The number and sophistication of wireless communication systems and antennas have increased to meet the growing demand for broadband wireless data and voice services. One communication system addressing this demand is WiFi, which generally refers to the 802.11 radio technology standards developed by the Institute of Electrical and Electronics Engineers. According to Infonetics Research, the worldwide market for wireless local area network hardware is projected to grow to approximately $3.6 billion in 2007 from approximately $1.6 billion in 2002.

A growing application for WiFi antennas is in “HotSpots,” which are public places, such as coffee shops or airport terminals, where people can obtain wireless access to the Internet while on the premises. According to Gartner Research, the number of HotSpots worldwide increased from approximately 1,200 in 2001 to over 70,000 in 2003, and continued growth is expected through 2005.

According to MRG Inc., the market for biochips is estimated to grow from approximately $1.1 billion in 2002 to approximately $2.7 billion by 2007. In addition, according to Kalorama Information, analytical microarrays are among the fastest growing segments in the life sciences industry.

The Company’s proprietary AccuPath 2.4 GHz and 5.25 GHz Antennas have been designed for specific HotSpot and enterprise applications. The Company designed these panel antennas to permit them to be manufactured on polymer laminates, which is believed to result in a lower-cost product with higher performance and greater reliability than currently available WiFi antennas.

The Company’s AccuPath Smart Antenna, which is in the development phase, features polymer-based technology that provides electronic rather than mechanical beam steering.

The Company has provided custom-designed wireless network antennas to a number of potential corporate customers for beta testing. The Company is designing these antennas to improve the security of networks by containing the signals within a well-defined perimeter, significantly reducing access to the radio frequency signal from outside the premises.

The Company’s NanoCapture Arrays are biochips that are coated with the Company’s proprietary hydrophobic polymers. These water-resistant polymers surround the microwells on the biochips, helping to contain the DNA samples in the microwells and reduce cross-contamination between wells.

Although the Company has designed its NanoCapture Arrays specifically for genetic analysis, they can be used in a broad range of biotechnology applications.

The Company is developing a new generation of electro-optic modulators and other devices for optical networks based on its proprietary polymer materials. The Company’s polymer-based modulators can operate at speeds up to five times faster than existing inorganic crystal-based electro-optic modulators. In addition, using its polymers the Company can build modulators with three-dimensional flexible geometries that are not possible using inorganic materials.

Cost of revenue increased by $684,000 to $1,014,000 in 2003 from $330,000 in 2002, and increased by $20,000 to $330,000 in 2002 from $310,000 in 2001. On a percentage of revenue basis, cost of revenue was 59% in 2003, 35% in 2002 and 36% in 2001.

Research and development expense decreased to $7,602,000 in 2003 from $8,300,000 in 2002, and increased to $8,300,000 in 2002 from $7,251,000 in 2001.

Marketing, general and administrative expense increased to $1,270,000 in 2003 from $1,221,000 in 2002, and decreased to $1,221,000 in 2002 from $2,996,000 in 2001.