According to World Energy Outlook 2006, global energy demand is projected to grow to more than one and a half times current demand over the next 25 years, as population growth continues to accelerate and developing nations such as India and China continue to expand their industrial bases. Moreover, in many instances, developing nations are looking for alternative energy technologies suitable for off-grid applications that are capable of providing energy without having to build, extend or repair expensive, complicated or aging electrical transmission grid infrastructure.

Significant incentive programs have been adopted in Japan, South Korea, Germany, Spain, France, Italy, Greece and a number of states in the United States. The Japanese government, through the Ministry of Economy, Trade and Industry, or METI, is actively supporting the commercialization of residential cogeneration systems. In 2005, METI funded the commercialization process through a $23 million Large Scale Monitoring Program, involving subsidies for approximately 400 cogeneration systems across the market.

Access to potable water is also an important and growing priority and a major challenge in many parts of the developing world. Given recent and forecasted increases in population and generation of wastewater, along with the rising need for water, treated wastewater will be a critical component of the overall water supply. While access to drinking water in India, for example, has increased over the past decade, there continue to be significant health concerns associated with contaminants in the water supply. According to the World Bank, 21% of communicable diseases in India are water related.

Cement is a fundamental building material used around the world that is manufactured in a fashion dating back to the first half of the twentieth century. According to a Massachusetts Institute of Technology report, the production of cement accounts for approximately 5% to 10% of carbon dioxide emissions globally, thereby contributing to significant green-house gas emissions.

The Company has developed SOFCs that, as a result of proprietary designs and materials, offer numerous important competitive advantages over alternative systems. Accordingly, the Company’s fuel cells are expected to have near-term applications in the portable, residential and distributed power generation markets. The Company’s SOFCs offer high efficiency, quick start times, considerable fuel flexibility and very high power densities, thereby providing an answer to the demand for alternative energy technologies that are either suitable for off-grid applications or capable of leveraging local natural resources.

By combining a proprietary process the Company acquired for making a highly porous ceramic, referred to as Cell-Pore. By itself, Cell-Pore has more than 10 times the surface area of competitive plastic products and is less expensive to produce. The Company has developed product concepts and prototypes for point-of-use, point-of-entry and municipal water treatment applications utilizing Cell-Pore.

The Company has developed a number of advanced enabling materials, many of them nanotechnology-based, with broad application in the energy, environmental and infrastructure markets.

The Company manufactures a broad range of nano-sized and micron-sized metal powders, including copper, silver and nickel, in dry, non-agglomerated form, or in the form of an easily dispersible wet “pre-dispersion” that can be incorporated into a wide variety of end products to enhance performance and reliability and lower cost.

The Company has developed a next-generation process for producing nanostructured carbon products, including multi-walled carbon nanotubes, or CNTs, at a significantly lower cost than alternative methods. CNTs are one-sixth the weight of steel and 100 times as strong, but historically the widespread use of CNTs has been prohibited by their high cost (i.e., between $1.00 and $20.00 per gram).

Costs of revenues increased to $3.5 million for the year ended December 31, 2006 from $2.6 million for the year ended December 31, 2005.

Research and development expenses increased to $8.8 million for the year ended December 31, 2006 from $5.6 million for the year ended December 31, 2005.

Interest and dividend income was $0.5 million for the year ended December 31, 2006 and $0.2 million for the year ended December 31, 2005.

Interest expense decreased to $42,000 for the year ended December 31, 2006 from $0.1 million for the year ended December 31, 2005.

Net loss increased to $14.7 million for the year ended December 31, 2006 from a net loss of $10.3 million for the year ended December 31, 2005.