----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-Q**

**For      the Quarterly Period Ended March 31, 2007**

**The      GSI Group, Inc.**

|                                                             |                               |
|------------------------------------------------------------------|------------------------------------|
| **Delaware**                                                     | **37-0856587**                     |
| (State                or other jurisdiction                      | (I.R.S.                Employer    |
| of                incorporation or organization)                 | Identification                No.) |
|                                                             |                               |
| **1004                E. Illinois Street, Assumption, Illinois** | **62510**                          |
| (Address                of principal executive offices)          | (Zip                Code)          |
|                                                             |                               |
| **(217)                226- 4421**                               |                               |
| (Registrant’s                telephone number)             |                               |

| Yes                [X] | No                [ ] |
|------------------------|-----------------------|

| Large                Accelerated filer [ ] | Accelerated                filer[ ] | Non                Accelerated filer [X] |
|--------------------------------------------|-------------------------------------|------------------------------------------|

| Yes                [] | No                [ X] |
|-----------------------|------------------------|

----

**TABLE      OF CONTENTS**

|                       |                                                                                                                |                **Page** |
|----------------------------|---------------------------------------------------------------------------------------------------------------------|------------------------------|
| **Item                1.** | **Financial                Statements**                                                                             |                         |
|                       | Balance                Sheets                                                                                       | **4**                        |
|                       | Statements                of Operations                                                                             | **5**                        |
|                       | Statements                of Cash Flows                                                                             | **6**                        |
|                       | Notes                to Financial Statements                                                                        | **7**                        |
|                       |                                                                                                                |                         |
| **Item                2.** | Management's                Discussion and Analysis of Financial Condition and Results of                Operations | **12**                       |
|                       |                                                                                                                |                         |
| **Item                3.** | Quantitative                and Qualitative Disclosure About Market Risk                                            | **16**                       |
|                       |                                                                                                                |                         |
| **Item                4.** | Controls                and Procedures                                                                              | **16**                       |
|                       |                                                                                                                |                         |
|                       | **PART                II - Other Information**                                                                      |                         |
|                       |                                                                                                                |                         |
| **Item                1.** | Legal                Proceedings                                                                                    | **18**                       |
|                       |                                                                                                                |                         |
| **Item                1A** | Risk                Factors                                                                                         | *****                        |
|                       |                                                                                                                |                         |
| **Item                2.** | Unregistered                Sales of Equity Securities and Use of Proceeds                                          | *****                        |
|                       |                                                                                                                |                         |
| **Item                3.** | Defaults                Upon Senior Securities                                                                      | *****                        |
|                       |                                                                                                                |                         |
| **Item                4.** | Submission                of Matters to a Vote of Security Holders                                                  | *****                        |
|                       |                                                                                                                |                         |
| **Item                5.** | Other                Information                                                                                    | *****                        |
|                       |                                                                                                                |                         |
| **Item                6.** | Exhibits                                                                                                            | **18**                       |

***      **

**2**

----

**Forward-Looking      Statements**

**3**

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**THE      GSI GROUP, INC.**

**CONDENSED      CONSOLIDATED BALANCE SHEETS **

|                                                                                                                                                                |   | **(Unaudited)**                   |      |                                 |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|-----------|--------------------------------------|---------|
|                                                                                                                                                                |   | **March                31, 2007** |      | **December                31, 2006** |    |
| **Assets**                                                                                                                                                          |   |                              |      |                                 |    |
| Current                Assets:                                                                                                                                      |   |                              |      |                                 |    |
| Cash                and cash equivalents                                                                                                                            |   | $                                 | 24,131    |                                 | $       | 3,467 |   |
| Accounts                receivable, net                                                                                                                             |   |                              | 40,604    |                                 |    | 42,553 |   |
| Inventories,                net                                                                                                                                     |   |                              | 55,641    |                                 |    | 51,332 |   |
| Prepaids                                                                                                                                                            |   |                              | 5,222     |                                 |    | 3,069 |   |
| Income                tax receivable                                                                                                                                |   |                              | --        |                                 |    | 4,161 |   |
| Deferred                taxes                                                                                                                                       |   |                              | 8,338     |                                 |    | 6,971 |   |
| Other                                                                                                                                                          |   |                              | 1,326     |                                 |    | 2,456 |   |
| Total                current assets                                                                                                                                 |   | $                                 | 135,262   |                                 | $       | 114,009 |   |
|                                                                                                                                                                |   |                              |      |                                 |    |   |   |
| Property,                Plant and Equipment, net                                                                                                                   |   | $                                 | 42,582    |                                 | $       | 40,298 |   |
|                                                                                                                                                                |   |                              |      |                                 |    |   |   |
| Other                Assets:                                                                                                                                        |   |                              |      |                                 |    |   |   |
| Goodwill                                                                                                                                                            |   | $                                 | 36,855    |                                 | $       | 36,730 |   |
| Other                intangible assets, net                                                                                                                         |   |                              | 46,435    |                                 |    | 47,497 |   |
| Deferred                financing costs, net                                                                                                                        |   |                              | 3,760     |                                 |    | 3,921 |   |
| Other                                                                                                                                                               |   |                              | 220       |                                 |    | 210 |   |
| Total                other assets                                                                                                                                   |   |                              | 87,270    |                                 |    | 88,358 |   |
| Total                assets:                                                                                                                                        |   | $                                 | 265,114   |                                 | $       | 242,665 |   |
|                                                                                                                                                                |   |                              |      |                                 |    |   |   |
| **Liabilities                and Stockholder’s Equity**                                                                                                       |   |                              |      |                                 |    |   |   |
| Current                Liabilities:                                                                                                                                 |   |                              |      |                                 |    |   |   |
| Accounts                payable                                                                                                                                     |   | $                                 | 41,463    |                                 | $       | 23,334 |   |
| Accrued                interest                                                                                                                                     |   |                              | 4,400     |                                 |    | 1,625 |   |
| Payroll                and payroll related expenses                                                                                                                 |   |                              | 10,227    |                                 |    | 9,814 |   |
| Accrued                warranty                                                                                                                                     |   |                              | 2,304     |                                 |    | 2,480 |   |
| Accrued                workers compensation                                                                                                                         |   |                              | 4,321     |                                 |    | 4,450 |   |
| Other                accrued expenses                                                                                                                               |   |                              | 4,854     |                                 |    | 4,391 |   |
| Customer                deposits                                                                                                                                    |   |                              | 15,363    |                                 |    | 8,185 |   |
| Current                maturities of long-term debt                                                                                                                 |   |                              | 773       |                                 |    | 263 |   |
| Total                current liabilities                                                                                                                            |   | $                                 | 83,705    |                                 | $       | 54,542 |   |
|                                                                                                                                                                |   |                              |      |                                 |    |   |   |
| Long-term                debt, less                current maturities                                                                                               |   | $                                 | 97,623    |                                 | $       | 109,444 |   |
| Deferred                taxes, net                                                                                                                                  |   | $                                 | 356       |                                 | $       | 404 |   |
| Other              long term liabilities                                                                                                                            |   |  $                           | 158  |                                 | $  | -- |   |
| Stockholder’s                Equity:                                                                                                                          |   |                              |      |                                 |    |   |   |
| Common                stock, $.01 par value voting (authorized                6,900,000 shares; issued 6,633,652 shares; outstanding 626,948                shares) |   | $                                 | 66        |                                 | $       | 66 |   |
| Common                stock, $.01 par value, nonvoting (authorized                1,100,000 shares; issued 1,059,316 shares; outstanding 200,000 shares)            |   |                              | 11        |                                 |    | 11 |   |
| Additional                paid-in capital                                                                                                                           |   |                              | 98,138    |                                 |    | 98,114 |   |
| Accumulated                other comprehensive income                                                                                                               |   |                              | 3,513     |                                 |    | 2,652 |   |
| Retained                earnings                                                                                                                                    |   |                              | 23,103    |                                 |    | 18,991 |   |
| Treasury                stock, at cost, voting (6,006,704 shares)                                                                                                   |   |                              | (41,550   | )                                    |    | (41,550 | ) |
| Treasury                stock, at cost, nonvoting (859,316 shares)                                                                                                  |   |                              | (9        | )                                    |    | (9 | ) |
| Total                stockholder’s equity                                                                                                                     |   | $                                 | 83,272    |                                 | $       | 78,275 |   |
| Total                liabilities and stockholder’s                equity:                                                                                |   | $                                 | 265,114   |                                 | $       | 242,665 |   |

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

**4**

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**THE      GSI GROUP, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS **

**(In      thousands, except share and per share data) **

**(Unaudited)**

|                                                                                                                    |   | **For                the Three Months Ended March 31,** |    |
|-------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|---------|
|                                                                                                                    |   | **2007**                                                |    | **2006** |   |
| Sales                                                                                                                   |   | $                                                       | 107,611 |   | $ | 92,252 |   |
|                                                                                                                    |   |                                                    |    |   |   |   |   |
| Cost                of sales                                                                                            |   |                                                    | 83,194  |   |   | 72,037 |   |
| Warranty                expense                                                                                         |   |                                                    | 71      |   |   | 175 |   |
| Total                cost of sales                                                                                      |   |                                                    | 83,265  |   |   | 72,212 |   |
|                                                                                                                    |   |                                                    |    |   |   |   |   |
| Gross                profit                                                                                             |   |  $                                                 | 24,346  |   |  $ | 20,040 |   |
|                                                                                                                    |   |                                                    |    |   |   |   |   |
| Selling,                general and administrative expenses                                                             |   |                                                    | 12,957  |   |   | 11,037 |   |
| Amortization                expense                                                                                     |   |                                                    | 1,066   |   |   | 1,123 |   |
| Total                operating expenses                                                                                 |   |  $                                                 | 14,023  |   |  $ | 12,160 |   |
|                                                                                                                    |   |                                                    |    |   |   |   |   |
| Operating                income                                                                                         |   |                                                    | 10,323  |   |   | 7,880 |   |
|                                                                                                                    |   |                                                    |    |   |   |   |   |
| Other                income (expense):                                                                                  |   |                                                    |    |   |   |   |   |
| Interest                expense                                                                                         |   |                                                    | (3,177  | ) |   | (3,652 | ) |
| Other,                net                                                                                               |   |                                                    | 104     |   |   | 514 |   |
| Income                    from continuing operations before income tax expense and minority                    interest |   |  $                                                 | 7,250   |   |  $ | 4,742 |   |
|                                                                                                                    |   |                                                    |    |   |   |   |   |
| Minority                interest in net income of subsidiary                                                            |   |                                                    | --      |   |   | (155 | ) |
| Income                tax expense                                                                                       |   |                                                    | 2,980   |   |   | 2,117 |   |
| Net                income                                                                                               |   | $                                                       | 4,270   |   | $ | 2,470 |   |
|                                                                                                                    |   |                                                    |    |   |   |   |   |
| Basic                and diluted earnings per share                                                                     |   | $                                                       | 5.16    |   | $ | 2.99 |   |
| Weighted                average common shares outstanding                                                               |   |                                                    | 826,948 |   |   | 826,948 |   |
|                                                                                                                    |   |                                                    |    |   |   |   |   |
| COMPREHENSIVE                INCOME                                                                                     |   |                                                    |    |   |   |   |   |
| Net                income                                                                                               |   | $                                                       | 4,270   |   | $ | 2,470 |   |
| Cumulative                currency translation adjustment                                                               |   |                                                    | 861     |   |   | 1,277 |   |
| Comprehensive                income                                                                                     |   | $                                                       | 5,131   |   | $ | 3,747 |   |

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

**5**

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**THE      GSI GROUP, INC.**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS **

**(In      thousands) **

**(Unaudited)**

|                                                                                                        |   | **For                the Three Months Ended March 31,** |           |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------|----------------|
|                                                                                                        |   | **2007**                                                |           | **2006** |   |
| **Cash                Flows From Operating Activities:**                                                    |   |                                                    |           |   |   |
| Net                income                                                                                   |   | $                                                       | 4,270          |   | $ | 2,470 |   |
| Adjustments                to reconcile net income to cash provided by operating                activities: |   |                                                    |           |   |   |   |   |
| Depreciation                and amortization                                                                |   |                                                    | 2,761     |   |   | 2,445 |   |
| Amortization                of deferred financing costs and debt discount                                   |   |                                                    | 162       |   |   | 180 |   |
| (Gain)/loss on                sale of property and equipment                                           |   |                                                    | 12        |   |   | (23 | ) |
| Deferred                taxes                                                                               |   |                                                    | (1,415)   |   |   | (746 | ) |
| Minority                interest in net income of subsidiaries                                              |   |                                                    | --        |   |   | 155 |   |
| Minority                interest compensation expense                                                       |   |                                                    | --        |   |   | 185 |   |
| Stock-based                compensation                                                                     |   |                                                    | 24        |   |   | -- |   |
|                                                                                                        |   |                                                    |           |   |   |   |   |
| Changes                in:                                                                                  |   |                                                    |           |   |   |   |   |
| Accounts                receivable, net                                                                     |   |                                                    | 1,949     |   |   | (5,694 | ) |
| Inventories,                net                                                                             |   |                                                    | (4,309)   |   |   | (3,925 | ) |
|  Income              tax receivable                                                                    |   |                                                    | 4,161     |   |   |   |   |
| Other                assets                                                                                 |   |                                                    | (1,033)   |   |   | 2,484 |   |
| Accounts                payable                                                                             |   |                                                    | 18,129    |   |   | 7,324 |   |
| Accrued                expenses and payroll and payroll related expenses                                    |   |                                                    | 3,345     |   |   | 4,979 |   |
| Customer                deposits                                                                            |   |                                                    | 7,178     |   |   | 3,744 |   |
| Net                cash flows provided by operating activities                                              |   |  $                                                 | 35,234    |   |  $ | 13,578 |   |
|                                                                                                        |   |                                                    |           |   |   |   |   |
| **Cash                Flows From Investing Activities:**                                                    |   |                                                    |           |   |   |   |   |
| Capital                expenditures                                                                         |   |                                                    | (3,755)   |   |   | (3,743 | ) |
| Proceeds                from sale of property and equipment                                                 |   |                                                    | 12        |   |   | 52 |   |
| Other                                                                                                       |   |                                                    | --        |   |   | (37 | ) |
| Net                cash flows used in investing activities                                                  |   |  $                                                 | (3,743)   |   |  $ | (3,728 | ) |
|                                                                                                        |   |                                                    |           |   |   |   |   |
| **Cash                Flows From Financing Activities:**                                                    |   |                                                    |           |   |   |   |   |
| Payments                on long-term debt                                                                   |   |                                                    | (90)      |   |   | (515 | ) |
| Net                payments under line of credit agreement                                                  |   |                                                    | (11,821)  |   |   | (9,235 | ) |
| Net                borrowing from affiliate                                                                 |   |                                                    | 600       |   |   | -- |   |
| Other                                                                                                       |   |                                                    | 414       |   |   | 819 |   |
| Net                cash flows used in financing activities                                                  |   |  $                                                 | (10,897)  |   |  $ | (8,931 | ) |
|                                                                                                        |   |                                                    |           |   |   |   |   |
| Effect                of Exchange Rate Changes on Cash                                                 |   |                                                    | 70        |   |   | 19 |   |
|                                                                                                        |   |                                                    |           |   |   |   |   |
| Increase                (decrease) In Cash and Cash Equivalents                                             |   |                                                    | 20,664         |   |   | 938 |   |
| Cash                and Cash Equivalents, beginning of period                                               |   |                                                    | 3,467          |   |   | 2,522 |   |
| Cash                and Cash Equivalents, end of period                                                     |   | $                                                       | 24,131         |   | $ | 3,460 |   |

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

**6**

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**THE      GSI GROUP, INC.**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**1.      Summary of Significant Accounting Policies**

**7**

----

**2.      Detail of Certain Assets and Liabilities (in thousands):**

|                                              |   | **(Unaudited)**                   |    |                                 |   |
|---------------------------------------------------|--------|-----------------------------------|---------|--------------------------------------|--------|
|                                              |   | **March                31, 2007** |    | **December                31, 2006** |   |
| *Accounts                Receivable*              |   |                              |    |                                 |   |
| Trade                receivables                  |   | $                                 | 43,547  |                                 | $      | 45,664 |   |
| Allowance                for doubtful accounts    |   |                              | (2,943  | )                                    |   | (3,111 | ) |
| Total                                             |   | $                                 | 40,604  |                                 | $      | 42,553 |   |
|                                              |   |                              |    |                                 |   |   |   |
| *Inventories*                                     |   |                              |    |                                 |   |   |   |
| Raw                materials                      |   | $                                 | 18,859  |                                 | $      | 23,129 |   |
| Work-in-process                                   |   |                              | 11,844  |                                 |   | 9,777 |   |
| Finished                goods                     |   |                              | 24,938  |                                 |   | 18,426 |   |
| Total                                             |   | $                                 | 55,641  |                                 | $      | 51,332 |   |
|                                              |   |                              |    |                                 |   |   |   |
| *Property,                Plant and Equipment*    |   |                              |    |                                 |   |   |   |
| Land                                              |   | $                                 | 660     |                                 | $      | 658 |   |
| Buildings                and improvements         |   |                              | 15,020  |                                 |   | 14,911 |   |
| Machinery                and equipment            |   |                              | 34,541  |                                 |   | 32,943 |   |
| Office                equipment and furniture     |   |                              | 3,833   |                                 |   | 3,719 |   |
| Construction-in-progress                          |   |                              | 4,077   |                                 |   | 1,722 |   |
|                                              |   |                              | 58,131  |                                 |   | 53,953 |   |
| Accumulated                depreciation           |   |                              | (15,549 | )                                    |   | (13,655 | ) |
| Property,                plant and equipment, net |   | $                                 | 42,582  |                                 | $      | 40,298 |   |
|                                              |   |                              |    |                                 |   |   |   |
| *Intangible                Assets*                |   |                              |    |                                 |   |   |   |
| Goodwill                                          |   | $                                 | 36,855  |                                 | $      | 36,730 |   |
|                                              |   |                              |    |                                 |   |   |   |
| Non-compete                agreements             |   | $                                 | 2,985   |                                 | $      | 2,985 |   |
| Technology                                        |   |                              | 5,700   |                                 |   | 5,700 |   |
| Trade                names                        |   |                              | 14,300  |                                 |   | 14,300 |   |
| Customer                relations                 |   |                              | 31,400  |                                 |   | 31,400 |   |
| Backlog                                           |   |                              | 3,490   |                                 |   | 3,490 |   |
|                                              |   |                              | 57,875  |                                 |   | 57,875 |   |
| Accumulated                amortization           |   |                              | (11,440 | )                                    |   | (10,378 | ) |
| Total                                             |   | $                                 | 46,435  |                                 | $      | 47,497 |   |
|                                              |   |                              |    |                                 |   |   |   |
| *Deferred                Financing Costs*         |   |                              |    |                                 |   |   |   |
| Deferred                financing costs           |   | $                                 | 5,060   |                                 | $      | 5,060 |   |
| Accumulated                amortization           |   |                              | (1,300  | )                                    |   | (1,139 | ) |
| Total                                             |   | $                                 | 3,760   |                                 | $      | 3,921 |   |
|                                              |   |                              |    |                                 |   |   |   |
| *Accrued                Warranty*                 |   |                              |    |                                 |   |   |   |
| Beginning                reserve                  |   |                              | 2,480   |                                 | $      | 2,335 |   |
| Increase                to expense                |   |                              | 71      |                                 |   | 1,290 |   |
| Charge                to reserve                  |   |                              | (247)   |                                 |   | (1,145 | ) |
| Ending                reserve                     |   | $                                 | 2,304   |                                 | $      | 2,480 |   |
|                                              |   |                              |    |                                 |   |   |   |

**3.      Supplemental Cash Flow Information**

**8**

----

**4.      Income Taxes**

|                                               |   | Three                months ended |        | Three                months ended |    |
|----------------------------------------------------|--------|-----------------------------------|-------------|-----------------------------------|---------|
|                                               |   | March                31, 2007     |        | March                31, 2006     |    |
|                                               |   | Income/(Loss)                     |        | Income                Tax         |    | Income/(Loss) |   | Income                Tax |   |
|                                               |   | Before                            |        | Expense/                          |    | Before |   | Expense/ |   |
|                                               |   | Income                Taxes       |        | (Benefit)                         |    | Income                Taxes |   | (Benefit) |   |
| U.S.                                               |   |  $                           | 6,386  |                              |  $ | 2,760  |   | $ | 2,104 |   | $ | 1,752 |   |
| Brazil                                             |   |                              | 601    |                              |    | 183  |   |   | 1,376 |   |   | 346 |   |
| Malaysia                                           |   |                              | 59     |                              |    | 36  |   |   | 344 |   |   | 19 |   |
| Mexico                                             |   |                              | 290    |                              |    | --  |   |   | 430 |   |   | -- |   |
| China                                              |   |                              | 37     |                              |    | --  |   |   | (48 | ) |   | -- |   |
| Poland                                             |   |                              | (350)       |                              |    | --  |   |   | (41 | ) |   | -- |   |
| South              Africa                          |   |                              | 222    |                              |    | --  |   |   | 422  |   |   | -- |   |
| Canada                                             |   |                              |  5     |                              |    |  1 |   |   |   |   |   | -- |   |
| Total                                              |   |  $                           | 7,250  |                              |  $ | 2,980  |   | $ | 4,587 |   | $ | 2,117 |   |
|                                               |   |                              |        |                              |    |   |   |   |   |   |   |   |   |
|                                               |   |                              |        |                              |    |   |   |   |   |   |   |   |   |
| Current                income taxes                |   |                              |        |                              |  $ | 4,395  |   |   |   |   | $ | 2,863 |   |
| Deferred              income taxes- US             |   |                              |        |                              |    | (1,382) |   |   |   |   |   | --  |   |
| Deferred                income taxes- Foreign      |   |                              |        |                              |    | (33) |   |   |   |   |   | (746 | ) |
| Total                                              |   |                              |        |                              |  $ | 2,980  |   |   |   |   | $ | 2,117 |   |
|                                               |   |                              |        |                              |    |   |   |   |   |   |   |   |   |
| Income                taxes at U.S. statutory rate |   |                              |        |                              |  $ | 2,538  |   |   |   |   | $ | 1,512 |   |
| State                income taxes                  |   |                              |        |                              |    | 363  |   |   |   |   |   | 315 |   |
| Foreign                income taxes                |   |                              |        |                              |    | 220  |   |   |   |   |   | 365 |   |
| Other                                              |   |                              |        |                              |    | (141) |   |   |   |   |   | (75 | ) |
| Total                                              |   |                              |        |                              |  $ | 2,980  |   |   |   |   | $ | 2,117 |   |

**5.        Income Tax Reserves**

**9**

----

**6.      Commitments and Contingencies**

***Revolving      Credit Facility***

***Senior        Notes due 2013***

**10**

----

* *

**7.**
**Business        Segment**

*“Disclosure      About Segments of an Enterprise and Related Information” *

**Sales      by Product Line for the Period of Three Months Ending (in      thousands):**

|                                |   | **March                31, 2007** |    | ** March                31, 2006** |   |
|-------------------------------------|--------|-----------------------------------|---------|-----------------------------------------|--------|
| Grain                product line   |   | $                                 | 72,071  |                                    | $      | 49,535 |   |
| Protein                product line |   |                              | 35,540  |                                    |   | 42,717 |   |
| Sales                               |   | $                                 | 107,611 |                                    | $      | 92,252 |   |

**11**

----

**ITEM      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF      OPERATIONS.**

**General**

*s.      *
* *
* *

**Items      Affecting Comparability**

**12**

----

**Historical      Performance**

|                                                                  |   | (Unaudited)                                     |    |
|-----------------------------------------------------------------------|--------|-------------------------------------------------|---------|
|                                                                  |   | **Three                months ended March 31,** |    |
|                                                                  |   | **2007**                                        |    | **2006** |   |
|                                                                  |   | Amount                                          |    |  % |   | Amount |   |  % |   |
| Sales                                                                 |   | $                                               | 107,611 |   |   | 100.0 |   | $ | 92,252 |   |   | 100.0 |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Cost                of sales                                          |   |                                            | 83,194  |   |   | 77.3 |   |   | 72,037 |   |   | 78.1 |   |
| Warranty                expense                                       |   |                                            | 71      |   |   | 0.0 |   |   | 175 |   |   | 0.2 |   |
| Total                cost of sales                                    |   |  $                                         | 83,265  |   |   | 77.4 |   |  $ | 72,212 |   |   | 78.3 |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Gross                profit                                           |   |                                            | 24,346  |   |   | 22.6 |   |   | 20,040 |   |   | 21.7 |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Selling,                general and administrative expenses           |   |                                            | 12,957  |   |   | 12.0 |   |   | 11,037 |   |   | 12.0 |   |
| Amortization                expense                                   |   |                                            | 1,066   |   |   | 1.0 |   |   | 1,123 |   |   | 1.2 |   |
| Total                operating expenses                               |   |  $                                         | 14,023  |   |   | 13.0 |   |  $ | 12,160 |   |   | 13.2 |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Operating                income                                       |   |  $                                         | 10,323  |   |   | 9.6 |   |  $ | 7,880 |   |   | 8.5 |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Other                income (expense):                                |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Interest                expense                                       |   |                                            | (3,177  | ) |   | (3.0 | ) |   | (3,652 | ) |   | (4.0 | ) |
| Other,                net                                             |   |                                            | 104     |   |   | 0.1 |   |   | 514 |   |   | 0.6 |   |
| Income                before income tax expense and minority interest |   |  $                                         | 7,250   |   |   | 6.7 |   |  $ | 4,742 |   |   | 5.1 |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Minority                interest in net income of subsidiary          |   |                                            | --      |   |   | 0.0 |   |   | (155 | ) |   | (0.2 | ) |
| Income                tax provision                                   |   |                                            | 2,980   |   |   | 2.8 |   |   | 2,117 |   |   | 2.3 |   |
| Net                income                                             |   | $                                               | 4,270   |   |   | 5.3 |   | $ | 2,470 |   |   | 2.7 |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Basic                and diluted earnings per share                   |   | $                                               | 5.16    |   |   |   |   | $ | 2.99 |   |   |   |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |
| Weighted                average common shares outstanding             |   |                                            | 826,948 |   |   |   |   |   | 826,948 |   |   |   |   |
|                                                                  |   |                                            |    |   |   |   |   |   |   |   |   |   |   |

*Three      Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006*

**13**

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**Liquidity      and Capital Resources**

**14**

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**Inflation**

**Critical      Accounting Policies**

**15**

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**ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK**

**ITEM      4. CONTROLS AND PROCEDURES**

**Overview**

**Disclosure        Controls and Procedures**

**16**

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**Changes      in Internal Controls**

**17**

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**PART      II**

**OTHER      INFORMATION**

**ITEM      1. LEGAL PROCEEDINGS.**

**ITEM      6. EXHIBITS.**

**Exhibits:**

**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.**

**18**

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**INDEX        TO EXHIBITS**

| **Exhibit                  No.** | **Document                  Description:**                                                                                                                                                                                                                                                 |
|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                             |                                                                                                                                                                                                                                                                                       |
| 2.1                              | Asset                  Purchase Agreement, dated October 31, 2004, by and between The                  GSI Group,                  Inc., The GSI Group (Canada) Co. and UHI Canada, Corporation.                  (2)                                                                      |
|                             |                                                                                                                                                                                                                                                                                       |
| 2.2                              | Stock                  Purchase Agreement, dated December 22, 2004, by and between The                  GSI Group,                  Inc., And Kenneth Stonecipher. (2)                                                                                                                     |
|                             |                                                                                                                                                                                                                                                                                       |
| 2.3                              | Asset                  Purchase Agreement, dated December 22, 2004, by and between The                  GSI Group,                  Inc., And Hog Slat, Inc. (2)                                                                                                                           |
|                             |                                                                                                                                                                                                                                                                                       |
| 3.1                              | Amended                  and Restated Articles of Incorporation of The GSI Group, Inc.,                  as amended                  as of October 23, 1997 (1)                                                                                                                            |
|                             |                                                                                                                                                                                                                                                                                       |
| 3.2                              | By-Laws                  of The GSI Group, Inc, as amended. (3)                                                                                                                                                                                                                            |
|                             |                                                                                                                                                                                                                                                                                       |
| 4.1                              | Indenture,                  dated as of May 16, 2005, between The GSI Group, Inc., its Guarantors,                  and                  U.S. Bank National Association, as Trustee, including forms of                  the Notes                  issued pursuant to such Indenture. (4) |
|                             |                                                                                                                                                                                                                                                                                       |
| 10.1                             | Executive                  Severance and Restrictive Covenant Agreement between The GSI Group,                  Inc.                  and Richard Christman. (5)                                                                                                                           |
|                             |                                                                                                                                                                                                                                                                                       |
| 10.2                             | Form                  of Stock Purchase and Management Equity Agreement between GSI Holdings                  Corp. and certain Directors, employees or consultants, dated as                  of October                  6, 2005. (6)                                                    |
|                             |                                                                                                                                                                                                                                                                                       |
| 10.3                             | Form                  of Executive Severance and Restrictive Covenant Agreement, dated                  as of May                  16, 2005, between The GSI Group, Inc. and its executives.                  (6)                                                                          |
|                             |                                                                                                                                                                                                                                                                                       |
| 10.4                             | Form                  of Stock Option Agreement between GSI Holdings Corp. and certain                  optionees, dated as of October 6, 2005. (6)                                                                                                                                        |
|                             |                                                                                                                                                                                                                                                                                       |
| 10.5                             | Alternative                  Form of Stock Option Agreement between GSI Holdings Corp. and certain                  optionees, dated as of October 6, 2005. (6)                                                                                                                            |
|                             |                                                                                                                                                                                                                                                                                       |
| 10.6                             | Loan                  and Security Agreement dated May 16, 2005 with Wachovia Capital                  Finance                  Corporation (Central), as Agent, and other Lenders. (7)                                                                                                    |
|                             |                                                                                                                                                                                                                                                                                       |
| 31.1                             | Certification                  of Chief Executive Officer and Chairman of the Board                                                                                                                                                                                                        |
|                             |                                                                                                                                                                                                                                                                                       |
| 31.2                             | Certification                  of Chief Financial Officer.                                                                                                                                                                                                                                 |
|                             |                                                                                                                                                                                                                                                                                       |
| 32.1                             | Certification                  Pursuant To 18 U.S.C. Section 1350, as Adopted Pursuant to Section                  906 of                  the Sarbanes-Oxley Act of 2002                                                                                                                  |

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**20**

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