Acquisition and Joint Venture Activities. Beginning in October, 2006, we began and continued preliminary discussions toward possible acquisition of two different companies. We consulted a prominent investment banking firm when taking a preliminary look at a company that is on the verge of developing a revenue stream. The company on which we were focusing is beginning to market promising technology protected by an impressive patent portfolio in their market niche. We amicably ended discussions with the target company in late December.

The other company to which we were introduced at about the same time is Holocom Networks, Inc. (HNI), a privately-held company that was in financial difficulty. HNI had a revenue stream derived from production and sales of products and related services to the military for secured communications needs. These primarily involved a patented pathway system (Secure Communications Raceway) for enclosing cables used to transmit sensitive data and communications. In addition, HNI had a 60% interest in a limited liability company that has been developing and testing a multi-domain computer hardware unit intended to answer another need in the field of secured data and communications.

We extended a loan to HNI to provide them with funds to primarily meet payroll and limited expenses while we conducted due diligence on the company and its business. Our loan was secured by a first lien on all of HNI’s assets, including patents and licenses, except for certain factored accounts receivable. HNI later defaulted on its loan payments. The company’s debts included amounts owed to Patriot and another very large creditor, among others. After careful evaluation, as a protective measure, we foreclosed on our security interest and acquired substantially all of the assets of HNI at a foreclosure sale held February 2, 2007.

We recently entered into a joint venture to which we are transferring relevant portions of the patents and assets formerly held by HNI. That entity will engage in the secured pathway system business, using the Holocom trade name that was acquired as part of the foreclosure process. The major portion of the interest held by HNI in the multi-domain computer business, which is in the early stages of development under a license from the original inventor, is likely to be sold soon to a group that has expressed interest. It is anticipated that a 10% interest will be retained by our joint venture entity.