Since the laser was invented over 45 years ago, laser technology has revolutionized a broad range of applications and products in various industries, including automotive, medical, research, consumer products, electronics, semiconductors and communications. Lasers provide flexible, non-contact and high-speed ways to process and treat various materials. They are widely used to transmit large volumes of data in optical communications systems, in various medical applications and in test and measurement systems. For a wide variety of applications, lasers provide superior performance and a more cost-effective solution than non-laser technologies.

Strategies Unlimited estimates the total available market for fiber lasers to be growing at approximately 9% annually from $1.8 billion in 2005 to $2.8 billion by 2010. The penetration of fiber lasers is estimated to grow from 7% to 24% of the total available market for fiber lasers during that time period. As a result, sales of fiber lasers are expected to grow at a compound annual growth rate of approximately 39% annually, from $131 million in 2005 to $674 million in 2010.

Materials Processing segment represents the largest market opportunity for fiber lasers with a total addressable market of approximately $1.3 billion in 2005. Strategies Unlimited estimates that this segment of the market is expected to grow to $1.9 billion by 2010, representing a compound annual growth rate of approximately 8%. The materials processing segment includes various applications such as marking, engraving, printing, other low-power materials processing and high-power materials processing.

The addressable medical market is the second largest market for fiber lasers and is estimated by Strategies Unlimited to grow from approximately $316 million in 2005 to approximately $565 million by 2010, representing a compound annual growth rate of approximately 12%. This market is in its early stages of development for fiber lasers and it is believed that there are significant opportunities for fiber lasers to displace conventional lasers in these applications. Current fiber laser applications within this market include aesthetic applications such as skin resurfacing and rejuvenation, and other soft tissue applications such as urology, surgery and dentistry.

The Company’s products are based on a common proprietary technology platform using many of the same core components, such as semiconductor diodes, specialty fibers, beam combiners, isolators, polarizers, splitters and modulators, which the Company configures to its customers’ specifications.

The Company’s laser products include low (1 to 99 watts), medium (100 to 999 watts) and high (1,000 watts and above) output power lasers from 1 to 2 microns in wavelength. These lasers may be either continuous wave or may be modulated at different rates.

The Company offers several different types of lasers, which are defined by the type of gain medium they use. These are ytterbium, erbium, thulium and raman. The Company also sells fiber coupled direct diode laser systems that use semiconductor diodes rather than optical fibers as their gain medium.

In addition, the Company offers high energy pulsed lasers, multi-wavelength lasers, tunable lasers, single-polarization and single-frequency lasers, as well as other versions of its products.

The Company’s amplifier products range from milliwatts to up to 500 watts of output power from 1 to 2 microns in wavelength. The Company offers erbium-doped fiber amplifiers, commonly called EDFAs, ramans amplifiers and integrated communications systems that incorporate its amplifiers.

These products are predominantly deployed in broadband networks and dense wavelength division multiplexing, or DWDM, networks. The Company also offers ytterbium and thulium specialty fiber amplifiers and broadband light sources that are used in advanced applications. In addition, the Company sells single-frequency, linearly polarized and polarization-maintaining versions of its amplifier products.

Cost of sales increased by $16.2 million, or 38.8%, to $58.0 million in the nine months ended September 30, 2006 from $41.8 million in the nine months ended September 30, 2005.

Sales and marketing expense increased by $1.7 million, or 70.8%, to $4.1 million in the nine months ended September 30, 2006 from $2.4 million in the nine months ended September 30, 2005.

Research and development expense increased by $0.1 million, or 2.4%, to $4.3 million in the nine months ended September 30, 2006 from $4.2 million in the nine months ended September 30, 2005.

Interest expense, net decreased by $0.3 million, or 21.4%, to $1.1 million in the nine months ended September 30, 2006 from $1.4 million in the nine months ended September 30, 2005.

Net income increased by $9.1 million to $12.6 million for the nine months ended September 30, 2006 from $3.5 million for the same period in 2005.