**SECURITY
      AGREEMENT**




**THIS
      SECURITY AGREEMENT** (the
“ Agreement ”), **** is
      entered into and made effective as of February 15, 2007, by and between **IQ
      MICRO INC.,** a
      Colorado corporation with its principal place of business located at 500
      Australian Avenue, Suite 700, West Palm Beach, Florida 33401 (the “ Parent ”),
      and
      the each subsidiary of the Parent listed on Schedule I attached hereto (each
      a
“ Subsidiary ,”
and
      collectively and together with the Parent, the “ Company ”),
      in
      favor of the **BUYER(S)** (the
“ Secured
      Party ”)
      listed
      on Schedule I attached to the Securities Purchase Agreement (the “ Securities
      Purchase Agreement ”)
      dated
      the date hereof between the Company and the Secured Party.




**WHEREAS,** The
      Parent shall issue and sell to the Secured Party, as provided in the Securities
      Purchase Agreement, and the Secured Party shall purchase, secured convertible
      debentures (the “ February
      Debentures ”),
      which
      shall be convertible into shares of the Parent’s common stock, par value $0.001
      and the Secured Party is the holder of three certain secured convertible
      debentures issued on or about March 29, 2006, November 30, 2005, and August
      12,
      2005 (the “ Prior
      Debentures ”
and
      collectively with the February Debenture, the “ Convertible
      Debentures ”);




**WHEREAS,** to
      induce
      the Secured Party to enter into the transaction contemplated by the Securities
      Purchase Agreement, the Convertible Debentures, the Investor Registration Rights
      Agreement of even date herewith between the Parent and the Secured Party (the
      “ Investor
      Registration Rights Agreement ”),
      (collectively referred to as the “ Transaction
      Documents ”),
      each
      Company hereby grants to the Secured Party a security interest in and to the
      pledged property of each Company identified on Exhibit
      A hereto
      (collectively referred to as the “ Pledged
      Property ”)
      to
      secure all of the Obligations (as defined below).




**NOW,
      THEREFORE,** in
      consideration of the promises and the mutual covenants herein contained, and
      for
      other good and valuable consideration, the adequacy and receipt of which are
      hereby acknowledged, the parties hereto hereby agree as follows:




**ARTICLE
      1.**


**DEFINITIONS
      AND INTERPRETATIONS**




Section
      1.1.  Recitals .




The
      above
      recitals are true and correct and are incorporated herein, in their entirety,
      by
      this reference.




Section
      1.2.  Interpretations .




Nothing
      herein expressed or implied is intended or shall be construed to confer upon
      any
      person other than the Secured Party any right, remedy or claim under or by
      reason hereof.












Section
      1.3.  Obligations
      Secured .




The
      security interest created hereby in the Pledged Property constitutes continuing
      collateral security for all of the obligations of the Parent now existing or
      hereinafter incurred to the Buyers, whether oral or written and whether arising
      before, on or after the date hereof including, without limitation following
      obligations (collectively, the “ Obligations ”):





(a)
      for
      so long as the Convertible Debentures are outstanding, the payment by the
      Parent, as and when due and payable (by scheduled maturity, acceleration, demand
      or otherwise), of all amounts from time to time owing by it in respect of the
      Securities Purchase Agreement, the Convertible Debentures and the other
      Transaction Documents; and





(b)
      for
      so long as the Convertible Debentures are outstanding, the due performance
      and
      observance by the Parent of all of its other obligations from time to time
      existing in respect of any of the Transaction Documents, including without
      limitation, the Parent’s obligations with respect to any conversion or
      redemption rights of the Secured Party under the Convertible
      Debentures.





**ARTICLE
      2.**


**PLEDGED
      PROPERTY; EVENT OF DEFAULT**




Section
      2.1.  Pledged
      Property .




(a)  As
      collateral security for all of the Obligations, the Company hereby pledges
      to
      the Secured Party, and creates in the Secured Party for its benefit, a
      continuing security interest in and to all of the Pledged Property whether
      now
      owned or hereafter acquired.




(b)  Simultaneously
      with the execution and delivery of this Agreement, the Company shall make,
      execute, acknowledge, file, record and deliver to the Secured Party any
      documents reasonably requested by the Secured Party to perfect its security
      interest in the Pledged Property. Simultaneously with the execution and delivery
      of this Agreement, the Company shall make, execute, acknowledge and deliver
      to
      the Secured Party such documents and instruments, including, without limitation,
      financing statements, certificates, affidavits and forms as may, in the Secured
      Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or
      to continue and preserve, the security interest of the Secured Party in the
      Pledged Property, and the Secured Party shall hold such documents and
      instruments as secured party, subject to the terms and conditions contained
      herein.




Section
      2.2.  Event
      of Default




An
      “ Event
      of Default ”
shall
      be deemed to have occurred under this Agreement upon an Event of Default under
      and as defined in the Convertible Debentures.




2







**ARTICLE
      3.**


**ATTORNEY-IN-FACT;
      PERFORMANCE**




Section
      3.1.  Secured
      Party Appointed Attorney-In-Fact .




Upon
      the
      occurrence and during the continuance of an Event of Default: (a) the Company
      hereby appoints the Secured Party as its attorney-in-fact, with full authority
      in the place and stead of the Company and in the name of the Company or
      otherwise, from time to time in the Secured Party’s discretion to take any
      action and to execute any instrument which the Secured Party may reasonably
      deem
      necessary to accomplish the purposes of this Agreement, including, without
      limitation, to receive and collect all instruments made payable to the Company
      representing any payments in respect of the Pledged Property or any part thereof
      and to give full discharge for the same; (b) the Secured Party may demand,
      collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize
      on the Pledged Property as and when the Secured Party may determine, and (c)
      to
      facilitate collection, the Secured Party may notify account debtors and obligors
      on any Pledged Property to make payments directly to the Secured
      Party.




Section
      3.2.  Secured
      Party May Perform .




If
      the
      Company fails to perform any agreement contained herein, the Secured Party,
      at
      its option, may itself perform, or cause performance of, such agreement, and
      the
      expenses of the Secured Party incurred in connection therewith shall be included
      in the Obligations secured hereby and payable by the Company under
      Section 8.3.




**ARTICLE
      4.**


**REPRESENTATIONS
      AND WARRANTIES**




Section
      4.1.  Authorization;
      Enforceability .




Each
      of
      the parties hereto represents and warrants that it has taken all action
      necessary to authorize the execution, delivery and performance of this Agreement
      and the transactions contemplated hereby; and upon execution and delivery,
      this
      Agreement shall constitute a valid and binding obligation of the respective
      party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
      and similar laws affecting creditors’ rights or by the principles governing the
      availability of equitable remedies.




Section
      4.2.  Ownership
      of Pledged Property .




The
      Company represents and warrants that it is the legal and beneficial owner of
      the
      Pledged Property free and clear of any lien, security interest, option or other
      charge or encumbrance (each, a “Lien”) except for the security interest created
      by this Agreement and other Permitted Liens. For purposes of this Agreement,
      “Permitted Liens” means: (1) the security interest created by this Agreement,
      (2) existing Liens disclosed by the Company to the Secured Party; (3) inchoate
      Liens for taxes, assessments or governmental charges or levies not yet due,
      as
      to which the grace period, if any, related thereto has not yet expired, or
      being
      contested in good faith and by appropriate proceedings for which adequate
      reserves have been established in accordance with GAAP; (4) Liens of carriers,
      materialmen, warehousemen, mechanics and landlords and other similar Liens
      which
      secure amounts which are not yet overdue by more than 60 days or which are
      being
      contested in good faith by appropriate proceedings; (5) licenses, sublicenses,
      leases or subleases granted to other Persons not materially interfering with
      the
      conduct of the business of the Company; (6) Liens securing capitalized lease
      obligations and purchase money indebtedness incurred solely for the purpose
      of
      financing an acquisition or lease; (7) easements, rights-of-way, restrictions,
      encroachments, municipal zoning ordinances and other similar charges or
      encumbrances, and minor title deficiencies, in each case not securing debt
      and
      not materially interfering with the conduct of the business of the Company
      and
      not materially detracting from the value of the property subject thereto; (8)
      Liens arising out of the existence of judgments or awards which judgments or
      awards do not constitute an Event of Default; (9) Liens incurred in the ordinary
      course of business in connection with workers compensation claims, unemployment
      insurance, pension liabilities and social security benefits and Liens securing
      the performance of bids, tenders, leases and contracts in the ordinary course
      of
      business, statutory obligations, surety bonds, performance bonds and other
      obligations of a like nature (other than appeal bonds) incurred in the ordinary
      course of business (exclusive of obligations in respect of the payment for
      borrowed money); (10) Liens in favor of a banking institution arising by
      operation of law encumbering deposits (including the right of set-off) and
      contractual set-off rights held by such banking institution and which are within
      the general parameters customary in the banking industry and only burdening
      deposit accounts or other funds maintained with a creditor depository
      institution; (11) usual and customary set-off rights in leases and other
      contracts; and (12) escrows in connection with acquisitions and
      dispositions.




3







**ARTICLE
      5.**


**DEFAULT;
      REMEDIES; SUBSTITUTE COLLATERAL**




Section
      5.1  Method
      of Realizing Upon the Pledged Property: Other Remedies .




If
      any
      Event of Default shall have occurred and be continuing:




(a)  The
      Secured Party may exercise in respect of the Pledged Property, in addition
      to
      any other rights and remedies provided for herein or otherwise available to
      it,
      all of the rights and remedies of a secured party upon default under the Uniform
      Commercial Code (whether or not the Uniform Commercial Code applies to the
      affected Pledged Property), and also may (i) take absolute control of the
      Pledged Property, including, without limitation, transfer into the Secured
      Party's name or into the name of its nominee or nominees (to the extent the
      Secured Party has not theretofore done so) and thereafter receive, for the
      benefit of the Secured Party, all payments made thereon, give all consents,
      waivers and ratifications in respect thereof and otherwise act with respect
      thereto as though it were the outright owner thereof, (ii) require the
      Company to assemble all or part of the Pledged Property as directed by the
      Secured Party and make it available to the Secured Party at a place or places
      to
      be designated by the Secured Party that is reasonably convenient to both
      parties, and the Secured Party may enter into and occupy any premises owned
      or
      leased by the Company where the Pledged Property or any part thereof is located
      or assembled for a reasonable period in order to effectuate the Secured Party's
      rights and remedies hereunder or under law, without obligation to the Company
      in
      respect of such occupation, and (iii) without notice except as specified
      below and without any obligation to prepare or process the Pledged Property
      for
      sale, (A) sell the Pledged Property or any part thereof in one or more
      parcels at public or private sale, at any of the Secured Party's offices or
      elsewhere, for cash, on credit or for future delivery, and at such price or
      prices and upon such other terms as the Secured Party may deem commercially
      reasonable and/or (B) lease, license or dispose of the Pledged Property or
      any part thereof upon such terms as the Secured Party may deem commercially
      reasonable. The Company agrees that, to the extent notice of sale or any other
      disposition of the Pledged Property shall be required by law, at least ten
      (10)
      days' notice to the Company of the time and place of any public sale or the
      time
      after which any private sale or other disposition of the Pledged Property is
      to
      be made shall constitute reasonable notification. The Secured Party shall not
      be
      obligated to make any sale or other disposition of any Pledged Property
      regardless of notice of sale having been given. The Secured Party may adjourn
      any public or private sale from time to time by announcement at the time and
      place fixed therefor, and such sale may, without further notice, be made at
      the
      time and place to which it was so adjourned. The Company hereby waives any
      claims against the Secured Party arising by reason of the fact that the price
      at
      which the Pledged Property may have been sold at a private sale was less than
      the price which might have been obtained at a public sale or was less than
      the
      aggregate amount of the Obligations, even if the Secured Party accepts the
      first
      offer received and does not offer such Pledged Property to more than one
      offeree, and waives all rights that the Company may have to require that all
      or
      any part of such Pledged Property be marshaled upon any sale (public or private)
      thereof. The Company hereby acknowledges that (i) any such sale of the
      Pledged Property by the Secured Party may be made without warranty,
      (ii) the Secured Party may specifically disclaim any warranties of title,
      possession, quiet enjoyment or the like, and (iii) such actions set forth
      in clauses (i) and (ii) above shall not adversely affect the commercial
      reasonableness of any such sale of Pledged Property.




4







(b)  Any
      cash
      held by the Secured Party as Pledged Property and all cash proceeds received
      by
      the Secured Party in respect of any sale of or collection from, or other
      realization upon, all or any part of the Pledged Property shall be applied
      (after payment of any amounts payable to the Secured Party pursuant to Section
      8.3 hereof) by the Secured Party against, all or any part of the Obligations
      in
      such order as the Secured Party shall elect, consistent with the provisions
      of
      the Securities Purchase Agreement. Any surplus of such cash or cash proceeds
      held by the Secured Party and remaining after the indefeasible payment in full
      in cash of all of the Obligations shall be paid over to whomsoever shall be
      lawfully entitled to receive the same or as a court of competent jurisdiction
      shall direct.




(c)  In
      the
      event that the proceeds of any such sale, collection or realization are
      insufficient to pay all amounts to which the Secured Party is legally entitled,
      the Company shall be liable for the deficiency, together with interest thereon
      at the rate specified in the Convertible Debentures for interest on overdue
      principal thereof or such other rate as shall be fixed by applicable law,
      together with the costs of collection and the reasonable fees, costs, expenses
      and other client charges of any attorneys employed by the Secured Party to
      collect such deficiency.




(d)  The
      Company hereby acknowledges that if the Secured Party complies with any
      applicable state, provincial, or federal law requirements in connection with
      a
      disposition of the Pledged Property, such compliance will not adversely affect
      the commercial reasonableness of any sale or other disposition of the Pledged
      Property.




5







(e)  The
      Secured Party shall not be required to marshal any present or future collateral
      security (including, but not limited to, this Agreement and the Pledged
      Property) for, or other assurances of payment of, the Obligations or any of
      them
      or to resort to such collateral security or other assurances of payment in
      any
      particular order, and all of the Secured Party's rights hereunder and in respect
      of such collateral security and other assurances of payment shall be cumulative
      and in addition to all other rights, however existing or arising. To the extent
      that the Company lawfully may, the Company hereby agrees that it will not invoke
      any law relating to the marshaling of collateral which might cause delay in
      or
      impede the enforcement of the Secured Party's rights under this Agreement or
      under any other instrument creating or evidencing any of the Obligations or
      under which any of the Obligations is outstanding or by which any of the
      Obligations is secured or payment thereof is otherwise assured, and, to the
      extent that it lawfully may, the Company hereby irrevocably waives the benefits
      of all such laws.




Section
      5.2  Duties
      Regarding Pledged Property .




The
      Secured Party shall have no duty as to the collection or protection of the
      Pledged Property or any income thereon or as to the preservation of any rights
      pertaining thereto, beyond the safe custody and reasonable care of any of the
      Pledged Property actually in the Secured Party’s possession.




**ARTICLE
      6.**


**AFFIRMATIVE
      COVENANTS**




The
      Company covenants and agrees that, from the date hereof and until the
      Obligations have been fully paid and satisfied or the Convertible Debentures
      have been fully converted, unless the Secured Party shall consent otherwise
      in
      writing (as provided in Section 8.4 hereof):




Section
      6.1.  Existence,
      Properties, Etc.




(a)  The
      Company shall do, or cause to be done, all things, or proceed with due diligence
      with any actions or courses of action, that may be reasonably necessary
      (i) to maintain Company’s due organization, valid existence and good
      standing under the laws of its state of incorporation, and (ii) to preserve
      and keep in full force and effect all qualifications, licenses and registrations
      in those jurisdictions in which the failure to do so could have a Material
      Adverse Effect (as defined below); and (b) the Company shall not do, or
      cause to be done, any act impairing the Company’s corporate power or authority
      (i) to carry on the Company’s business as now conducted, and (ii) to
      execute or deliver this Agreement or any other document delivered in connection
      herewith, including, without limitation, any UCC-1 Financing Statements required
      by the Secured Party (which other loan instruments collectively shall be
      referred to as the “ Loan
      Instruments ”) to
      which it is or will be a party, or perform any of its obligations hereunder
      or
      thereunder. For purpose of this Agreement, the term “ Material
      Adverse Effect ”
shall
      mean any material and adverse affect as determined by Secured Party in its
      reasonable discretion, whether individually or in the aggregate, upon
      (a) the Company’s assets, business, operations, properties or condition,
      financial or otherwise; (b) the Company’s ability to make payment as and
      when due of all or any part of the Obligations; or (c) the Pledged
      Property.




6







Section
      6.2.  Financial
      Statements and Reports .




The
      Company shall furnish to the Secured Party within a reasonable time such
      financial data as the Secured Party may reasonably request.




Section
      6.3.  Accounts
      and Reports .




The
      Company shall maintain a standard system of accounting in accordance with
      generally accepted accounting principles consistently applied (“GAAP”) and
      provide, at its sole expense, to the Secured Party the following:




(a)  as
      soon
      as available, a copy of any notice or other communication alleging any
      nonpayment or other material breach or default, or any foreclosure or other
      action respecting any material portion of its assets and properties, received
      respecting any of the indebtedness of the Company in excess of $50,000 (other
      than the Obligations), or any demand or other request for payment under any
      guaranty, assumption, purchase agreement or similar agreement or arrangement
      respecting the indebtedness or obligations of others in excess of $50,000;
      and




(b)  within
      fifteen (15) days after the making of each submission or filing, a copy of
      any report, financial statement, notice or other document, whether periodic
      or
      otherwise, submitted to the shareholders of the Company, or submitted to or
      filed by the Company with any governmental authority involving or affecting
      (i)
      the Company that could reasonably be expected to have a Material Adverse Effect;
      (ii) the Obligations; (iii) any part of the Pledged Property; or
      (iv) any of the transactions contemplated in this Agreement or the Loan
      Instruments (except, in each case, to the extent any such submission, filing,
      report, financial statement, notice or other document is posted on EDGAR
      Online).




Section
      6.4.  Maintenance
      of Books and Records; Inspection .




The
      Company shall maintain its books, accounts and records in accordance with GAAP,
      and permit the Secured Party, its officers and employees and any professionals
      designated by the Secured Party in writing, at any time during normal business
      hours and upon reasonable notice to visit and inspect any of its properties
      (including but not limited to the collateral security described in the
      Transaction Documents and/or the Loan Instruments), corporate books and
      financial records, and to discuss its accounts, affairs and finances with any
      employee, officer or director thereof (it being agreed that, unless an Event
      of
      Default shall have occurred and be continuing, there shall be no more than
      two
      (2) such visits and inspections in any Fiscal Year).




Section
      6.5.  Maintenance
      and Insurance .




(a)  The
      Company shall maintain or cause to be maintained, at its own expense, all of
      its
      material assets and properties in good working order and condition, ordinary
      wear and tear excepted, making all necessary repairs thereto and renewals and
      replacements thereof.




(b)  The
      Company shall maintain or cause to be maintained, at its own expense, insurance
      in form, substance and amounts (including deductibles), which the Company deems
      reasonably necessary to the Company’s business, (i) adequate to insure all
      assets and properties of the Company of a character usually insured by persons
      engaged in the same or similar business against loss or damage resulting from
      fire or other risks included in an extended coverage policy; (ii) against
      public liability and other tort claims that may be incurred by the Company;
      (iii) as may be required by the Transaction Documents and/or applicable law
      and (iv) as may be reasonably requested by Secured Party, all with financially
      sound and reputable insurers.




7







Section
      6.6.  Contracts
      and Other Collateral .




The
      Company shall perform all of its obligations under or with respect to each
      instrument, receivable, contract and other intangible included in the Pledged
      Property to which the Company is now or hereafter will be party on a timely
      basis and in the manner therein required, including, without limitation, this
      Agreement, except to the extent the failure to so perform such obligations
      would
      not reasonably be expected to have a Material Adverse Effect.




Section
      6.7.  Defense
      of Collateral, Etc.




The
      Company shall defend and enforce its right, title and interest in and to any
      part of: (a) the Pledged Property; and (b) if not included within the
      Pledged Property, those assets and properties whose loss would reasonably be
      expected to have a Material Adverse Effect, each against all manner of claims
      and demands on a timely basis to the full extent permitted by applicable law
      (other than any such claims and demands by holders of Permitted
      Liens).




Section
      6.8.  Taxes
      and Assessments .




The
      Company shall (a) file all material tax returns and appropriate schedules
      thereto that are required to be filed under applicable law, prior to the date
      of
      delinquency (taking into account any extensions of the original due date),
      (b) pay and discharge all material taxes, assessments and governmental
      charges or levies imposed upon the Company, upon its income and profits or
      upon
      any properties belonging to it, prior to the date on which penalties attach
      thereto, and (c) pay all material taxes, assessments and governmental
      charges or levies that, if unpaid, might become a lien or charge upon any of
      its
      properties; *provided,
      however* ,
      that
      the Company in good faith may contest any such tax, assessment, governmental
      charge or levy described in the foregoing clauses (b) and (c) so long as
      appropriate reserves are maintained with respect thereto if and to the extent
      required by GAAP.




Section
      6.9.  Compliance
      with Law and Other Agreements .




The
      Company shall maintain its business operations and property owned or used in
      connection therewith in compliance with (a) all applicable federal, state
      and local laws, regulations and ordinances governing such business operations
      and the use and ownership of such property, and (b) all agreements,
      licenses, franchises, indentures and mortgages to which the Company is a party
      or by which the Company or any of its properties is bound, except where the
      failure to so comply would not reasonably be expected to have a Material Adverse
      Effect.




8







Section
      6.10.  Notice
      of Default .




The
      Company shall give written notice to the Secured Party of the occurrence of
      any
      Event of Default.




Section
      6.11.  Notice
      of Litigation .




The
      Company shall give notice, in writing, to the Secured Party of (a) any
      actions, suits or proceedings wherein the amount at issue is in excess of
      $100,000, instituted by any persons against the Company, or affecting any of
      the
      assets of the Company, and (b) any dispute, not resolved within fifteen
      (15) days of the commencement thereof, between the Company on the one hand
      and
      any governmental or regulatory body on the other hand, which might reasonably
      be
      expected to have a Material Adverse Effect on the business operations or
      financial condition of the Company.




Section
      6.13.  Future
      Subsidiaries .




If
      the
      Company shall hereafter create or acquire any subsidiary, simultaneously with
      the creation or acquisition of such subsidiary, the Company shall cause such
      subsidiary to grant to the Secured Party a security interest of the same tenor
      as created under this Agreement.




Section
      6.14.  Further
      Assurances .




The
      Company agrees that they will take all reasonably necessary actions so as to
      assure the perfection of the Secured Party’s security interest in the Pledged
      Property.




**ARTICLE
      7.**


**NEGATIVE
      COVENANTS**




The
      Company covenants and agrees that, from the date hereof until the Obligations
      have been fully paid and satisfied, the Company shall not, unless the Secured
      Party shall consent otherwise in writing:




Section
      7.1.  Liens
      and Encumbrances .




Directly
      or indirectly make, create, incur, assume or permit to exist any Lien in, to
      or
      against any part of the Pledged Property other than Permitted
      Liens.




Section
      7.2.  Restriction
      on Redemption and Cash Dividends




Directly
      or indirectly, redeem, repurchase or declare or pay any cash dividend or
      distribution on its capital stock without the prior express written consent
      of
      the Secured Party.




9







Section
      7.3.  Incurrence
      of Indebtedness .




Directly
      or indirectly, incur or guarantee, assume or suffer to exist any indebtedness,
      other than the indebtedness evidenced by the Convertible Debentures and other
      Permitted Indebtedness. “ Permitted
      Indebtedness ”
means:
      (i) indebtedness evidenced by Convertible Debentures; (ii) indebtedness
      described on the Disclosure Schedule to the Securities Purchase Agreement;
      (iii)
      indebtedness incurred solely for the purpose of financing the acquisition or
      lease of any equipment by the Company, including capital lease obligations
      with
      no recourse other than to such equipment; (iv) indebtedness (A) the repayment
      of
      which has been subordinated to the payment of the Convertible Debentures on
      terms and conditions acceptable to the Secured Party, including with regard
      to
      interest payments and repayment of principal, (B) which does not mature or
      otherwise require or permit redemption or repayment prior to or on the
      91 st day
      after the maturity date of any Convertible Debentures then outstanding; and
      (C)
      which is not secured by any assets of the Company; (v) indebtedness solely
      between the Company and/or one of its domestic subsidiaries, on the one hand,
      and the Company and/or one of its domestic subsidiaries, on the other which
      indebtedness is not secured by any assets of the Company or any of its
      subsidiaries, provided that (x) in each case a majority of the equity of any
      such domestic subsidiary is directly or indirectly owned by the Company, such
      domestic subsidiary is controlled by the Company and such domestic subsidiary
      has executed a security agreement in the form of this Agreement and (y) any
      such
      loan shall be evidenced by an intercompany note that is pledged by the Company
      or its subsidiary, as applicable, as collateral pursuant to this Agreement;
      (vi)
      reimbursement obligations in respect of letters of credit issued for the account
      of the Company or any of its subsidiaries for the purpose of securing
      performance obligations of the Company or its subsidiaries incurred in the
      ordinary course of business so long as the aggregate face amount of all such
      letters of credit does not exceed $500,000 at any one time; and (vii) renewals,
      extensions and refinancing of any indebtedness described in clauses (i) or
      (iii)
      of this subsection.




Section
      7.4.  Places
      of Business .




Change
      the location of its chief place of business, chief executive office or any
      place
      of business disclosed to the Secured Party, unless such change in location
      is to
      a different location within the United States and the Company provides notice
      to
      the Secured Party of new location within 10 days’ of such change in
      location.




**ARTICLE
      8.**


**MISCELLANEOUS**




Section
      8.1.  Notices .




All
      notices or other communications required or permitted to be given pursuant
      to
      this Agreement shall be in writing and shall be considered as duly given on:
      (a) the date of delivery, if delivered in person or by nationally
      recognized overnight delivery service or (b) five (5) days after
      mailing if mailed from within the continental United States by certified mail,
      return receipt requested to the party entitled to receive the same:




If
                to the Secured Party:
            Cornell
                Capital Partners, LP101
                Hudson Street-Suite 3700Jersey
                City, New Jersey 07302Attention:Mark
                AngeloPortfolio
                ManagerTelephone:(201)
                986-8300Facsimile:(201)
                985-8266





10





With
                a copy to:
            Troy
                Rillo, Esq.101
                Hudson Street, Suite 3700Jersey
                City, NJ 07302Telephone:(201)
                985-8300Facsimile:(201)
                985-8266And
                if to the Company:
            IQ
                Micro Inc.500
                Australian Avenue, Suite 700West
                Palm Beach, Florida 33401Attention:
                Chief Executive OfficerTelephone:(561)
                514-0118Facsimile:(561)
                514-0195With
                a copy to:
            Gallagher,
                Briody & ButlerPrinceton
                Forrestal Village155
                Village Blvd., Suite 201
              Princeton,
                NJ 08540Telephone:(609)
                452-6000Facsimile:(609)
                452-0090





Any
      party
      may change its address by giving notice to the other party stating its new
      address. Commencing on the tenth (10 th ) day
      after the giving of such notice, such newly designated address shall be such
      party’s address for the purpose of all notices or other communications required
      or permitted to be given pursuant to this Agreement.




Section
      8.2.  Severability .




If
      any
      provision of this Agreement shall be held invalid or unenforceable, such
      invalidity or unenforceability shall attach only to such provision and shall
      not
      in any manner affect or render invalid or unenforceable any other severable
      provision of this Agreement, and this Agreement shall be carried out as if
      any
      such invalid or unenforceable provision were not contained herein.




Section
      8.3.  Expenses .




In
      the
      event of an Event of Default, the Company will pay to the Secured Party the
      amount of any and all reasonable out-of-pocket expenses, including the
      reasonable fees and expenses of its counsel, which the Secured Party may incur
      in connection with: (i) the custody or preservation of, or the sale,
      collection from, or other realization upon, any of the Pledged Property;
      (ii) the exercise or enforcement of any of the rights of the Secured Party
      hereunder or (iii) the failure by the Company to perform or observe any of
      the provisions hereof.




11







Section
      8.4.  Waivers,
      Amendments, Etc.




The
      Secured Party’s delay or failure at any time or times hereafter to require
      strict performance by Company of any undertakings, agreements or covenants
      shall
      not waive, affect, or diminish any right of the Secured Party under this
      Agreement to demand strict compliance and performance herewith. Any waiver
      by
      the Secured Party of any Event of Default shall not waive or affect any other
      Event of Default, whether such Event of Default is prior or subsequent thereto
      and whether of the same or a different type. None of the undertakings,
      agreements and covenants of the Company contained in this Agreement, and no
      Event of Default, shall be deemed to have been waived by the Secured Party,
      nor
      may this Agreement be amended, changed or modified, unless such waiver,
      amendment, change or modification is evidenced by an instrument in writing
      specifying such waiver, amendment, change or modification and signed by the
      Secured Party in the case of any such waiver, and signed by the Secured Party
      and the Company in the case of any such amendment, change or
      modification.




Section
      8.5.  Continuing
      Security Interest; Partial Release .




(a)
      This
      Agreement shall create a continuing security interest in the Pledged Property
      and shall: (i) remain in full force and effect until payment or conversion
      in full of the Convertible Debentures; (ii) be binding upon the Company and
      its successors and assigns; and (iii) inure to the benefit of the Secured
      Party and its successors and assigns. Upon the payment or satisfaction in full
      or conversion in full of the Convertible Debentures, this Agreement and the
      security interest created hereby shall terminate, and, in connection therewith,
      the Company shall be entitled to the return, at its expense, of such of the
      Pledged Property as shall not have been sold in accordance with Section 5.2
      hereof or otherwise applied pursuant to the terms hereof and the Secured Party
      shall deliver to the Company such documents as the Company shall reasonably
      request to evidence such termination.




(b)  Effective
      upon the closing of a disposition of any Pledged Property, provided the Secured
      Party consents in writing prior to such disposition or such disposition is
      made
      in the ordinary course of business, the security interest granted hereunder
      in
      the Pledged Property so disposed of shall terminate and the Secured Party shall
      deliver such documents as the Company shall reasonably request to evidence
      such
      termination; provided, however, the security interest granted hereunder in
      all
      remaining Pledged Property shall remain in full force and effect.




Section
      8.6.  Independent
      Representation .




Each
      party hereto acknowledges and agrees that it has received or has had the
      opportunity to receive independent legal counsel of its own choice and that
      it
      has been sufficiently apprised of its rights and responsibilities with regard
      to
      the substance of this Agreement.




Section
      8.7.  Applicable
      Law: Jurisdiction .




This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of New Jersey without regard to the principles of conflict of laws.
      The parties further agree that any action between them shall be heard in Hudson
      County, New Jersey, and expressly consent to the jurisdiction and venue of
      the
      Superior Court of New Jersey, sitting in Hudson County and the United States
      District Court for the District of New Jersey sitting in Newark, New Jersey
      for
      the adjudication of any civil action asserted pursuant to this
      Paragraph.




12







Section
      8.8.  Waiver
      of Jury Trial .




AS
      A
      FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
      MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
      ANY
      RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
      AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.




Section
      8.9.  Entire
      Agreement .




This
      Agreement constitutes the entire agreement among the parties and supersedes
      any
      prior agreement or understanding among them with respect to the subject matter
      hereof.










**[REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]**











13





**IN
      WITNESS WHEREOF,** the
      parties hereto have executed this Security Agreement as of the date first above
      written.







**COMPANY:****IQ
                MICRO INC.**By:
                /s/ Robert V. RudmanName:Robert
                V. RudmanTitle:Chief
                Financial Officer


14


**IN
      WITNESS WHEREOF,** the
      parties hereto have executed this Security Agreement as of the date first above
      written.







**COMPANY:****IQ
                MICRO USA INC.**By:Name:Title:







15


**IN
      WITNESS WHEREOF,** the
      parties hereto have executed this Security Agreement as of the date first above
      written.







**SECURED
                PARTY:****CORNELL
                CAPITAL PARTNERS, LP****By:****Yorkville
                Advisors, LLC****Its:****General
                Partner**By:
                /s/ Mark AngeloName:Mark
                AngeloTitle:Portfolio
                Manager














16


SCHEDULE
      I






LEGAL
      NAMES; ORGANIZATIONAL IDENTIFICATION NUMBERS; STATES OF
      ORGANIZATION








**Company’s
                Name**
            **State
                of Organization**
            **Employer
                ID**
            **Organizational
                ID**IQ
                Micro USA Inc.
            Florida







17







**EXHIBIT
      A**


**DEFINITION
      OF PLEDGED PROPERTY**






For
      the
      purpose of securing prompt and complete payment and performance by the Company
      of all of the Obligations, the Company unconditionally and irrevocably hereby
      grants to the Secured Party a continuing security interest in and to, and lien
      upon, the following Pledged Property of the Company:




(a)  all
      goods
      of the Company, including, without limitation, machinery, equipment, furniture,
      furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles
      of every kind and description, now or hereafter owned by the Company or in
      which
      the Company may have or may hereafter acquire any interest, and all
      replacements, additions, accessions, substitutions and proceeds thereof, arising
      from the sale or disposition thereof, and where applicable, the proceeds of
      insurance and of any tort claims involving any of the foregoing;




(b)  all
      inventory of the Company, including, but not limited to, all goods, wares,
      merchandise, parts, supplies, finished products, other tangible personal
      property, including such inventory as is temporarily out of Company’s custody or
      possession and including any returns upon any accounts or other proceeds,
      including insurance proceeds, resulting from the sale or disposition of any
      of
      the foregoing;




(c)  all
      contract rights and general intangibles of the Company, including, without
      limitation, goodwill, trademarks, trade styles, trade names, leasehold
      interests, partnership or joint venture interests, patents and patent
      applications, copyrights, licenses, deposit accounts whether now owned or
      hereafter created;




(d)  all
      documents, warehouse receipts, instruments and chattel paper of the Company
      whether now owned or hereafter created;




(e)  all
      accounts and other receivables, instruments or other forms of obligations and
      rights to payment of the Company (herein collectively referred to as
“ Accounts ”),
      together with the proceeds thereof, all goods represented by such Accounts
      and
      all such goods that may be returned by the Company’s customers, and all proceeds
      of any insurance thereon, and all guarantees, securities and liens which the
      Company may hold for the payment of any such Accounts including, without
      limitation, all rights of stoppage in transit, replevin and reclamation and
      as
      an unpaid vendor and/or lienor;




(f)  to
      the
      extent assignable, all of the Company’s rights under all present and future
      authorizations, permits, licenses and franchises issued or granted to the
      Company;




(g)  all
      equity interests, securities or other instruments in other companies, including,
      without limitation, any subsidiaries, investments or other entities (whether
      or
      not controlled); and




18




(h)  all
      products and proceeds (including, without limitation, insurance proceeds) from
      the above-described Pledged Property.










19