Every day, businesses, government agencies and other organizations transfer billions of units of raw materials, work-in-progress inventory, finished goods, assets and other items throughout the world. Currently, bar code technology is the predominant technology used by organizations to track goods and assets. Radio frequency identification, or RFID, technology has emerged as an alternative solution to enable automated and efficient tracking of assets through extended supply chains and other settings on a near-real time basis with minimal human intervention.

A range of different types of RFID tags are available to meet different applications, from relatively simple passive tags that are powered entirely by radio frequency energy received from a reader, to relatively complex active and sensor tags that carry batteries and operate and communicate more autonomously. New and emerging applications of RFID technology in supply chain and asset tracking applications generally use passive RFID systems operating in the ultra high frequency, or UHF, radio band. Recent developments in technology, industry standards and manufacturing processes allow these UHF systems to deliver long read ranges of up to 10 meters and read speeds of over 500 tags per second, at low cost with finished tags currently selling for prices below $0.15, which represents a significant reduction in tag prices over the past year.

ABI Research, an independent market research firm, estimated in its RFID Forecast Database, published in the first quarter of 2006, that annual revenue for all types and frequencies of RFID readers, tags and software applications for supply chain management and asset management applications would grow to approximately $7.7 billion in 2011. ABI Research includes container, pallet, case and item supply chain management applications, asset tagging applications and real-time location system applications in its supply chain management and asset management category. Passive UHF tags and readers, the technology used for most high-volume supply chain management applications, represent a significant and growing portion of the anticipated RFID market opportunity. ABI Research further estimated that, by 2011, aggregate UHF RFID tag revenues for all applications, which include active and passive tags, will exceed $2.8 billion, and aggregate UHF RFID reader revenues for all applications will exceed $1.6 billion.

The Company offers a selection of RFID inlays and a limited offering of finished RFID labels and straps. In addition to testing all tags for radio frequency performance, the Company uses a comprehensive reliability test plan derived from ISO, International Electrotechnical Organization, Joint Electron Device Engineering Council and American Society for Testing and Materials standards to ensure its tag products meet or exceed industry requirements for flex cycles, temperature cycles, thermal shock, and electrostatic discharge, among others.

The Company’s inlay product line includes several tag antenna designs to meet particular application requirements for cost, performance and size. A RFID inlay is a fully-functional RFID product. The Company sells its inlays to label converters, generally in rolls of 2,500 to 12,000 units, depending on antenna size. Label converters then convert the Company’s inlays into a wide variety of finished RFID labels and supply them to their customers.

The Company sells a very limited selection of finished RFID labels to select system integrators and software developers who utilize the labels in their respective RFID solution offerings. The Company also sells finished labels on a very limited basis to select end users who primarily desire to purchase both RFID tag and reader products from a single source.

The Company designs and sells high-performance RFID readers in several form factors designed for different applications, such as loading dock doors, material conveyors, packaging lines, pallet wrap stations and other standard read points. The Company provides a number of application programming interfaces, or APIs, which is designed to make its readers easy for system integrators and customers to install, configure, monitor and manage and update over a network. The Company also offers optional licensed middleware that is embedded within its readers, such as IBM’s Websphere RFID Device Interface, or WRDI.

The Company offers a high-performance, semi-passive reader and tag system that offers longer read range, larger tag memory and temperature sensing and recording capability. This system operates in the 2450MHz radio frequency band.

Cost of revenue decreased $0.7 million from $16.7 million, in the six months ended March 31, 2005 to $16.0 million in the six months ended April 1, 2006.

Gross loss increased $0.5 million from a gross loss of $5.6 million in the six months ended March 31, 2005 to a gross loss of $6.1 million in the six months ended April 1, 2006.

Research and development expenses increased from $5.1 million in the six months ended March 31, 2005, to $7.0 million in the six months ended April 1, 2006, an increase of $1.9 million, or 37%.

Sales and marketing expenses increased from $3.4 million in the six months ended March 31, 2005 to $7.1 million in the six months ended April 1, 2006, an increase of $3.7 million, or 108%.

Other expense, net was approximately $0.1 million in the six months ended March 31, 2005 as compared to other income, net, of approximately $1.4 million in the six months ended April 1, 2006.