Form 10-Q


                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

[X]  Quarterly Report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the quarterly period ended          July 2, 1999
                                             ------------

                                      OR

[ ]  Transition Report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934


                         Commission File No. 333-71449

                               ----------------

                               GSI Lumonics Inc.
            (Exact name of registrant as specified in its charter)

     New Brunswick, Canada                             38-1859358
(Jurisdiction of incorporation)           (I.R.S. Employer Identification No.)

                              105 Schneider Road
                        Kanata, Ontario, Canada K2K 1Y3
                   (Address of principal executive offices)

                           Telephone: (613) 592-1460


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 [ ]


As of August 10, 1999, there were 34,173,317 shares of Common Stock, no par
value, outstanding.


                               GSI Lumonics Inc.
                               Table of Contents



                                                                          Page
                                                                          ----
                                                                     
Part I -  Financial Information:

     Item 1.  Financial Statements

                    Consolidated Balance Sheets........................     3

                    Consolidated Statements of Operations..............     4

                    Consolidated Statements of Cash Flows..............     5

                    Notes to Consolidated Financial Statements.........  6-12

     Item 2.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations................ 13-19

     Item 3.  Quantitative and Qualitative Disclosures About
                    Market Risk........................................    19

Part II - Other Information..............................................  20

Signatures...............................................................  21


                                       2


                      GSI Lumonics Inc. and Subsidiaries
                          Consolidated Balance Sheets
                     (in US$ thousands, except share data)



                                                                                             July 2,             Dec. 31,
                                                                                               1999                1998
                                                                                           -----------         ------------
                                                                                           (unaudited)         (see note 2)
                                                                                                         
Assets
Current assets:
     Cash and cash equivalents.....................................................          $ 38,075             $ 24,229
     Short term investments........................................................                 -                8,098
     Accounts receivable, less allowance of $2,933 (December 31, 1998 - $311)......            63,287               31,673
     Due from related party........................................................             2,418                3,884
     Inventories...................................................................            62,888               44,096
     Deferred tax and other current assets.........................................            38,152                8,305
     Current portion of swap contracts.............................................               816                1,076
                                                                                           -----------         ------------
         Total current assets.....................................................            205,636              121,321
                                                                                           -----------         ------------

Property, plant and equipment, net of accumulated depreciation
   of $61,756 (December 31, 1998 - $24,299)........................................            50,487               32,209
Long term portion of swap contracts................................................               408                1,076
Other assets.......................................................................             5,524                  964
Intangible assets, net of amortization of $5,620 (December 31, 1998 - $2,953)......            18,132                4,072
                                                                                           -----------         ------------
                                                                                             $280,187             $159,642
                                                                                           ===========         ============

Liabilities and Stockholders' Equity
Current liabilities:
     Bank indebtedness ............................................................          $ 21,576             $  7,261
     Accounts payable..............................................................            24,423                5,605
     Accrued expenses and income taxes.............................................            60,802               18,937
     Current portion of deferred compensation......................................               119                    -
     Current portion of long term debt.............................................             4,840                3,541
                                                                                           -----------         ------------
          Total current liabilities................................................           111,760               35,344
                                                                                           -----------         ------------

Long-term debt due after one year..................................................             1,704                3,541
Deferred compensation, less current portion........................................             2,006                    -
Commitments and contingencies (see note 10)
Stockholders' equity:
     Capital stock, no par value;
        issued shares of 34,170,624  (December 31, 1998 - 17,056,001)..............           222,530              138,871
     Deficit.......................................................................           (48,728)              (9,451)
     Cumulative translation adjustment.............................................            (9,407)              (8,663)
     Unrealized gain on marketable equity securities, net..........................               322                    -
                                                                                           -----------         ------------
          Total stockholders' equity...............................................           164,717              120,757
                                                                                           -----------         ------------
                                                                                             $280,187             $159,642
                                                                                           ===========         ============


                The accompanying notes are an integral part of
                   these consolidated financial statements.

                                       3


                      GSI Lumonics Inc. and Subsidiaries
               Consolidated Statements of Operations (unaudited)
                     (in US$ thousands, except share data)



                                                                              Three months ended            Six months ended
                                                                           --------------------------   -------------------------
                                                                             July 2,       June 30,       July 2,      June 30,
                                                                              1999           1998          1999         1998
                                                                           -----------   ------------   -----------  ------------
                                                                                                         
Sales:                                                                                   (see note 2)                (see note 2)
   Laser systems and components....................................           $62,460        $36,366      $ 99,845       $75,431
   Printers........................................................             6,788              -         7,997             -
                                                                           -----------   ------------   -----------  ------------
     Total sales...................................................            69,248         36,366       107,842        75,431
                                                                           -----------   ------------   -----------  ------------

Cost of sales:
   Laser systems and components....................................            41,604         27,566        72,028        53,421
   Printers........................................................             4,268              -         4,919             -
                                                                           -----------   ------------   -----------  ------------
     Total cost of sales...........................................            45,872         27,566        76,947        53,421
                                                                           -----------   ------------   -----------  ------------

Gross profit:
   Laser systems and components....................................            20,856          8,800        27,817        22,010
                                                                           -----------   ------------   -----------  ------------
   Printers........................................................             2,520              -         3,078             -
                                                                           -----------   ------------   -----------  ------------
      Total gross profit...........................................            23,376          8,800        30,895        22,010
                                                                           -----------   ------------   -----------  ------------

Operating expenses:
   Research and product development................................             8,584          3,964        11,920         7,233
   Selling, general and administrative.............................            19,816          9,813        30,637        19,267
   Acquired in-process research and development....................                 -              -        13,000             -
   Restructuring and other charges.................................                 _          2,086        19,631         2,086
                                                                           -----------   ------------   -----------  ------------
     Total operating expenses......................................            28,400         15,863        75,188        28,586
                                                                           -----------   ------------   -----------  ------------
Loss from operations...............................................            (5,024)        (7,063)      (44,293)       (6,576)
Interest income (expense), net.....................................               (93)           331           101           657
Foreign exchange transaction gains (losses)........................               157           (224)         (630)         (755)
                                                                           -----------   ------------   -----------  ------------
Loss before income taxes...........................................            (4,960)        (6,956)      (44,822)       (6,674)
Income taxes provision (benefit)...................................            (1,174)        (2,079)       (5,545)       (1,947)
                                                                           -----------   ------------   -----------  ------------
Net Loss...........................................................           $(3,786)       $(4,877)     $(39,277)      $(4,727)
                                                                           ===========   ============   ===========  ============

Foreign currency translation adjustmentsa..........................            (1,462)        (3,344)         (744)       (1,828)
Change in unrealized gain on marketable equity securities, net.....               467              -           322             -
                                                                           -----------   ------------   -----------  ------------
Comprehensive Loss.................................................           $(4,781)       $(8,221)     $(39,699)      $(6,555)
                                                                           ===========   ============   ===========  ============

Net Loss per common share:
     Basic                                                                    $ (0.11)       $ (0.29)     $  (1.47)      $ (0.28)
     Diluted                                                                  $ (0.11)       $ (0.29)     $  (1.47)      $ (0.28)
                                                                           ===========   ============   ===========  ============

Weighted average common shares outstanding                                     34,167         17,109        26,686        17,107
                                                                           ===========   ============   ===========  ============

Weighted average common shares outstanding
     and dilutive potential common shares..........................            34,167         17,109        26,686        17,107
                                                                           ===========   ============   ===========  ============


                The accompanying notes are an integral part of
                   these consolidated financial statements.

                                       4


                      GSI Lumonics Inc. and Subsidiaries
               Consolidated Statements of Cash Flows (unaudited)
                              (in US$ thousands)



                                                                                              Six months ended
                                                                                         ---------------------------
                                                                                          July 2,         June 30,
                                                                                            1999            1998
                                                                                         -----------     -----------
                                                                                                         (see note 2)
                                                                                                   
Cash flows from operating activities:
Net loss.......................................................................            $(39,277)       $ (4,727)
Adjustments to reconcile net loss to net cash used in operating activities:
   Acquired in-process research and development................................              13,000               -
   Depreciation and amortization...............................................               8,272           2,444
   Deferred compensation.......................................................                   3               -
   Deferred income taxes.......................................................              (6,010)           (969)
   Unrealized currency exchange loss...........................................               1,737              41
Changes in current assets and liabilities:
   Accounts receivable.........................................................                (739)         11,967
   Inventories.................................................................              12,767          (9,440)
   Other current assets........................................................              (2,958)           (556)
   Accounts payable, accrued expenses, and taxes payable.......................               8,973          (2,493)
                                                                                         -----------     -----------
Net cash used in operating activities..........................................              (4,232)         (3,733)
                                                                                         -----------     -----------

Cash flows from investing activities:
Merger with General Scanning Inc...............................................               1,451               -
Acquisition of Meteor Optics Inc...............................................                   -          (1,097)
Additions to property, plant, and equipment, net...............................              (3,189)         (8,175)
Maturity of short term investments.............................................               8,208          28,833
Purchase of short term investments.............................................                   -         (36,654)
Decrease (increase) in other assets............................................                (343)            (23)
                                                                                         -----------     -----------
Net cash provided by (used in) investing activities............................               6,127         (17,116)
                                                                                         -----------     -----------

Cash flows from financing activities:
Proceeds (payments) of bank indebtedness and others, net.......................              10,021          (7,184)
Payments on long-term debt.....................................................              (1,424)         (1,194)
Proceeds from exercise of stock options........................................                 131              42
                                                                                         -----------     -----------
Net cash provided by (used in) financing activities............................               8,728          (8,336)
                                                                                         -----------     -----------

Effect of exchange rate changes on cash and cash equivalents...................               3,223          (1,976)
                                                                                         -----------     -----------

Increase (decrease) in cash and cash equivalents...............................              13,846         (31,161)
Cash and cash equivalents, beginning of period.................................              24,229          56,828
                                                                                         -----------     -----------
Cash and cash equivalents, end of period.......................................            $ 38,075        $ 25,667
                                                                                         ===========     ===========

Supplemental disclosure of cash flow information:
 Cash paid during the period for:
     Interest..................................................................            $    396        $    650
     Income taxes..............................................................            $    432        $  2,601


                The accompanying notes are an integral part of
                   these consolidated financial statements.

                                       5


                      GSI LUMONICS INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                IN U.S. DOLLARS

1.   BASIS OF PRESENTATION
     ---------------------

     The unaudited interim financial statements presented herein have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial statements and with the instructions to Form
10-Q and Regulation S-X pertaining to interim financial statements. Accordingly,
these interim financial statements do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial statements reflect all adjustments and accruals which
management considers necessary for a fair presentation of financial position and
results of operations for the periods presented. The financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 31,
1998, and the Form S-4 registration statement filed in February 1999. The
results for the interim periods are not necessarily indicative of results to be
expected for the year or any future periods.

     The consolidated financial statements include the accounts of GSI Lumonics
Inc. and its wholly owned subsidiaries.  All significant intercompany accounts
and transactions have been eliminated in consolidation.

2.   MERGER
     ------

     On March 22, 1999, the Company completed a merger of equals with General
Scanning Inc., Watertown, Massachusetts, a leading manufacturer of laser systems
and components, and printers.  The merger transaction has been accounted for as
a purchase for accounting purposes and accordingly, the operations of General
Scanning have been included in the consolidated financial statements from the
date of merger.  The aggregate purchase price of $84 million was allocated to
General Scanning net identifiable assets, in accordance with the purchase method
of accounting, as follows:



                            (in thousands)
                                                       
     Shares purchased (a) ............................     $ 83,074
     Options purchased (b) & (c) .....................          917
                                                          ---------
          Total purchase price .......................     $ 83,991
                                                          =========

     Current assets, including cash of $4,719 ........       89,070
     Fixed assets ....................................       21,546
     Acquired technology (d) .........................       13,000
     Allocated to goodwill (e) .......................        3,704
     Other long term assets (f) ......................        3,950
     Current liabilities .............................      (56,081)
     Long term debt ..................................          (28)
     Deferred compensation, net of $757 current
          portion ....................................       (1,365)
     Transaction costs ...............................       (2,805)
     In-process research and development (g) .........       13,000
                                                          ---------
                                                           $ 83,991
                                                          =========


(a)  17,079,475 common shares of GSI Lumonics Inc. valued at US$4.864 per share,
     in exchange for all 12,679,640 thousand General Scanning outstanding shares
     of common stock, on the basis of an exchange ratio of 1.347 shares of GSI
     Lumonics Inc. for each one share of General Scanning common stock.  The
     total value assigned to these issued shares is $83,074 thousand.  Issue and
     registration costs of $463 thousand were charged against equity.
(b)  2,051,903 GSI Lumonics Inc. stock options valued at US$0.443 per share
     option, total $909 thousand, in exchange for 1,523,314 General Scanning
     outstanding stock options.
(c)  70,717  GSI Lumonics Inc. stock options valued at US$0.11 per share option,
     total $8 thousand, in exchange for 52,500 General Scanning outstanding
     stock warrants.

                                       6


(d)  Acquired technology of $13 million is being amortized on a straight line
     basis over the useful life of 60 months
(e)  Goodwill arising from the transaction of $3.7 million is being amortized on
     a straight-line basis over a ten year period.
(f)  Other long term assets includes note receivable from Robotic Vision
     Systems, Inc. (RVSI) of $2,250, 271,493 shares of RVSI common stock $764
     thousand, and other deposits of $936 thousand.
(g)  Acquired in-process research and development of $13 million charged against
     income in 1999 results from an appraisal of General Scanning intangible
     assets.

The allocation of purchase price may be subject to adjustment, as additional
information regarding preacquisition contingencies becomes available during the
year.

     The following unaudited pro forma results of operations have been prepared
using the purchase method of accounting as if the merger had occurred at the
beginning of each fiscal period.



    (in thousands except per share amounts)                                Pro forma combined
                                                             Three months ended          Six months ended
                                                            July 2,     June 30,       July 2,     June 30,
                                                             1999        1998           1999         1998
                                                            -------     --------      --------     --------
                                                                                       
     Sales............................................      $69,248     $85,318       $128,301     $174,835
                                                            -------     -------       --------     --------

     Net loss.........................................      $(3,786)    $(7,627)      $(46,405)    $ (5,595)
                                                            =======     =======       ========     ========
     Net loss per common share:
          Basic                                             $ (0.11)    $ (0.22)      $  (1.36)    $  (0.16)
          Diluted                                           $ (0.11)    $ (0.22)      $  (1.36)    $  (0.16)
                                                            =======     =======       ========     ========

     Weighted average common shares outstanding              34,167      34,042         34,156       33,972
                                                            =======     =======       ========     ========
     Weighted average common shares outstanding
       and dilutive potential common shares                  34,167      34,042         34,156       33,972
                                                            =======     =======       ========     ========


3.   NET LOSS PER SHARE OF COMMON STOCK
     ----------------------------------

     Basic net loss per common share was computed by dividing net loss by the
weighted average number of common shares outstanding during the period.  For
diluted net loss per common share, the denominator also includes dilutive
outstanding stock options and warrants determined using the treasury stock
method.

     Common and diluted per common shares amounts are calculated using the
following weighted average number of shares:



     (in thousands)                                   Three months ended
                                                ----------------------------
                                                   July 2,      June 30,
                                                    1999          1998
                                                -------------  -------------
                                                         
     Weighted average common shares outstanding    34,167          17,109
     Dilutive potential common shares                 -0-             -0-
                                                -------------  -------------
     Diluted common shares                         34,167          17,109
                                                =============  =============

     Weighted options and warrants excluded
       from diluted income per common share
       as their effect would be anti-dilutive       4,001           1,310
                                                =============  =============


                                       7




                                                ----------------------------
                      (in thousands)                   Six months ended
                                                ----------------------------
                                                   July 2,      June 30,
                                                    1999          1998
                                                -------------  -------------
                                                         
     Weighted average common shares outstanding       26,686         17,107
     Dilutive potential common shares                    -0-            -0-
                                                -------------  -------------
     Diluted common shares                            26,686         17,107
                                                =============  =============

     Weighted options and warrants excluded
        from diluted income per common share
        as their effect would be anti-dilutive         3,157          1,313
                                                =============  =============


4.   CASH EQUIVALENTS
     ----------------

     Cash equivalents, are highly liquid investments with original maturity
dates of less than three months.

5.   RELATED PARTY TRANSACTIONS
     --------------------------

     The company recorded sales revenue from Sumitomo Heavy Industries, Ltd., a
significant shareholder, of $5.8 million in the six months ended July 2, 1999
and $9.1 million in the six months ended June 30, 1998 at values and terms
approximately equivalent to third party transactions.  Transactions with
Sumitomo are at normal trade terms.  The balance sheet reflects receivables from
Sumitomo as due from related party.

     The Company has a long-term loan from Sumitomo, all of which is repayable
in Japanese yen. The Company has entered into currency and interest rate swap
contracts which oblige it to pay Canadian dollars and receive Japanese yen, and
pay U.S. dollars and receive Japanese yen, on the dates principal and interest
payments are due.

6.   INVENTORIES
     -----------

     Inventories, which include materials, labor, and manufacturing overhead,
are stated at the lower of cost (first-in, first-out) or market. The components
of inventory are:




     (in thousands)                July 2,   Dec. 31,
                                    1999      1998
                                  --------  --------
                                      
      Materials                    $15,973   $ 9,123
      Work-in-process               15,577    14,062
      Finished goods                31,338    20,911
                                   -------   -------
                                   $62,888   $44,096
                                   =======   =======


7.   COMPREHENSIVE INCOME
     --------------------

     Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, establishes standards for reporting and displaying
comprehensive income and its components in a full set of general- purpose
financial statements.

     The Company considers the RVSI (ROBV) common stock to be available-for-sale
and, accordingly, is recording changes in its fair market value as a component
of stockholders' equity and comprehensive income (loss) for the reporting
periods.

8.   NEW ACCOUNTING PRONOUNCEMENT
     ----------------------------

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities.  The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value.  The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.  Special accounting for qualifying hedges
allows a

                                       8


derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS No.133 is effective for fiscal years beginning after June 15,
2000. The Company has not yet quantified the impact of adopting SFAS No. 133 on
its financial statements and has not determined the timing of or method of
adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in
earnings and other comprehensive income.

9.   RESTRUCTURING AND OTHER CHARGES
     -------------------------------

     A charge of $19.6 million was taken during the three months ended April 2,
1999 to accrue employee severance of $5.6 million, leased facility and related
costs of $4 million associated with the closure of the plant in Oxnard,
California and redundant facilities worldwide, and costs of $10 million
associated with restructuring and integration of operations as a result of the
merger.  Accruals remaining as of July 2, 1999 from prior quarter restructuring
charges were $4 million for employee severance, $5 million for leased facility
costs and $9 million for merger integration costs.

10.  COMMITMENTS AND CONTINGENCIES
     -----------------------------

Operating leases

     The Company leases certain equipment and facilities under operating lease
agreements that expire through 2008.  The facility leases require the Company to
pay real estate taxes and other operating costs.  For the years ended December
31, 1996, 1997 and 1998, lease expense was approximately $1,787 thousand, $1,948
thousand and $2,717 thousand, respectively.

     Minimum lease payments under operating leases expiring subsequent to July
2, 1999 are:



     (in thousands)
                                                    
     Remaining six months of 1999                       $ 2,750
     2000                                                 5,081
     2001                                                 4,372
     2002                                                 3,697
     2003                                                 2,786
     Thereafter                                           8,199
                                                  -------------
     Total minimum lease payments                       $26,885
                                                  =============


Litigation

     A provision of $19 million was recorded during the three months ended April
2, 1999 to accrue damages and legal fees, through to appeal, relating to Electro
Scientific Industries, Inc. v. General Scanning Inc., USDC Case No. C-96-4628,
and is reflected as a reduction in net assets acquired at the time of merger.
In October 1998 the U.S. District Court for the Northern District of California
issued a decision on motions for summary judgment in an action filed against
General Scanning Inc. for alleged patent infringement concerning U.S. Patent
Nos. 5,265,114 and 5,473,624. The Court granted Electro Scientific's motions for
summary judgment on infringement and on the issue of whether Electro Scientific
committed inequitable conduct by intentionally failing to cite prior art to the
U.S. Patent Office in connection with one of its patents.  The Court denied
General Scanning Inc.'s motion for summary judgment that the Electro Scientific
patents are invalid due to prior art.  During March 1999, the Court granted
Electro Scientific's motion for partial summary judgment that upgrade kits, sold
by General Scanning for 1.3 micron laser wavelength memory repair, infringe the
Electro Scientific patents in suit.  The referenced patents cover the use of
1.32 micron wavelength lasers in the repair of memory chips and semiconductors
with imbedded memory.  In April 1999 a federal court jury issued a verdict that
Electro Scientific's patent 5,473,624 was invalid, and that Electro Scientific's
patent 5,265,114 was valid, and awarded a $13.1 million damage judgment.  A
federal district court judge ruled on several post-trial matters in July 1999.
The Court refused Electro Scientific's requests to increase damages awarded by
the jury in April, and for attorney fees, but granted interest on the damages.
The Court also affirmed the jury's decision to invalidate one of the two patents
asserted by Electro Scientific in the case.  The Company intends to appeal the
decisions on the validity of the second patent, which was not overturned and the
award of damages.

                                       9


     Electro Scientific Industries, Inc. v. General Scanning Inc., USDC Case No.
98-4027.  On or about October 20, 1998, Electro Scientific commenced an action
in the U.S. District Court for the Northern District of California alleging
infringement of three Electro Scientific patents (U.S. Patent Nos. 5,569,398,
5,685,995 and 5,808,272) and seeking an injunction, damages and attorneys' fees.
The referenced patents cover the use of 1.32 micron wavelength lasers in the
trimming of certain semiconductor devices.  General Scanning denied Electro
Scientific's allegations and asserted that the referenced patents were invalid.
During July 1999, a settlement agreement was reached.  The terms and conditions
of the agreement are confidential.  GSI Lumonics has made no payments to Electro
Scientific as part of the settlement.  GSI Lumonics is not manufacturing or
offering for sale laser trimming systems incorporating the use of 1.3 micron
wavelength lasers.  The litigation and its settlement have no impact on the
Company's business.

     Robotic Vision Systems, Inc. v. View Engineering, Inc., USDC Case No.
95-7441. This case involves a patent infringement complaint by Robotic Vision
Systems, Inc. ("RVSI") alleging infringement of U.S. Patent No. 5,463,227. A
trial date is scheduled for November 1999. The referenced patent covers a method
of inspecting the electronic interconnect leads of certain semiconductor
components. In settlement of separate litigation with RVSI in June 1998, arising
from General Scanning Inc.'s acquisition of View in August 1996, General
Scanning Inc. agreed not to compete in the field of semiconductor
interconnection inspection. During the first six months of 1998, sales by
General Scanning Inc. of all products used in semiconductor lead interconnection
inspection which involved products relating to the alleged infringement totaled
approximately 2% of General Scanning Inc.'s total sales.

     Robotic Vision Systems Inc. v. View Engineering, Inc., USDC Case No.
96-2288. In June 1998, the U.S. District Court for the Central District of
California found infringement by View Engineering, Inc. ("View") on a
particular method of measuring substrate coplanarity of unpopulated ball grid
array packages. RVSI had previously dropped all claims for damages; hence, no
damages were awarded. The Court determined that View had not willfully infringed
and therefore refused RVSI's claim for attorneys' fees. The Court enjoined View
from infringing or inducing infringement of the patent in question, No.
5,465,152. General Scanning Inc., on behalf of View, appealed the injunction.
Oral argument on the appeal was held during May 1999 and the court has not
reached a decision. In settlement of separate litigation with RVSI, in June
1998, arising from the General Scanning Inc. acquisition of View in August 1996,
General Scanning Inc. agreed not to compete in the field of semiconductor
interconnection inspection. Systems for use in inspection of ball grid
electronic interconnection and for measuring substrate coplanarity accounted for
approximately 1% of total sales during the first six months of 1998.

     GSI Lumonics believes that RVSI's claims in the above actions are without
merit and GSI Lumonics Inc. is vigorously defending these proceedings.  However,
if RVSI prevails on one or more of its claims, there could be a material adverse
effect on GSI Lumonics Inc.'s business, operating results and/or financial
condition.

     Other. A party has commenced legal proceedings in the United States against
a number of U.S. manufacturing companies, including companies that have
purchased systems from GSI Lumonics Inc. The plaintiff in the proceedings has
alleged that certain equipment used by these manufacturers infringes patents
claimed to be held by the claimant. While GSI Lumonics Inc. is not a defendant
in any of the proceedings, several of GSI Lumonics Inc.'s customers have
notified GSI Lumonics Inc. that, if the party successfully pursues infringement
claims against them, they may require GSI Lumonics Inc. to indemnify them to the
extent that any of their losses can be attributed to systems sold to them by GSI
Lumonics Inc.. While GSI Lumonics does not believe that the outcome of these
claims will have a material adverse effect upon GSI Lumonics, there can be no
assurance that any such claims, or any similar claims, would not have a material
adverse effect upon GSI Lumonics' financial condition or results of operations.

                                       10


11.  SEGMENT INFORMATION
     -------------------

     In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information.  The new disclosure requirements established
revised standards for public companies relating to the reporting of financial
and descriptive information in financial statements about their operating
segments.

Business segment information

     The Company has two reportable segments as set forth in the table below.
In classifying operational entities into a particular segment, the Company
aggregated businesses with similar economic characteristics, products and
services, production processes, customers and methods of distribution. The
accounting policies for segments are the same as the Company's accounting
policies as described in Note 1. There are no transfers between segments.
Management evaluates segment performance based on segment income (loss) from
operations before interest income and expense, foreign exchange transaction
gains (losses), certain non-recurring items such as legal expenses, and income
taxes.



     (in thousands)                                 Three months ended              Six months ended
                                            -------------------------------    ---------------------------
                                               July 2,         June 30,         July 2,       June 30,
                                                1999            1998             1999           1998
                                            --------------- ---------------    ------------ --------------
                                                                                 
     Sales to unaffiliated customers:
       Laser systems and components                $ 62,460        $ 36,366        $ 99,845       $ 75,431
       Printers                                       6,788               -           7,997              -
                                            --------------- ---------------    ------------ --------------
          Total                                    $ 69,248        $ 36,366        $107,842       $ 75,431
                                            =============== ===============    ============ ==============

     Income (loss) from operations:
       Laser systems and components (1,2)          $ (1,417)       $ (5,954)       $(38,686)      $ (4,412)
                                            --------------- ---------------    ------------ --------------
       Printers                                         743               -             743              -
       Corporate expenses                            (4,350)         (1,109)         (6,350)        (2,164)
                                            --------------- ---------------    ------------ --------------
          Total                                    $ (5,024)       $ (7,063)       $(44,293)      $ (6,576)
                                            =============== ===============    ============ ==============

     Total assets:
       Laser systems and components                $177,654        $118,325        $177,654       $118,325
       Printers                                      12,471               -          12,471              -
       Corporate assets (3)                          90,062          52,221          90,062         52,221
                                            --------------- ---------------    ------------ --------------
          Total                                    $280,187        $170,546        $280,187       $170,546
                                            =============== ===============    ============ ==============

     Capital expenditures:
       Laser systems and components                $  1,286        $  5,398        $  1,805       $  8,175
       Printers                                         860               -           1,384              -
                                            --------------- ---------------    ------------ --------------
          Total                                    $  2,146        $  5,398        $  3,189       $  8,175
                                            =============== ===============    ============ ==============

     Depreciation and amortization:
       Laser systems and components                $  3,037        $  1,170        $  8,089       $  2,444
       Printers                                         164               -             183              -
                                            --------------- ---------------    ------------ --------------
          Total                                    $  3,201        $  1,170        $  8,272       $  2,444
                                            =============== ===============    ============ ==============


(1)  Includes $13,000 charge for acquired in-process research and development in
     first quarter 1999.
(2)  Includes $19,631 charges for restructuring and other charges in first
     quarter 1999.
(3)  Consists primarily of cash, cash equivalents, investments, deferred tax and
     intangible assets.

                                       11


Geographic segment information

     The Company attributes revenues to geographic areas on the basis of the
customer location invoiced.  Long-lived assets are attributed to geographic
areas in which Company assets reside.



          (in millions)                               Three months ended
          Revenues from external customers:           July 2,         June 30,
                                                       1999            1998
                                                  ------- -------  ------- -------
                                                               
          USA...............................        $34.4      50%   $16.2      45%
          Canada............................          0.1       0%     2.3       7%
          Latin & South America.............          0.2       0%     0.1      0 %
          Europe............................         18.8      27%     9.9      27%
          Japan.............................          7.4      11%     3.8      10%
          Asia..............................          8.3      12%     4.1      11%
                                                  -------          -------
          Total.............................         69.2     100%    36.4     100%
                                                  =======          =======

          Long lived assets:
          USA...............................        $25.0            $ 3.4
          Canada............................          7.6              9.7
          Europe............................         17.4             16.3
          Japan.............................          0.1                -
          Asia..............................          0.4              0.3
                                                  -------          -------
          Total.............................         50.5             29.7
                                                  =======          =======


                                       12


ITEM 2.

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                   AND RESULTS OF OPERATIONS IN U.S. DOLLARS

OVERVIEW

GSI Lumonics Inc. was formed in the merger of General Scanning Inc. and Lumonics
Inc. on March 22, 1999.  The merger transaction has been accounted for as a
purchase for accounting purposes and accordingly, the operations of General
Scanning have been included in the consolidated financial statements only from
the date of merger.

GSI Lumonics Inc. is a leading manufacturer of laser systems and components, and
printers.  The Company sells its laser systems primarily to manufacturers of
products containing advanced electronic components and circuitry.  In addition,
the Company produces a line of laser subsystems and components that are used in
the Company's own systems, as well as sold to other manufacturers of laser
systems.  The Company's laser system sales have been, and are expected to
continue to be, dependent upon its customers' capital expenditures which are, in
turn, affected by business cycles in the markets served by those customers.  The
Company's strategy is to expand applications for its products into different and
varied markets in order to limit dependency on any one market, but it may not
always be successful in doing so.

The Company also sells printers.  These products have historically been sold
primarily to manufacturers of medical equipment for patient care monitoring.
This segment of the Company's business has not experienced significant
cyclicality in the past; however, sales of certain printers used in the greeting
card industry tend to increase in the third quarter in anticipation of holiday
greeting card sales.

The Company experienced increased competitive product pricing pressure during
the quarter, and pricing actions had a negative effect on reported gross profit.
Because substantial portions of the Company's sales, costs of sales and other
expenses are denominated in Canadian dollars, U.K. pounds sterling, Japanese yen
and several other currencies, the Company's results of operations are subject to
the effects of exchange rate fluctuations of those currencies relative to the US
dollar. Changes in currency exchange rates may also affect the relative prices
at which the Company and its competition sell their products in the same
markets.

RESULTS OF OPERATIONS

Three months ended July 2, 1999 and June 30, 1998

Sales.  Total sales were $69.2 million for the three months ended July 2,
1999, compared to $36.4 million in the three months ended June 30, 1998.  Laser
systems and component sales for the three months ended July 2, 1999 increased
72% to $62 million from $36 million in the comparable period of 1998 due
primarily to the merger with General Scanning Inc., offset by slower activity in
the semiconductor, automotive and aerospace sectors and decreased sales in Asia.
The Company does not anticipate marked improvement in these market sectors or in
the Asian markets it serves until later in the year, at the earliest.  Printer
sales for the three months ended July 2, 1999 due to the merger with General
Scanning Inc. compared to zero in the comparable period of 1998.



          (in millions)                                Three months ended
          Revenues by market:                          July 2,          June 30,
                                                        1999              1998
                                                ------------------  ---------------
                                                                
          Semiconductor.....................        $ 9.0      13%   $ 3.3       9%
          Electronics.......................         15.7      23%     9.7      27%
          Automotive........................          2.1       3%     2.9       8%
          Aerospace.........................          6.0       9%     4.5      12%
          Packaging.........................          2.4       3%     3.3       9%
          Emerging..........................          2.7       4%     1.8       5%
          Medical/Biotechnology.............         14.6      21%     0.6       2%
          Components........................          7.9      11%     1.8       5%
          Parts & service...................          8.8      13%     8.5      23%
                                                   ------           ------
          Total.............................         69.2     100%    36.4     100%
                                                   ======           ======


                                       13


Gross profit.   Total gross profit was $23 million, or 34% of sales, for the
three months ended July 2, 1999, compared to $9 million, or 24% of sales, for
the three-month period ended June 30, 1998.  Laser systems and components gross
profit increased to 33% of sales in the three months ended July 2, 1999 from 24%
of sales for the comparable three-month period of 1998.  The increase was due
primarily to merger with General Scanning Inc. which runs a higher gross margin,
and product mix.  Printers gross profit was 37% of sales in the three months
ended July 2, 1999.

Research and product development.   Research and product development expenses
were $8 million, or 12% of total sales, for the three months ended July 2, 1999
compared to $4 million, or 11% of total sales, for the three months ended June
30, 1998.  The increase was due primarily to merger with General Scanning Inc.

Selling, general and administrative.  Selling, general and administrative
expenses increased to $20 million in the three months ended July 2, 1999 from
$10 million in the comparable period of 1998.  This increase was due primarily
to merger with General Scanning Inc.  These expenses increased to 29% of total
sales for the three-month period ended July 2, 1999 from 27% in the comparable
period in 1998.

Restructuring, litigation settlement and other charges.  Accruals remaining as
of July 2, 1999 from prior quarter restructuring charges were $4 million for
employee severance, $5 million for leased facility costs and $9 million for
merger integration costs.

Interest.  Interest income was $286 thousand for the three month period ended
July 2, 1999 compared to $655 thousand for the comparable period of 1998.
Interest expense was $379 thousand for the three month period ended July 2, 1999
compared to $324 thousand for the comparable period of 1998. There was a net
decrease in cash and investments, resulting in less interest income, and an
increase in bank debt partially offset by a decrease in long term debt.

Foreign exchange.  Foreign exchange transactions resulted in a gain of $0.2
million in the three months ended July 2, 1999 compared to a loss of $0.2
million in the comparable period of 1998.  Gains and losses are incurred when
the Company's net receivables denominated in various currencies, including
Canadian dollar, Japanese yen, pounds Sterling, Deutsche marks, Euro and other
European currencies, are not fully hedged versus the US dollar.

Income tax.  The income tax benefit for the Company was $1.2 million for the
three months ended July 2, 1999 compared to a benefit of $2.1 million for the
three months ended June 30, 1998.

Net income (loss).  Net loss for the three months ended July 2, 1999 was $3.8
million, or $0.11 per share, based upon 34.2 million common shares, compared to
net loss of $4.9 million, or $0.29 per share, based upon 17.1 million common
shares in the comparable three month period of 1998.

                                       14


Six months ended July 2, 1999 and June 30, 1998

Sales.  Total sales were $108 million for the six months ended July 2, 1999,
compared to $75 million in total sales in the six months ended June 30, 1998.
Laser systems and component sales for the six months ended July 2, 1999
increased 32% to $100 million from $75 million in the comparable period of 1998
due primarily to the merger with General Scanning Inc., offset by slower
activity in the semiconductor, automotive and aerospace sectors and decreased
sales in Asia. The Company does not anticipate marked improvement in these
market sectors or in the Asian markets it serves until later in the year, at the
earliest.  Printer sales for the six months ended July 2, 1999 due to the merger
with General Scanning Inc. compared to zero in the comparable period of 1998.



                       (in millions)                       Six months ended
          Revenues by market:                          July 2,          June 30,
                                                        1999              1998
                                                   ---------------  ---------------
                                                                
          Semiconductor.....................       $ 12.7      12%   $ 8.3      11%
          Electronics.......................         25.7      24%    15.4      20%
          Automotive........................          3.7       3%     8.0      11%
          Aerospace.........................          7.9       7%    10.2      13%
          Packaging.........................          5.6       5%     6.2       8%
          Emerging..........................          5.4       5%     5.1       7%
          Medical/Biotechnology.............         17.8      17%     2.2       3%
          Components........................         11.6      11%     3.5       5%
          Parts & service...................         17.4      16%    16.5      22%
                                                   ------           ------
             Total.........................         107.8     100%    75.4     100%
                                                   =======          ======


Gross profit.  Total gross profit was $31 million, or 29% of sales, for the six
months ended July 2, 1999, compared to $22 million, or 29% of sales, for the six
months ended June 30, 1998.  Laser systems and components gross profit decreased
to 28% of sales in the six months ended July 2, 1999 from 29% of sales for the
comparable six month period of 1998.  The decrease was due primarily to lower
sales volume, product mix, pricing, and $3 million of inventory provisions taken
during the first quarter.  Printers gross profit was 38% of sales in the six
months ended July 2, 1999.

Research and product development.   Research and product development expenses
were $12 million, or 11% of total sales, for the six months ended July 2, 1999
(excluding a one time expense relating to acquired in-process research and
development associated with the merger with General Scanning) compared to $7
million, or 10% of total sales, for the six months ended June 30, 1998.

Selling, general and administrative.   Selling, general and administrative
expenses increased to $31 million in the six months ended July 2, 1999 from $19
million in the comparable period of 1998.  This increase was due primarily to
the merger with General Scanning Inc.  These expenses increased to 28% of total
sales for the six month period ended July 2, 1999 from 26% in the comparable
period in 1998.

Restructuring, litigation settlement and other charges.   A charge of $19.6
million was taken during the three months ended April 2, 1999 to accrue employee
severance of $5.6 million, leased facility and related costs of $4 million
associated with the closure of the plant in Oxnard, California and redundant
facilities worldwide, and costs of $10 million associated with restructuring and
integration of operations as a result of the merger.  Accruals remaining as of
July 2, 1999 from prior quarter restructuring charges were $4 million for
employee severance, $5 million for leased facility costs and $9 million for
merger integration costs.

A provision of $19 million was recorded during the three months ended April 2,
1999 to accrue damages and legal fees, through to appeal, relating to Electro
Scientific Industries, Inc. v. General Scanning Inc., USDC Case No. C-96-4628,
and is reflected as a reduction in net assets acquired at the time of the
merger. A federal district court judge ruled on several post-trial matters in
July 1999.  The Court refused ESI's

                                       15


requests to increase damages awarded by the jury in April, and for attorney
fees, but granted interest on the damages. The Court also affirmed the jury's
decision to invalidate one of the two patents asserted by ESI in the case. The
company intends to appeal the decisions on the validity of the second patent,
which was not overturned, and the award of damages. The accrual remaining as of
July 2, 1999 was $18 million.

Merger expenses.    Charges of $3 million during the three months ended April 2,
1999, including brokers fees and legal and accounting costs, are reflected in
the cost of acquisition.  Costs spent by the Company of $463 thousand, net of
tax effects, related to issuance of common shares, have been included in equity.

Interest.   Interest income was $634 thousand for the six months ended July 2,
1999 compared to $1,317 thousand for the comparable period of 1998.  Interest
expense was $533 thousand for the six months ended July 2, 1999 compared to $660
thousand for the comparable period of 1998. There was a net decrease in cash,
resulting in less interest income, and a decrease in long term debt partially
offset by an increase in bank debt.

Foreign exchange.   Foreign exchange transactions resulted in a loss of $0.6
million in the six months ended July 2, 1999 compared to a loss of $0.8 million
in the comparable period of 1998.  Gains and losses are incurred when the
Company's net receivables denominated in various currencies, including Canadian
dollar, Japanese yen, pounds Sterling, Deutsche marks, Euro and other European
currencies, are not fully hedged versus the US dollar.

Income tax.   The income tax benefit for the Company was $5.5 million for the
six months ended July 2, 1999 compared to a benefit of $1.9 million for the six
months ended June 30, 1998.  The low rate of recovery of 12% is a result of a
number of factors, including permanent differences between income for accounting
and income for tax purposes such as the acquired in-process research and
development expense which is not deductible for tax purposes.

Net income (loss).   Net loss for the six months ended July 2, 1999 was $39
million, or $1.47 per share based upon 26.7 million average common shares,
compared to net loss of $4.7 million, or $0.28 per share based upon 17.1 million
common shares in the comparable six months of 1998.

Backlog.   Backlog at July 2, 1999 was approximately $73 million compared to $29
million at December 31, 1998.  On a pro forma basis, as if the merger had
occurred at the beginning of the fiscal period, backlog was $59 million at
December 31, 1998.


LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents totaled $38 million on July 2, 1999 compared to $24
million on December 31, 1998.  Bank indebtedness and the current portion of
long-term debt increased to $26 million on July 2, 1999 from $11 million on
December 31, 1998.  The merger with General Scanning accounts for $6 million of
this increase.

During the first six months of 1999, cash flows of $4.2 million were used in
operating activities, investing activities provided cash flows of $6.1 million,
and financing activities provided cash flows of $8.7 million.

Net loss of $39 million in the first six months of 1999, offset by non-cash
charges for acquired in-process research and development, depreciation,
amortization, unrealized currency exchange loss, deferred taxes and deferred
compensation totaling $17 million, and by net increase in working capital of $18
million, resulted in $4.9 million used in operating activities.

Cash flow from investing activities was due primarily to $8.2 million maturity
of short-term investments.  At the date of merger, General Scanning added $4.7
million in cash and cash equivalents, offset by merger costs of $3.3 million and
capital expenditures of $3.2 million.

                                       16


The Company has credit facilities of approximately $32 million, which are
denominated in Canadian dollars, US dollars, Pound sterling and Japanese yen.
Borrowings under the credit facilities, of which $22 were outstanding at July 2,
1999, are due on demand and bear interest based on prime.

Accounts receivable and inventories have been pledged as collateral for the bank
indebtedness under general security agreements.  The borrowings require, among
other things, the Company to maintain specified financial ratios and conditions.
As of July 2, 1999, the Company was in breach of certain covenants and the
lending institutions have provided waivers.

The Company believes that existing cash and investments, together with cash
generated by future operations and the existing credit facilities, will be
sufficient to satisfy anticipated cash needs to fund working capital and
investments in manufacturing facilities and equipment for its existing
businesses over the next twelve months.  GSI Lumonics is reviewing and
restructuring its existing lines of credit to meet the needs of the merged
company.  The Company may, from time to time, as market and business conditions
warrant, invest in or acquire complementary businesses, products or
technologies.  The Company may require additional equity or debt financings to
fund such activities, which could result in additional dilution to the Company's
shareholders.*


LEGAL PROCEEDINGS

A provision of $19 million was recorded during the three months ended April 2,
1999 to accrue damages and legal fees, through to appeal, relating to Electro
Scientific Industries, Inc. v. General Scanning Inc.  USDC Case No. C-96-4628
and is reflected as a reduction in net assets acquired at the time of merger.
The company intends to appeal the decisions on the validity of the second
patent, which was not overturned and the award of damages.*

See Note 10 to the consolidated financial statements.


YEAR 2000

The use of computer programs written using two digits rather than four to define
the applicable year gives rise to what is commonly referred to as the Year 2000
problem.  The major areas being addressed by the Company in regards to Year 2000
compliance are internal operating systems, the installed base of products at
customer sites and third party compliance issues.

The efficient operation of the Company's business is dependant, in part, on its
computer software and hardware.  These systems are used in several key areas of
the Company's business, including sales, purchasing, engineering, inventory
control, manufacturing, service and financial reporting.  The Company has been
evaluating its systems to identify potential Year 2000 compliance problems.
These actions are necessary to ensure that the programs and systems will
recognize and accurately process the Year 2000 and beyond.  Based on present
information, the Company believes its systems for operations are Year 2000
compliant.

The company also continues to assess the impact of the Year 2000 issue on the
operations of its products installed at customers.  The installed base customers
that have older products that are not Year 2000 compliant are being contacted
and offered upgrade options.  This effort should be complete by the third
quarter of 1999.

Finally, the Company is in the process of assessing its major suppliers' and
customers' compliance with Year 2000 issues.  This will be an ongoing effort
through the next year.  The Company believes that suppliers and customers
present the area of greatest risk to the Company in part because of the
Company's limited ability to influence actions of such third parties, and in
part because of the Company's inability to estimate the level of impact of
noncompliance of third parties throughout the extended supply chain.  The most
reasonably likely worst case scenario would involve non-performance by a
supplier, which could delay production and delivery of product to customers.

                                       17


Independent of issues related to Year 2000, the Company began a program to
select, acquire and install a new hardware and software platform to replace the
current operations systems which did not have the capacity to accommodate the
Company's growth plans.  Recent upgrades to such systems to make them Year 2000
compliant have been made by the Company's hardware and software providers under
standard maintenance contracts at no additional cost to the Company.  Because
the Company has been upgrading its operations systems to newer applications
which are Year 2000 compliant, it is anticipated that the future costs of the
Year 2000 compliance for operations will not materially impact the financial
results of the Company.  Separate expenditures exclusively for Year 2000
compliance have been immaterial to date.  However, the effect of third party
impact cannot be quantified at this time because the Company cannot accurately
estimate the magnitude, duration, or ultimate impact of noncompliance by
suppliers, customers and other third parties that have no direct relationship to
the Company.  The Company believes that its competitors face a similar risk.
Going forward the Company will continue to make every effort to identify and
minimize that risk.  Contingency plans include identifying second source
suppliers for critical components, and review of accounts receivable statements
with customers and preparing to assist customers in the event their payable
systems fail.

Readers are cautioned that the Year 2000 section contains forward-looking
information.  Please see the "Outlook for 1999" for a list of some of the
factors that could cause actual results to differ materially from expected
results.*


OUTLOOK FOR 1999

The merger of Lumonics Inc. and General Scanning Inc. was completed on March 22,
1999.  Integration teams continue to refine and implement plans to guide the
first 12 months' integration initiatives.  Cross functional, inter-company teams
covering manufacturing operations, distribution, research and development,
technology, customer support and administration were asked to cover many topics
including customer retention, cost saving synergy, revenue enhancement
opportunities and organization structure.

On April 5, 1999 the Company announced measures to consolidate operations and
realize cost savings.  The measures include closing the Oxnard, California
manufacturing facility; removing sales office redundancy in key markets outside
North America and improving production capabilities for the semiconductor
industry through a product rationalization and a production transfer.  As a
result of the changes, GSI Lumonics' facility in Wilmington, Massachusetts will
begin manufacturing semiconductor wafer marking equipment that was previously
produced in Oxnard.  Oxnard's other marking product line will be rationalized
and consolidated with a similar product line developed and manufactured at the
Wilmington facility.  To ensure an orderly transition, the changes are being
phased in and will be completed by the summer of 1999.  The costs associated
with these restructuring activities were accrued in the first quarter of 1999.

GSI Lumonics has implemented an organization structure to see it through at
least the first 12 months.  All redundant employment positions were identified
in the first week following the merger and related costs were accrued in the
first quarter of 1999.

The information included in the above "Outlook for 1999" section, as well as in
certain statements made throughout the Management's Discussion and Analysis of
Financial Condition and Results of Operations that are identified by an asterisk
(*), is forward-looking and involves risks and uncertainties that could result
in actual results differing materially from expected results.  It is not
reasonably possible to itemize all of the many factors and specific events that
could affect the outlook of a laser manufacturing business operating in the
global economy.  Some factors that could significantly impact expected revenues,
costs, and net income (loss) include: capital expenditures by customers which
are in turn affected by cycles in the markets served by those customers, the
Asian economic environment, the impacts of the Company's merger related
activities, foreign currency exchange rate fluctuations, timing and shipment of
significant

                                       18


orders, the risk of delays by the Company's OEM customers in introducing their
new products and market acceptance of those products incorporating subsystems
supplied by the Company, similar risks to the Company in delays in new product
introductions and market acceptance of its new products, the level of cost-
reduction efforts, the general economic environment and other risks detailed in
the Company's Form 10-K that has been filed in connection with its 1998 fiscal
year. With respect to the forward-looking statements set forth in the "Legal
Proceedings" section, some of the factors that could affect the ultimate
disposition of these contingencies are the development of facts in individual
cases, settlement opportunities and the actions of plaintiffs, judges and
juries. Some factors that could significantly impact the Company's expected Year
2000 readiness and the estimated cost thereof include the results of the
technical assessment, remediation and testing of date-sensitive systems and
equipment and the ability of critical business suppliers and customers to
achieve Year 2000 readiness.


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding GSI Lumonics' exposure to certain market risks, see
item 7A, Quantitative and Qualitative Disclosures About Market Risk in GSI
Lumonics' Annual Report on Form 10-K for the year 1998.

The Company does not actively trade derivative financial instruments but uses
them to manage foreign currency and interest rate positions associated with its
debt instruments. The terms of these derivative contracts match the terms of the
underlying debt instruments and are generally used to reduce financing costs.
The Company currently has three such contracts outstanding, two of which convert
yen denominated debt to U.S. dollar denominated debt and one contract which
converts a yen denominated debt into Canadian dollars.



(in thousands)                                                                JULY 2,1999
                                                                           ---------------
                                                                          
Long-term debt, including current portion:
       Sumitomo Heavy Industries, Ltd., Japanese yen term loans...........         $4,968
Favorable value of swaps:
     -to convert 150 million yen to U.S. $1,024, semi-annual interest
      at the six-month LIBOR less 1.56%...................................            218

     -to convert 225 million yen to Canadian $1,744, semi-annual interest
      at the three month bankers acceptance rate less 1.62%...............            679

     -to convert 225 million yen to U.S. $1,535, interest payable
      semi-annually at 8.20%..............................................            328
                                                                                   ------
Favorable value of swaps..................................................          1,225
                                                                                   ------
Economic value............................................................         $3,743
                                                                                   ======


                                       19


                               GSI LUMONICS INC.
                           Part II. Other Information


Item 1.   Changes in legal proceedings and arbitration
          --------------------------------------------

     A provision of $19 million was recorded during the three months ended April
     2, 1999 to accrue damages and legal fees, through to appeal, relating to
     Electro Scientific Industries, Inc. v. General Scanning Inc., USDC Case No.
     C-96-4628, and is reflected as a reduction in net assets acquired at the
     time of the merger between the Company and General Scanning.  In October
     1998 the U.S. District Court for the Northern District of California issued
     a decision on motions for summary judgment in an action filed against
     General Scanning Inc. for alleged patent infringement concerning U.S.
     Patent Nos. 5,265,114 and 5,473,624. The Court granted Electro Scientific's
     motions for summary judgment on infringement and on the issue of whether
     Electro Scientific committed inequitable conduct by intentionally failing
     to cite prior art to the U.S. Patent Office in connection with one of its
     patents.  The Court denied General Scanning Inc.'s motion for summary
     judgment that the Electro Scientific patents are invalid due to prior art.
     During March 1999, the Court granted Electro Scientific's motion for
     partial summary judgment that upgrade kits, sold by General Scanning for
     1.3 micron laser wavelength memory repair, infringe the ESI patents in
     suit.  The referenced patents cover the use of 1.32 micron wavelength
     lasers in the repair of memory chips and semiconductors with imbedded
     memory.  In April 1999 a federal court jury issued a verdict that ESI's
     patent 5,473,624 was invalid, and that ESI's patent 5,265,114 was valid,
     and awarded a $13.1 million damage judgment against General Scanning. A
     federal district court judge ruled on several post-trial matters in July
     1999.  The Court refused ESI's requests to increase damages awarded by the
     jury in April, and for attorney fees, but granted interest on the damages.
     The Court also affirmed the jury's decision to invalidate one of the two
     patents asserted by ESI in the case.  The Company intends to appeal the
     decisions on the validity of the second patent, which was not overturned,
     and the award of damages.

Item 2.   Changes in Securities
          ---------------------

     (a)  At various times during the three months ended July 2, 1999, a total
          of 6,398 common shares of the Company were issued pursuant to the
          exercises of stock options held by directors, officers and employees
          of the company. All issuances were exempt pursuant to Section 4(2) of
          the United States Securities Act of 1933 or Regulation S or Rule 701
          thereunder. The total consideration received by the company on the
          exercise of such options was $17,769 which funds have been or will be
          used for general corporate purposes.

Item 4.   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------

     On May 11, 1999, the company's shareholders voted at a special and general
     meeting on [1] an increase of 1,000,000 shares in the number of common
     shares reserved for issuance under the company's 1995 Stock Option Plan For
     Employees and Directors and on [2] the approval of the company's
     Shareholders Rights Plan.  Both motions were passed with the following
     results:

                                                 For      Against
                                                 ---      -------
     [1] Increase shares for stock options    7,896,660  1,560,504
     [2] Shareholders rights plan             8,133,812  1,323,352

Item 6.   Exhibits and Reports on Form 8-K
          --------------------------------

     a)  Exhibits
     --  --------
     27.  Financial Data Schedule.

     b)   Reports on Form 8-K
     ---  -------------------
     None

                                       20


                               GSI LUMONICS INC.
                                   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.



GSI Lumonics Inc.



/s/ Charles D. Winston             Date: August 11, 1999
- ----------------------
Charles D. Winston
Chief Executive Officer



/s/ Desmond J. Bradley              Date: August 11, 1999
- ----------------------
Desmond J. Bradley
Vice President Finance and
Chief Financial Officer

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