U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________________________________________________________________ FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 Commission file number 0-5460 _____________________________________________ Stocker & Yale, Inc. (Name of small business issuer in its charter) Massachusetts 04-2114473 (State of other jurisdiction of incorporation (I.R.S. employer or organization) identification no.) 32 Hampshire Road Salem, New Hampshire 03079 (Address of principal executive offices (Zip Code) (603) 893-8778 (Issuer's telephone number) ___________________________ Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. ___X__Yes _____No As of May 1, 1997 there were 2,567,894.60 shares of the issuer's common stock outstanding. Transitional Small Business Disclosure Format: _______Yes ____X__No PART 1 FINANCIAL STATEMENTS Item 1.1 CONSOLIDATED BALANCE SHEETS STOCKER & YALE, INC. ASSETS MARCH 31, 1997 DECEMBER 31, 1996 (unaudited) (unaudited) Current Assets: Cash $ 621,994 $ 1,244,418 Accounts Receivable 1,624,993 1,410,774 Prepaid Taxes 353,668 353,668 Inventory 4,000,852 3,701,019 Prepaid Expenses 294,619 131,478 _________ _________ Total current assets 6,896,126 6,841,357 Property, Plant and Equipment, Net 3,149,210 3,134,717 --------- --------- Note Receivable 1,000,000 1,000,000 --------- --------- Goodwill, Net of Accumulated Amortization 8,654,600 8,721,800 --------- --------- Other Assets 52,166 0 --------- --------- Debt Issuance Costs, Net of Accumulated Amortization 128,272 138,490 --------- --------- $ 19,880,374 $ 19,836,364 LIABILITIES AND STOCKHOLDER'S INVESTMENT Current Liabilities: Current Portion of long-term debt $ 277,767 $ 357,569 Accounts Payable 1,559,178 1,373,121 Accrued Expenses 503,159 547,654 Accrued Taxes 29,337 0 _________ _________ Total current liabilities 2,369,441 2,278,344 --------- --------- Long Term Debt 4,016,178 4,021,570 --------- --------- Other Long Term Liabilities 564,688 564,688 --------- --------- Deferred Income Taxes 982,685 1,012,685 Stockholder's Investment: Common stock, par value $0.001 Authorized -- 10,000,000 Issued and outstanding -- 2,567,894 2,568 2,568 Paid-in capital 10,822,705 10,822,705 Retained earnings 1,122,109 1,133,804 ---------- ---------- Total stockholder's investment 11,947,382 11,959,077 ---------- ---------- $ 19,880,374 $ 19,836,364 PART I FINANCIAL STATEMENTS Item 1.2 CONSOLIDATED STATEMENT OF OPERATIONS STOCKER & YALE, INC. Three Months Ended March 31, 1997 1996 (unaudited) (unaudited) Net Sales $ 2,733,662 $ 3,010,126 Cost of Sales 1,642,445 1,945,159 _________ _________ Gross Profit 1,091,217 1,064,967 Selling Expenses 428,910 421,371 General and Administrative Expenses 384,785 511,005 Research and Development 174,284 71,405 _________ _________ Operating Income 103,238 61,186 Interest Expense (77,433) (152,169) _________ _________ Income/(Loss) before income taxes 25,805 (90,983) Income Tax Expense/(Benefit) 37,500 (6,800) Net Loss $ (11,695) $ (84,183) ________ ________ -------- -------- Loss Per Share $(0.00) $(0.05) ------- ------- Weighted-Average Common Shares and Equivalents 2,567,895 1,712,914 PART I FINANCIAL STATEMENTS Item 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS STOCKER & YALE, INC. Three Months Ended March 31 1997 1996 (unaudited) (unaudited) Cash Flows from Operating Activities: Net Loss $ (11,695) $ (84,183) Adjustments to reconcile net loss to net cash used in/provided by operating activities Depreciation and Amortization 140,222 250,685 Other changes in assets and liabilities Accounts receivable, net (214,219) (305,787) Inventories (299,833) (102,799) Prepaid expenses (163,141) 28,902 Accounts payable 186,057 482,287 Accrued expenses (15,158) 26,237 Other assets (52,166) 0 Accrued and refundable taxes (30,000) (193,415) --------- --------- Net cash used in/provided by operating (459,933) 101,927 activities --------- --------- Cash Flows from Investing Activities: Purchases of property, plant and equipment (77,296) (62,427) --------- -------- Net cash used in investing activities (77,296) (62,427) Cash Flows from Financing Activities: Payments of bank debt (85,195) (29,520) Payments on capital lease - (18,744) -------- -------- Net cash used in financing activities (85,195) (48,264) -------- -------- Net Decrease in Cash and Cash Equivalents (622,424) (8,764) Cash and Cash Equivalents, Beginning of Period 1,244,418 22,033 --------- -------- Cash and Cash Equivalents, End of Period $ 621,994 $ 13,269 ---------- --------- ---------- --------- PART 1. FINANCIAL STATEMENTS Item 1.4 Notes to Financial Statements The interim consolidated financial statements presented have been prepared by Stocker & Yale, Inc. (the "Company") without audit and, in the opinion of the management, reflect all adjustments of a normal recurring nature necessary for a fair statement of (a) the results of operations for the three months ended March 31, 1997 and March 31, 1996, (b) the financial position at March 31, 1997 and (c) the cash flows for the three month periods ended March 31, 1997 and March 31, 1996. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of December 31, 1996 has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes are condensed as permitted by Form 10-QSB and do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-KSB. In March 1997, the Financial Accounting Standards Board issued SFAS No. 128 Earnings Per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock. This statement is effective for fiscal years ending December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share. The Company will adopt this statement for its fiscal year ending December 31, 1997 and does not believe that the effect of this adoption of this standard would be materially different from the amounts presented in the accompanying statements of income. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements. Results of Operations The following discussion should be read in conjunction with the attached consolidated financial statements and notes thereto and with the Company's audited financial statements and notes thereto for the fiscal year ended December 31, 1996. Fiscal Quarters Ended March 31, 1997 and 1996 Revenues decreased from $3,010,126 in the three months ending March 31, 1996 to $2,733,662 in the period ending March 31, 1997. Approximately 37% of the decrease was due to reduced sales to the U.S. Government, which declined from $274,592 to $22,561 in the equivalent period in the current year, reflecting the fact that 1996 sales benefited from a one-time contract. As a result of the Company's continued withdrawal from the electronic ballast market, sales of electronic ballasts decreased from $137,642 to $14,233 which represents 18% of the Company's aggregate decline in revenue. The departure away from the commodity price driven ballast market has allowed the Company to focus on the development of higher margin products. Sales of two product lines, Power Clamping and DieDraulic, by the Company's Stilson Division encompassed 26% of the decrease dropping from $554,939 in the three months ended March 31, 1996 to $378,511 in the first three months of 1997. Sales of the Company's lighting products increased 24% from $646,327 for first quarter 1996 to $804,245 for first quarter 1997. Sales of millitary products (watches and compasses) increased 62% from $163,940 to $265,810 as a direct result of the the Company's marketing of such products through a mail order marketing company. Sales of millitary watches in the Company's Hong Kong subsidiary increased 69% from $49,347 to $83,270. The Company had sales of $48,233 from its new fiber optic product line in the first quarter of 1997. The Company recorded pretax income of $25,805 for the period ending March 31, 1997 which was an increase from the reported net loss $(90,983) for the period ending March 31, 1996. Contributing factors to the Company's increased income included a reduction in interest expense of approximately $75,000 as a result of reductions in the Company's outstanding debt and a decrease in General and Administrative expenses by approximately $125,000 due primarily to a reduction in professional fees such as legal. Selling expenses remained generally unchanged between the two periods. Research and development costs increased by approximately $100,000 in response to the Company's research efforts relating to its new fiber optic product line. Liquidity and Capital Resources The Company finances its operations primarily through third party credit facilities and cash from operations. Net cash provided by operations was $(459,933) for the quarter ended March 31, 1997 and $101,927 for the quarter ended March 31, 1996. The Company's primary third party financing relationship is with Fleet National Bank of Massachusetts, N.A. (the "Bank"). The initial Credit Agreement between the Company and the Bank, dated March 6, 1995 (the "Credit Agreement"), provided for a Short Term Loan due August 1, 1995, a Revolving Line of Credit Loan (the "Revolving Loan") due March 31, 1998 and a a Long Term Loan due March 1, 2001. The Short Term Loan was paid as agreed in August 1995. The Revolving Loan and the Long Term Loan bear interest at the Bank's base rate plus 1/2%. At March 31, 1997 there was a total of $1,296,725 outstanding under the Credit Agreement, all of which constituted long term debt. There was $2,681,693 available to borrow under the Revolving Loan. At March 31, 1996 there was $4,099,922 borrowed under the Credit Agreement of which $2,606,451 pertained to the Revolving Loan. Under the terms of the Credit Agreement, the Company is required to comply with a number of financial covenants including minimum equity, debt service coverage ratios, debt to equity ratios and minimum net income tests. For the period ending 3/31/97, the Company is in compliance with all of the covenants. The Company holds Subordinated Notes outstanding totaling $1,350,000. These notes mature on May 1, 2001. They bear interest at 7.25% and are convertible into shares of the Company's common stock at a price of $7.375 per share. Company expenditures for capital equipment were $77,296 in the first quarter of 1997 as compared to $62,427 in the same period of 1996. The majority of the 1997 expenditures related to the Company's new fiber optic product line. The Company believes that its available financial resources are adequate to meet its foreseeable working capital, debt service and capital expenditure requirements. PART II ITEM. 5 OTHER INFORMATION Alex W. Blodgett has resigned from his position as President of the Company's Stilson Division to pursue other interests in Vancouver, British Columbia. His resignation will be effective June 1, 1997. Mr. Blodgett will continue to actively serve on the Company's Board of Directors. ITEM. 6 EXHIBITS, LISTS AND REPORTS ON FORM 8-K (a) The following is a complete list of Exhibits filed as part of this Form 10-QSB: Exhibit Number Description ------- ----------- 27.1 Financial Data Schedule (b) There were no reports filed on Form 8-K SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized. Stocker & Yale, Inc. - -------------------- April 29, 1997 /s/ Mark W. Blodgett - -------------- ---------------------- Mark W. Blodgett, Chairman and Chief Executive Officer April 29, 1997 /s/ Susan A. H. Sundell - -------------- ------------------------- Susan A.H. Sundell, Senior Vice-President-Finance and Treasurer