On February 2, 2007, the Company invested an aggregate of $370,000 in convertible preferred stock, representing all of the issued preferred stock and a 46% ownership interest, of and in SSDI, a California corporation that manufactures products that protect information transmitted over secure networks. The investment consisted of certain assets contributed by the Company to SSDI valued at $250,000 and cash of $120,000. The investment is represented by 2,100,00 shares of convertible preferred stock, and the shares are convertible at the Company’s option into shares of SSDI’s common stock on a one-to-one basis. The convertible preferred stock entitles the Company to receive non-cumulative dividends at the per annum rate of $0.04 per share, when and if declared by the Board of Directors of SSDI. The investment in SSDI’s convertible preferred stock also entitles the Company to a liquidation preference of $0.40 per share, plus an amount equal to all declared but unpaid dividends.

The Company reviewed the Preferred Stock Purchase Agreement and related agreements to determine whether the Company’s convertible preferred stock investment in SSDI was in substance an investment in common stock pursuant to EITF No. 02-14, Whether an Investor Should Apply the Equity Method of Accounting to Investments Other Than Common Stock. The Company determined that, because the liquidation preference is substantive, the subordination characteristics of the preferred stock are not substantially similar to the subordination characteristics of SSDI’s common stock. The Company also evaluated its voting rights pursuant to other agreements with SSDI and, when considered together with the guidance in EITF No. 02-14, believes that it does not have the ability to exercise significant influence over SSDI. As a result, the Company accounts for its investment in SSDI at cost.

The Company reviews its investments in affiliated companies to determine whether events or changes in circumstances indicate that its carrying amount may not be recoverable. The primary factors the Company considers in its determination are the financial condition, operating performance and near term prospects of the investee. If a decline in value is deemed to be other than temporary, the Company would recognize an impairment loss.