Excel Technology Inc - Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
.............................

FORM 10-Q
.............................

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 27, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ............. to ...........

Commission File Number: 0-19306

.............................

EXCEL TECHNOLOGY, INC.

Delaware 11-2780242 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.)

41 Research Way, East Setauket, New York 11733
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: [phone]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [ X ]

Non-accelerated filer [ ] (Do not check if a smaller reporting company)

Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]

The number of shares outstanding of registrant's common stock, par value $.001 on August 1, 2008 was 10,866,561.

CONTENTS

PART I. FINANCIAL INFORMATION

Page Item 1. Consolidated Financial Statements: .................................. Consolidated Balance Sheets as of June 27, 2008 (unaudited) and December 31, 2007 3 Consolidated Statements of Income (unaudited) for the Three Months Ended June 27, 2008 and June 29, 2007 4 Consolidated Statements of Income (unaudited) for the Six Months Ended June 27, 2008 and June 29, 2007 5 Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 27, 2008 and June 29, 2007 6 Notes to Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial ................................................. Condition and Results of Operations 16 ................................... Item 3. Quantitative and Qualitative Disclosures about Market Risk 21 .......................................................... Item 4. Controls and Procedures 22 ....................... PART II. OTHER INFORMATION

Item 1. Legal Proceedings 22
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Item 1A. Risk Factors 22
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Item 2. Issuer Purchases of Equity Securities 23
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Item 3. Defaults Upon Senior Securities 23
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Item 4. Submission of Matters to a Vote of Security-Holders 23 ................................................... Item 5. Other Information 23 ................. Item 6. Exhibits 23 ........ Exhibits - (11) Computation of net income per share 26 (31) Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 27 (32) Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 29

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements:
..................................

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)

June 27, 2008 Dec. 31, 2007 ............. ............. (Unaudited) Assets ...... Current assets: Cash and cash equivalents $ 25,839 $ 9,981 Investments 0 47,550 Accounts receivable, less allowance for doubtful accounts of $1,139 and $833 in 2008 and 2007, respectively 26,493 24,008 Inventories 35,793 33,792 Deferred income taxes, net 2,470 2,518 Other current assets 1,371 1,544 Income taxes receivable 0 2,155 .......... ......... Total current assets 91,966 121,548 .......... ......... Investments 29,602 0 Property, plant and equipment 24,116 24,679 Other assets 1,933 1,925 Goodwill 32,774 32,380 .......... ......... Total Assets $ 180,391 $ 180,532 .......... ......... .......... ......... Liabilities and Stockholders' Equity .................................... Current liabilities: Accounts payable $ 6,438 $ 5,090 Accrued expenses and other current liabilities 8,183 7,116 Income taxes payable 2,972 1,543 .......... ......... Total current liabilities 17,593 13,749 .......... ......... Deferred income taxes, net 2,451 3,533 Accrued deferred compensation 1,549 1,535 Minority interest in subsidiary 150 128 Stockholders' equity: Preferred stock, par value $.001 per share: 2,000 shares authorized, none issued 0 0 Common stock, par value $.001 per share: 20,000 shares authorized, 10,861 and 11,280 shares issued and outstanding in 2008 and 2007, respectively 11 11 Additional paid-in capital 16,130 27,361 Retained earnings 138,270 129,334 Accumulated other comprehensive income 4,237 4,881 .......... ......... Total stockholders' equity 158,648 161,587 .......... ......... Total Liabilities and Stockholders' Equity $ 180,391 $ 180,532 .......... ......... .......... .........

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except income per share amounts)

Three Months Ended .................... June 27, June 29, 2008 2007 ......... ......... Net sales and services $ 40,705 $ 40,532 Cost of sales and services 22,092 22,470 ......... ......... Gross profit 18,613 18,062 Operating expenses: Selling and marketing 5,167 4,619 General and administrative 3,823 3,944 Research and development 3,787 3,783 ......... ......... Total operating expenses 12,777 12,346 ......... ......... Income from operations 5,836 5,716 Non-operating income (expense): Interest income, net 418 843 Minority interest (29) (59) Foreign currency gains and other, net 39 41 ......... ......... Income before provision for income taxes 6,264 6,541 Provision for income taxes 1,655 2,028 ......... ......... Net income $ 4,609 $ 4,513 ......... ......... ......... ......... Basic income per common share $0.42 $0.37 ......... ......... ......... ......... Basic weighted average common shares outstanding 10,859 12,063 ......... ......... ......... ......... Diluted income per common share $0.42 $0.37 ......... ......... ......... ......... Diluted weighted average common and common equivalent shares outstanding 11,031 12,352 ......... ......... ......... .........

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited and in thousands, except income per share amounts)

Six Months Ended .................... June 27, June 29, 2008 2007 ......... ......... Net sales and services $ 80,039 $ 81,473 Cost of sales and services 44,328 45,570 ......... ......... Gross profit 35,711 35,903 Operating expenses: Selling and marketing 9,934 8,946 General and administrative 7,497 8,118 Research and development 7,673 7,609 ......... ......... Total operating expenses 25,104 24,673 ......... ......... Income from operations 10,607 11,230 Non-operating income (expense): Interest income, net 1,051 1,624 Minority interest (22) (58) Foreign currency gains and other, net 295 138 ......... ......... Income before provision for income taxes 11,931 12,934 Provision for income taxes 2,995 3,766 ......... ......... Net income $ 8,936 $ 9,168 ......... ......... ......... ......... Basic income per common share $0.82 $0.76 ......... ......... ......... ......... Basic weighted average common shares outstanding 10,934 12,085 ......... ......... ......... ......... Diluted income per common share $0.80 $0.74 ......... ......... ......... ......... Diluted weighted average common and common equivalent shares outstanding 11,125 12,380 ......... ......... ......... .........

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

Six Months Ended .................... June 27, June 29, 2008 2007 ......... ......... Operating activities: Net income $ 8,936 $ 9,168 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 22 58 Depreciation and amortization 1,266 1,338 Stock-based compensation expense 466 1,642 Tax benefit from employee stock option exercises (23) (498) Provision for doubtful accounts 310 36 Deferred income taxes (1,035) (229) Changes in operating assets and liabilities: Accounts receivable (2,167) (3,591) Inventories (1,264) (123) Other current assets 2,359 (260) Other assets (490) (1,264) Accounts payable 1,273 144 Accrued expenses, other current liabilities and income taxes payable 2,501 (626) Accrued deferred compensation 14 0 ......... ......... Net cash provided by operating activities 12,168 5,795 ......... ......... Investing activities: Proceeds from investment redemptions, net of purchases 15,965 (730) Purchases of property, plant and equipment (789) (860) ......... ......... Net cash provided by (used in) investing activities 15,176 (1,590) ......... ......... Financing activities: Proceeds from exercise of common stock options 72 1,209 Repurchases of common stock (11,782) (8,067) Stock-based compensation excess tax benefit 23 498 ......... ......... Net cash used in financing activities (11,687) (6,360) ......... ......... Effect of exchange rate changes on cash and cash equivalents 201 (21) ......... ......... Net increase (decrease) in cash and cash equivalents 15,858 (2,176) Cash and cash equivalents - beginning of period 9,981 9,903 ......... .........

Cash and cash equivalents - end of period $ 25,839 $ 7,727 ......... .........

......... .........

Supplemental cash flow information:

Cash paid for: Interest $ 0 $ 0 Income taxes $ 366 $ 3,772

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

A. CONSOLIDATED FINANCIAL STATEMENTS .................................

Excel Technology, Inc. and Subsidiaries (the "Company") manufactures and markets laser systems and electro-optical components primarily for industrial and scientific applications.

The consolidated balance sheet as of June 27, 2008, the consolidated statements of income for the three and six months ended June 27, 2008 and June 29, 2007 and the consolidated statements of cash flows for the six months ended June 27, 2008 and June 29, 2007 have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (which included only normal recurring adjustments) have been made which are necessary to present fairly the financial position, results of operations and cash flows of the Company at June 27, 2008 and for all periods presented.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in those financial statements. These judgments can be subjective and complex, and consequently actual results could differ from those estimates and assumptions.

For information concerning the Company's significant accounting policies, reference is made to the Company's Annual Report on Form 10-K for the year ended December 31, 2007. While the Company believes that the disclosures presented are adequate to make the information contained herein not misleading, it is suggested that these statements be read in conjunction with the consolidated financial statements and notes included in the Form 10-K. Results of operations for the period ended June 27, 2008 are not necessarily indicative of the operating results to be expected for future interim periods or the full year ending December 31, 2008.

The Company's quarterly closing dates end on the Friday prior and closest to or on the last day of each calendar quarter. The Company's fiscal year always ends on December 31st.

B. ACCOUNTING FOR STOCK-BASED COMPENSATION ......................................

The Company's stock-based employee compensation plans are described more fully below. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123(R), "Share-Based Payment" ("SFAS No. 123 (R)"), using the modified prospective transition method. Under that transition method, compensation expense recognized for the three and six months ended June 27, 2008 and June 29, 2007 includes compensation expense for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value determined in accordance with the original provisions of SFAS No. 123. The fair value of the options was determined at the date of grant using the Black-Scholes option pricing model and is being amortized to expense over the options' vesting periods. Stock based compensation expense for an award with only service conditions that has a graded vesting schedule is recognized on a straight-line basis over the requisite service period for the entire award, with such amount recognized at any date at least equaling the portion of the grant date fair value of the award that is vested at that date. Stock based compensation expense for an award that includes a performance condition that has a graded vesting schedule is recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award.

There were no restricted stock grants during the three months ended June 27, 2008 and 40 thousand shares of restricted stock granted during the six months ended June 27, 2008, 6 thousand of which had vested as of June 27, 2008. There were no restricted stock grants during the three months ended June 29, 2007 and 125 thousand shares of restricted stock granted during the six months ended June 29, 2007.

During the six months ended June 27, 2008, 23 thousand restricted shares from a prior year grant vested and were issued to employees, of which 8 thousand shares were surrendered to the Company to fulfill the employee's minimum statutory tax withholding obligations of $218 thousand for the applicable income. The 8 thousand acquired shares were retired. These net share settlements had no impact on the amount of compensation cost recognized in respect of these awards.

There were no stock option grants during the three or six months ended June 27, 2008 and June 29, 2007.

The following table illustrates the stock based compensation expense recorded in the consolidated statements of income for the three and six months ended June 27, 2008 and June 29, 2007 and the impact on the Company's income before provision for income taxes, net income and income per share (In thousands, except per share data).

Three months Three months ended ended June 27, 2008 June 29, 2007 ............. ............. Stock based compensation expense: Stock options $ 4 $ 17 Restricted stock $ 229 $ 834 Impact on income before provision for income taxes $ 233 $ 851 Impact on net income $ 151 $ 593 Impact on basic income per common share $ 0.01 $ 0.05 Impact on diluted income per common share $ 0.01 $ 0.05 Six months Six months ended ended June 27, 2008 June 29, 2007 ............. ............. Stock based compensation expense: Stock options $ 8 $ 34 Restricted stock $ 458 $ 1,608 Impact on income before provision for income taxes $ 466 $ 1,642 Impact on net income $ 301 $ 1,174 Impact on basic income per common share $ 0.03 $ 0.10 Impact on diluted income per common share $ 0.03 $ 0.09

The actual income tax benefit realized for the tax deductions from stock option exercises for the six months ended June 27, 2008 and June 29, 2007 was $23 thousand and $488 thousand, respectively.

There was a $165 thousand net tax benefit recognized related to the compensation expense for share-based payment arrangements for the six months ended June 27, 2008, resulting in a $165 thousand deferred tax asset at June 27, 2008. There was a $468 thousand tax benefit recognized related to the compensation expense for share-based payment arrangements for the six months ended June 29, 2007, of which $269 thousand related to restricted stock that vested, resulting in a $229 thousand deferred tax asset at June 29, 2007. The excess tax benefit associated with vested restricted stock was $10 thousand for the six months ended June 29, 2007. There was no tax benefit recognized related to the $8 thousand and $34 thousand of compensation expense for stock options for the six months ended June 27, 2008 and June 29, 2007, respectively, as all the related options were incentive stock options and the tax benefit associated with disqualified incentive stock options is recognized by the Company only after such incentive stock options are exercised and disqualified.

The following paragraphs describe each of the Company's stock-based compensation plans:

In 1990, the Company adopted a stock option plan (the "Plan") which provided for the granting of incentive stock options and non-incentive stock options to certain key employees, including officers and directors, to purchase an aggregate of 2,000,000 shares of common stock, as amended, at prices and terms determined by the Board of Directors. Options granted under the Plan, which terminated on July 30, 2000, may be exercisable for a period of up to ten years. All options granted to employees under the Plan have exercise prices equal to the market value of the stock on the date of grant, vest ratably over three or five years and expire either five or ten years from date of grant.

In 1998, the Company adopted a stock option plan (the "1998 Plan") which provides for the granting of incentive stock options and non- incentive stock options to certain key employees, including officers and directors, and consultants to purchase an aggregate of 1,000,000 shares of common stock at prices and terms determined by the Board of Directors. The exercise price per share of incentive stock options must be at least 100% of the market value of the stock on the date of the grant, except in the case of shareholders owning more than 10% of the outstanding shares of common stock, the option price must be at least 110% of the market value on the date of the grant, and for non-incentive stock options such price may be less than 100% of the market value of the stock on the date of grant. Options granted under the 1998 Plan, which terminated on April 8, 2008, may be exercisable for a period up to ten years. Through June 27, 2008, all options granted to employees under the 1998 Plan have exercise prices equal to the market value of the stock on the date of grant, vest ratably over three or five years, and expire either five or ten years from the date of grant. As of June 27, 2008, options for the purchase of 20,692 shares were available for future grant under the 1998 Plan.

In 2004, the Company adopted a stock option plan (the "2004 Plan") which provides for the granting of incentive stock options and non- incentive stock options to certain key employees, including officers and directors of the Company and consultants to purchase an aggregate of 1,000,000 shares of common stock at prices and terms determined by the Board of Directors. The option price per share of incentive stock options must be at least 100% of the market value of the stock on the date of the grant, except in the case of shareholders owning more than 10% of the outstanding shares of common stock, the option price must be at least 110% of the market value on the date of the grant, and for non- incentive stock options such price may be less than 100% of the market value of the stock on the date of grant. Options granted under the 2004 Plan, which terminates on February 23, 2014, may be exercisable for a period up to ten years. Through June 27, 2008, all options granted to employees under the 2004 Plan have exercise prices equal to the market value of the stock on the date of grant, vest immediately, and expire ten years from the date of grant. Although there were 445,000 shares of common stock available for issuance under the 2004 Plan, when the 2006 option plan discussed below was approved, the Company agreed to discontinue granting options under the 2004 Plan.

In 2006, the Company adopted a stock option / stock issuance plan (the "2006 Plan"), which provides for an aggregate of up to 750,000 shares of common stock, which may be directly issued to eligible participants, granted as incentive stock options to employees of the Company or granted as non-statutory stock options to employees, including officers and directors of the Company, as well as to certain advisors and consultants. Shares of common stock issued under the 2006 Plan may, in the discretion of the Company's Compensation Committee ("the Committee"), be fully and immediately vested upon issuance or may vest in one or more installments over the participant's period of service and / or upon attainment of specified performance objectives. Recipients of common stock under the stock issuance program have full stockholder rights with respect to those shares, whether or not their interest in those shares is vested. The exercise price for the common stock underlying the options is determined by the Committee, but in no event shall it be less than 100% of the fair market value of the Company's common stock on the date the option is granted (110% in the case of incentive stock options granted to optionees who own more than 10% of the voting power of all classes of stock of the Company). No option granted under the 2006 Plan may be exercised after the expiration of the option, which may not, in any case, exceed ten years from the date of grant (five years in the case of incentive options granted to persons who own more than 10% of the voting power of all classes of the stock of the Company). Options granted under the 2006 Plan are exercisable on such basis as determined by the Committee, and become fully exercisable upon the sale or merger of the Company, as defined in the 2006 Plan. As of June 27, 2008, no options were granted and 165 thousand restricted common shares were awarded under the 2006 Plan.

The following table summarizes activity related to the Company's stock option / stock issuance plans during the six months ended June 27, 2008:

Stock Weighted Stock Options' Average Options' Number of Number Weighted Remaining Aggregate restricted of stock Average Contractual Intrinsic shares (in options (in Exercise Term (in Value(in thousands) thousands) Price years) thousands) .......... ........... ........ ........... .......... Outstanding at December 31, 2007 42 1,139 $ 22.18 Granted 40 0 $ 0 Options exercised/ restricted stock vested (29) (6) $ 12.05 Cancelled 0 0 $ 0 .......... ........... Outstanding at June 27, 2008 53 1,133 $ 22.23 4.79 $ 2,630 .......... ........... .......... ........... Shares/Options not vested at June 27, 2008 53 1 $ 29.70 5.74 $ 0 Vested and exercisable at June 27, 2008 0 1,132 $ 22.22 4.79 $ 2,630

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing common stock price on the last trading day of the second quarter of 2008 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 27, 2008. This amount changes based on the fair market value of the Company's common stock. Total intrinsic value of options exercised for the three months ended June 27, 2008 and for the three months ended June 29, 2007 was $18 thousand and $1.3 million, respectively. Total intrinsic value of options exercised for the six months ended June 27, 2008 and June 29, 2007 was $82 thousand and $1.8 million, respectively.

As of June 27, 2008, there was $8 thousand of unrecognized stock- based compensation expense related to non-vested stock options, which is expected to be recognized over a weighted average period of less than one year and $1.1 million of unrecognized stock-based compensation expense related to non-vested restricted stock, which is expected to be recognized over a weighted average period of approximately 2 years.

When an option is exercised, the Company issues new shares of common stock.

No shares were used by employees to exercise options in 2008. In 2007, 15 thousand shares of common stock were used by employees to exercise options. Such shares, which had a market value of $420 thousand, were retired.

C. INVENTORIES ...........

Inventories are recorded at the lower of cost, on a first-in, first out basis, or market value. Inventories consist of the following (in thousands):

June 27, 2008 December 31, 2007 ............. ................. Raw Materials $ 17,532 $ 18,421 Work-in-Process 9,395 8,206 Finished Goods 5,888 5,064 Consigned Inventory 2,978 2,101 ........... ........... $ 35,793 $ 33,792 ........... ........... ........... ........... D. COMPREHENSIVE INCOME ....................

Comprehensive income is comprised of net income, foreign currency translation adjustments, and unrealized losses on investments. The differences between net income and comprehensive income were as follows (in thousands):

Three months Three months ended ended June 27, 2008 June 29, 2007 ............. ............. Net Income $ 4,609 $ 4,513 Foreign Currency Translation Adjustment (417) 83 Unrealized Losses on Investments (1,803) 0 ............. ............. Total Other Comprehensive Income (2,220) 83 Comprehensive Income $ 2,389 $ 4,596 ............. ............. ............. ............. Six months Six months ended ended June 27, 2008 June 29, 2007 ............. ............. Net Income $ 8,936 $ 9,168 Foreign Currency Translation Adjustment 1,339 401 Unrealized Losses on Investments (1,983) 0 ............. ............. Total Other Comprehensive Income (644) 401 Comprehensive Income $ 8,292 $ 9,569 ............. ............. ............. .............

A rollforward of the amounts included in accumulated other comprehensive income, net of taxes is shown below (in thousands):

Balance at December 31, 2007 $ 4,881 Foreign Currency Translation Adjustment 1,339 Unrealized Losses on Investments (1,983) ............. Balance at June 27, 2008 $ 4,237 ............. ............. E. ACCRUED WARRANTY COSTS ......................

Quarterly, the Company analyzes its warranty liability for reasonableness based upon a five-year history of warranty costs incurred, the nature of the products shipped subject to warranty and anticipated warranty trends.

Changes in the warranty liability during the six-month period ended June 27, 2008 were as follows (In thousands):

Balance at December 31, 2007 $ 846 Provisions for warranties during the six- months ended June 27, 2008 380 Costs of warranty obligations during the six-months ended June 27, 2008 (315) ........ Balance at June 27, 2008 $ 911 ........ ........ F. COMMITMENTS AND CONTINGENCIES .............................

The Company and its subsidiaries are subject to various claims, which have arisen in the normal course of business. The impact of the final resolution of these matters on the Company's results of operations in a particular reporting period is not known. Management is of the opinion, however, that the ultimate outcome of such matters will not have a material adverse effect upon the Company's financial condition or liquidity.

G. INVESTMENTS ...........

As of June 27, 2008, the Company had $29.6 million of auction rate notes, which are classified as long-term assets. These auction rate notes are student loans backed by the federal government and are privately insured. Current capital market conditions have impacted the Company's ability to liquidate certain auction-rate securities. Liquidity for these auction-rate securities is typically provided by an auction process that resets the applicable interest rate at pre- determined intervals, usually every 7, 28, 35 or 90 days. In the past, the auction process has allowed investors to roll over their holdings or obtain immediate liquidity by selling the securities at par. In recent months, certain auctions have not had sufficient bidders to allow investors to complete a sale of some auction-rate securities. Due to the uncertainty in the market as to when these auction rate notes will be refinanced or the auctions will resume the Company has classified them as long-term assets and recorded an unrealized loss on these investments of $2.0 million. See Note L for further discussion.

H. GOODWILL ........

The change in the goodwill balance during the six months ended June 27, 2008 is attributable to changes in foreign currency exchange rates used to translate the goodwill contained in the financial statements of foreign subsidiaries.

I. TREASURY STOCK ..............

Effective November 1, 2006, the Company's Board of Directors authorized a stock buy-back program for the repurchase of up to 2,000,000 shares of its common stock. Purchases have occurred and will continue to occur from time to time in open market transactions or privately negotiated transactions at the Company's discretion, including the quantity, timing and price thereof. During the six months ended June 27, 2008, the Company repurchased 445,788 shares of common stock for $11.6 million. As of June 27, 2008, the Company had repurchased 1,494,656 shares of common stock under the program as treasury stock and all of its treasury stock had been retired.

J. DEFERRED COMPENSATION .....................

The Company has a deferred compensation plan whereby certain compensation earned by a participant can be deferred and, if funded, the related assets are placed in an employee benefit trust, also known as a "rabbi trust." Under the deferred compensation plan, the participant may choose from several investment designations. At June 27, 2008, the Company had $1.5 million of accrued deferred compensation, which was funded and the related assets are included in non-current assets on the balance sheet.

K. INCOME TAXES ............

On January 1, 2007, the Company adopted FASB Interpretation No. ("FIN") 48, Accounting for Uncertainty in Income Taxes-an Interpretation of SFAS No. 109. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in an income tax return. FIN 48 provides that unrecognized tax benefits should be based on the facts, circumstances and information available at each balance sheet date and that subsequent changes in judgment should be based on new facts and circumstances and any resulting change in the amount of unrecognized tax benefit should be accounted for in the interim period in which the change occurs. The adoption of FIN 48 had no impact on the Company's consolidated financial statements.

The aggregate amount of unrecognized tax benefits included in liabilities was as follows (in thousands):

Balance at December 31, 2007 $ 1,531 Gross increase related to tax positions taken prior to 2008 3 Decrease from settlements with taxing authorities (426) ........ Balance at June 27, 2008 $ 1,108 ........ ........

As of June 27, 2008, there were no significant changes to the Company's unrecognized income tax benefit which was recorded as of January 1, 2008, except a reduction of $426 thousand, including the related accrued interest, for a settlement with taxing authorities.

All unrecognized tax benefits, if recognized, would affect the effective tax rate. The liability for unrecognized tax benefits includes accrued interest for tax positions, which either do not meet the more- likely-than-not recognition threshold or where the tax benefit is measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax return. At June 27, 2008 and December 31, 2007, accrued interest on uncertain tax positions was approximately $167 thousand and $205 thousand, respectively.

Interest expense recognized in the statement of income related to liabilities for unrecognized tax benefits for the three and six months ended June 27, 2008 was $1 thousand and $3 thousand, respectively.

Interest expense related to income tax liabilities recognized in accordance with the provisions of FIN 48 is included in income tax expense, consistent with the Company's historical policy.

With a few exceptions, the Company is no longer subject to federal, state or local income tax audits by taxing authorities for years before 2004. The most significant jurisdictions in which the Company is required to file income tax returns include the states of California, Massachusetts and New York. As of June 27, 2008, the Company has completed its Internal Revenue Service audit for the tax years ended December 31, 2005 and 2006, and other state and local audits; the results of which are reflected in the income tax expense in 2008.

L. FAIR VALUE MEASUREMENT ......................

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. SFAS 157 indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. SFAS 157 defines fair value based upon an exit price model.

In February 2008, the FASB issued FASB Staff Positions (FSP) SFAS No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions," and FSP SFAS No. 157-2, "Effective Date of FASB Statement No. 157." FSP SFAS 157-1 removes leasing transactions from the scope of SFAS No. 157, while SFAS No. 157-2 defers the effective date of SFAS 157 to the fiscal year beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. It does not defer recognition and disclosure requirements for financial assets and financial liabilities, or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually.

Effective January 1, 2008, the Company adopted SFAS 157, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities. Non-recurring nonfinancial assets and nonfinancial liabilities for which we have not applied the provisions of SFAS 157 include those measured at fair value in goodwill impairment testing and those initially measured at fair value in a business combination.

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs in which little or no market data exists therefore requiring a Company to develop its own assumptions to measure assets and liabilities at fair value. A financial asset or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

As of June 27, 2008, the Company held certain assets that are required to be measured at fair value on a recurring basis. These assets are auction rate notes and are measured at fair value using quoted market prices of the same or similar assets and are classified within Level 2 of the valuation hierarchy. The fair value of auction rate notes held by the Company on June 27, 2008 has been established at $29.6 million and has been reflected in the Company's consolidated financial statements as non-current investments. The unrealized losses, net of taxes of $2.0 million are included in other comprehensive income.

The following table provides the assets carried at fair value measured on a recurring basis as of June 27, 2008 (in millions):

Fair Value Measurements at June 27, 2008 Using ................................................. Observable inputs such Total as quoted Significant Fair prices in other Significant Value at active observable unobservable June 27, markets inputs inputs 2008 (Level 1) (Level 2) (Level 3) ................................................. Auction rate notes $ 29.6 0 $ 29.6 0 M. SUBSEQUENT EVENT ................

On July 9, 2008, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with GSI Group, Inc., a New Brunswick corporation ("GSI"), and Eagle Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of GSI ("Purchaser"). Pursuant to the Merger Agreement, Purchaser will commence a tender offer to purchase all of the outstanding shares of common stock of the Company at a price of $32 per share.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which was filed as Exhibit 2.1 on a Current Report on Form 8-K on July 11, 2008.

Item 2. Management's Discussion and Analysis of Financial Condition and
...............................................................
Results of Operations
.....................

Overview
........

The Company designs, manufactures and markets photonics-based solutions consisting of laser systems and electro-optical components primarily for industrial and scientific applications. The Company's current range of products include laser marking and engraving systems, laser micro-machining systems, CO2 lasers, optical scanners, high power solid state CW and Q-switched lasers, ultrafast lasers, high energy solid state pulsed lasers, precision optical components and light and color measurement instruments. The laser and electro-optical industry is subject to intense competition and rapid technological developments. Our strength and success is dependent upon us developing and delivering successful, timely and cost effective solutions to our customers. The Company believes, for it to maintain its performance, it must continue to increase its operational efficiencies, improve and refine its existing products, expand its product offerings and develop new applications for its technology. The Company's strategy has been to grow internally and through acquisitions of complementary businesses. Historically, the Company has successfully integrated acquired companies.

Subsequent Event
................

On July 9, 2008, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with GSI Group, Inc., a New Brunswick corporation ("GSI"), and Eagle Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of GSI ("Purchaser"). Pursuant to the Merger Agreement, Purchaser will commence a tender offer to purchase all of the outstanding shares of common stock of the Company at a price of $32 per share.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which was filed as Exhibit 2.1 on a Current Report on Form 8-K on July 11, 2008.

Results of Operations
.....................

Net sales and services for the quarter ended June 27, 2008 increased $173 thousand, or 0.4% to $40.7 million from $40.5 million for the quarter ended June 29, 2007. The increase for the quarters in comparison is attributable to increased CO2 laser, scanner, high energy solid state pulsed laser, marking and engraving system, optical product and light and color instrument sales partially offset by decreased high-power solid state laser sales. For the six months ended June 27, 2008, net sales and services were $80.0 million, a decrease of $1.4 million or 1.8% from $81.5 million for the six months ended June 29, 2007. The decrease for the six months in comparison is primarily attributable to decreased high- power solid state laser, marking and engraving system, optical product and scanner sales partially offset by CO2 laser, light and color instrument and high energy solid state pulsed laser sales.

Gross margins increased to 45.7% for the three months ended June 27, 2008 from 44.6% for the three months ended June 29, 2007. For the six months ended June 27, 2008, gross margins increased to 44.6% from 44.1% in the six months ended June 29, 2007. The increases are primarily due to the product mix as gross margins vary among the numerous Company product configurations. Gross margins also increased due to higher distributor sales in the 2007 periods, which had lower gross margins than direct sales.

Selling and marketing expenses increased to $5.2 million in the quarter ended June 27, 2008 from $4.6 million in the quarter ended June 29, 2007. The increase of $548 thousand or 11.8% is primarily attributable to an investment in fixed and variable costs associated with increasing our sales force. Selling and marketing expenses as a percentage of sales increased to 12.7% for the quarter ended June 27, 2008 from 11.4% for the quarter ended June 29, 2007. The increase as a percentage of sales is essentially attributable to higher fixed costs being absorbed by comparable sales volumes. Selling and marketing expenses increased $988 thousand, or 11.0% to $9.9 million for the six months ended June 27, 2008 from $8.9 million for the six months ended June 29, 2007. Selling and marketing expenses as a percentage of sales increased to 12.4% for the six months ended June 27, 2008 from 11.0% for the comparable period in the prior year. The increases as a percentage of sales are essentially attributable to increased fixed costs associated with an increased sales force. In addition, decreased sales by distributors as contrasted to direct sales resulted in higher variable costs.

General and administrative expenses decreased $121 thousand or 3.1% from $3.9 million in the quarter ended June 29, 2007 to $3.8 million in the quarter ended June 27, 2008. For the six months ended June 27, 2008, general and administrative expenses were $7.5 million, a decrease of $621 thousand or 7.7% over the $8.1 million for the quarter ended June 29, 2007. The decreases are primarily attributable to decreases in stock- based compensation expense in 2008 of $618 thousand and $1.2 million, respectively.

Research and development costs were $3.8 million for both quarters ended June 27, 2008 and June 29, 2007. For the six months ended June 27, 2008, research and development costs increased $64 thousand or 0.8% to $7.7 million from $7.6 million in 2007. The marginal increases in research and development costs were primarily attributable to increased investments throughout our product lines.

Interest income, net decreased $425 thousand to $418 thousand in the quarter ended June 27, 2008 from $843 thousand in the same period of 2007 and $573 thousand to $1.1 million in the six months ended June 27, 2008 from $1.6 million in the same period of 2007. The decreases are primarily due to lower interest rates in 2008 and also the Company's use of cash to buy back shares, reducing the investing cash balance and the earned interest income.

Foreign currency gains and other income, net was $39 thousand for the quarter ended June 27, 2008 as compared to $41 thousand for the quarter ended June 29, 2007, which included foreign currency transaction gains of $50 thousand and $25 thousand, respectively. Foreign currency gains and other income, net was $295 thousand for the six months ended June 27, 2008 as compared to $138 thousand for the six months ended June 29, 2007. This is primarily attributable to the recording of $248 thousand and $46 thousand of foreign currency transaction gains in 2008 and 2007, respectively, principally at Excel Europe and Japan for the settlement of payables due in U.S. dollars for the purchase of inventories from the Company's U.S. subsidiaries, as a result of the decline in the value of the U.S. dollar against the Euro and Japanese Yen.

The provision for income taxes decreased $373 thousand or 18.4% from $2.0 million in the quarter ended June 29, 2007 to $1.7 million for the current quarter ended June 27, 2008. The provision for income taxes decreased $771 thousand or 20.5% to $3.0 million for the six months ended June 27, 2008 from $3.8 million for the six months ended June 29, 2007. The effective tax rate was 26.4% for the quarter ended June 27, 2008 and 25.1% for the six months ended June 27, 2008 compared to 28.1% for the year ended December 31, 2007. In 2008, the effective tax rate was lower due to settlements with taxing authorities.

Liquidity and Capital Resources
...............................

Cash Flow Overview

Cash, cash equivalents and investments decreased $2.1 million during the six months ended June 27, 2008 to $55.4 million. The decrease was primarily due to $11.8 million used for the repurchase of common shares and net cash used for capital expenditures of $789 thousand partially offset by the net cash provided by operating activities of $12.2 million and proceeds from the exercise of common stock options of $72 thousand. The Company also experienced a favorable foreign exchange effect on cash of $201 thousand in 2008. As of June 27, 2008 the Company had no bank debt.

At June 27, 2008, the Company had working capital of $74.4 million, including cash and cash equivalents of $25.8 million, compared to working capital of $107.8 million, including cash and investments of $57.5 million, at December 31, 2007. Working capital decreased by $33.4 million during the six months ended June 27, 2008 primarily because auction rate notes were classified as long-term investments at June 27, 2008 whereas they were classified as short-term investments at December 31, 2007.

Net cash provided by operating activities was $12.2 million for the six months ended June 27, 2008 and $5.8 million for the six months ended June 29, 2007, which were primarily attributable to net income plus depreciation and amortization expenses, and net changes in working capital items. Depreciation and amortization for the six months ended June 27, 2008 was $1.3 million. Accounts receivable at June 27, 2008 of $26.5 million increased $2.5 million from December 31, 2007 primarily due to increased sales and the timing of the shipments in the second quarter of 2008 compared to the fourth quarter of 2007. Inventory at June 27, 2008 of $35.8 million increased $2.0 million from December 31, 2007 primarily due to increased projected sales volume for the third quarter of 2008 compared to the first quarter of 2008.

Net cash provided by investing activities of $15.2 million was attributable to the net redemptions of auction rate notes for $16.0 million offset by purchases of equipment for $789 thousand for the six months ended June 27, 2008. Net cash used in investing activities of $1.6 million was attributable to the purchase of auction rate notes for $730 thousand and equipment for $860 thousand for the six months ended June 29, 2007. The fair value of auction rate notes held by the Company on June 27, 2008 has been established at $29.6 million and has been reflected in the Company's consolidated financial statements as non- current investments. The unrealized losses, net of taxes of $2.0 million are included in other comprehensive income.

Net cash used in financing activities of $11.7 million for the six months ended June 27, 2008 was primarily attributable to the repurchase of common stock for $11.8 million, offset by $72 thousand of proceeds received upon the exercise of employee stock options and a $23 thousand income tax benefit from employee stock option exercises. Net cash used in financing activities of $6.4 million for the six months ended June 29, 2007 was primarily attributable to the repurchase of common stock for $8.1 million, offset by $1.2 million of proceeds received upon the exercise of employee stock options and a $498 thousand income tax benefit from employee stock option exercises.

As of June 27, 2008, the Company has no lines of credit.

The Company intends to continue to invest in product development, plant and equipment and marketing in support of its growth strategy. These investments aid in retaining and acquiring new customers, expanding the Company's current product offerings and further developing its operating infrastructure. The Company believes that current cash, cash equivalents and investments will be sufficient to meet these anticipated cash needs for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. If current cash, cash equivalents and investments and those that may be generated from operations are insufficient to satisfy the Company's liquidity requirements, the Company may seek to sell additional equity or debt securities or secure lines of credit. The sale of additional equity or convertible debt securities could result in additional dilution to the Company's stockholders. In addition, the Company will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies, which might impact the Company's liquidity requirements or cause the Company to issue additional equity or debt securities. There can be no assurance that financing will be available, on terms that are acceptable to the Company or at all.

Inflation
.........

In the opinion of management, inflation has not had a material effect on the operations of the Company.

Accounting Pronouncements Adopted in Fiscal 2008 ................................................

Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. SFAS 157 indicates, among other things, that a fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. SFAS 157 defines fair value based upon an exit price model. Refer to Note K to the consolidated financial statements for additional discussion on fair value measurements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115" ("SFAS 159") which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The fair value measurement election is irrevocable and subsequent changes in fair value must be recorded in earnings. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. Effective January 1, 2008, the Company has adopted SFAS No. 159 and has elected not to measure any additional financial instruments and other items at fair value.

Recently Issued Accounting Pronouncements Not Yet Adopted .........................................................

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS 141(R)") which requires the acquiring entity in a business combination to recognize most identifiable assets acquired, liabilities assumed, noncontrolling interests and goodwill acquired in a business combination at full fair value; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. As SFAS 141(R) will be applied to business combinations occurring after the effective date, management does not believe that adoption of this standard will have any impact on the Company's consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of ARB No.51" ("SFAS 160") which requires all entities to report noncontrolling interests (previously referred to as minority interests) in subsidiaries as a separate component of equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring they be treated as equity transactions. SFAS 160 is effective for fiscal years beginning after December 15, 2008. Management is evaluating the impact the adoption of this standard will have on the Company's consolidated financial statements.

In February 2008, the FASB issued FASB Staff Positions (FSP) SFAS No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions," and FSP SFAS No. 157-2, "Effective Date of FASB Statement No. 157." FSP SFAS 157-1 removes leasing transactions from the scope of SFAS No. 157, while SFAS No. 157-2 defers the effective date of SFAS 157 to the fiscal year beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. It does not defer recognition and disclosure requirements for financial assets and financial liabilities, or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. Management is evaluating the impact the adoption of this standard will have on the Company's consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of SFAS No.133" ("SFAS 161") which establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities. SFAS 161 amends and expands the disclosure requirements of SFAS No. 133 and thereby improves the transparency of financial reporting. SFAS 161 is effective for fiscal years beginning after November 15, 2008. Management is evaluating the impact the adoption of this standard will have on the Company's consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162") which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This Statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Management believes that adoption of this standard will not have any impact on the Company's consolidated financial statements.

In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts" ("SFAS 163"). This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for some disclosures about the insurance enterprise's risk-management activities.
Management believes that adoption of this standard will not have any impact on the Company's consolidated financial statements.

Forward-Looking Statements
..........................

The information set forth in this Report (and other reports issued by the Company and its officers from time to time) contain certain statements concerning the Company's future results, future performance, intentions, objectives, plans and expectations that are or may be deemed to be "forward-looking statements". Such statements are made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations that involve numerous risks and uncertainties, including those risks and uncertainties discussed in the Company's Annual Report on Form 10K for the year ended December 31, 2007. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company's control. Although the Company believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, the Company cannot assure you that the results discussed or implied in such forward- looking statements will prove to be accurate. In light of the significant uncertainties inherent in such forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the Company's objectives and plans will be achieved. Words such as "believes," "anticipates," "expects," "intends," "may," and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. The Company undertakes no obligation to revise any of these forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
..........................................................

Market Risk
...........

The principal market risks (i.e. the risk of loss arising from adverse changes in market rates and prices) to which the Company is exposed are interest rates on demand deposits with banks, money market funds and auction rate notes and foreign currency exchange rates, generating translation and transaction gains and losses.

Interest Rates
..............

The Company manages its cash and investment portfolios considering investment opportunities and risks, tax consequences and overall financing strategies. The Company's investment portfolios consist primarily of cash, cash equivalents and investments, with carrying amounts approximating market value. Assuming June 27, 2008 cash, cash equivalents and investment levels, a one-point change in interest rates would have an approximate $554 thousand impact on the annual interest income of the Company.

Foreign Currency Exchange Rates
...............................

Operating in international markets involves exposure to movements in currency exchange rates that are volatile at times. The economic impact of currency exchange rate movements on the Company is complex because such changes are often linked to variability in real growth, inflation, interest rates, governmental actions and other factors. These changes, if material, could cause the Company to adjust its financing and operating strategies. Consequently, isolating the effect of changes in currency does not incorporate these other important economic factors.

The Company's net sales and services to foreign customers represent a large percentage of total net sales and services. The Company expects net sales and services to foreign customers will continue to represent a large percentage of its total net sales and services. The Company generally has not engaged in foreign currency hedging transactions. The aggregate foreign exchange gains included in determining consolidated results of operations were $248 thousand and $46 thousand in the six months ended June 27, 2008 and June 29, 2007, respectively.

Changes in the Euro and Yen have the largest impact on the Company's operating profits. The Company estimates that a 10% change in foreign exchange rates would not materially impact reported operating profits.

Item 4. Controls and Procedures
.......................

Conclusion Regarding the Effectiveness of Disclosure Controls and .................................................................
Procedures
..........

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-
15(b). Based upon that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings.

There were no changes in the Company's internal control over financial reporting during the quarterly period ended June 27, 2008 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
.................

The Company and its subsidiaries are subject to various claims, which have arisen in the normal course of business. The impact of the final resolution of these matters on the Company's results of operations in a particular reporting period is not known. Management is of the opinion, however, that the ultimate outcome of such matters will not have a material adverse effect upon the Company's financial condition or liquidity.

Item 1A. Risk Factors
............

A description of the risk factors associated with our business is contained in Item 1A, "Risk Factors," of our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 14, 2008 and incorporated herein by reference. There have been no material changes in the risk factors associated with our business. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.

Item 2. Issuer Purchases of Equity Securities
.....................................

Effective November 1, 2006, the Company's Board of Directors authorized a stock buy-back program for the repurchase of up to 2,000,000 shares of its common stock. Purchases have occurred and will continue to occur from time to time in open market transactions or privately negotiated transactions at the Company's discretion, including the quantity, timing and price thereof.

The following table summarizes the Company's purchases of its common stock for the three months ended June 27, 2008:

Total number of Maximum Number Total shares purchased of shares number of Average as part of that may yet shares price publicly be purchased purchased paid per announced plan under the plan Period (In thousands) share (In thousands) (In thousands) ................. ............. ......... ................ .............. 3/29/08 - 4/25/08 0 0 0 505 4/26/08 - 5/30/08 0 0 0 505 5/31/08 - 6/27/08 0 0 0 505 Total 0 0 0 505 Item 3. Defaults Upon Senior Securities ............................... None. Item 4. Submission of Matters to a Vote of Security-Holders ................................................... None. Item 5. Other Information ................. None. Item 6. Exhibits ........

Exhibits - See accompanying Index to Exhibits included after the signature page of this report for a list of the exhibits filed or furnished with this report.

SIGNATURES
..........

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

DATED: August 5, 2008

EXCEL TECHNOLOGY, INC.

By: /s/ Alice Varisano ................................ Alice Varisano, Chief Financial Officer By: /s/ Antoine Dominic ................................ Antoine Dominic, President, Chief Executive Officer and Chief Operating Officer

INDEX TO EXHIBITS

Exhibit No. Description 11 Computation of Net Income Per Share 31.1 Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EXHIBIT 11

COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)(Unaudited)

BASIC DILUTED

.................. .................. Three Months Ended Three Months Ended .................. .................. June 27, June 29, June 27, June 29, 2008 2007 2008 2007 ......... ........ ......... ........ Net income $ 4,609 $ 4,513 $ 4,609 $ 4,513 ......... ........ ......... ........ ......... ........ ......... ........ Weighted average common shares outstanding 10,859 12,063 10,859 12,063 Weighted average common

share equivalents outstanding:
Stock options and restricted stock 0 0 172 289 ......... ........ ......... ........

Weighted average common shares
and common share equivalents
outstanding 10,859 12,063 11,031 12,352 ......... ........ ......... ........

......... ........ ......... ........

Net income per share $ 0.42 $ 0.37 $ 0.42 $ 0.37 ......... ........ ......... ........

......... ........ ......... ........

Six Months Ended Six Months Ended .................. .................. June 27, June 29, June 27, June 29, 2008 2007 2008 2007 ......... ........ ......... ........ Net income $ 8,936 $ 9,168 $ 8,936 $ 9,168 ......... ........ ......... ........ ......... ........ ......... ........ Weighted average common shares outstanding 10,934 12,085 10,934 12,085 Weighted average common share equivalents outstanding: Stock options and restricted stock 0 0 191 295 ......... ........ ......... ........ Weighted average common shares and common share equivalents outstanding 10,934 12,085 11,125 12,380 ......... ........ ......... ........ ......... ........ ......... ........ Net income per share $ 0.82 $ 0.76 $ 0.80 $ 0.74 ......... ........ ......... ........ ......... ........ ......... ........

For both the three and six months ended June 27, 2008, there were 185 thousand stock options outstanding that are antidilutive and are not included in the above income per share calculations.

For both the three and six months ended June 29, 2007, there were 145 thousand stock options outstanding that are antidilutive and are not included in the above income per share calculations.

EXHIBIT 31.1

CERTIFICATION
.............

I, Antoine Dominic, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Excel Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: August 5, 2008 By: /s/ Antoine Dominic ............................ Antoine Dominic, President, Chief Executive Officer, and Chief Operating Officer

EXHIBIT 31.2

CERTIFICATION
.............

I, Alice Varisano, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Excel Technology, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a- 15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: August 5, 2008 By: /s/ Alice Varisano ....................... Alice Varisano, Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF PERIODIC REPORT
................................

I, Antoine Dominic, Chief Executive Officer of Excel Technology, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge,:

(1) the Quarterly Report on Form 10-Q of the Company for the period ended June 27, 2008 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15. U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 5, 2008 /s/ Antoine Dominic ............................ Antoine Dominic, President, Chief Executive Officer, and Chief Operating Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 32.2

CERTIFICATION OF PERIODIC REPORT
................................

I, Alice Varisano, Chief Financial Officer of Excel Technology, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge,:

(1) the Quarterly Report on Form 10-Q of the Company for the period ended June 27, 2008 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15. U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 5, 2008 /s/ Alice Varisano ....................... Alice Varisano, Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.