Nanotechnology is the ability to control or manipulate materials on the atomic scale to create structures that have novel properties and functions because of their size, shape or composition. These structures are typically less than 100 nanometers in size. A nanometer is one billionth of a meter, which is approximately 100,000 times smaller than the width of a human hair and is up to 100 times smaller than geometries typically used in commercial semiconductor manufacturing today. By organizing atoms into structures of different shapes and sizes on a nanoscale, important properties including electrical, optical and physical, can be controlled. At the nanoscale, these properties can be fundamentally different than the properties of the same materials at a larger, traditional scale. When nanostructures are engineered into end user products, these products benefit from the unique properties exhibited by the nanostructures.

the concept of nanotechnology started in the research community several decades ago, to date nanotechnology products have had limited applications in commercial products. Nanoscale materials, however, are being utilized in a variety of basic applications, such as sunscreens, water repellant fabrics, carbon fiber tennis rackets and antistatic mats. Recently, a number of factors have converged to act as catalysts for the development of more advanced and complex nanotechnology products. Analytical instruments, such as scanning probe and electron microscopes, have been significantly improved in recent years, allowing researchers to better understand electrical, chemical and physical properties at the nanoscale. At the same time, governments have made research and development of nanotechnology a priority. For example, in December 2003 the United States adopted the 21st Century Nanotechnology Research and Development Act, which allocated approximately $3.7 billion dollars to nanotechnology development over the next four years. Governments of other major industrialized countries have also committed to advance the progress of nanotechnology by providing substantial research and development funding. In addition, multiple industries are approaching the point at which their ability to economically manufacture products with increasing levels of performance and functionality is being constrained by traditional technologies. Nanotechnology provides the potential to address these challenges.

The Company is developing nanostructure coatings that have a wide variety of potential applications in life sciences research. For example, the Company is developing a disposable plate, or substrate, coated with nanostructures for use in existing time of flight mass spectrometry instruments. Time of flight mass spectrometry is widely used in the pharmaceutical and biotechnology industries to analyze large molecules. The Company plans to develop and manufacture this product and enter into a product marketing agreement with one or more distributors or mass spectrometry instrument manufacturers.

The Company is developing low cost and efficient solar cells for use in building materials, aerospace applications and portable power generation. The flexible and light weight nature of the Company’s solar cells and its ability to customize their optical properties could enable their use in a variety of products, such as architectural glass, roofing tiles, aerospace and portable power supplies.

The Company is developing high performance, flexible electronics to be used in a variety of application areas including large area and portable displays, low cost radio frequency identification tags and electronically steerable antenna arrays for wireless communications. Its thin film electronics technology may allow the Company to achieve the electronic performance of silicon wafers, over large areas on a light weight, flexible substrate. The Company expects this technology to be compatible with traditional thin film manufacturing equipment, as well as advanced printable electronics technologies.

The Company is developing nanostructures for non-volatile memory products for anticipated use in applications such as digital cameras, MP3 players and mobile phones. To develop non-volatile memory products, the Company is collaborating with Intel.

The Company is developing its core technology, which is based on a proprietary class of inorganic nanostructures, to engineer and integrate the physical, functional and performance characteristics of nanostructures for the purpose of creating products. Unlike traditional materials which are used to fabricate devices, each nanostructure can incorporate device functionality. These nanostructures, which can be made with features as small as a few nanometers, are synthesized atom by atom in a controlled chemical environment, creating precisely defined functional nanostructures. To design products for different application areas, the Company’s nanostructure fabrication process enables it to define and control many of the important chemical and physical parameters of its nanostructures, such as composition, shape, size and surface chemistry.

Research and development expenses increased from $4.2 million in the six months ended June 30, 2003 to $7.6 million in the six months ended June 30, 2004.

General and administrative expenses increased from $1.1 million in the six months ended June 30, 2003 to $3.9 million in the six months ended June 30, 2004.

Interest income (expense) and other income, net, increased from $54.0 thousand in the six months ended June 30, 2003 to $222.0 thousand in the six months ended June 30, 2004.