of more than one-third of the
voting rights or equity interests in the Company, (ii) a replacement of more
than one-half of the members of the Company's board of directors that is not
approved by those individuals who are member of the board of directors on the
date hereof in one or a series of related transactions, (iii) a merger or
consolidation of the Company or any subsidiary or a sale of more than one-third
of the assets of the Company in one or a series of related transactions, unless
following such transactions or series of transactions, the holders of the
Company's securities prior to the first such transaction continue to hold at
least two-thirds of the voting rights and equity interests in of the surviving
entity or acquirer of such assets, or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound, providing for
any of the events set forth above in (i), (ii) or (iii).

            (e) NUMBER OF WARRANT SHARES. Simultaneously with any adjustment to
the Exercise Price pursuant to paragraphs (a), (b) or (c) of this Section, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment. Notwithstanding the foregoing, no
adjustment will be made under this Section 8 in respect of any grant of options
or warrants, or the issuance of additional securities, under any duly authorized
Company stock option, restricted stock plan or stock purchase plan.

            (f) CALCULATIONS. All calculations under this Section 8 shall be
made to the nearest cent or the nearest 1/100th of a share, as applicable. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.

            (g) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment
pursuant to this Section 8, the Company at its expense will promptly compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company's transfer agent.


                                       8


            (h) NOTICE OF CORPORATE EVENTS. If the Company (i) declares a
dividend or any other distribution of cash, securities or other property in
respect of its Common Stock, including without limitation any granting of rights
or warrants to subscribe for or purchase any capital stock of the Company or any
subsidiary, (ii) authorizes or approves, enters into any agreement contemplating
or solicits stockholder approval for any Fundamental Transaction or (iii)
authorizes the voluntary dissolution, liquidation or winding up of the affairs
of the Company, then the Company shall deliver to the Holder a notice describing
the material terms and conditions of such transaction, at least 20 calendar days
prior to the applicable record or effective date on which a Person would need to
hold Common Stock in order to participate in or vote with respect to such
transaction, and the Company will take all steps reasonably necessary in order
to insure that the Holder is given the practical opportunity to exercise this
Warrant prior to such time so as to participate in or vote with respect to such
transaction; provided, however, that the failure to deliver such notice or any
defect therein shall not affect the validity of the corporate action required to
be described in such notice. Until the exercise of this Warrant or any portion
of this Warrant, the Holder shall not have nor exercise any rights by virtue
hereof as a stockholder of the Company (including without limitation the right
to notification of stockholder meetings or the right to receive any notice or
other communication concerning the business and affairs of the Company other
than as provided in this Section 8(h)).

            (i) PAYMENT OF EXERCISE PRICE. Except as otherwise provided in
Section 3(c), the Holder shall pay the Exercise Price in cash, by certified or
bank check, or by wire transfer of immediately available funds, in lawful money
of the United States.

      9. LIMITATION ON EXERCISE. Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates under Section 13(d) of the
Exchange Act, does not exceed 4.999% of the total number of issued and
outstanding shares of Common Stock (including for such purpose the shares of
Common Stock issuable upon such exercise). For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. Each delivery of an
Exercise Notice hereunder will constitute a representation by the Holder that it
has evaluated the limitation set forth in this paragraph and determined that
issuance of the full number of Warrant Shares requested in such Exercise Notice
is permitted under this paragraph. The restrictions set forth in this Section 9
shall not apply in determining the consideration and the number of shares or
other securities, and other property to which Holder may be entitled upon any
adjustment or event contemplated in Section 8 of this Warrant.

      10. NO FRACTIONAL SHARES. No fractional shares of Warrant Shares will be
issued in connection with any exercise of this Warrant. In lieu of any
fractional shares which would, otherwise be issuable, the Company shall pay cash
equal to the product of such fraction multiplied by the closing price of one
Warrant Share as reported on the OTC, any stock exchange, market or trading
facility on which the Common Stock is then listed on the date of exercise.


                                       9


      11. EXCHANGE ACT FILINGS. The Holder agrees and acknowledges that it shall
have sole responsibility for making any applicable filings with the Securities
and Exchange Commission pursuant to Sections 13 and 16 of the Securities
Exchange Act of 1934, as amended, as a result of its acquisition of this Warrant
and the Warrant Shares and any future retention or transfer thereof.

      12. PIGGY-BACK REGISTRATIONS. If at any time during after the Original
Issue Date and through the Expiration Date there is not an effective
Registration Statement covering all of the Warrant Shares and the Company shall
determine to prepare and file with the Securities and Exchange Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Holder written notice of such
determination and, if within twenty (20) days after receipt of such notice, any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any of the Warrant Shares such holder requests to
be registered, subject to customary underwriter cutbacks applicable to all
holders of registration rights.

      13. NOTICES. Any and all notices or other communications or deliveries
hereunder (including without limitation any Exercise Notice) shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section at or prior to 5:00 p.m. (Eastern
Time) on a trading day, (ii) the next trading day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a trading day or
later than 5:00 p.m. (Eastern Time) on any trading day, (iii) the trading day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to Syscan Imaging, Inc., 1772 Technology Drive, San Jose,
California 95110, Facsimile No.: (408) 436-6151, Attn: Chief Executive Officer,
or (ii) if to the Holder, to the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section.

      14. WARRANT AGENT. The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.


                                       10


      15. MISCELLANEOUS.

            (a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only
in writing signed by the Company and the Holder and their successors and
assigns.

            (b) All questions concerning the construction, validity, enforcement
and interpretation of this Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware, without
regard to the principles of conflicts of law thereof. Each party hereto
(including its affiliates, agents, officers, directors and employees) hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Warrant or the transactions contemplated hereby. If either party shall
commence an action or proceeding to enforce any provisions of this Warrant, then
the prevailing party in such action or proceeding shall be reimbursed by the
other party for its attorneys fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such action or proceeding.

            (c) The headings herein are for convenience only, do not constitute
a part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.

            (d) In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Warrant shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
                             SIGNATURE PAGE FOLLOWS]


                                       11


      IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.

                                    SYSCAN IMAGING, INC.

                                    By:
                                       -----------------------------------------
                                    Name:
                                         ---------------------------------------
                                    Title:
                                          --------------------------------------


                                       12


                          FORM OF ELECTION TO PURCHASE

To Syscan Imaging, Inc.:

      In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock ("Common Stock"), $0.001 par value per share, of Syscan
Imaging, Inc. The undersigned herewith makes payment of $____________,
representing the full purchase price for such shares at the Exercise Price
provided for in such Warrant, together with any applicable taxes payable by the
undersigned pursuant to the Warrant. 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 _____ Warrant Shares (using a Fair Market Value of $_____
      per share for purposes of this calculation).

      By its delivery of this Form of Election To Purchase, the Holder
represents and warrants to the Company that in giving effect to the exercise
evidenced hereby the Holder will not beneficially own in excess of the number of
shares of Common Stock (determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) permitted to be owned under Section 9 of this
Warrant to which this notice relates.

      The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of:


                                    ---------------------------------
                                    (Name)


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


                                    ---------------------------------
                                    (Address)


                                    ---------------------------------
                                    (SSN or Tax ID No.)


                                       13


                           WARRANT SHARES EXERCISE LOG

- --------------------------------------------------------------------------------
     Date      Number of Warrant       Number of Warrant       Number of Warrant
               Shares Available        Shares Exercised        Shares Remaining
                to be Exercised                                 to be Exercised
- --------------------------------------------------------------------------------







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


                                       14


                               FORM OF ASSIGNMENT

      [To be completed and signed only upon transfer of Warrant]

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Syscan Imaging, Inc.
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Syscan Imaging, Inc. with full power of
substitution in the premises.

Dated: _______________, ____


                                     ---------------------------------------
                                     (Signature must conform in all respects
                                     to name of holder as specified on the
                                     face of the Warrant)


                                     ---------------------------------------
                                     Address of Transferee


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


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

In the presence of:


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


                                       15

EX-10.3

                                                                    EXHIBIT 10.3

                          REGISTRATION RIGHTS AGREEMENT

            THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of March 15, 2005, among Syscan Imaging, Inc., a Delaware
corporation (the "COMPANY"), and the investors signatory hereto on the date of
this Agreement (each such investor is a "PURCHASER" and all such investors are,
collectively, the "PURCHASERS").

            This Agreement is made pursuant to the Convertible Preferred Stock
and Common Stock Warrant Purchase Agreement, dated as of the date hereof among
the Company and the Purchasers (the "PURCHASE AGREEMENT").

            The Company and the Purchasers hereby agree as follows:

      1. DEFINITIONS

            Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:

            "ADVICE" shall have meaning set forth in Section 6(e).

            "AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "CONTROL," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "AFFILIATED," "CONTROLLING" and "CONTROLLED" have meanings
correlative to the foregoing.

            "BUSINESS DAY" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.

            "CLOSING DATE" means the date of this Agreement.

            "COMMISSION" means the Securities and Exchange Commission.

            "COMMON STOCK" means the Company's Common Stock, par value $.001 per
share, or such securities that such stock shall hereafter be reclassified into.

            "EFFECTIVENESS DATE" means the date on which the Commission declares
the Registration Statement effective.

            "EFFECTIVENESS PERIOD" shall have the meaning set forth in Section
2(a).


                                      -1-


            "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

            "FILING DATE" means the 40th day following the Closing Date.

            "HOLDER" or "HOLDERS" means the holder or holders, as the case may
be, from time to time of Registrable Securities.

            "INDEMNIFIED PARTY" shall have the meaning set forth in Section
5(c).

            "INDEMNIFYING PARTY" shall have the meaning set forth in Section
5(c).

            "LOSSES" shall have the meaning set forth in Section 5(a).

            "PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.

            "PREFERRED STOCK" means the Company's Series A Convertible Preferred
Stock issued to the Purchasers in accordance with the Purchase Agreement.

            "PROCEEDING" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

            "PROSPECTUS" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

            "REGISTRABLE SECURITIES" means the shares of Common Stock issuable
(i) upon conversion in full of the Preferred Stock, (ii) upon payment of any
dividends on the Preferred Stock, (iii) upon exercise of the Warrants, (iv)
pursuant to Section 2(b) of this Agreement, (v) any securities issued or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing, and (vi) any additional shares
issuable in connection with any anti-dilution provisions associated with the
Preferred Stock and Warrants (in each case, without giving effect to any
limitations on conversion set forth in the Certificate of Designation or
limitations on exercise set forth in the Warrant).

            "REGISTRATION STATEMENT" means the registration statement and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.


                                      -2-


            "RULE 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

            "RULE 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

            "RULE 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.

            "SECURITIES ACT" means the Securities Act of 1933, as amended.

            "UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.

            "WARRANTS" means the Common Stock purchase warrants issued to the
Purchasers pursuant to the Purchase Agreement.

      2. SHELF REGISTRATION

            (a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a shelf Registration Statement covering the number of
Registrable Securities contemplated by Section 2(b) for an offering to be made
on a continuous basis pursuant to Rule 415. The Registration Statement shall be
on Form SB-2 (or on another appropriate form in the event that the Company is
not eligible to file a Registration Statement on Form SB-2 for the resale of the
Registrable Securities). The Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event within five (5)
Business Days after the Company is notified by the Commission that the
Registration Statement will not be reviewed or is no longer subject to further
review and comments, and shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date when
all Registrable Securities covered by such Registration Statement have been sold
or may be sold without volume restrictions pursuant to Rule 144(k) as determined
by the counsel to the Company pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company's transfer agent and the
affected Holders (the "EFFECTIVENESS PERIOD"). The Company shall immediately
notify the Holders via facsimile and/or email of the effectiveness of the
Registration Statement on the same day that the Company receives notification of
the effectiveness from the Commission.


                                      -3-


            (b) The initial Registration Statement required to be filed
hereunder shall include (but not be limited to), the Registrable Securities
registered for the benefit of the Holders. If the Registration Statement is not
filed on or prior to the Filing Date, then the Company shall pay to each Holder,
within five days after the end of each calendar month during which such
condition exists, an amount in cash or, at the Company's option, shares of
Common Stock (valued at the then current fair market value as agreed upon by the
Company and the Holders), as liquidated damages and not as a penalty, equal to
1.0% per month (pro rated for partial months) of the Purchase Price paid by such
Holder pursuant to the Purchase Agreement for Registrable Securities then held
by such Holder. After 130 days from the Closing Date, such damages amount shall
increase to 2.0% per month. Notwithstanding the foregoing, such damages payments
shall be paid for a maximum of 12 months. Further, if the Registration Statement
is not declared effective by the Commission on or before the 120th day following
the Closing Date, then the Company shall pay to each Holder, within five days
after the end of each calendar month during which such condition exists, an
additional amount in cash or, at the Company's option, shares of Common Stock
(valued at the then current fair market value as agreed upon by the Company and
the Holders), as liquidated damages and not as a penalty, equal to 1.0% per
month (pro rated for partial months) of the Purchase Price paid by such Holder
pursuant to the Purchase Agreement for Registrable Securities then held by such
Holder. After 210 days from the Closing Date, such damages amount shall increase
to 2.0% per month. Notwithstanding the foregoing, such damages payments shall be
paid for a maximum of 12 months. Further, after the Effectiveness Date, if the
Registration Statement ceases for any reason to remain continuously effective as
to all Registrable Securities for which it is required to be effective, or the
Holders are not permitted to utilize the Prospectus therein to resell such
Registrable Securities for 30 consecutive calendar days, then the Company shall
pay to each Holder, within five days after the end of each calendar month during
which such condition exists, an additional amount in cash or, at the Company's
option, shares of Common Stock (valued at the then current fair market value as
agreed upon by the Company and the Holders), as liquidated damages and not as a
penalty, equal to 2.0% per month (pro rated for partial months) of the Purchase
Price paid by such Holder pursuant to the Purchase Agreement for Registrable
Securities then held by such Holder.

            (c) If the Company elects to sell any of its securities in an
Underwritten Offering, the Company shall give 20 days' prior written notice to
the Holders, and the Holders shall have the right to have their Registrable
Securities included in such Underwritten Offering. In such event, and, if the
managing underwriters advise the Company and such Holders in writing that in
their opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such Underwritten
Offering the amount of such Registrable Securities which in the opinion of such
managing underwriters can be sold, and such amount shall be allocated pro-rata
among the Holders proposing to sell Registrable Securities in such Underwritten
Offering.

            (d) No Holder may participate in any Underwritten Offering hereunder
unless such Holder (i) agrees to sell its Registrable Securities on the basis
provided in any underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such arrangements.


                                      -4-


      3. REGISTRATION PROCEDURES

            In connection with the Company's registration obligations hereunder,
the Company shall:

            (a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on the form contemplated by Section 2(a) and
cause the Registration Statement to become effective and remain effective as
provided herein.

            (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and the
Prospectus used in connection therewith as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; (iii)
use its best efforts to respond within seven (7) calendar days to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the Holders
true and complete copies of all correspondence from and to the Commission
relating to the Registration Statement; and (iv) comply in all material respects
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.

            (c) File such supplements or "STICKERS" to the Registration
Statement or Prospectus as and when required by the Commission.

            (d) Notify the Holders of Registrable Securities to be sold and any
managing underwriters as promptly as reasonably possible (and, in the case of
(i)(A) below, not less than five (5) Business Days (or, in the case of a
supplement or "sticker" required to be filed pursuant to Section 3(c), within
one Business Day) prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one (1) Business Day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders, which the
Holders shall keep confidential); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) if at any time any of the representations
and warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with


                                      -5-


respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event or passage of time that makes the financial statements
included in the Registration Statement ineligible for inclusion therein or any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

            (e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

            (f) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein, and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; PROVIDED, HOWEVER, that the Company
shall not be required to take any action pursuant to this Section 3(f) that
would, in the opinion of counsel for the Company, violate applicable law or be
materially detrimental to the business prospects of the Company.

            (g) Furnish to each Holder and any managing underwriters, without
charge, at least one conformed copy of each Registration Statement and each
amendment thereto, including, if requested, financial statements and schedules,
all documents incorporated or deemed to be incorporated therein by reference,
and all exhibits to the extent requested by such Person (including those
previously furnished or incorporated by reference) promptly after the filing of
such documents with the Commission.

            (h) Promptly deliver to each Holder and any underwriters, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

            (i) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders and
any underwriters in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder or underwriter reasonably


                                      -6-


requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; PROVIDED, HOWEVER, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or subject the Company to any material tax in any such jurisdiction where it is
not then so subject.

            (j) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request.

            (k) Upon the occurrence of any event contemplated by Section 6(e),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an 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,
in light of the circumstances under which they were made, not misleading.

            (l) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin Board
or on any other stock market or trading facility on which the shares of Common
Stock are traded, listed or quoted (each a "SUBSEQUENT MARKET") as and when
required pursuant to the Purchase Agreement.

            (m) Enter into such agreements (including an underwriting agreement
in form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities.

            (n) Comply with all applicable rules and regulations of the
Commission.

            (o) If NASDR Rule 2710 requires any broker-dealer to make a filing
prior to executing a sale by a Holder, make an Issuer Filing with the NASDR,
Inc. Corporate Financing Department pursuant to NASDR Rule 2710 and respond
within five Business Days to any comments received from NASDR in connection
therewith, and pay the filing fee required in connection therewith.

            (p) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.


                                      -7-


      4. REGISTRATION EXPENSES

            (a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the OTC Bulletin Board and
any Subsequent Market on which the Common Stock is then listed for trading, and
(B) in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing a reasonable number of
prospectuses if the printing of prospectuses is requested by the managing
underwriters, if any, or by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

            (b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.


                                      -8-


      5. INDEMNIFICATION

            (a) INDEMNIFICATION BY THE COMPANY. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "LOSSES"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event
of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(e). The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.

            (b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.


                                      -9-


            (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"INDEMNIFIED PARTY"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "INDEMNIFYING PARTY") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
reasonable fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.

            An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
reasonable fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate counsel at
the expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding affected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.

            All reasonable fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; PROVIDED, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).

            (d) CONTRIBUTION. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,


                                      -10-


including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

            The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.

            The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

      6. MISCELLANEOUS

            (a) REMEDIES. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.

            (b) NO INCONSISTENT AGREEMENTS. Neither the Company nor any of its
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.

            (c) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any of
its security holders (other than the Holders in such capacity pursuant hereto)
may include securities of the Company in the Registration Statement other than
the Registrable Securities.


                                      -11-


            (d) PIGGY-BACK REGISTRATIONS. If at any time when there is not an
effective Registration Statement covering all of the Registrable Securities and
the Underlying Shares, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; PROVIDED, HOWEVER,
that the Company shall not be required to register any Registrable Securities
pursuant to this Section 6(d) that are eligible for sale pursuant to Rule 144(k)
of the Commission.

            (e) DISCONTINUED DISPOSITION. Each Holder agrees by its acquisition
of such Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Sections 3(d)(ii),
3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), or after the Company has notified such
Holder in writing that the Prospectus is outdated or defective, such Holder will
forthwith discontinue disposition of such Registrable Securities under the
Registration Statement until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 3(k), or until it is advised in writing (the "ADVICE") by the Company
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.

            (f) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; PROVIDED, HOWEVER, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.

            (g) NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be delivered as
set forth in the Purchase Agreement.

            (h) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. An individual Holder may not assign its rights hereunder without
the consent of the Company.


                                      -12-


            (i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

            (j) GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflicts of law thereof.

            (k) CUMULATIVE REMEDIES. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

            (l) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.

            (m) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

            (n) SHARES HELD BY THE COMPANY AND ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.

            (o) INDEPENDENT NATURE OF HOLDERS' OBLIGATIONS AND RIGHTS. The
obligations of each Holder hereunder is several and not joint with the
obligations of any other Holder and no Holder shall be responsible in any way
for the performance of the obligations of any other Holder hereunder. Nothing
contained herein or in any Transaction Document, and no action taken by any
Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Holders are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Holder shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Holder to be joined as an additional party in any proceeding for such purpose.


                                      -13-


      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                          SYSCAN IMAGING, INC.


                                          By:
                                              ----------------------------------
                                              Name:
                                              Title:


                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]


                                      -14-


        [HOLDER'S SIGNATURE PAGE TO SYSCAN REGISTRATION RIGHTS AGREEMENT]

Name of Holder: ____________________
Signature of Authorized Signatory of Holder:___________________________________
Name of Authorized Signatory: ____________________________________
Title of Authorized Signatory: ___________________________________


                                      -15-

EX-10.4

                           CERTIFICATE OF DESIGNATION

                     OF PREFERENCES, RIGHTS AND LIMITATIONS

                                       OF

                            SERIES A PREFERRED STOCK

                                       OF

                              SYSCAN IMAGING, INC.,

                             A DELAWARE CORPORATION

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

                     PURSUANT TO SECTION 151 OF THE GENERAL
                    CORPORATION LAW OF THE STATE OF DELAWARE

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

      The undersigned, Darwin Hu, does hereby certify that:

            1. He is the Chief Executive Officer, of SYSCAN IMAGING, INC., a
Delaware corporation (the "COMPANY").

            2. The Company is authorized to issue two million (2,000,000) shares
of preferred stock.

            3. The following resolutions were duly adopted by the Board of
Directors:

      WHEREAS, the Certificate of Incorporation of the Company provides for a
class of its authorized stock known as preferred stock, comprised of two million
(2,000,000) shares, $.001 par value, issuable from time to time in one or more
series;

      WHEREAS, the Board of Directors of the Company is authorized to fix the
dividend rights, dividend rate, voting rights, conversion rights, rights and
terms of redemption and liquidation preferences of any wholly unissued series of
preferred stock and the number of shares constituting any series and the
designation thereof, of any of them; and

      WHEREAS, it is the desire of the Board of Directors of the Company,
pursuant to its authority as aforesaid, to established a series of authorized
preferred stock having a par value of $.001 per share, which series shall be
designated as "Series A Convertible Preferred Stock" and to fix the rights,
preferences, restrictions and other matters relating to the such series of
preferred stock as follows:

      NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
established a series of authorized preferred stock having a par value of $.001
per share, which series shall consist of sixty thousand (60,000) shares and be
designated as "Series A Convertible Preferred Stock," and does hereby fix and
determine the rights, preferences, restrictions and other matters relating to
such series of preferred stock as follows:

            Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of
preferred stock shall be designated as its Series A Convertible Preferred Stock
(the "PREFERRED STOCK") and the number of shares so designated shall be 60,000
(which shall not be subject to increase without the consent of the holders of a
majority of the Preferred Stock (each, a "HOLDER" and collectively, the
"HOLDERS")). Each share of Preferred Stock shall have a par value of $.001 per
share and a stated value equal to the sum of $100 plus all accrued and unpaid
dividends to the date of determination to the extent not previously paid in cash
or common stock, par value $.001 per share ("COMMON STOCK") of the Company in
accordance with the terms hereof (the "STATED VALUE").


            Section 2. DIVIDENDS.

            (a) Holders shall be entitled to receive, out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) of 5% per annum,
payable semiannually on July 1 and January 1, beginning with the first such date
after the Original Issue Date (as defined in Section 7) and on any Conversion
Date (as defined herein) for such share ("DIVIDEND PAYMENT DATE"), in cash, by
accretion of the Stated Value or in shares of Common Stock. Subject to the terms
and conditions herein, the decision whether to accrete dividends hereunder to
the Stated Value, to pay for dividends in cash or in shares of Common Stock
shall be at the discretion of the Company. The Company shall provide the Holders
written notice of its intention to accrete dividends hereunder to the Stated
Value or pay dividends in cash or shares of Common Stock not less than ten days
prior to each Dividend Payment Date for so long as shares of Preferred Stock are
outstanding (the Company may indicate in such notice that the election contained
in such notice shall continue for later periods until revised). Failure to
timely provide such written notice shall be deemed (if permitted hereunder) an
election by the Company to accrete dividends hereunder to the Stated Value.
Dividends on the Preferred Stock shall be calculated on the basis of a 360-day
year, shall accrue daily commencing on the Original Issue Date, and shall be
deemed to accrue from such date whether or not earned or declared and whether or
not there are profits, surplus or other funds of the Company legally available
for the payment of dividends. Except as otherwise provided herein, if at any
time the Company pays less than the total amount of dividends then accrued on
account of the Preferred Stock, such payment shall be distributed ratably among
the Holders based upon the number of shares of Preferred Stock held by each
Holder. In the event the Company elects to pay all or some of the dividends in
shares of Common Stock, the shares of Common Stock to be delivered to the
Holders shall be valued at the lower of (i) the then-current Conversion Price
(as defined in Section 5(c)), and (ii) 85% of the Fifteen-Day VWAP on the
Dividend Payment Date.

            (b) Notwithstanding anything to the contrary contained herein, the
Company must pay dividends in cash if:

                  (i) the number of shares of Common Stock (as defined in
Section 7) at the time authorized, unissued and unreserved for all purposes is
insufficient to accrete such dividends to the Stated Value and permit conversion
in full of all outstanding Stated Value;

                  (ii) after the Effective Date (as defined in Section 7),
Underlying Shares (as defined in Section 7) (x) are not registered for resale
pursuant to an effective Underlying Shares Registration Statement (as defined in
Section 7) and (y) may not be sold without volume restrictions pursuant to Rule
144 promulgated under the Securities Act (as defined in Section 7), as
determined by counsel to the Company pursuant to a written opinion letter,
addressed to the Company's transfer agent in the form and substance acceptable
to the applicable Holder and such transfer agent (if the Company is permitted
and elects to pay dividends in shares of Common Stock under this clause (ii)
prior to the Effective Date and thereafter an Underlying Shares Registration
Statement shall be declared effective by the Commission (as defined in Section
7), the Company shall, within three Trading Days after the date of such
declaration of effectiveness, exchange such Underlying Shares for shares of
Common Stock that are free of restrictive legends of any kind); or

                  (iii) the accretion of such dividends to the Stated Value and
subsequent conversions of all then outstanding Stated Value would result in a
violation of Section 5(a)(iv).

            Section 3. VOTING RIGHTS. Except as otherwise provided herein and as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the Holders of a majority of the
shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation, (b) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise PARI PASSU with the Preferred Stock, (c)
amend its certificate or articles of incorporation or other charter documents so
as to affect adversely any rights of the Holders, (d) increase the authorized
number of shares of Preferred Stock, or (e) enter into any agreement with
respect to the foregoing.


            Section 4. LIQUIDATION. Upon any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary (a "LIQUIDATION"), the
Holders shall be entitled to receive out of the assets of the Company, whether
such assets are capital or surplus, for each share of Preferred Stock an amount
equal to the Stated Value per share before any distribution or payment shall be
made to the holders of any Junior Securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be
distributed to the Holders shall be distributed among the Holders ratably in
accordance with the respective amounts that would be payable on such shares if
all amounts payable thereon were paid in full. A Change of Control Transaction
shall be treated as a Liquidation within the meaning of this Section 4;
PROVIDED, HOWEVER, that each Holder shall have the right to elect the benefits
of the provisions of Section 5 hereof in lieu of receiving payment in
Liquidation pursuant to this Section 4. Each Holder shall notify the Company in
advance of its election to obtain the benefits of this Section 4 or of Section
5, which notification shall be given not later than a date specified in writing
to each Holder by the Company to be at least five (5) days prior to the payment
date. If a Holder fails to make any election, the Holder shall be deemed to have
elected the benefits of this Section 4. The Company shall mail written notice of
any such Liquidation, not less than 45 days prior to the payment date stated
therein, to each record Holder.

            Section 5. CONVERSION.

            (a) (i) CONVERSIONS AT OPTION OF HOLDER. Each share of Preferred
Stock shall be convertible into shares of Common Stock (subject to the
limitations set forth in Section 5(a)(iv)) at the Conversion Ratio (as defined
in Section 7), at the option of the Holder, at any time and from time to time
from and after the Original Issue Date. Holders shall effect conversions by
providing the Company with the form of conversion notice attached hereto as
EXHIBIT A (a "CONVERSION NOTICE"). Each Conversion Notice shall specify the
number of shares of Preferred Stock to be converted, the number of shares of
Preferred Stock owned prior to the conversion at issue, number of shares of
Preferred Stock owned subsequent to the conversion at issue and the date on
which such conversion is to be effected, which date may not be prior to the date
the Holder delivers such Conversion Notice by facsimile (the "CONVERSION DATE").
If no Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that such Conversion Notice is deemed delivered hereunder. To
effect conversions of shares of Preferred Stock, a Holder shall not be required
to surrender the certificate(s) representing such shares of Preferred Stock to
the Company unless all of the shares of Preferred Stock represented thereby are
so converted, in which case the Holder shall deliver the certificate
representing such share of Preferred Stock promptly following the Conversion
Date at issue. The calculations and entries set forth in the Conversion Notice
shall control in the absence of manifest or mathematical error.

            (ii) CONVERSIONS AT OPTION OF COMPANY. If, on any date after the
one-year anniversary of the Original Issue Date, (A) the closing Market Price
(as defined in Section 7) for a share of Common Stock for ten (10) consecutive
trading days equals at least $4.00 (subject to adjustment for the events
described in Section 5(c)(ii)) and (B) the average reported daily trading volume
during such ten-day period equals or exceeds 100,000 shares, then the Company
shall have the right, at its option, to convert, subject to the terms and
provisions of this Section 5, all, but not less than all, of the outstanding
shares of Preferred Stock at the Conversion Ratio; provided that the Underlying
Shares Registration Statement shall be effective at all times during such 10-day
period and during the 30-day notice period described in the next sentence.
Thirty (30) days prior written notice by the Company that the Company elects to
convert such shares of Preferred Stock pursuant to this Section 5(a)(ii) shall
be given to the Holders, such notice to set forth the date of conversion
pursuant to this Section 5(a)(ii) and to be addressed to each such holder at its
address as shown in the records of the Company. Upon receipt of such notice from
the Company, each holder of shares of Preferred Stock shall promptly surrender
to the Company certificates representing the shares of Preferred Stock to be
converted at any time during usual business hours at its principal place of
business maintained by it (or such other office or agency of the Company as the
Company may designate by notice in writing to the holders of shares of Preferred
Stock), specifying the name or names (with address) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Company) accompanied by a written instrument or instruments of transfer in
form reasonably satisfactory to the Company duly executed by the holder or its
duly authorized legal representative.


            (iii) [intentionally omitted]

            (iv) CERTAIN CONVERSION RESTRICTIONS.

                        (A) A Holder may not convert shares of Preferred Stock
or receive shares of Common Stock as payment of dividends hereunder to the
extent such conversion or receipt of such dividend payment would result in the
Holder, together with any affiliate thereof, beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act (as defined in Section 7)
and the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of dividends on, the shares of Preferred Stock held by such
Holder after application of this Section. Since the Holder will not be obligated
to report to the Company the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 4.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular 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 shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.

                        (B) A Holder may not convert shares of Preferred Stock
or receive shares of Common Stock as payment of dividends hereunder to the
extent such conversion or receipt of such dividend payment would result in the
Holder, together with any affiliate thereof, beneficially owning (as determined
in accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
dividends on, the shares of Preferred Stock held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 9.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular 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 shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.

            (b) (i) DELIVERY OF CERTIFICATE UPON CONVERSION. Not later than five
Trading Days after each Conversion Date (the "SHARE DELIVERY DATE"), the Company
will deliver to the Holder (A) a certificate or certificates which, after the
Effective Date shall be free of restrictive legends and trading restrictions
(other than those required by the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock, and (B) a bank check in the amount of accrued and unpaid dividends (if
the Company has elected or is required to pay accrued dividends in cash). After
the Effective Date, the Company shall, upon the request of the Holder, cause any
certificate or certificates required to be delivered by the Company hereunder to
be transmitted by the transfer agent of the Company to the Holder's prime broker
with the Depository Trust Company through its Deposit Withdrawal Agent
Commission (DWAC) system, if the Company's transfer agent is a participant in
such system. The Company shall cause its transfer agent to be a participant in
such system (or engage a new transfer agent which is a participant in such
system) within 60 days after the Original Issue Date.

                  (ii) OBLIGATION ABSOLUTE; PARTIAL LIQUIDATED DAMAGES. The
Company's obligations to issue and deliver the certificates upon conversion of
shares of Preferred Stock in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such certificates. In the event a Holder shall elect to convert
shares of Preferred Stock, the Company may not refuse conversion based on any


claim that such Holder or any one associated or affiliated with the Holder of
has been engaged in any violation of law, agreement or for any other reason,
unless an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of such Preferred Stock shall have been sought and
obtained and the Company posts a surety bond for the benefit of the Holder in
the amount of 150% of the Stated Value of the Preferred Stock 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 Holder to the extent it obtains judgment. In the absence of an
injunction precluding the same, the Company shall issue the certificates or, if
applicable, cash, upon a properly noticed conversion. If the Company fails to
deliver to the Holder such certificate or certificates pursuant to Section
5(b)(i) by the Share Delivery Date applicable to such conversion, the Company
shall pay to such Holder, in cash, as liquidated damages and not as a penalty,
for each $5,000 of Stated Value of Preferred Stock being converted, $100 per
Trading Day (increasing to $200 per Trading Day six Trading Days after such
damages begin to accrue) for each Trading Day after the Share Delivery Date
until such certificates are delivered. Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

                  (iii) COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER
CERTIFICATES UPON CONVERSION. If the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i) by the applicable Share
Delivery Date, and if after such Share Delivery Date and prior to any subsequent
delivery of the certificates to Holders the Holder purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by
such Holder of the shares of Common Stock which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a "BUY-IN"),
then the Company shall pay in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder was entitled to receive from the
conversion at issue multiplied by (2) the price at which the sell order giving
rise to such purchase obligation was executed. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Preferred Stock with
respect to which the aggregate sale price giving rise to such purchase
obligation is $10,000, under clause (A) of the immediately preceding sentence
the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a Holder's right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Preferred Stock as required pursuant to the terms hereof.

            (c) (i) The conversion price for each share of Preferred Stock (the
"CONVERSION PRICE") shall be $1.00, subject to adjustment as provided herein.

                  (ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall (a) pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities or PARI PASSU
securities payable in shares of Common Stock, (b) subdivide outstanding shares
of Common Stock into a larger number of shares, (c) combine (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification and exchange of the Common Stock any
shares of capital stock of the Company, then the Conversion Price shall be
adjusted by multiplying the Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(c)(ii) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.

                  (iii) If the Company, at any time prior to the Effective Date
while any shares of Preferred Stock are outstanding, shall issue rights,
warrants or options to all holders of Common Stock (and not to Holders)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Per Share Market Value at the record date mentioned


below, then the Conversion Price shall be adjusted by multiplying the Conversion
Price by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such rights,
warrants or options, plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right, warrant or option to purchase shares
of Common Stock the issuance of which resulted in an adjustment in the
Conversion Price pursuant to this Section 5(c)(iii), if any such right, warrant
or option shall expire and shall not have been exercised, the Conversion Price
shall immediately upon such expiration shall be recomputed and effective
immediately upon such expiration shall be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 5 upon the issuance of other rights
or warrants) had the adjustment of the Conversion Price made upon the issuance
of such rights, warrants, or options been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights, warrants or options actually
exercised.

                  (iv) If, prior to the Effective Date, at any time while shares
of Preferred Stock are outstanding the Company or any Subsidiary (with respect
to Common Stock Equivalents) shall offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition) any shares of Common Stock or Common Stock
Equivalents at a price that is, at the issuance thereof, or at any later time
due to adjustment, reset, additional issuances or otherwise, less than the
Conversion Price, then the Conversion Price shall be adjusted with respect to
all unconverted shares of Preferred Stock to equal the conversion, exchange or
purchase price for such Common Stock or Common Stock Equivalents (including any
reset provisions thereof) at issue. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. If the holder of the Common
Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance, be entitled to receive shares of Common
Stock at a price less than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price. However, upon the
expiration of any Common Stock Equivalent to purchase shares of Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section 5(c)(iv), if any such Common Stock Equivalent shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration shall be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Section 5 upon the issuance of other rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of Common Stock Equivalents been
made on the basis of offering for subscription or purchase only that number of
shares of Common Stock actually purchased upon the exercise or conversion of
such Common Stock Equivalents actually exercised or converted. A "COMMON STOCK
EQUIVALENT" means any equity or equity equivalent securities (including debt or
any other instrument that is at any time over the life thereof convertible into
or exchangeable for Common Stock) issued by the Company or a subsidiary thereof
that provide the holder thereof to receive shares of Common Stock. The Company
shall notify the Holder in writing, no later than the Trading Day following the
issuance of any Common Stock or Common Stock Equivalent subject to this section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. Notwithstanding
anything in this Section to the contrary, the provisions of this Section shall
not apply as a result of any shares of Common Stock or Common Stock Equivalents
issued or to be issued pursuant to: (A) employees, consultants, officers or
directors of the Company pursuant to any stock option, stock purchase or stock
bonus plan, agreement or arrangement approved by the Board of Directors; (B) the
acquisition of another business entity or business segment of any such entity by
the Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company will own more than fifty (50%) of the voting
power of such business segment of any such entity; (C) vendors or customers or
to other persons in similar commercial situations with the Company if such
issuance is approved by the Board of Directors; (D) corporate partnering
transactions on terms approved by the Board of Directors; (E) the terms of any
of the Company's preferred stock, warrants or other convertible securities
outstanding on the date hereof; (F) borrowings, direct or indirect, from
financial institutions regularly engaged in the business of lending money,
whether or not presently authorized which include an equity component which is
not a major component of such borrowing; (G) a merger, consolidation,
reorganization, recapitalization, sale of assets, stock purchase, contribution
or other similar transaction that involves the Company, on the one hand, and any
corporation or other entity that controls, directly or indirectly, the Company,
on the other hand; or (H) other non-cash transactions.


                  (v) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to Holders) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
5(c)(ii)-(iv) above), then in each such case the Conversion Price at which each
share of Preferred Stock shall thereafter be convertible shall be determined by
multiplying the Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by
a fraction of which the denominator shall be the Per Share Market Value
determined as of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith. However, upon the
expiration of any right, warrant or option to purchase shares of Common Stock
the issuance of which resulted in an adjustment in the Conversion Price pursuant
to this Section 5(c)(v), if any such right, warrant or option shall expire and
shall not have been exercised, the Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration shall be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Section 5 upon the issuance of other rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of such rights, warrants, or options
been made on the basis of offering for subscription or purchase only that number
of shares of Common Stock actually purchased upon the exercise of such rights,
warrants or options actually exercised. In either case the adjustments shall be
described in a statement provided to the Holders of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.

                  (vi) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. The
number of shares of Common Stock outstanding at any given time shall not include
shares owned or held by or for the account of the Company, and the disposition
of any such shares shall be considered an issue or sale of Common Stock.

                  (vii) Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(ii),(iii), (iv) or (v) the Company shall promptly mail to each
Holder, a notice setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.

                  (viii) In case of any reclassification of the Common Stock, or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property (other than compulsory share exchanges
which constitute Change of Control Transactions), the Holders of the Preferred
Stock then outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification or share exchange, and the Holders of the Preferred Stock shall
be entitled upon such event to receive such amount of securities, cash or
property as a holder of the number of shares of Common Stock of the Company into
which such shares of Preferred Stock could have been converted immediately prior
to such reclassification or share exchange would have been entitled. This
provision shall similarly apply to successive reclassifications or share
exchanges.

                  (ix) In case of any merger or consolidation of the Company
with or into another Person, or sale by the Company of more than one-half of the
assets of the Company (on an as valued basis) in one or a series of related
transactions, a Holder shall have the right thereafter to (A) convert its shares
of Preferred Stock into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
merger, consolidation or sales would have been entitled or (B) in the case of a
merger or consolidation, (x) require the surviving entity to issue shares of
convertible preferred stock or convertible debentures with such aggregate stated
value or in such face amount, as the case may be, equal to the Stated Value of
the shares of Preferred Stock then held by such Holder, plus all accrued and


unpaid dividends and other amounts owing thereon, which newly issued shares of
preferred stock or debentures shall have terms identical (including with respect
to conversion) to the terms of the Preferred Stock (except, in the case of
debentures, as may be required to reflect the differences between debt and
equity) and shall be entitled to all of the rights and privileges of a Holder of
Preferred Stock set forth herein and the agreements pursuant to which the
Preferred Stock was issued (including, without limitation, as such rights relate
to the acquisition, transferability, registration and listing of such shares of
stock other securities issuable upon conversion thereof), and (y) simultaneously
with the issuance of such convertible preferred stock or convertible debentures,
shall have the right to convert such instrument only into shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale. In the
case of clause (B), the conversion price applicable for the newly issued shares
of convertible preferred stock or convertible debentures shall be based upon the
amount of securities, cash and property that each share of Common Stock would
receive in such transaction, the Conversion Ratio immediately prior to the
effectiveness or closing date for such transaction and the Conversion Price
stated herein. The terms of any such merger, sale or consolidation shall include
such terms so as continue to give the Holders the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events. The rights set forth in this Section 5(c)(ix) shall not
alter the rights of a Holder set forth in Section 7, provided, that, a Holder
may only exercise the rights set forth in this Section 5(c)(ix) or the rights
set forth in Section 7 with respect to a single event giving rise to such
rights.

                  (x) If (a) the Company shall declare a dividend (or any other
distribution) on the Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock, (c) the
Company shall authorize the granting to all holders of Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class
or of any rights, (d) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, or any compulsory share
of exchange whereby the Common Stock is converted into other securities, cash or
property, or (e) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then the
Company shall notify the Holders at their last addresses as they shall appear
upon the stock books of the Company, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange. Holders are entitled to convert shares of
Preferred Stock during the 20-day period commencing the date of such notice to
the effective date of the event triggering such notice.

            (d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares of
Common Stock as shall be issuable (taking into account the provisions of Section
5(a) and Section 5(c)) upon the conversion of all outstanding shares of
Preferred Stock. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid and nonassessable.

            (e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If any fraction of
an Underlying Share would, except for the provisions of this Section, be
issuable upon a conversion hereunder, the Company shall pay an amount in cash
equal to the Conversion Ratio multiplied by such fraction.

            (f) The issuance of certificates for Common Stock on conversion of
Preferred Stock shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder of such shares of Preferred Stock so converted.


            (g) Shares of Preferred Stock converted into Common Stock or
redeemed in accordance with the terms hereof shall be canceled and may not be
reissued.

            (h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Executive Officer of the Company
addressed to 1772 Technology Drive, San Jose, California 95110, Facsimile No.:
(408) 436-6151, attention Chief Executive Officer, or to such other address or
facsimile number as shall be specified in writing by the Company for such
purpose. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to each Holder at the facsimile telephone number or address of such
Holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section at or prior to 5:00 p.m. (Eastern Time) (with
confirmation of transmission) on a Trading Day, (ii) the Trading Day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile telephone number specified in this Section later than 5:00 p.m.
(Eastern Time) on any date and earlier than 11:59 p.m. (Eastern Time) on such
date (with confirmation of transmission), (iii) the next Trading Day, if sent by
a nationally recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given.

            Section 6. REDEMPTION. On the date that is 36 months from the
Original Issue Date (the "REDEMPTION DATE"), all of the outstanding Preferred
Stock shall be redeemed for a per share redemption price equal to the Stated
Value on the Redemption Date (the "REDEMPTION PRICE"). The Redemption Price is
payable by the Company in cash or in shares of Common Stock at the Company's
discretion and shall be paid within five Trading Days after the Redemption Date.
In the event the Company elects to pay all or some of the Redemption Price in
shares of Common Stock, the shares of Common Stock to be delivered to the
Holders shall be valued at 85% of the Fifteen-Day VWAP on the Redemption Date.
For purposes of this Section, a share of Preferred Stock is outstanding until
such date as the Holder shall have received Underlying Shares upon a conversion
(or attempted conversion) thereof that meets the requirements hereof.

            Section 7.

            DEFINITIONS. For the purposes hereof, the following terms shall have
the following meanings:

            "CHANGE OF CONTROL TRANSACTION" means the occurrence of any of (i)
an acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 40% of the
voting securities of the Company, (ii) a replacement at one time or over time of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), (iii) the merger of the Company with or into
another entity that is not wholly owned by the Company, consolidation or sale of
all or substantially all of the assets of the Company in one or a series of
related transactions, or (iv) the execution by the Company of an agreement to
which the Company is a party or by which it is bound, providing for any of the
events set forth above in (i), (ii) or (iii) above.

            "COMMISSION" means the Securities and Exchange Commission.

            "COMMON STOCK" means the Company's common stock, par value $.001 per
share, and stock of any other class into which such shares may hereafter have
been reclassified or changed.


            "CONVERSION RATIO" means, at any time, a fraction, the numerator of
which is Stated Value and the denominator of which is the Conversion Price at
such time.

            "EFFECTIVE DATE" means the date that the Underlying Shares
Registration Statement is declared effective by the Commission.

            "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

            "FIFTEEN-DAY VWAP" means, for any date, the average daily volume
weighted Market Price for the fifteen consecutive Trading Days ending on the
Trading Day immediately prior to the date for which such price is determined.

            "JUNIOR SECURITIES" means the Common Stock and all other equity or
equity equivalent securities of the Company other than those securities that are
outstanding on the Original Issue Date and which are explicitly senior in rights
or liquidation preference to the Preferred Stock.

            "MARKET PRICE" means, with respect to the Common Stock, as of the
date of determination, (a) the closing price of the Common Stock on a national
securities exchange or as quoted on the Nasdaq National Market or the Nasdaq
SmallCap Market on such day, as reported by the Wall Street Journal; or (b) if
the Common Stock is quoted on the Nasdaq National Market or the Nasdaq SmallCap
Market but no sale occurs on such day, the average of the closing bid and asked
prices of the Common Stock on the Nasdaq National Market or the Nasdaq SmallCap
Market on such day, as reported by the Wall Street Journal; or (c) if the Common
Stock is not so listed or quoted, the average of the closing bid and asked
prices of the Common Stock in the U.S. over-the-counter market; or (d) if none
of (a), (b) or (c) is applicable, a market price per share determined by the
Board of Directors (acting in good faith pursuant to the exercise of its
fiduciary duties).

            "ORIGINAL ISSUE DATE" shall mean the date of the first issuance of
any shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.

            "PER SHARE MARKET VALUE" means on any particular date (a) the lowest
sale price for a share of the Common Stock (other than a sale by the Holder) on
such date on the Subsequent Market on which the Common Stock is then listed or
quoted, or if there is no such price on such date, then the lowest sale price of
the Common Stock (other than a sale by the Holder) on the Subsequent Market on
the date nearest preceding such date, or (b) if the Common Stock is not then
listed or quoted on a Subsequent Market, the lowest sale price of the Common
Stock (other than a sale by the Holder) in the OTC, as reported by the National
Quotation Bureau Incorporated or similar organization or agency succeeding to
its functions of reporting prices) at the close of business on such date, or (c)
if the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the lowest "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the Holder, or (d) if the
Common Stock are not then publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser selected in good faith by the Holders
of a majority of the shares of the Preferred Stock.

            "PERSON" means a corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.

            "PURCHASE AGREEMENT" means the Convertible Preferred Stock and
Common Stock Warrant Purchase Agreement, dated as of the Original Issue Date, to
which the Company and the original Holders are parties, as amended, modified or
supplemented from time to time in accordance with its terms.

            "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the Original Issue Date, to which the Company and the
original Holders are parties, as amended, modified or supplemented from time to
time in accordance with its terms.

            "SECURITIES ACT" means the Securities Act of 1933, as amended.


            "SUBSEQUENT MARKET" shall have the meaning set forth in the Purchase
Agreement.

            "TRADING DAY" means (a) a day on which the Common Stock is traded on
a Subsequent Market on which the Common Stock is then listed or quoted, as the
case may be, or (b) if the Common Stock is not listed on a Subsequent Market, a
day on which the Common Stock is traded in the over the counter market, as
reported by the OTC, or (c) if the Common Stock is not quoted on the OTC, a day
on which the Common Stock is quoted in the over the counter market as reported
by the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close.

            "TRANSACTION DOCUMENTS" shall have the meaning set forth in the
Purchase Agreement.

            "UNDERLYING SHARES" means, collectively, the shares of Common Stock
into which the shares of Preferred Stock are convertible in accordance with the
terms hereof.

            "UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
statement that meets the requirements of the Registration Rights Agreement and
registers the resale of all Underlying Shares by the Holder, who shall be named
as a "selling stockholder" thereunder.

      RESOLVED FURTHER, that the Chairman, the President or any Vice President,
and the Secretary or any Assistant Secretary, of the Company be and they hereby
are authorized and directed to prepare and file a Certificate of Designation of
Preferences, Rights and Limitations in accordance with the foregoing resolution
and the provisions of Delaware law.

      IN WITNESS WHEREOF, the undersigned has executed this Certificate this
15th day of March, 2005.


                                    /s/ Darwin Hu
                                    -------------
                                    Darwin Hu
                                    Chief Executive Officer


                                    EXHIBIT A

                              NOTICE OF CONVERSION

(To be Executed by the Registered Holder
in order to convert shares of Preferred Stock)

The undersigned hereby elects to convert the number of shares of Series A
Convertible Preferred Stock indicated below, into shares of common stock, par
value $.001 per share (the "Common Stock"), of Syscan Imaging, Inc., a Delaware
corporation (the "Company"), according to the conditions hereof, as of the date
written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any. By tendering
this Notice of Conversion, the undersigned hereby covenants to comply with the
prospectus delivery requirements under the Securities Act of 1933, as amended,
applicable to it with respect to resales of the shares of Common Stock issuable
upon the conversion requested hereby pursuant to a registration statement and,
in connection therewith, covenants that, unless otherwise specified below, such
shares have been or are intended to be sold in ordinary brokerage transactions.

Conversion calculations:


                  -------------------------------------------------------------
                  Date to Effect Conversion


                  -------------------------------------------------------------
                  Number of shares of Preferred Stock owned prior to Conversion


                  -------------------------------------------------------------
                  Number of shares of Preferred Stock to be Converted


                  -------------------------------------------------------------
                  Stated Value of shares of Preferred Stock to be Converted


                  -------------------------------------------------------------
                  Number of shares of Common Stock to be Issued


                  -------------------------------------------------------------
                  Applicable Conversion Price


                  -------------------------------------------------------------
                  Number of shares of Preferred Stock subsequent to Conversion


                  -------------------------------------------------------------
                  Signature


                  -------------------------------------------------------------
                  Name


                  -------------------------------------------------------------
                  Address

Accepted and Agreed:
Syscan Imaging, Inc.


By:
   ------------------------
   Name:
   Title:

EX-99.1

                                                                    EXHIBIT 99.1

PRESS RELEASE

SYSCAN IMAGING SELLS $1.865 MILLION OF SERIES A CONVERTIBLE PREFERRED STOCK SAN
JOSE, CA, MARCH 16, 2005 - Syscan Imaging, Inc. (OTCBB Symbol: SYII), an IP
driven OEM and private label manufacturer of mobile image scanning systems and
image display solutions, announced today the sale of $1.865 million of its
Series A Convertible Preferred Stock to nine institutional and retail investors.
The Preferred Stock is convertible into shares of common stock at an initial
fixed conversion price of $1.00 per share, subject to adjustment. The investors
also received five-year warrants to purchase an additional 932,500 shares of
common stock at an exercise price of $2.00 per share.


Syscan  President  and  CEO,  Darwin  Hu,  stated  "This  financing  is a very
important  step in our growth.  It's a vote of confidence in our business plan
and  recognition  of our  ability  to  execute.  We plan to use the  financing
proceeds to fund sales,  marketing,  research and  development  and to provide
working capital."

The Company  received  net  proceeds  of  approximately  $1,653,500  after the
payment of commissions and other fees and expenses of the offering.

ABOUT SYSCAN

Headquartered in San Jose, California and operating as a Delaware corporation,
with additional offices in the Netherlands and Hong Kong, Syscan Imaging, Inc.
designs and manufactures imaging technology solutions. Currently the Company
ships proprietary mobile image-scanning products to customers throughout the
United States, Canada, Europe, South America, Australia and Asia. The Company
has been granted 21 patents related to imaging technology with additional
patents under review. Syscan Imaging, Inc.'s common stock is publicly traded on
the OTC Bulletin Board under the symbol SYII.

THE SECURITIES OFFERED AND SOLD IN THE OFFERING HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES ABSENT REGISTRATION OR AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS PART OF THE TERMS OF THE
OFFERING, THE COMPANY IS OBLIGATED TO FILE A REGISTRATION STATEMENT TO REGISTER
FOR RESALE UNDER THE SECURITIES ACT THE SHARES OF COMMON STOCK UNDERLYING THE
SHARES OF PREFERRED STOCK AND WARRANTS ISSUED IN THE OFFERING.


NOTE ON FORWARD-LOOKING STATEMENTS

STATEMENTS CONTAINED IN THIS PRESS RELEASE, WHICH ARE NOT HISTORICAL FACTS, ARE
FORWARD-LOOKING STATEMENTS AS THAT TERM IS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE BASED
LARGELY ON CURRENT EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF KNOWN AND UNKNOWN
RISKS, UNCERTAINTIES AND OTHER FACTORS BEYOND OUR CONTROL THAT COULD CAUSE
ACTUAL EVENTS AND RESULTS TO DIFFER MATERIALLY FROM THESE STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE, AND READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE OF THIS RELEASE. SYSCAN UNDERTAKES NO OBLIGATION TO UPDATE
PUBLICLY ANY FORWARD-LOOKING STATEMENTS.