I would like to share with you our corporate accomplishments, strategies and goals. For the vision to become reality, this should be your vision too. I will be candid in reporting to you our business activities to the extent legally permitted. Our guideline is to tell you the business facts that we would want to know if our positions were reversed.

HISTORICAL PERSPECTIVE
Before I report Excel’s performance for the fiscal year 1994, I would like to draw your attention to the Company history. As you may recall, Excel completed the acquisition of Quantronix during the fourth quarter of 1992. At that time, Quantronix had an annualized revenue base of approximately $20 million, significantly lower than their 1991 revenues of $29.1 million and their record revenues of $31 million in 1990. After Excel’s management took control of the Company, it was not only able to reverse the trend of declining revenues but also implemented a complete turn-around from an operational loss to an operational profit. Excel reported revenues of $29 million for the fiscal year 1993 and established a new high in revenues for the year 1994.

We are proud of our accomplishments to date. If there is one underlying core value that has always said "Excel", it is our determination and goal to build a company of significant size. Excel was merely a start-up operation in 1991 with less than $1 million in revenue. Then we seized the opportunity to acquire a $20 million unprofitable operation and turned the operation to profitability in record time. Thus, we virtually created a foundation for the Company and its shareholders.

BUSINESS STRATEGY

Since 1992, Excel has been guided by two basic business strategies; (a) diversification and (b) industry consolidation.

Diversification

Consolidation

There are major challenges and opportunities facing our industry. The billion dollar laser industry is very fragmented. We have identified in the U.S. approximately 47 players with an average annual revenue of $5 - 6 million. Although many have niche positions, most are unprofitable and few are individually large enough to possess the financial resources required to have staying power. Excel would like to play a central role in consolidating and restructuring the laser industry. By acquiring laser companies with complementary capabilities -customers, markets or technology - Excel can grow to a size that would allow greater synergism in procurement, manufacturing, marketing and service support. The new company emerging from such restructuring could have greater value than the sum of the individual operations.

Revenues for the year increased to $33.6 million from $29 million in the prior year, an increase of 16%. Pre-tax earnings for the year were approximately $2.7 million compared to $2.9 million for the prior year. The net earnings after-tax for 1994 were $ 1.9 million and $.22 per share as compared to $2.9 million and $37 per share for 1993. The company believes 1994 earnings were satisfactory, but unexciting.

The decrease in net earnings in 1994 compared to 1993 was attributable to: 1) an increase in the effective income tax rate from 0% to 30%, 2) a 12% increase in the number of shares, and 3) a two percentage point decrease in the pre-tax profit margins. Excel did not pay any significant taxes in the prior year due primarily to the utilization of net operating loss (NOL) carryforwards. The large number of shares is due primarily to the exercise of the Company’s Class A Warrants in May 1994. The decrease in pre-tax margins relates to a larger than expected initial manufacturing cost associated with the launch of dental lasers in Germany and laser welders in the U. S., higher semiconductor R & D costs in building third generation photomask repair systems (DRS III) and a higher cost of goods for our DRS II sales in 1994 versus 1993.

PRODUCTIVITY

Today, operational efficiency is of paramount importance. Whether you are talking about autos, airlines, computers or lasers, efficiency is the byword in the 1990’s. We simply can not lose our focus or our determination to continue to force our costs down and improve our margins. There is simply no respite from this task, not this year, not in the future. To quantify the results of this effort, one useful measure is to look at

overall corporate productivity, measured by sales per employee. Excel’s productivity per employee was approximately $171,000 in 1994 compared to $151,000 in 1993, an increase of 13%. To the best of our knowledge, today, no major competitor of ours is as productive as we are in terms of sales generated per employee.

This increase in productivity did not come about by luck or accident. It was a result of a host of efforts, strategies and just plain hard work by a lot of talented, dedicated and highly motivated Excel people.

BUSINESS UNIT’S PERFORMANCE

We made significant progress during 1994 in reorganizing the Company into Strategic Business Units (SBU) based on the markets and customers we serve. Each SBU objective is to be profitable in its own right and to contribute to the profitable growth of the Company. Each SBU focuses on its own customers, competitors and product development.

Each business unit, with the exception of dental, was profitable and contributed to the earnings of the Company. Our industrial business unit for marking application was the largest contributor to the Company’s operating earnings in 1994. The semiconductor business unit was the second followed by the spare parts business unit, optical business unit, and scientific/OEM business unit. The dental business

unit incurred significant losses due to the introduction of the dental laser in Germany and the laser welder in the U. S. We are hopeful that their operating results will improve in 1995.

In terms of contribution to the profitable growth of the Company, each location had its own distinct dynamics in 1994. The New York operation, where we manufacture and market semiconductor, scientific and dental products, significantly contributed to the growth of revenue. The Florida operation, where we manufacture and market industrial laser marking products was the greatest contributor to earnings. The California operation where we manufacture and market optical products generated the most cash.

In terms of margins, each location pretty much held both their gross margins and profit margins with the exception of New York where margins began to slip. Gross margins, at whatever level, reflect a balancing act between two sometimes conflicting goals; competitiveness and growth. However, one has more control over operating expenses below-the-line, at least in the intermediate and long term. At the time of this writing, we are in the process of implementing a major cost reduction program in our New York location. We are hoping the impact of this new cost structure should be reflected in the second half of 1995.

GLOBAL ECONOMY

In 1994, international sales accounted for ^28% of our total revenues. Most gratifying was our performance in Germany. Although much of Europe has been in a deep recession for sometime, the Excel experience in 1994 was different. The primary reason for this growth was approval of our dental laser and increased sales of the product in Germany in 1994.

BALANCE SHEET

We are fortunate to possess a healthy balance sheet. Our per-share book value increased more than 26% during 1994. Over the last three years since Excel became a public company, the book value has grown from $0.88 to $2.95 or at a rate of over 50% compounded annually.

In May 1994, the Company called its Class A Warrants. Approximately, 1.24 million warrants were converted to Common Stock at $6.00 per share. The Company has received in excess of $7 million of cash. This has significantly increased our cash position which should allow us to take full advantage of opportunities for growth via strategic acquisition and alliance.