According to Strategy With Vision, an independent industry research firm, the global ophthalmic retail market was approximately $52 billion in 2003, consisting of various segments, including frames, spectacle lenses, contact lenses and optical accessories. The spectacle lens segment makes up the largest portion of this market, representing approximately 45% or $24 billion of the global ophthalmic market in 2003. The global progressive spectacle lens market represents approximately $12.1 billion or 51% of the $24 billion spectacle lens market and is expected to grow to $18.6 billion in 2010, representing a compound annual growth rate of 6.3% between 2003 and 2010.

Progressive lenses are used to treat presbyopia, a vision condition where the crystalline lens of the eye loses its flexibility and the eye muscles become less powerful causing the eye to lose its ability to focus on close objects. Presbyopia is part of the normal aging process and develops gradually over an extended period of time and affects almost everyone over the age of 45, regardless of whether they have previously had normal vision or have suffered from myopia, astigmatism or other vision conditions. Presbyopia is a degenerative condition that worsens and often requires progressively stronger lenses over time. Presbyopia cannot currently be cured but is treated with lenses that generate optical power assisting the eye to focus on both close and distant objects.

Over the past several years, the Company has become a market leader in manufacturing premium progressive lenses in a wide range of materials. These lenses are sold under the Company’s own brand names as well as private labels. The Company currently produces over 50 principal types of progressive lenses, which differ from one another in design, color and lens material, as well as in size and shape.

The Company also produces lenses under the Company’s Autograph brand using its new proprietary free form production method known as the Company’s Direct Lens Technology. The Company released this technology in the first quarter of 2004. The Company’s Direct Lens Technology creates a unique personal computer file for a customized progressive lens by combining the patient's exact vision requirements with the Company’s proprietary Eye Point Technology. This file can be transferred to advanced cutting and polishing machinery for mold-free lens production. This single process yields a finished lens that contains both the progressive and prescription characteristics and does not require any further surfacing. In addition, this process allows the optical laboratory to place both the progressive and prescription characteristics on the back surface of the lens, which is closer to the patient's eye, thereby enhancing the field of view. By taking into account the patient's personal prescription, measured or traced frame data and the exact pupil position for specifically chosen frames, the Company’s Autograph is a finished, personal adjusted progressive lens that is ready for edging and framing in every type of frame.

The Company provides third party lens manufacturers with research and development services in which the Company develops new optical designs and related software tools designed for the production processes of lenses and for which the Company receives ongoing payments and future revenues from royalties.

Cost of revenues was $24.8 million for the nine months ended September 30, 2004, an increase of $3.1 million or 14% compared to cost of revenues of $21.7 million for the nine months ended September 30, 2003.

Research and development costs were $1.5 million for the nine months ended September 30, 2004, an increase of $0.1 million or 6.3% compared to research and development costs of $1.4 million for the nine months ended September 30, 2003.

Selling and marketing expenses were $12.9 million for the nine months ended September 30, 2004, an increase of $3.5 million or 36.8% compared to selling and marketing expenses of $9.4 million for the nine months ended September 30, 2003.