The Internet has emerged as a powerful mass medium for information, communications and commerce, with over 204 million Internet users in the United States alone as of February 2004, according to Nielsen/NetRatings, an industry research firm. Following two years of decline, online advertising represented an estimated $7.2 billion market in the United States in 2003 according to Interactive Advertising Bureau, an industry trade group, in its Interactive Advertising Revenue Report. Forrester Research, a market research firm, projects that the online advertising market will grow at a 17.5% compound annual growth rate over the next five years to reach $15.6 billion during 2008. Key drivers of growth in the online advertising market include increased share of the overall advertising market, increased Internet and broadband use, and the proliferation of more targeted and effective online advertising delivery vehicles and formats, such as paid search and behavioral marketing.

One of the key growth drivers in online advertising is the proliferation of more targeted, measurable and effective online advertising vehicles and formats. The most significant example of this to date is paid search, which enables the delivery of advertising to a consumer who demonstrates a commercial or other interest by entering a particular search keyword or phrase. The paid search market in the United States has increased from approximately $927.0 million in 2002 to approximately $2.0 billion in 2003, according to eMarketer, an industry research firm. The paid search market is projected to grow at a 24.0% compound annual growth rate over the next five years to reach an over $5.6 billion market in 2008, according to Forrester Research.

The Company and third-party software publishers offer free software products to Internet users in exchange for permission to display advertisements from the GAIN Network when those users are viewing web pages. The ads are displayed by the Company’s GAIN AdServer software, which is included with these software products.

The Company’s GAIN Publishing group develops and publishes software products designed to attract users to the GAIN Network. The Company offers its GAIN Publishing software products to consumers free of charge when included with its GAIN AdServer software and recently it began offering consumers the option to purchase the software products without the display of advertising for a fee. The Company has also entered into relationships with third parties that distribute its GAIN AdServer software with their own software, including DivXNetworks, iMesh and Sharman Networks, the publisher of the KaZaA Media Desktop.

Cost of revenue increased 27.2% to $8.8 million for the year ended December 31, 2003 compared to $6.9 million for the year ended December 31, 2002.

Product and technology development expenses increased 7.3% to $3.5 million for the year ended December 31, 2003 compared to $3.3 million for the year ended December 31, 2002.

Interest expense decreased 58.3% to $564.0 thousand for the year ended December 31, 2003 compared to $1.4 million for the year ended December 31, 2002.

Interest and other income, net increased 522.6% to $330.0 thousand for the year ended December 31, 2003 compared to $53 thousand for the year ended December 31, 2002.