** **

**DATED        21 **
**FEBRUARY        2008**

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**SECURITY        AGREEMENT **

**CODA        OCTOPUS GROUP, INC. **

**CERTAIN        OF ITS WHOLLY OWNED SUBSIDIARIES**

**THE        ROYAL BANK OF SCOTLAND PLC **

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**THIS      SECURITY AGREEMENT (this “Agreement”) **

**Subscription      Agreement**

**AGREED      TERMS**

| **1.** | **DEFINITIONS                AND INTERPRETATION** |
|--------|---------------------------------------------------|

| 1.1 | **Definitions** |
|-----|-----------------|

**“Business      Day”**

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**“Collateral”      **

|  | (i) | All                goods of the Company, including, without limitation, all machinery,                equipment, computers, motor vehicles, trucks tanks, boats, ships,                appliances, furniture, special and general tools, fixtures, test                and                quality control devices and other                equipment of every kind and nature and wherever situated, together                with                all documents of title and documents representing the same, all additions                and accessions thereto replacements therefor, all parts therefor,                and all                substitutes for any of the foregoing and all other items in connection                with the Company's businesses improvements thereto (collectively,                the                “Equipment”); |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (ii) | All                inventory of the Company; and |
|--|------|--------------------------------------------------|

|  | (iii) | All                of the Company's contract rights and general intangibles including,                without limitation, all partnership interests, stock or other securities,                licenses, distribution and other agreements,                computer software development rights, leases, franchises, customer                lists,                quality control procedures, grants and rights, goodwill, trademarks,                service marks, trade styles, trade names, patents, patent applications,                copyrights, internet domain names, deposit accounts, and income tax                refunds (collectively, “General Intangibles”); and |
|--|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (iv) | All                present and future rights of the Company to payment of a monetary                obligation, whether or not earned by performance, which is not evidenced                by chattel paper or an instrument, (a) for property that has been                or is to                be sold, leased, licensed, assigned, or otherwise disposed of, (b)                for                services rendered or to be rendered, (c) for a secondary obligation                incurred or to be incurred, or (d) arising out of the use of a credit                or                charge card or information contained on or for use with the card                (collectively, “Accounts”); and |
|--|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (v) | All                receivables of the Company including all insurance proceeds, and                rights to                refunds or indemnification whatsoever owing, together with all                instruments, all documents of title representing any of the foregoing,                all                rights in any merchandising, goods, equipment, motor vehicles and                trucks                which                any of the same may represent, and all right, title, security and                guaranties with respect to each receivable including any right of                stoppage                in transit; and |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (vi) | All                of the Company's documents, instruments, chattel paper, files, records,                books of account, business papers, computer programs                and the products and proceeds of all Collateral set forth in clauses                (i)-(iv) above in any form including, without limitation, all claims                against third parties for loss or damage to, or destruction of, or                other                involuntary conversion of any kind or nature of any of the other                Collateral; |
|--|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**“Company”**

**“Costs”**
**:**

**Colmek      Encumbrances**
** **

**Colmek      Shares**

**Cure      Period**

**“Debentures”**
**“Debenture”**

**“Encumbrance”**

**“Excluded      Property”**

**“FGI”**

**FGI      Encumbrances**

**“Floating      Charges”**
**“Floating      Charge”**

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**“Intercreditor      Deed” **

**Loan      Note Instrument**

**“Lock-up      Agreements”**

**“Miller      & Hilton d/b/a Colmek Systems Engineering (“Colmek”),**

**“Noteholder”      **
** **

**“Notes”**
**“Note”**

**“Obligations”**

**“Permitted      Encumbrance”**

**Selling      Shareholders**

**“Subscription      Agreement”**

**“Transaction      Documents” **

**“UCC”**

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| **2.** | **GRANT                OF SECURITY INTEREST** |
|--------|-----------------------------------------------|

| 2.1. | As                an inducement for the Secured Party to purchase the Notes and secure                the                complete and timely payment, performance, discharge in full, as the                case                may be, of all the Obligations, the Company hereby unconditionally                and                irrevocably pledges, grants and hypothecates to the Secured Party,                a                continuing security interest in, a continuing lien upon, and a right                of                set-off against, in each case to the fullest extent permitted by                law, all                of the Company’s right, title and interest of whatsoever kind and nature                in and to the Collateral ( the “**Security                Interest**”). |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.2. | The                Security Interest in Colmek shall be subject to the Colmek Encumbrances                and shall be granted in and/or over the Colmek Collateral defined                in the                said Schedule. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.3. | The                Secured Party acknowledges the Permitted Encumbrances set forth in                Schedule 1.1(c) hereto, and that FGI has first and continuing security                interest existing in the Collateral (FGI Encumbrance) and the Selling                Shareholders have prior pledges of the Colmek Shares at the date                of this                Agreement (Colmek Encumbrance). |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **REPRESENTATIONS,                WARRANTIES, COVENANTS AND AGREEMENTS OF THE COMPANY** |
|--------|-----------------------------------------------------------------------------------------|

| 3.1. | The                Company represents and warrants to, and covenants and agrees with                the                Secured Party as follows: |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.1. | Authorization                and Binding Effect. Each                of the Company has the requisite corporate power and authority to                enter                into this Agreement and otherwise to carry out its obligations thereunder.                The execution, delivery and performance by the Company and the filings                contemplated therein have been duly authorized by all necessary action                of                the Company and no further action is required by the Company. This                Agreement constitutes a legal, valid and binding obligation of the                Company                enforceable in accordance with its terms, except as enforceability                may be                limited by bankruptcy, insolvency, reorganization, moratorium or                similar                principles affecting the enforcement of creditors’ rights generally. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.2. | Title                in and over Collateral. Except as is disclosed in Schedule 3.1.2                hereto,                the Company is the sole owner of the Collateral (except for non-exclusive                licenses granted by the Company in the ordinary course of business),                free                and clear of any Encumbrances and is fully authorized to grant the                Security Interest in and pledge the Collateral. Except as is disclosed                in                Schedule 3.1.2 hereto, there is not on file in any governmental or                regulatory authority, agency or recording office an effective financing                statement, security agreement, license or transfer or any notice                of any of                the foregoing (other than those that have been filed in favor of                the                Secured Party pursuant to this Agreement) covering or affecting any                of the                Collateral. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 3.1.3. | Impairment                of Collateral. No part of the Collateral has been judged invalid                or                unenforceable. No written claim has been received that any Collateral                or                the Company's use of any Collateral violates rights of any third                party.                There has been no adverse decision to the Company's claim of ownership                rights in or exclusive rights to use the Collateral in any jurisdiction                or                to the Company's right to keep and maintain such Collateral in force and                effect, and there is no proceeding involving said rights pending                or, to                the best knowledge of the Company threatened before any court, judicial                body, administrative or regulatory agency, arbitrator or other                governmental authority. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.4. | Contractual                Obligations.                The execution, delivery and performance of this Agreement does not                conflict with or cause a breach or default, or an event that with                or                without the passage of time or notice, shall constitute a breach                or                default, under any agreement to which the Company is                a party or by which the Company is bound. No consent (including,                without                limitation, from stockholders or creditors of the Company) is required                for                the Company to enter into and perform its obligations hereunder. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.5. | Maintenance                of Liens and Security Interest Obligations. Subject to existing Permitted                Encumbrances at the date of this Agreement, the Company shall at                all times                maintain the liens and Security Interest provided for hereunder as                valid                and perfected first priority liens and security interests in the                Collateral in favor of the Secured Party until this Agreement and                the                Security Interest hereunder shall terminate pursuant to Section 12                hereof.                The Company hereby agrees to defend the same against any and all                persons.                The Company shall safeguard and protect all Collateral for the account                of                the Secured Party. Without limiting the generality of the foregoing,                the                Company shall pay all fees, taxes and other amounts necessary to                maintain                the Collateral and the Security Interest hereunder, and the Company                shall                obtain and furnish to the Secured Party from time to time, upon demand,                such releases subordinations of claims and liens which may be required                to                maintain the priority of the Security Interest. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.6. | Restriction                on further Encumbrances. Save Permitted Encumbrances at the date                of this                Agreement and those authorized by Clause 3.7 of the Loan Note Instrument,                the Company will not grant or create any Encumbrances in favor of                a third                party (except in the ordinary course of business and in connection                with                any receivables financing which the Company may obtain and in such                event                any grant of a security interest will rank junior to the Secured                Party’s                Security Interest granted herein), sell or otherwise dispose of any                of the                Collateral without the prior written consent of the Secured Party. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.7. | The                Company shall keep and preserve its Equipment, inventory and other                tangible Collateral in good condition, repair and order and shall                not                operate or locate any such Collateral (or cause to be operated or                located)                in any area excluded from insurance coverage. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 3.1.8. | The                Company shall, within 15 days of obtaining knowledge thereof, advise                the                Secured Party promptly, in sufficient detail, of any substantial                change in                the Collateral, and of the occurrence of any event which would have                material adverse effect on the value of the Collateral or on the                Secured                Party’s Security Interest therein. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.9. | The                Company shall promptly execute and deliver to the Secured Party such                further deeds, mortgages, assignments, agreements, financing statements                or                other instruments, documents, certificates and assurances and take                such                further action as the Secured Party may from time request and may                in its                sole discretion deem necessary to perfect, protect or enforce its                Security                Interest in the Collateral. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.10. | The                Company shall permit the Secured Party and its representatives and                agents                to inspect the Collateral at any time, and to make copies of records                pertaining to the Collateral as may be requested by the Secured Party                from                time to time. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.11. | The                Company will take all steps reasonably necessary to pursue diligently                and                seek to preserve, enforce and collect any rights, claims, causes                of action                and accounts in respect of the Collateral. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.12. | The                Company shall promptly notify the Secured Party in sufficient detail                upon                becoming aware of any garnishment, execution or other legal process                levied                against any Collateral and of any other information received by the                Company that may materially affect the value of the Collateral, the                Security Interest or the rights of the Secured Party hereunder. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.13 | All                information heretofore, herein or hereafter supplied to the Secured                Party                by or on behalf of the Company with respect to the Collateral is                accurate                and complete in all respects as of the date                furnished. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.14 | Accounts                Covenants.                The Secured Party shall after an Event of Default and after the expiration                of the Cure Period (and the Event of Default remains uncured) have                the                right at any time or times, in Secured Party's name or in the name                of a                nominee of Secured Party, to verify the validity, amount or any other                matter relating to any Account or other Collateral, by mail, telephone,                facsimile transmission or otherwise. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.15 | Chief                Executive Office. Collateral Locations. The chief executive office                of the                Company and the Company's records concerning Accounts are located                only at                the address set forth in the preamble to this Agreement. Except as                is                disclosed in this Schedule 3.1.15, the Company has not, during the                past                five years, been known by or used by any other corporate or fictitious                name or been a party to any merger or consolidation, or acquired                all or                substantially all of the assets of any Person, or acquired any of                its                property or assets out of the ordinary course of                business. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 3.1.16 | Maintenance                of Existence.                The Company shall at all times preserve, renew and keep in full force                and                effect its corporate existence and rights and franchises with respect                thereto and maintain in full force and effect all permits, licenses,                approvals, authorizations, leases and contracts necessary to carry                on the                business as presently, or proposed to be, conducted. The Company                shall not                change its name unless each of the following conditions is specified:                (i)                the Company shall give the Secured Party fifteen (15) days’ prior written                notice of any proposed change in its legal name, which notice shall                accurately set forth the new name; and (ii) prior to the filing thereof                the Company shall deliver to Secured Party a copy of the proposed                amendment to the certificate of incorporation of the Company providing                for                the name change and once the filing has been made, Secured Party                shall                receive a copy of such amendment to the certificate of incorporation                of                the Company certified by the Secretary of State of the jurisdiction                of                organization of the Company as soon as it is available. The Company                shall                not change its jurisdiction of incorporation without the consent                of the                Secured Party. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.17 | Payment                of Taxes and Claims. The Company has paid or caused to be paid all                taxes                due and payable or claimed due and payable in any assessment received                by                it, except taxes the validity of which is being contested in good                faith by                appropriate proceedings diligently pursued and available to the Company                and with respect to which adequate reserves have been set aside on                its                books. The Company shall duly pay and discharge all taxes, assessments,                contributions and governmental charges upon or against it or its                properties or assets, except for taxes the validity of which is being                contested in good faith by appropriate proceedings diligently pursued                and                available to the Company and with respect to which adequate reserves                have                been set aside on its books. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1.18 | Insurance.                The Company shall, at all times, maintain with reputable insurers                insurance with respect to the Collateral against loss or damage and                all                other insurance of the kinds and in the amounts customarily insured                against or carried by corporations of established reputation engaged                in                similar businesses and similarly situated. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **4.** | **COVENANT                TO DISCHARGE PERMITTED                ENCUMBRANCES** |
|--------|--------------------------------------------------------------------------------|

| 4.1. | The                Company shall take all steps necessary to settle all its indebtedness                and                obligations in full in relation to (a) the Colmek Encumbrances by                no later                than April 30, 2008; and (b) the FGI Encumbrances by no later than                September 30, 2008; and procure that the security interest in and                over the                Collateral in respect of these Permitted Encumbrances be released                and all                filings and recordings pertaining to same be terminated or otherwise                removed from all registers. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.2. | In                respect of the Colmek Encumbrances the Company shall no later than                April                30, 2008 take all steps in all jurisdictions necessary to ensure                that                after the discharge of the Colmek Encumbrance, the Security Interest                of                the Secured Party constitutes at that time a first priority Security                Interest in the Collateral. No Cure Period shall be given for breach                of                this covenant. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.3. | In                respect of the FGI Encumbrance the Company shall no later than November                1,                2008, take all steps in all jurisdictions necessary to ensure that                after                the discharge of the related Permitted Encumbrance, the Security                Interest                of the Secured Party constitutes at that time a first priority Security                Interest in the Collateral. No Cure Period shall be given for breach                of                this covenant. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | **5.                DEFAULTS** |
|--------|--------------------------------|

| 5.1. | The                following events shall be Events of Default: |
|------|-----------------------------------------------------------------|

| 5.1.1. | an                Event of Default as is prescribed by Condition 9 of Loan Note Instrument                which has not been remedied as provided for in Condition 9.2 of the                Loan                Note Instrument. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.1.2. | Any                representation or warranty of the Company in this Agreement proves                to have                been incorrect in any material respect when made. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.1.3 | the                failure of the Company to observe or perform its obligations hereunder                and                which remains uncured after the expiration of the Cure                Period. |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **6.** | **DUTY                TO HOLD ON TRUST** |
|--------|------------------------------------------|

| **7.** | **RIGHTS                AND REMEDIES UPON DEFAULT** |
|--------|-----------------------------------------------------|

| 7.1. | Upon                occurrence of any Event of Default and provided that after the lapse                of                the Cure Period such Event of Default remains uncured, and at any                time                thereafter, the Secured Party shall have the right to exercise all                of the                remedies conferred hereunder and under the Notes, and the Secured                Party                shall have all the rights and remedies of a secured party under the                UCC                and/or any other applicable law (including Commercial Code of any                jurisdiction in which then located) but subject always to the prior                Permitted Encumbrances if such Event of Default occurs prior to their                discharge. Without limitation, the Secured Party shall have the following                rights and powers: |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7.1.1. | The                Secured Party shall have the right to take possession of the Collateral                and, for that purpose, enter, with the aid and assistance                of any person, any premises where the Collateral or any part thereof,                is                or may be placed and remove the same and the Company shall assemble                the                Collateral or any part thereof and make it available to the Secured                Party                at places which Secured Party shall reasonably select, whether at                the                Company’s premises or elsewhere, and make available to the Secured Party,                without rent, all of the Company's respective premises and facilities                for                the purpose of the Secured Party taking possession of, removing or                putting                the Collateral in saleable or disposable form. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 7.1.2. | The                Secured Party shall have the right to operate the business of the                Company                using the Collateral and shall have the right to                assign, sell, lease or otherwise dispose of and deliver all or any                part of                the Collateral, at public or private sale or otherwise, either with                or                without special conditions or stipulations, for cash or on credit                or for                future delivery such parcel or parcels and at such time or times                and at                such place or places, and upon such terms and conditions as the Secured                Party may deem commercially reasonable, (except as shall be required                by                applicable statute and cannot be waived) all without advertisement                or                demand upon or notice to the Company or right of redemption of the                Company, which are hereby expressly waived. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **8.** | **APPLICATION                OF PROCEEDS** |
|--------|--------------------------------------------|

| 8.1 | The                proceeds of any such sale, lease or other disposition of the Collateral                hereunder shall be applied first, to the expenses of retaking, holding,                storing, processing and preparing for sale, selling and the like,                including Costs incurred in connection therewith, of the Collateral                by the                Secured Party in enforcing its rights hereunder and in connection                with                collecting, storing and disposing of the Collateral, and then to                satisfaction of any indebtedness in relation to the prior Permitted                Encumbrances (if the Event of Default occurs prior to their discharge),                satisfaction of the Obligations, and to the payment of any other                amounts                required by applicable law, after which the Secured Party shall pay                the                Company any surplus proceeds. If, upon the sale, license or other                disposition of the Collateral, the proceeds thereof are insufficient                to                pay all amounts to which the Secured Party is legally entitled, the                Company will be liable for the deficiency, together with interest                thereon,                at the rate of 10% per annum (the “Default Rate”), and the reasonable                Costs incurred by the Secured Party in collecting the deficiency.                To the                extent permitted by applicable law, the Company waives all claims,                damages                and demands against the Secured Party arising out of the repossession,                removal, retention or sale of the Collateral, unless resulting from                the                negligence or wilful misconduct of the Secured Party. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **9.** | **COSTS                AND EXPENSES** |
|--------|---------------------------------------|

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| **10.** | **RESPONSIBILITIY                FOR THE COLLATERAL** |
|---------|-------------------------------------------------------|

| **11.** | **SECURITY                INTEREST ABSOLUTE** |
|---------|-----------------------------------------------|

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| **12.** | **TERM                OF AGREEMENT** |
|---------|--------------------------------------|

| **13.** | **POWER                OF ATTORNEY; FURTHER ASSURANCES**** **** ** |
|---------|------------------------------------------------------------------------------|

| 13.1. | The                Company authorizes the Secured Party, and does hereby make, constitute                and                appoint it, and its respective agents, successors or assigns with                full                power of substitution, as the Company's true and lawful attorney-in-fact,                with power in its own name or in the name of the Company, to, after                the                occurrence and after any Cure Period has lapsed and the Event of                Default                continues (i) endorse any notes, checks, drafts, money orders or                other                instruments of payment (including payments payable under or in respect                of                any policy of insurance) in respect of the Collateral that may come                into                possession of the Secured Party (ii) authorize and endorse any UCC                financing statement or any invoice, freight or express bill, bill                of                lading, storage or warehouse receipts, drafts against debtors,                assignments, verifications and notices in connection with accounts,                and                other documents relating to the Collateral; (iii) pay or discharge                taxes,                liens, security interests or other Encumbrances at any time levied                or                placed on or threatened against the Collateral; (iv) demand, collect,                receipt for, compromise, settle and sue for monies due in respect                of the                Collateral; and (v) generally, do, at the option of the Secured Party,                and                at the Company’s expense at any time, or from time to time, all acts and                things which the Secured Party deems necessary to protect, preserve                and                realize upon the Collateral and the Security Interest granted therein                in                order to effect the intent of this Agreement and the other Transaction                Documents, all as fully and effectually as the Company might or could                do;                and the Company hereby ratifies all that said attorney shall lawfully                do                or cause to be done by virtue hereof. This power of attorney is coupled                with an interest and shall be irrevocable for the term of this Agreement                and thereafter as long as any of the Obligations shall be                outstanding. |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 13.2. | On                a continuing basis, the Company will make, execute, acknowledge,                deliver,                file and record, as the case may be, in the proper filing and recording                places in any jurisdictions, including without limitation, the                jurisdictions indicated on Schedule 13.2 hereof, all such instruments,                and                take all such actions as may reasonably be deemed necessary to perfect                the                Security Interest granted hereunder and otherwise to carry out the                intent                and purposes of this Agreement or for assuring and confirming to                the                Secured Party the grant or perfection of a security interest in all                the                Collateral. |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 13.3. | The                Company hereby irrevocably appoints the Secured Party as the Company's                attorney-in-fact, with full authority in the place and stead of the                Company and in the name of the Company, from time to time in the                Secured                Party's discretion, to take any action and to execute any instrument                which                the Secured Party may deem necessary or advisable to accomplish the                purposes of this Agreement including the filing, in its sole discretion,                of one or more financing or continuation statements and amendments                thereto, relative to any of the Collateral without the signature                of the                Company where permitted by law. |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **14.** | **NOTICES** |
|---------|-------------|

| 14.1. | All                notices, demands and other communications provided for or permitted                hereunder shall be made in writing and shall be by registered or                certified                first-class mail, return receipt requested, telecopier, courier service                or                personal delivery: |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| **15.** | **MISCELLANEOUS** |
|---------|-------------------|

| 15.1. | **Headings** |
|-------|--------------|

| 15.2. | **Governing                law** |
|-------|----------------------------------|

| 15.3. | **Amendment                and** **Waiver** |
|-------|--------------------------------------------------|

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| 15.4. | **Rules                of Construction.** |
|-------|-------------------------------------------|

| 15.5. | **Entire                Agreement**  |
|-------|-------------------------------------------|

| 15.6. | **Severability** |
|-------|------------------|

|   | If                any one or more of the provisions contained herein, or the application                thereof in any circumstance, is held invalid, illegal or unenforceable                in                any respect for any reason, the validity, legality and enforceability of                any such provision in every other respect and of the remaining provisions                hereof shall not be in any way impaired, unless the provisions held                invalid, illegal or unenforceable shall substantially impair the                benefits                of the remaining provisions hereof. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 15.7. | **Counterparts** |
|-------|------------------|

| 15.8. | **Further                Assurances** |
|-------|---------------------------------------|

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| 15.9 | **Choice                of Forum; Service of Process; Jury Trial Waiver****.** |
|------|--------------------------------------------------------------------------------|

| 15.9.1. | The                Company irrevocably consents and submits to the non-exclusive jurisdiction                of any federal or State court of competent jurisdiction sitting in                the                City and County of New York, New York, and waives any objection based                on                venue or *forum                non conveniens*                with respect to any action instituted therein arising under this                Agreement                or any of the other Transaction Documents or in any way connected                or                related or incidental to the dealings of the Company and Secured                Party in                respect of this Agreement or the other Transaction Documents or the                transactions related hereto or thereto, in each case whether now                existing                or hereafter arising, and whether in contract, tort, equity or otherwise,                and agrees that any dispute with respect to any such matters shall                be                heard only in the courts described above (except that Secured Party                shall                have the right to bring any action or proceeding against the Company                or                its property in the courts of any other jurisdiction which Secured                Party                deems necessary or appropriate in order to realize on the Collateral                or to                otherwise enforce its rights against the Company or its property). |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 15.9.2. | The                Company hereby waives personal service of any and all process upon                it and                consents that all such service of process may be made by certified                mail                (return receipt requested) directed to its address set forth in the                preamble hereto and service so made shall be deemed to be completed                five                (5) days after the same shall have been so deposited in the U.S.                mails,                or, at Secured Party's option, by service upon the Company in any                other                manner provided under the rules of any such courts. Within thirty                (30)                days after such service, the Company shall appear in answer to such                process, failing which the Company shall be deemed in default and                judgment                may be entered by Secured Party against the Company for the amount                of the                claim and other relief requested. |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 15.9.3. | The                Company hereby waives and right to trial by jury of any claim, demand,                action or cause of action (i) arising under this Agreement or any                of the                other Transaction Documents or (ii) in any way connected with or                related                or incidental to the dealings of the Company and Secured Party in                respect                of this Agreement or any of the other Transaction Documents or the                transactions related hereto or thereto in each case whether now existing                or hereafter arising, and whether in contract, tort, equity or otherwise.                The Company hereby agrees and consents that any such claim, demand,                action                or cause of action shall be decided by court trial without a jury                and that                the Company or Secured Party may file an original counterpart of                a copy of                this Agreement with any court as written evidence of the consent                of the                Company and Secured Party to the waiver of their right to trial by                jury. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|         |                                                           |         |
|--------------|----------------------------------------------------------------|--------------|
|         | **CODA              OCTOPUS GROUP, INC**.                      |
|    |                                                      |    |
|         | By:                                                  |         |
|         | Name:                Jason ReidTitle:                President |
|         |                                                           |

|         |                                                               |         |
|--------------|--------------------------------------------------------------------|--------------|
|         | **CODA                  OCTOPUS (US) HOLDINGS, INC.**              |
|    |                                                          |    |
|         | By:                                                      |         |
|         | Name:                  Jason ReidTitle:                  President |
|         |                                                               |

|         |                                                                  |         |
|--------------|-----------------------------------------------------------------------|--------------|
|         | **PORT                    SECURITY GROUP, Inc.**                      |
|    |                                                             |    |
|         | By:                                                         |         |
|         | Name:                    Jason ReidTitle:                    Director |
|         |                                                                  |

|         |                                   |         |
|--------------|----------------------------------------|--------------|
|         | **INNALOGIC,                    Inc.** |
|    |                              |    |
|         | By:                          |         |
|         | Name:                      Title:      |
|         |                                   |

|         |                                                                                            |         |
|--------------|-------------------------------------------------------------------------------------------------|--------------|
|         | **MILLER                      AND                      HILTON D/BA COLMEK ENGINEERING SYSTEMS** |
|    |                                                                                       |    |
|         | By:                                                                                   |         |
|         | Name:                        Title:                                                             |
|         |                                                                                            |

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|         |                                                         |         |
|--------------|--------------------------------------------------------------|--------------|
|         | **THE              ROYAL              BANK OF SCOTLAND PLC** |
|    |                                                    |    |
|         | By:                                                |         |
|         | Name:                Title:                                  |
|         |                                                         |

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**Schedule      1.1(a)**

**Schedule      1.1(b)**

| 1. | Coda                Octopus Products Inc. a Delaware Corporation with its principal place                of                business at 100 14th                Avenue South, Pinelas County, Florida |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Coda                Octopus (US) Holdings, Inc. a Delaware corporation with its principal                place of business at 164 West 25th                Street, 6th                Floor (6R), New York NY 10017. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Coda                Octopus Research and Development Inc, a Delaware corporation with                its                principal place of business at 164 West 25th                Street, 6th                Floor (6R), New York NY 10017. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | Innalogic                Inc., a Delaware corporation with its place of business at 164 West,                25th                Street, 6th                Floor (6F), New York NY 10017 with its principal place of business                at 164                West 25th                Street, 6th                Floor (6R), New York NY 10017. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | The                Port Security Group, Inc., a Delaware corporation with its place                of                business at 164 West 25th                Street, 6th                Floor (6R), New York NY 10017. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | Miller                and Hilton, d/b/a Colmek Systems Engineering (“Colmek”), a Utah                corporation (Corporation Number 2400704-0150) with its principal                place of                business at 2001 South 3480 West, Salt Lake City, Utah                84104. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Schedule      1.1(c)**

**Permitted      Encumbrances**

| **1.** | **FGI                Encumbrance** |
|--------|------------------------------------|

| **2.** | **Colmek                Encumbrance** |
|--------|---------------------------------------|

| **3.** | **General                  Liens** |
|--------|------------------------------------|

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**Schedule      3.1.2**

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**Schedule      3.1.15**

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**Schedule      13.2**

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