U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996
Commission file number: 0 - 5460
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STOCKER & YALE, INC.
(Name of small business issuer in its charter)
Massachusetts 04-2114473
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
32 Hampshire Road
Salem, New Hampshire 03079
(Address of principal executive offices) (Zip Code)
(603) 893-8778
(Issuer's telephone number)
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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. Yes X No __
As of August 1, 1996 there were 1,712,914.6 shares of the issuer's common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes_____No X
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Page 1 of 8
PART I FINANCIAL STATEMENTS
STOCKER & YALE, INC. AND SUBSIDIARIES
Item 1.1 CONSOLIDATED BALANCE SHEETS
June 30, 1996 December 31,1995
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash $ 26,071 $ 22,033
Accounts Receivable 1,693,214 1,897,943
Prepaid Taxes 323,963 323,963
Inventory 3,999,111 3,836,653
Prepaid Expenses 114,886 159,013
Total Current Assets 6,157,245 6,239,605
PROPERTY, PLANT & EQUIPMENT, NET 3,184,221 3,365,949
NOTE RECEIVABLE 1,000,000 1,000,000
GOODWILL, NET 8,860,506 9,005,729
DEBT ISSUANCE COSTS, NET 158,926 169,687
19,360,898 19,780,970
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 311,876 $ 266,358
Mortgage note payable 1,500,000 1,500,000
Subordinated notes payable 0 1,000,000
Accounts payable 1,752,808 1,527,468
Short-term lease obligation 31,401 58,560
Accrued expenses
Income taxes 81,730 265,918
Other 426,326 475,136
Total Current Liabilities 4,104,141 5,093,440
LONG TERM LEASE OBLIGATION 72,094 82,909
LONG TERM DEBT
Subordinated Convertible Notes $ 1,350,000 $ 0
Senior Bank Debt 3,589,130 4,080,364
Total Long Term Debt 4,939,130 4,080,364
OTHER LONG TERM LIABILITIES 684,479 684,479
DEFERRED INCOME TAXES 1,135,280 1,215,280
10,935,124 1,156,472
STOCKHOLDER'S EQUITY
Common stock, .001 par value
Authorized -2,400,000
Issued and Outstanding -1,712,914 $ 1,713 $ 1,713
Paid in capital 6,845,685 6,845,685
Retained Earnings 1,578,376 1,777,100
Total Stockholder's Equity 8,425,774 8,624,498
19,360,898 19,780,970
PART I FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
Item 1.2 STOCKER & YALE, INC. AND SUBSIDIARIES
(unaudited)
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
NET SALES $2,566,098 $3,158,634 $5,576,224 $6,447,452
COST OF SALES 1,634,293 1,984,952 3,579,452 4,010,851
Gross profit 931,805 1,173,682 1,996,772 2,436,601
SELLING EXPENSES 409,756 417,977 831,127 862,078
GENERAL AND
ADMINISTRATIVE EXPENSES 444,562 502,429 955,567 979,576
RESEARCH AND
DEVELOPMENT EXPENSES 73,357 77,387 144,762 152,103
Operating income 4,130 175,889 65,316 442,844
INTEREST EXPENSE 147,971 179,865 300,140 334,288
Income (loss)
before income tax provision (143,841) (3,976) (234,824) 108,556
INCOME TAX
PROVISION (BENEFIT) (29,300) 6,600 (36,100) 102,250
Net income (loss) $ (114,541) $ (10,576) $ (198,724) $ 6,306
EARNINGS (LOSS) PER SHARE $ (0.07) $ (0.01) $ (0.12) $ 0.00
WEIGHTED AVERAGE COMMON
SHARES AND EQUIVALENTS 1,712,914 1,570,025 1,712,914 1,581,316
PART I FINANCIAL STATEMENTS
STOCKER & YALE, INC. AND SUBSIDIARIES
Item 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended
June 30, 1996 June 30, 1995
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (198,724) $ 6,306
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 486,784 556,434
Deferred income taxes and other (80,000) (82,377)
Other changes in assets and liabilities -
Accounts receivable, net 204,729 (131,076)
Inventories (162,458) (791,485)
Prepaid expenses 44,127 58,649
Accounts payable 225,340 567,051
Accrued expenses (48,810) (140,692)
Accrued and refundable taxes (184,188) (36,544)
Net cash provided by operating activities 286,800 6,266
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (110,073) (73,618)
Net cash used for investing activities (110,073) (73,618)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 0 776,500
Repayment of Subordinated Note/ Bank Debt (1,000,000) (6,605,827)
Proceeds from Short Term Note 0 200,000
Proceeds from Term Loan 0 2,767,000
Proceeds from Line of Credit 0 2,766,357
Proceeds from Subordinated Notes payable 1,350,000 1,000,000
Repayment of bank debt (445,715) (553,917)
Payments on capital lease (37,974) (23,530)
Deferred financing cost (39,000) (246,744)
Net cash provided by (used for )financing activities (172,689) 79,839
NET INCREASE IN CASH 4,038 12,487
CASH, BEGINNING OF PERIOD 22,033 8,344
CASH, END OF PERIOD $ 26,071 $ 20,831
PART I. FINANCIAL STATEMENTS
Item 1.4 Notes to Financial Statements
1 . General
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, 1996 and June 30, 1995, (b) the financial position
at June 30, 1996, and (c) the cash flows for the six month periods ended June
30, 1996 and June 30, 1995. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 31, 1995, 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.
2. Debt
The 13.5% Subordinated Notes Payable of $1,000,000, which matured on May 6,
1996, were refinanced by a new issue of Subordinated Notes totaling $1,350,000.
The new notes mature on May 1, 2001, bear interest at 7.25% and are convertible
into shares of the Company's common stock at a price of $7.375 per share.
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, 1995.
Three-month periods ended June 30, 1996 and 1995
Revenues declined $592,536 from $3,158,634 in the quarter ended June 30, 1995 to
$2,566,098 in the quarter ended June 30, 1996. The decline was due primarily to
reduced sales of the Company's printer and recorder products, which declined
$295,299 from $638,863 in the quarter ended June 30, 1995 to $343,564 in the
equivalent period in the current year, as the Company's OEM customers are
experiencing economy-related slowed volumes and inventory overstocks. Sales to
the U. S. government declined $175,498 to $80,250 in the second quarter of 1996
from $255,748 in the second quarter of 1995 during which the Company recorded
$244,928 in revenues against a government contract for borescopes. Revenues
increased 25% in the Company's industrial task lighting products from $457,634
in the second quarter of 1995 to $576,002 in the second quarter of 1996, largely
as a result of increased selling efforts in this market.
Gross Profit declined from $1,173,682 in the second quarter of 1995 to $931,805
in the second quarter of 1996, primarily due to reduced cost absorption
associated with lower revenues. Operating costs decreased from $997,793 in the
second quarter of 1995 to $927,675 in the second quarter of 1996, and interest
expense decreased from $179,685 to $147,971 in such periods, respectively.
Six month periods ended June 30, 1996 and 1995
Revenues declined $871,228 from $6,447,452 in the quarter ended June 30, 1995 to
$5,576,224 in the quarter ended June 30, 1996. Approximately 65% of the sales
drop was experienced in the Company's printer and recorder business, which
declined $569,283 from $1,295,392 in the six months ended June 30, 1995 to
$726,109 in the equivalent period in the current year, largely due to the
Company's OEM customers experiencing economy-related lower volumes and inventory
overstocks in 1996 and to the fact that1995 sales benefited from final
deliveries against a large order from a single customer. The remainder of the
revenue decline is largely attributable to reduced sales of the Company's
electronic ballasts which declined $404,637 to $260,073 in the first six months
of 1996 from $664,710 in the first six months of 1995. Reduced sales in this
product line resulted from the Company's deliberate withdrawal from this market,
which has become increasingly commodity price-driven, to focus on sales of
higher margin products. Primarily as a result of this redirection, sales of
industrial task lighting products increased 22% from $1,000,464 in the six
months ended June 30, 1995 to $1,221,068 in the six months ended June 30, 1996.
Gross Profit declined from $2,436,601 in the first half of 1995 to $1,996,772 in
the first half of 1996, primarily due to reduced cost absorption associated with
lower revenues. Operating costs decreased from $1,993,757 to $1,931,456, and
interest expense decreased from $334,288 to $300,140 in such periods,
respectively. The difference between the effective tax rates is primarily
due to non-deductible amortization.
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
$286,800 for the six months ended June 30, 1996 and $6,266 for the six months
ended June 30, 1995.
The Company's primary third party financing relationship is with Fleet National
Bank (the "Bank"). The initial Credit Agreement between the Company and the
Bank, dated March 6, 1995, 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
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 June 30, 1996, there was a total of $3,750,170
borrowed under the agreement.
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. At March 31, 1996,
the Company was not in compliance with the minimum net income and minimum equity
covenants, and at June 30, 1996, the Company was not in compliance with the
minimum net income covenant. Noncompliance resulted from the operating losses
associated with lower than anticipated revenues. On May 24, 1996, the Bank
granted waivers of the minimum net income and minimum equity covenants as of
March 31, 1996 for the period then ended, and on July 31, 1996, the Bank granted
a waiver of the net income covenant as of June 30, 1996 for the period then
ended. On August 13, 1996, the Credit Agreement was amended to establish new
minimum equity and maximum net loss covenants for the remaining two quarters of
1996 and to set quarterly frequency and limits on the debt service coverage
ratio covenant through maturity.
Company expenditures for capital equipment were $110,073 in the first six months
of 1996 as compared to $73,618 in the same period of 1995.
The 13.5% Subordinated Notes Payable of $1,000,000, which matured on May 6,
1996, were refinanced by a new issue of Subordinated Notes totaling $1,350,000.
The new notes mature on May 1, 2001, bear interest at 7.25% and are convertible
into shares of the Company's common stock at a price of $7.375 per share.
Additional proceeds will be used for general corporate purposes.
The Mortgage Note Payable of $1,500,000 will mature on September 1, 1996. On
August 8, 1996, the Company received from a local bank a letter of commitment to
refinance the total $1,500,000 at a rate of 1% over the Prime Rate, subject to
certain terms and conditions. Although there can be no assurance that these
conditions will be satisfied, the Company believes that it will be able to
refinance the mortgage prior to the maturity date.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Stocker & Yale, Inc. was held on Tuesday,
May 7, 1996, for the purpose of ( i ) electing the directors of the Company to
serve until the next Annual Meeting of Stockholders; ( ii ) considering and
approving the 1996 Stock Option and Incentive Plan; ( iii) approving stock
options which have been or may be granted to officers and directors under the
1994 Stock Option Plan and the 1996 Stock Option and Incentive Plan; and (iv)
appointing Arthur Andersen LLP as the Company's independent public accountants.
The following table describes the results of the shareholder votes.
Votes in Favor Votes Withheld
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Election of the following directors
to serve until the next Annual General
Meeting:
Mark W. Blodgett 955,293
James Bickman 955,293
Alex W. Blodgett 955,293
Clifford L. Abbey 955,293
Robert G. Atkinson 918,312 36,981
Hubert R. Marleau 955,293
John M. Nelson 955,293
Votes in Favor Votes Against Votes Abstaining
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Considerations and Adoption of the
1996 Stock Option and Incentive Plan 955,263 30
Approval of stock options which have
been or may be granted to officers and
directors under the 1994 Stock Option
Plan or the 1996 Stock Option and
Incentive Plan 955,263 30
Appointment of Arthur Andersen LLP 955,293
ITEM 5. OTHER INFORMATION
Effective at the close of business on May 10, 1996, the Company delisted its
Common Stock from the Vancouver Stock Exchange. The Company maintains the
listing of its Common Stock on the Nasdaq SmallCap Stock Market.
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
10.1 * Waiver of certain provisions of the Credit Agreement, dated
May 24, 1996, for the period ended March 31, 1996.
10.2 * Waiver of certain provisions of the Credit Agreement, dated
July 31, 1996, for the period ended June 30, 1996.
10.3 * Amendment No. 4 to the Credit Agreement, dated August 13, 1996,
for the fiscal year ending December 31, 1996.
27.1 ** Financial Data Schedule
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* filed herewith
** filed electronically only
(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.
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August 13, 1996 /s/Mark W. Blodgett
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Mark W. Blodgett, Chairman and
Chief Executive Officer
August 13, 1996 /s/ Susan A.H. Sundell
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Susan A.H. Sundell, Senior Vice
President-Finance and Treasurer