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 JUNE 30, 1997 Commission file number 0-5460 _____________________________________________ Stocker & Yale, Inc. (Name of small business issuer in its charter) Massachusetts 04-2114473 (State or 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 August 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 JUNE 30, 1997 DECEMBER 31, 1996 (unaudited) (unaudited) Current Assets: Cash $ 186,363 $ 1,244,418 Accounts Receivable 1,873,673 1,410,774 Prepaid Taxes 233,588 353,668 Inventory 4,608,390 3,701,019 Prepaid Expenses 385,017 131,478 _________ _________ Total current assets 7,287,031 6,841,357 Property, Plant and Equipment, Net 3,335,007 3,134,717 --------- --------- Note Receivable 1,000,000 1,000,000 --------- --------- Goodwill, Net of Accumulated Amortization 8,587,400 8,721,800 --------- --------- Other Assets 52,166 0 --------- --------- Debt Issuance Costs, Net of Accumulated Amortization 118,054 138,490 --------- --------- $ 20,379,658 $ 19,836,364 LIABILITIES AND STOCKHOLDER'S INVESTMENT Current Liabilities: Current Portion of long-term debt $ 273,869 $ 357,569 Accounts Payable 1,413,796 1,373,121 Accrued Expenses 481,594 547,654 _________ _________ Total current liabilities 2,169,259 2,278,344 --------- --------- Long Term Debt 4,772,319 4,021,570 --------- --------- Other Long Term Liabilities 564,688 564,688 --------- --------- Deferred Income Taxes 912,685 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 1,135,434 1,133,804 ---------- ---------- Total stockholder's investment 11,960,707 11,959,077 ---------- ---------- $ 20,379,658 $ 19,836,364 PART I FINANCIAL STATEMENTS Item 1.2 CONSOLIDATED STATEMENT OF OPERATIONS STOCKER & YALE, INC. Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 (unaudited) (unaudited) (unaudited) (unaudited) Net Sales $ 2,804,280 $ 2,566,098 $ 5,537,942 $ 5,576,224 Cost of Sales 1,614,438 1,634,293 3,256,883 3,579,452 __________ _________ _________ _________ Gross Profit 1,189,842 931,805 2,281,059 1,996,772 Selling Expenses 410,447 409,756 839,357 831,127 General and 467,458 444,557 852,243 955,567 Administrative Expenses Research and 157,241 73,357 331,525 144,762 Development _________ ________ _________ _________ Operating Income 154,696 4,135 257,934 65,316 Interest Expense (86,871) (147,976) (164,304) (300,140) ________ _________ _________ _________ Income/(Loss) before 67,825 (143,841) 93,630 (234,824) income taxes Income Tax Expense/ 54,500 (36,100) 92,000 (36,100) (Benefit) Net Income/(Loss) $ 13,325 (107,741) $ 1,630 (198,724) ________ __________ ________ ________ ________ __________ -------- -------- Income/(Loss) $ 0.01 (0.07) $ 0.00 (0.11) Per Share -------- ---------- -------- -------- Weighted-Average Common Shares and 2,567,894 1,712,914 2,567,894 1,712,914 Equivalents PART I FINANCIAL STATEMENTS Item 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS STOCKER & YALE, INC. Six Months Ended June 30 1997 1996 (unaudited) (unaudited) Cash Flows from Operating Activities: Net Income/(Loss) $ 1,630 $ (198,724) Adjustments to reconcile net loss to net cash used in/provided by operating activities Depreciation and Amortization 278,151 486,784 Deferred income taxes (100,000) (80,000) Other changes in assets and liabilities Accounts receivable, net (462,899) 204,729 Inventories (907,371) (162,458) Prepaid expenses (133,459) 44,127 Accounts payable 40,675 225,340 Accrued expenses (66,060) (48,810) Other assets (52,166) 0 Accrued and refundable taxes 0 (184,188) --------- --------- Net cash used in/provided by operating (1,401,499) 286,800 activities --------- --------- Cash Flows from Investing Activities: Purchases of property, plant and equipment (323,602) (110,073) --------- -------- Net cash used in investing activities (323,602) (110,073) Cash Flows from Financing Activities: Proceeds of equipment line of credit 153,985 0 Payments/Advances of bank debt 513,061 (1,445,715) Payments on capital lease 0 (37,974) Proceeds from Subordinated Notes Payable 0 1,350,000 Deferred Financing Costs 0 (39,000) -------- -------- Net cash used in financing activities 667,046 (172,689) -------- -------- Net Decrease in Cash and Cash Equivalents (1,058,055) 4,038 Cash and Cash Equivalents, Beginning of Period 1,244,418 22,033 --------- -------- Cash and Cash Equivalents, End of Period $ 186,363 $ 26,071 ---------- --------- ---------- --------- PART 1. FINANCIAL STATEMENTS 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 month and six month periods ended June 30, 1997 and June 30, 1996 (b) the financial position at June 30, 1997 and (c) the cash flows for the six month periods ended June 30, 1997 and June 30, 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. Three-month periods ending June 30, 1997 and 1996 Revenues increased 9% from $2,566,098 for the three months ended June 30,1996, to $2,804,280 for the three months ended June 30, 1997, as the Company experienced significant revenue increases in sales of lighting products and sales of military products (military-style watches and compasses) to civilian markets. Sales of lighting products increased approximately 56% from $642,321 in the second quarter of 1996 to $1,001,871 in the second quarter of 1997. This growth resulted in part from the introduction in May 1997 of the Steadylite Plus, a new fluorescent lighting product which generated $48,765 in net revenues in the quarter, as well as sales of the Company's new fiber opitc lighting products which totaled $81,762 for the second quarter of 1997 as compared to $0 in the second quarter of 1996. Sales of military products to civilians increased approximately 41%, from $232,366 for the quarter ended June 30, 1996 to $326,986 for the quarter ended June 30, 1997. These reported military sales include the sales by the Company's Hong Kong subsidiary, which primarily sells these products to civilians in southeast Asia. Sales to the U.S. Government increased 67% from $80,250 in the three months ending June 30, 1996 to $133,936 in the equivalent period in 1997, as a result of a new contract for galvanometers and increased contract shipments of watches in the 1997 period. Electronic ballast, which were discontinued as a product offering in 1996, decreased from $122,331 for the quarter ended June 30, 1996 to $1,976 for the quarter ended June 30, 1997. Sales of the Company's MFE products decreased 30% from $487,845 for the second quarter of 1996 to $339,318 for the second quarter of 1997, in large part because of a decrease in OEM contracts. Second quarter comparative sales of machine tool components through the Company's Stilson division remained relatively flat at $1,001,196 for the quarter ended June 30, 1997 and $1,000,885 for the quarter ended June 30, 1996. Management attributes the increase in lighting and military product sales to management's efforts to implement its strategic shift away from sales of the Company's commodity price driven products in favor of developing and marketing the Company's higher margin products. Lighting and military products, as well as machine tool components, generate higher gross margins than the Company's other product lines. Gross profit margin increased, to 42% for the quarter ended June 30, 1997 as compared to 36% for the quarter ended June 30, 1996, primarily as a result of the more favorable product mix. Selling expenses and General and Administrative expenses remained unchanged between the two periods. Research and development expenditures increased by $83,884 as a result of the Company's increased development efforts relating to its new fiber optic product line. The Company recorded pretax income of $67,825 for the quarter ended June 30, 1997 as compared with the reported pretax loss of $(146,841) for the quarter ended June 30, 1996. The increase is primarily attributable to the above improved gross margin and to reduced interest expense, which decreased by $61,105 as a result of reductions in the Company's outstanding debt. Six month periods ending June 30, 1997 and 1996 Revenues decreased modestly from $5,576,224 for the six months ended June 30, 1996, to $5,537,942 for the six months ended June 30, 1997. Although the second quarter of 1997, reflected various positive elements, circumstances in the first quarter of 1997 served to burden cumulative totals as of June 30, 1997. In particular, sales to the U.S. Government for the first six months of 1997 were $156,497 as compared to $354,842 for the first six months of 1996, in spite of favorable comparisons between the second quarter of 1997 and the second quarter of 1996. Similarly, although Stilson division sales were flat in the June 30 three month period comparisons above, the division's six months sales lagged 7% behind the prior year at $1,996,717 for the six months ended June 30, 1997 versus $2,148,113 for the comparable 1996 period. Sales of lighting and military products increased significantly. Lighting sales increased 43% from $1,362,257 in the six month period ended June 30, 1996 to $1,949,862 in the equivalent period of 1997. Included in these lighting segment revenues are sales of the Company's fiber optic lighting products which were $129,995 as of June 30, 1997 compared to $0 in the comparable period of 1996. For the six months ended June 30, 1997, sales of military products to civilian markets increased 52% to $667,066 from $445,653 for the first six months of 1996. Electronic ballast decreased from $260,073 for the six months ended June 30, 1997 to $16,209 for the comparable 1997 period. MFE product sales declined from $1,005,286 for the six month period ended June 30, 1996 to $742,591 for the six month period ended June 30, 1997. In the six month period ended June 30, 1997, the Company recorded pretax income of $93,630 which was an increase from the reported pretax loss of $(234,824) for the comparable period ended June 30, 1996. An increase in gross profit margin from 36% for the six months ended June 30, 1996 to 41% for the six months ended June 30, 1997 contributed toward this positive pretax income. Interest expense also decreased by $135,836 as a result of reductions in the Company's outstanding debt. Selling expenses remained generally unchanged between the two periods. General and Administrative expenses decreased by $103,324 primarily due to a reduction in professional fees such as legal. Lastly, research and development costs increased by $186,763 as a result of the Company's research efforts 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 $(1,401,499) for the six months ended June 30, 1997 and $286,800 for the six months ended June 30, 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 Revolving Line of Credit Loan (the "Revolving Loan") due March 31, 1998 and a a Long Term Loan due March 1, 2001. The Revolving Loan and the Long Term Loan bear interest at the Bank's base rate plus 1/2%. At June 30, 1997 there was a total of $1,844,591 borrowed under the Credit Agreement and availability to borrow of $2,440,936 under 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 6/30/97, the Company is in compliance with all of the covenants. The Company has issued and outstanding Subordinated Notes in an original principal amount of $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 $323,602 in the first six months of 1997 as compared to $110,073 in the same period of 1996. The majority of the 1997 expenditures related to the Company's new fiber optic product line. On May 20, 1997 the Company entered into a line of credit agreement with Primary Bank to finance capital equipment related to new product development. The facility provides that equipment purchases will be converted quarterly into a series of five year notes, not to exceed $500,000 in the aggregate, bearing interest at the prime rate plus .75%. As of June 30, 1997, the Company had borrowed $153,985 against the line of credit. 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. 3 OTHER INFORMATION The Annual Meeting of Shareholders of Stocker & Yale, Inc. was held on Tuesday May 6, 1997, for the purpose of (i) electing the directors of the Company to serve until the next Annual Meeting of Shareholders, and (ii) appointing Arthur Andersen, LLP as the Company's independent public accountants. The following table describes the results of the shareholder votes. Election of the following directors to serve until Votes in Favor Votes Withheld the next Annual ______________ ______________ Meeting: Mark W. Blodgett 1,703,503.20 5,000 James Bickman 1,703,503.20 5,000 Alex W. Blodgett 1,703,503.20 5,000 Clifford L. Abbey 1,703,503.20 5,000 Robert G. Atkinson 1,703,503.20 5,000 Hubert R. Marleau 1,703,503.20 5,000 John M. Nelson 1,703,503.20 5,000 Appointment of Arthur Andersen, LLP Votes in Favor Votes Against Votes Abstaining ______________ _____________ ________________ 1,703,503.20 0 5,000 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 during the quarter ended June 30,1997. 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. - -------------------- August 1, 1997 /s/ Mark W. Blodgett - -------------- ---------------------- Mark W. Blodgett, Chairman and Chief Executive Officer August 1, 1997 /s/ Susan A. H. Sundell - -------------- ------------------------- Susan A.H. Sundell, Senior Vice-President-Finance and Treasurer