U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________________________________
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
___________________________
Securities registered under Section 12(b) of the Act:None
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
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 filing such requirements for the past 90 days. ___X__Yes _____No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-KSB.[]
The registrant's revenues for the fiscal year ended December 31, 1997 were
$11,062,026.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 27, 1998 was $9,888,790 based on the price per share of
such stock reported at closing on the Nasdaq SmallCap Market on that date.
As of March 27, 1998 there were 2,570,194.60 shares of the issuer's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement (the "Proxy Statement") for the
Annual Meeting of Shareholders to be held on May 5, 1998, to be filed with
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, which is anticipated to be filed within 120 days after the Registrant's
fiscal year ended December 31, 1997, are incorporated by reference into Items,9,
10,11 and 12 of Part III.
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TABLE OF CONTENTS
PART I
page
Item 1. Description of Business.................................... 1
Item 2. Description of Properties.................................. 5
Item 3. Legal Proceedings.......................................... 6
Item 4. Submission of Matters to a Vote of Security Holders........ 6
PART II
Item 5. Market for Common Equity an Other Stockholder Matters...... 6
Item 6. Management Discussion and Analysis of
Financial Condition and Results of Operations.......... 7
Item 7. Financial Statements....................................... 12
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures................ 34
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Compliance with Section 16(a) of the Exchange Act.......... 34
Item 10. Executive Compensation..................................... 34
Item 11. Security Ownership of Certain Beneficial Owners and
Management............................................. 34
Item 12. Certain Relationships and Related Transactions............. 34
Item 13. Exhibits, List and Reports on Form 8-K..................... 35
Signatures................................................. 38
<PAGE>
This Form 10-KSB 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. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" on page 9 of this Form 10-KSB.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Stocker & Yale, Inc. (the "Company") was incorporated on March 27, 1951 under
the laws of the Commonwealth of Massachusetts. In May, 1994, the Company became
publicly traded on the Vancouver Stock Exchange (the "VSE") via a merger with
Brower Exploration, Inc., a Wyoming corporation which was publicly traded in
Canada. The Company's common stock (the "Common Stock") was listed and traded
on the Vancouver Stock Exchange from May 14, 1994 until May 10, 1996, when the
Company de-listed its stock from the VSE. In December, 1995, the Company com-
pleted the registration of its Common Stock with the U.S. Securities and
Exchange Commission, and in January, 1996, the Company listed its stock on the
Nasdaq SmallCap Market under the trading symbol "STKR".
As of December 31, 1997, the authorized capital stock of the Company was
10,000,000 shares of Common Stock of which 2,567,894.6 shares were issued and
outstanding. An additional 490,091 shares of Common Stock have been reserved for
issuance upon the exercise of outstanding options to purchase Common Stock and
upon conversion of certain convertible indebtedness of the Company.
The Company has two active subsidiaries: Stocker & Yale Foreign Sales Corpora-
tion, a U.S. Virgin Islands corporation which is a wholly-owned subsidiary of
the Company and qualifies as a "foreign sales corporation" under the Internal
Revenue Code, and Radiant Asiatec Pte, Ltd., a Singapore corporation formed in
December, 1997, which is an 80% owned subsidiary of the Company. A third sub-
sidiary, Stocker & Yale Hong Kong Ltd., a Hong Kong corporation formed in March,
1995, ceased operations in December, 1997.
Business Description
The Company is a diversified manufacturing company engaged predominantly in the
production of lighting systems for measuring and inspection equipment in the
microscopy and machine vision markets. In addition, the Company manufactures
machine tool components and accessories for the automotive and related indus-
tries. The Company operates in two company-owned facilities in Salem, New
Hampshire and Fraser, Michigan, and in leased space in Singapore.
Salem Division/Lighting and accessories for measuring and inspection instruments
The Company's Salem Division, located in Salem, New Hampshire, produces a broad
array of inspection and measurement instruments and accessories. The Division's
core business is the development, manufacture and distribution of lighting pro-
ducts for the microscopy and machine vision markets ("Industrial Lighting
Products"). The Salem Division also supports two ancillary product lines:
Military Products and Recorder/Printer Products.
<PAGE>
Sales Data.
Sales generated by the Salem Division represented approximately 65% of total
Company sales in 1997, and approximately 62% in 1996. Industrial Lighting
Products represent the Company's fastest growing product segment in terms of
sales volume and represent approximately 37% of total Company sales in 1997 from
approximately 24% in 1996 and approximately 18% in 1995. Measuring and
Inspection Instruments represented approximately 27% of total Company sales in
1997 and approximately 35% in 1996.
Industrial Lighting Products.
Stocker & Yale has been designing, manufacturing and selling industrial
fluorescent lighting products since the establishment of the Company over fifty
years ago by two engineers who recognized the need for reliable specialized
lighting in industrial applications. The Company is a leading manufacturer of
fluorescent illumination systems for microscopy and machine vision applications.
In 1997, the Company began to manufacture fiber optic illumination systems for
the same industries.
The Company's fluorescent illuminators are used primarily to provide lighting
for microscopes and cameras, and are widely utilized for inspection operations
in the semiconductor and hard disk manufacturing industries. Representatives of
these industries are IBM, Seagate and Read-Rite, which are among the Company's
largest customers, although none of these accounts for more than 2.5% of the
Company's total sales.
In 1997, the Company developed a line of fiber optic illumination products for
use with high power microscopes. These products utilize glass fiber which is
produced in-house, enabling the Company to ensure high quality. As new fiber
optic lighting products were developed and refined, initial orders were pri-
marily for fiber bundles and came primarily from lighting distributors. In
February 1998, the Company received its first significant fiber optic order,
totaling approximately $560,000 from an original equipment manufacturer ("OEM")
for a fiber optic illuminator, the Model 2000.
Measuring and Inspection Instruments.
In addition to Industrial Lighting Products, the Salem Division also supports
other product lines, which are broadly characterized as Measuring and Inspection
Instruments, specifically known as Military Products and Recorder/Printer
Products. The Company manufactures compasses and sources and distributes watches
to military specifications. These watches and compasses ("Military Products")
are sold to the U.S. government and to the civilian market. Since 1979, the
Company has manufactured over one million compasses for the U.S. Army, and, as
of December 31, 1997, Stocker & Yale is the only U.S. company qualified as a
supplier of watches to the U.S. armed forces. Under the MFE brand name, the
Salem Division also manufactures and distributes a variety of oscillographic and
thermal recorders and printers ("Recorder/Printer Products") for diverse field,
industrial and laboratory uses.
Distribution.
Salem Division products are sold to over 8,000 customers, primarily in North
America, Europe and the Pacific Rim. The Salem Division sells directly and also
works with a group of approximately 125 microscope dealers and machine vision
integrators in selling industrial lighting products and with approximately five
manufacturer's representatives in selling MFE brand products. No single customer
represents more than 10% of division revenues.
Competition and Competitive Position.
The Company competes with a number of large and small firms in the design and
manufacture of its Industrial Lighting Products and Measurement and Inspection
Intruments. Some competitors have greater resources than the Company, and as a
result, may have a competitive advantage in the research and development of new
products, sales and distribution and in other business areas.
<PAGE>
In the industrial fluorescent lighting market, the Company has two primary com-
petitors. Microlite markets a product similar in appearance to the Company's
circular fluorescent microscope illuminator. Techni-Quip Corp. offers industrial
fluorescent lighting as part of its product line but its lighting product line
is limited and represents a small percentage of that company's total business.
The Company has five primary competitors in the fiber optic lighting market. The
most mature segment of this market relates to lighting for microscopes. Within
that segment, Volpi Manufacturing USA, Inc. and Dolan-Jenner Industries, Inc.
have highest market share. Both of these companies have been producing fiber
optic products for more than thirty years and offer a fully developed line of
microscopy products. A third, company, Cuda Products, Inc., also supplies fiber
optic lighting for microscopy, however, its primary market is medical products.
The value-oriented segment of the microscopy market is dominated by Chiu
Technical Corp., which offers an inexpensive "no-frills" fiber optic lighting
system. A newer segment in the fiber optic lighting market relates to lighting
for machine vision, which is automated imaging and inspection equipment. Fostec,
Inc., is the leading provider of fiber optic lighting for machine vision, with
ten years of experience in the machine vision industry and advanced glass tech-
nology its primary advantages.
The Company has developed the in-house capability to draw its own glass fiber
in variable dimensions to suit customer needs. Although some of the above named
competitors also have this capability, the Company believes that its fiber has
certain qualities which may make the Company's fiber longer-lived and more
reliable than its competitors' fiber. Further, the Company's spectrographic
analysis has established that the fiber drawn by the Company demonstrates higher
light transmission qualities than the competitors' fiber.
Since mid-1996, the Company has invested in building up its in-house design,
development and research capabilities, including the hiring of personnel trained
in optical, chemical, mechanical and electrical engineering and related disci-
plines, and the purchase of computers and laboratory equipment necessary to sup-
port these personnel. Further, the Company has succeeded in designing and
developing a complete line of fiber optic lighting products for microscopy
applications in less tan two years.
The Company believes that its primary market advantages going forward are its
long history of providing specialized products to meet customers' illumination
needs, its broad line of industrial fluorescent lighting products, its ability
to produce high quality glass fiber, and its design and development capabil-
ities.
The chart recorder and thermal printer market is dominated by companies that are
larger and offer more advanced technology than the Salem Division. Recognizing
that it lacks the resources to compete directly against larger companies, such
as Gould, Inc., and General Scanning, Inc., the Company focuses on the value-
oriented segment of the market and customers with low volume specialized
applications.
In bidding for contracts to supply compasses and watches for the U.S. Army, the
Company competes against only a limited number of firms. However, as a result
of reduced spending by the United States government, the Company expects to
obtain fewer contracts from the United States armed forces in the future.
<PAGE>
Machine tool components and accessories product lines
For over 50 years, the Company's Stilson/Die-Draulics Division("SDD Division"),
located in Fraser, Michigan, has manufactured a wide range of machine tool com-
ponents and material handling accessories which are used extensively in the con-
struction and maintenance of assembly and conveying machinery.
Sales data.
Machine tools and accessories represented approximately 35% of the total
Company sales in 1997, compared to approximately 39% in 1996. Material
handling products, such as conveyor rolls and bumpers, were approximately 17% of
total Company sales in 1997 and 1996. Other products include vacuum handling
systems, machine tool components for clamping, indexing, holding, handling,
locating, positioning and actuating, and nitrogen die control systems. The pro-
ducts are sold to participants in the automotive, packaging and other indus-
tries.
Distribution.
The SDD Division's products are sold to over 5,000 customers, and no one
customer or group of customers represented more than 5% of total revenue
in 1997. Although SDD Division products are sold throughout the world,
sales to customers in the U.S. industrial Midwest (Ohio, Michigan, Illinois, and
Indiana) represented approximately 54% of Stilson Division sales in 1997 and 53%
in both 1996 and 1995. The Division works with approximately 60 distibutors and
manufactures' representatives in the marketing of the Stilson and Die-Draulics
product lines.
Competition and Competitive Position.
The market for machine components and accessories is mature, with a number of
small companies competing within the industry. The SDD Division competes
with a variety of companies (many of which are larger and have greater
resources than the Company) in designing and distributing its products.
These products are sold primarily to participants in the automotive industry
and secondarily to participants in the home appliance, leisure-time
products, building materials and packaging equipment industries.
Historically, the SDD Division has maintained a market advantage and product
acceptance primarily by offering a complete product line, technical applications
assistance and quality service, at a competitive price. Further, the Company has
been able to adapt its products to the specific requirements of its customers.
Backlog
The Company maintains an inventory of standard materials and components and
generally manufactures standard product configurations within one to five days
after receipt of a customer order. Although such rapid response is, and histori-
cally has been, a selling advantage for the Company, some orders are placed for
future delivery. At December 31, 1997, the Company had a backlog of orders for
future delivery of approximately $920,000 compared to approximately $700,000 of
such orders at December 31, 1996. At March 15, 1998, the backlog was approxi-
mately $1,899,000.
Raw Materials
The raw materials and components used in the Company's products are purchased
from a number of different suppliers and are generally available from several
sources.
Dependence on One or a Few Major Customers
The Company's customer base consists of more than 10,000 customers in various
industries worldwide. The Company's largest single customer is the United States
government to which the Company has been a contract supplier of watches and
compasses for many years. Sales to various agencies of the United States Govern-
ment were less than 3% of the Company's total sales in 1997.
<PAGE>
Patents and Trademarks
The Company holds patents in the United States and has filed additional patent
applications in the United States, Europe and Japan. The Company's patents
include compact limited rotation motors and fundamental technological devices
and methodologies used to achieve low-cost fluorescent light dimming. The
Company believes that patents are an effective way of protecting its
competitive technological advantages, and considers its patents to be a
deterrent against unauthorized manufacture, use and sale of its products and
key product attributes. There can be no assurance, however, that a patent
will be issued with respect to the patent applications or whether the
Company's patents will provide meaningful protection for the Company.
The Company also relies upon trade secret protection for its confidential
and proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to and use or disclose the Company's
trade secrets or that the Company can meaningfully protect its trade secrets.
The Company holds rights in certain trademarks to protect its brand name
recognition in various markets. Because of the Company's long history and
reputation for designing and manufacturing high quality products, trademark
protection enhances the Company's position in the market.
Although the Company believes that its products and other proprietary rights
do not infringe the proprietary rights of third parties, there can be no
assurance that infringement claims will not be asserted against the Company
in the future or that any such claims will not require the Company to enter
into royalty arrangements or result in costly litigation.
Research and Development
Research and development expenditures for the Company were $725,539 in 1997,
$424,637 in 1996 and $220,290 in 1995. The increases in 1997 and 1996 reflect
a stepped up development effort, which is focused on introducing a line of
fiber optic illuminiation products to complement the Company's line of
industrial fluroscent lighting products. Specifically, the Company has
strengthened its capability to design and develop fiber optic illuminators,
ring lights and standard and custom lengths of glass fiber for existing and
new customers within the machine vision and microscopy industries.
Compliance with Environmental Laws
The Company is subject to evolving Federal, state and local environmental
laws and regulations. Compliance with such laws and regulations in the past
had no material effect on the capital expenditures, earnings or competitive
position of the Company. The Company believes that it complies in all
material respects with existing environmental laws and regulations applicable
to it. However, the Company's Salem, New Hampshire headquarters are currently
the subject of environmental testing and monitoring relating to soil and
groundwater contamination which occurred under prior ownership. The Company
believes that the costs of any required remediation will be covered by an
environmental indemnity obtained from the seller, John Hancock Mutual Life
Insurance Company. Compliance with environmnetal laws and regulations in the
future many require additional capital expenditures, and the Company expects
that in the foreseeable future such capital expenditures will be financed
by cash flow from operations.
<PAGE>
Employees
As of December 31, 1997, the Company employed approximately 106 persons, 100 of
whom were full-time employees. No employees of the Company are unionized and re-
lations with employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company currently conducts its business at two Company-owned facilities. The
Company's headquarters and manufacturing and distribution center for the Salem
Division is located at a 79,120 square foot facility in Salem, New Hampshire.
The machine tool components and materials handling accessories product lines are
manufactured and sold from a 25,800 square foot facility in Fraser, Michigan.
The Company's Salem faciliy is owned by the Company subject to a mortgage
granted to Primary Bank, and the Company's Michigan facility is owned by the
Company and subject to a mortgage granted by the Company to Fleet Bank to secure
the obligations of the Company under the Company's senior credit facility. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS-Liquidity and Capital Resources."
The Company's facilities are generally operated on the basis of one shift per
day, five days per week. Management considers the facilities to be in generally
good condition, to be adequately maintained and insured, and sufficient to
satisfy its needs for the forseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is a named defendant in a civil action filed on or about February
17, 1998, in the Superior Court of Massachusetts, Essex County. The plaintiff,
Dolan-Jenner Industries, Inc., alleges that the Company interfered with a non-
competition and non-discolsure agreement and have misappropriated plaintiff's
proprietary information. The plaintiff has sought both injunctive relief and
monetary damages. The Court has denied plaintiff's request for preliminary
injunctive relief, finding, among other things, that the plaintiff has not
established a likelihood of success on the merits of its claims. The Company
believes that it has meritorious defenses to all remaining claims made by the
plaintiff.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock has been listed on the Nasdaq SmallCap Stock Market
since January 29, 1996 under the symbol "STKR".
The following table sets forth the high and low bids for the last 8 quarters:
High Low
---- ----
Quarter ended March 31, 1996 $6.25 $4.50
Quarter ended June 30, 1996 $6.25 $5.25
Quarter ended September 30, 1996 $6.00 $4.875
Quarter ended December 31, 1996 $6.25 $4.625
Quarter ended March 31, 1997 $5.75 $5.625
Quarter ended June 30, 1997 $6.625 $4.75
Quarter ended September 30, 1997 $5.875 $4.00
Quarter ended December 31, 1997 $6.00 $4.00
Holders
As of March 25, 1998 there were approximately 1050 shareholders of record of
the Company's Common Stock.
Dividends
The company presently is restricted from payment of dividends under the terms of
the Credit Agreement (as defined below), and therefore, the Company does not
expect to declare or pay any dividends in the forseeable future. The payment of
any future dividends will be at the discretion of the Company's Board of Direc-
tors and will depend upon, among other things, future earnings, operations,
capital requirements, the general financial condition of the Company and general
business conditions.
ITEM6. MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition, results of opera-
tions and capital resources and liquidity should be read in conjunction with the
Consolidated Financial Statements and related Notes included elsewhere herein.
<PAGE>
Results of Operations
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended
December 31, 1996
As previously reported, in 1996 management formulated a strategy to de-emphasize
less profitable product lines and to focus on and expand its Industrial Lighting
Products, which included a plan to develop, manufacture and sell fiber optic
illumination products. In 1997, the Company implemented its plan to establish a
line of fiber optic products, investing over $2 million in inventories and capi-
tal equipment and nearly doubling research and development expenditures to ex-
pand development capabilities. The Company ended the year having successfully
completed the first phase of this initiative, with the installation of its glass
fiber drawing tower, the quantity production of high quality glass fiber, and
the design and development of a complete fiber optic product line for use in
microscopy.
Total Company revenues increased 3.5% from $10,782,078 in 1996 to $11,162,026 in
1997. Industrial Lighting Product sales grew more than 61%, increasing from
$2,586,973 in 1996 to $4,169,795 in 1997. This revenue growth resulted from
increased selling activity, especially in southeast Asia, and the introduction
of thirty-seven new products, including the Company's fiber optic lighting pro-
ducts. Fiber optic lighting sales increased to $323,506 as compared to only
$3,604 in 1996. Sales of machine tool components and accessories through the SDD
Division decreased by 3% from $4,087,218 to $3,948,151, due primarily to delays
in the Division's fulfillment cycle resulting from changes in the division's
personnel. Less profitable lines, which had been strategically de-emphasized,
experienced expected decreases in revenue. Sales of Military Products decreased
from $1,775,798 in 1996 to $1,329,362 in 1997, largely due to decreased U.S.
government sales, which in 1996 had benefited from a large contract for navi-
gation watches. Recorder/Printer sales declined from $2,034,146 in 1996 to
$1,676,949 in 1997, as customers continue to turn from generic printers and
recorders to develop their own application-specific products.
Gross profit increased $390,244 from $3,872,812 in 1996 to $4,263,056 in 1997,
and improved as a percentage of revenues from 35.9% to 38.2%. Management
credits this improvement to the increased sales of Industrial Lighting
Products which generally produce higher margins than other product lines.
Research and development expenses increased by approximately $300,000 as the
Company hired additional engineering staff and updated its equipment. Selling
expenses increased by approximately $291,000 as a reult of hiring and training
new sales people and the purchase of new product advertising and literature.
Such planned expenditures established the Company's capability to produce glass
fiber and manufacture fiber optic light sources, and positioned the Company to
enter the fiber optic lighting marketplace. General and Administrative expense
increased modestly but remained at 19% of Company revenue. Total operating costs
incresed from $4,247,422 in 1996 to $4,906,583 in 1997, as a result of the in-
creased selling and research and development costs associated with the startup
of the fiber optic product line. The Company reported a net loss for 1997 of
$726,864 as compared with a net loss in 1996 of $643,296.
Included in 1997 operating expenses are approximately $329,000 of non-recurring
charges. These charges consist primarily of approximately $260,000 in costs
associated with personnel changes, such as severance pay and hiring of interim
help, as well as costs related to the closing of the Company's Hong Kong sub-
sidiary in December, 1997.
<PAGE>
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended
December 31, 1995
Fiscal year 1996 was characterized by a stronger balance sheet and weaker oper-
ating results. Management formulated a plan to focus on and expand its indus-
trial lighting and machine tool product lines through the acquisition of comp-
lementary business and/or product lines and the development and marketing of a
line of fiber optic illumination products. In order to provide additional work-
ing capital for growth as well as to finance possible acquisitions and new pro-
duct development, the Company completed a public offering on October 25, 1996
which generated net proceeds of approximately $3,950,000. As a consequence of
the Company's public offering, the Company increased stockholder's equity
approximately 38% from $8,624,495 at December 31, 1995 to $11,908,952 at
December 31, 1996, and reduced debt approximately 32% from $9,256,713 to
$6,256,713. In addition, in separate transactions which occurred in May and
August of 1996, the Company refinanced $2,500,000 of debt, all of which was
classified as current debt in 1995 to $2,784,346 of long term debt and $50,151
of current debt in 1996. The Company reported a net loss of $643,421 for the
year ended December 31, 1996 as compared to a net loss of $309,939 for year
ended December 31, 1995. The loss is largely attributable to (i) decreased
revenues of approximately 17% from 1995 to 1996 and related lower absorption of
costs, (ii) decreased gross margin at the Company's SDD Division and (iii) in-
creased Reasearch and Development expenses.
Revenues dereased from $13,004,675 to $10,782,078. Approximately 44% of the
revenue decrease was due to reduced sales to the U.S. government, which declined
from $1,534,165 in 1995 to $558,171 in 1996, primarily as a result of one-time
contract sales in 1995 for borescopes and navigator watches. Sales of electronic
ballasts declined from $1,103,401 in 1995 to $297,943 in 1996, accounting for
approximately 36% of the revenue decrease. The reduction in sales of electronic
ballasts resulted from the Company's decision to withdraw from this market,
which has become increasingly commodity price-driven, to focus on sales of
higher margin products. Recorder and printer product sales declined from
$2,786,600 in 1995 to $2,034,146 in 1996, representing approximately 34% of the
total revenue decrease. Recorder and printer product sales declined primarily
due to customer decisions to develop their own printers and recorders and,
especially, their own application-specific electronic controllers rather than
adapt generic product for re-sale. Sales of the Comapny's lighting products in-
creased approximately 9% from $2,370,756 in 1995 to $2,583,369 in 1996. Sales of
military watches and compasses to the civilian market increased approximately
37% from $889,489 in 1995 to $1,217,627, primarily as a result of a contract
with a mail order marketing firm and increased sales in Asia through the
Company's Hong Kong subsidiary. Hong Kong sales increased from $92,309 in 1995
to $272,455 in 1996.
Consolidated gross profit expressed as a percentage of total yearly sales re-
mained flat at 35.9% of total sales in 1996 compared to 35.5% of sales in 1995.
However, due primarily to reduced absorption of overhead costs resulting from
lower revenues, gross profit decreased $846,246 from $4,719,058 in 1995 to
$3,872,812 in 1996. In addition, the SDD Division experienced a decline in gross
profit from 48% of net sales in 1995 to 42% of net sales in 1996. The decrease
in the gross profit at SDD Division was due primarily to increased material
costs incurred as a result of temporary outsourcing of components previously
produced in-house.
Research and development expenditures increased to $424,637 in 1996 from
$220,290 in 1995. The increase in 1996 reflects increased personnel costs for
new product development in the Salem Division, which is focused on introducing a
line of fiber optic illumination products to complement the Company's line of
industrial fluorescent lighting products.
Selling and General and Administrative Expenses remained flat at $3,822,595 in
1996 as compared to $3,869,952 in 1995. Interest expense decreased approximately
17% from $661,905 in 1995 to $546,770 in 1996, due primarily to the paydown of
the Company's Revolving Loan subsequent to the public offering in October, 1996.
In addition, 1995 results included a loss on the sale of real estate relating to
the sale of the Company's former headquarters. This transaction is discussed in
greater detail in the comparison of 1995 and 1994 below, and had no equivalent
in 1996.
The Company recorded an income tax benefit of $277,892 in 1996 as compared with
a tax benefit of $52,270 in 1995. Varying effective tax rates are due primarily
to non-deductible goodwill amortization.
<PAGE>
Certain Factors Affecting Future Operating Results
Statements, other than historical facts, made herein may constitute forward-
looking statements. Such forward-looking statements are subject to risks and
uncertainties which may cause actual results to differ materially from those
anticipated in such statements. The factors that could cause actual results to
differ materially from anticipated results include, without limitation, the
Company's ability to (i) compete with entities that have greater financial,
technical and marketing resources than the Company, (ii) develop and market new
products in its various business lines, (iii) compete for and obtain certain
U.S. government contracts, or (iv) obtain financing on favorable terms. In
addition, the Company sells certain products to customers located in Southeast
Asia, and in 1997, the Company experienced a slowdown in orders and payments
from its customers in that region, as the currencies of certain countries in
that region have been devalued and destabilized. Although the Company has taken
reasonable precautions to limit its credit risk in southeast Asia, there can be
no assurance that the Company will be able to secure future orders from its
customers in that region. General economic conditions in the United States,
southeast Asia, and elsewhere may affect the Company's results.
Liquidity and Capital Resources
The Company historically has financed its operations primarily through third
party credit facilities and cash from operations. Anticipating the need for
capital to finance the startup of the fiber optic lighting business, the Company
completed a public offering of the Company's Common Stock in October, 1996,
which generated $4,250,000 in gross proceeds. During 1997,the Company's opera-
tions used $1,646,613 of cash as compared with $115,008 of cash provided by
operations in 1996. Cash used for operations was primarily for the purchase of
inventories relating to its new fiber optic lighting products. Cash investments
increased as well from $196,302 in 1996 to $1,031,530 in 1997, as the Company
purchased equipment for increased research and development and for setting up
a manufacturing facility for fiber optic lighting production. Such expenditures
in 1997 were planned costs associated with startup of the new fiber optic
lighting product line and, as such, should not be of a recurring nature.
The Company's primary third party financing relationship is with Fleet National
Bank (the "Bank"). The initial Credit Agreement (the"Inital Credit Agreement")
included provisions for revolving loans due March 31, 1998 (the "Revolving
Loans"), a long-term loan due March 31, 1998 (the "Term Loan"), and a short-term
loan due August 1, 1995 (the "Short-Term Loan"), in an aggregate principal
amount of $6,967,000. The Short Term Loan was paid as agreed in August, 1995.
In September, 1995, the Company made a partial prepayment of the Term Loan in an
amount of $1,100,000. As of December 31, 1997. there was a total of $1,175,945
outstanding on the Term Loan, as compared to $1,336,986 outstanding on December
31, 1996. Borrowings under the Revolving Loans totaled $1,307,053 as of December
31, 1997, as compared to no borrowings as of December 31, 1996 when the
Revolving loans were temporarily paid down after the completion of the Company's
stock offering in October, 1996. Both the Revolving Loan and the Term Loan bear
interest at a rate equal to the Bank's base rate plus 1/2%. As of December 31,
1997, the interest rate on both the Revolving Loans and the Term Loan was 9.00%.
Under the terms of the Credit Agreement, the Company is required to comply with
a number of covenants including minimum equity, debt to equity ratios, and mini-
mum net income tests. At September 30, 1997, and December 31, 1997, the Company
was not in compliance with the minimum net income and debt service coverage
covenants. The bank granted waivers to these covenants on November 12, 1997 for
the period ended September 30, 1997, and granted waivers on March 5, 1998 for
the period ended December 31, 1997. In addition, on November 12, 1997, the
Credit Agreement was amended to increase the maximum annual limit on capital ex-
penditures from $500,000 to $1,500,000 for the year ending December 31, 1997.
The Company had planned to refinance the Fleet National Bank credit facility
with another bank prior to such credit facility's March 31, 1998 maturity dates.
On March 17, 1998, the other bank altered the terms of its proposal and the Com-
pany terminated those negotiations. On March 30, 1998, the Company and the Bank
entered into a commitment letter (the "Commitment Letter") to amend the Credit
Agreement in order to extend the maturity dates for the Term Loan and the
Revolving Loan until January 2, 1999. Under the terms of the extension, both the
Term Loan and the Revolving Loan will bear interest at a rate equal to the
Bank's base rate plus 1% through June 30, 1998, after which the rate will in-
crease to the Bank's base rate plus 2%. The Company will pay quarterly extension
fees of $10,000 on March 31, 1998 and $20,000 on June 30, 1998, and monthly ex-
tension fees of $7,000 payable on the last days of July, August and September,
and $10,000 payable on the last day of October, November and December. The
Amended Credit Agreement deletes the minimum debt service covenant and requires
the Company to report a pretax profit in the month of March, 1998 and for each
of the subsequent quarters in fiscal year 1998. The Company intends to refinance
the Credit Agreement with another lender before its January 2, 1999 maturity
date. At this time, the terms of such refinancing can not be determined by the
Company.
<PAGE>
In May 1996, the Company has issued Subordinated Notes in an original principal
amount of $1,350,000. These notes mature on May 1, 2001, bear interest at 7.25%,
and are convertible into shares of Common Stock at a conversion price of $7.375
per share subject to certain adjustments pursuant to the Convertible Sub-
ordinated Note Purchase Agreement (the "Purchase Agreement") related thereto.
Payments of principal and interest on the Convertible Subordinated Notes
are subordinated to all existing and future indebtedness of the Company to banks
and financial institutions. The Notes are unsecured and are redeemable at the
option of the Company at any time after May 1, 1998 under a formula specified in
the purchase agreement.
The Company's headquarters facility in Salem, New Hampshire, is subject to a
mortgage and note issued to Primary Bank on August 29, 1996 (the "Primary
Note"). The Primary Note, in an initial principal amount of $1,500,000, is due
August 29, 2011. The Primary Note bears interest at an annual rate of 9.25% per
annum until August 29, 1999; and thereafter, adjusted annually to the Prime Rate
plus one percent. The principal and interest are repayable in 180 equal monthly
installments. In accordance with the terms of the Primary Note, the Company may
prepay amounts outstanding thereunder, in whole or in part, at any time without
premium or penalty.
On May 20, 1997, the Company entered into an equipment line of credit agreement
with Primary Bank to finance capital equipment related to new product develop-
ment. 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 December 31, 1997, the
Company had borrowed $209,759 against this line of credit.
The Company believes that its available financial resources are adequate to meet
its forseeable working capital, debt service and capital expenditure require-
ments.
Inventory Obsolescence
The potential for inventory obsolescence of older products as the Company
develops new products is not significant. With the exception of the Company's
new line of fiber optic lighting products and fluorescent light dimming systems
and electronic ballasts which was a new product line in 1993, the Company's
product offerings have remained substantially the same for twenty years, with
new enhancements introduced periodically. Enhanced versions of old products are
not introduced to the market until the old components being replaced in the new
configurations are appropriately reduced. New product additions to existing
lines are generally designed to accomodate new and different applications, have
features that are quite different from existing products, and do not impact the
demand for other, older products.
Foreign Currency Fluctuations
Foreign currency fluctuations have had a minor impact on the Company's results
of operations. Specifically, the Company has Swiss Franc contracts to purchase
watches at an agreed fixed cost and corresponding contracts with the General
Services Administration to sell those watches at a fixed price. For 1997, cur-
rency exchange rate fluctuations totaled $30,709 under anticipated costs of
$413,912. In addition, the Company has indirect exposure to the devaluation of
the Thai Baht. Although the Company conducts its sales to Thai distibutors in
U.S. Dollars, those Thai distributors are paid by their customers in the local
currency. As a result, the Company recorded in 1997 a $25,000 allowance for the
return of inventory from a distributor who was unable to pay for his merch-
andise.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7. Is presented on pages 15 through 35 of this
Form 10-KSB. The index to the Company's Financial Statements is set forth below:
Page(s)
Report of Independent Public Auditors 13
Consolidated Balance Sheets at December 31, 1997 14
Consolidated Statements of Operations for the
Years Ended December 31, 1997 and 1996 15
Consolidated Statements of Stockholder's Investment
for the Years Ended December 31, 1997 and 1996 16
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997 and 1996 17
Notes to Consolidated Financial Statments 18-33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Directors and Stockholders of
Stocker & Yale, Inc.:
We have audited the accompanying consolidated balance sheets of Stocker & Yale,
Inc. (a Massachusetts corporation) and subsidiaries as of December 31, 1997, and
the related consolidated statements of operations, stockholders' investment and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Stocker & Yale, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 26, 1998
(except for the matters discussed in Notes
6 and 11, for which the date is March 27, 1998)
<PAGE>
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
<S> (unaudited) (audited)
Current Assets: <C> <C>
Cash and cash equivalents $ 73,520 $ 1,244,418
Trade receivables, less reserves of approx.
$187,000 in 1997 and $166,000 in 1996 1,860,624 1,410,774
Prepaid income taxes 579,332 353,668
Inventories 4,957,095 3,701,019
Prepaid Expenses 117,354 131,478
_________ _________
Total current assets 7,587,925 6,841,357
Property, Plant and Equipment, Net 3,857,504 3,134,717
--------- ---------
Note Receivable 1,000,000 1,000,000
--------- ---------
Goodwill, Net of Accumulated Amortization 8,453,000 8,721,800
--------- ---------
Debt Issuance Costs, Net of Accumulated
Amortization 39,776 138,490
--------- ---------
Cash Value Life Insurance 52,546 -
_________ _________
$ 20,990,751 $ 19,836,364
LIABILITIES AND STOCKHOLDER'S INVESTMENT
<S>
Current Liabilities: <C> <C>
Current Portion of long-term debt $ 443,334 $ 357,569
Accounts Payable 1,858,936 1,373,121
Accrued Expenses 541,668 547,654
Short Term Lease Obligation 89,771 -
_________ _________
Total current liabilities 2,933,709 2,278,344
--------- ---------
Long Term Debt and Capital Lease Obligations 5,383,233 4,021,570
--------- ---------
Other Long Term Liabilities 564,688 564,688
--------- ---------
Deferred Income Taxes 876,904 1,012,685
_________ _________
Commitments and Contingencies
Stockholder's Investment: Common stock, par value $0.001
Authorized -- 10,000,000 shares at December
31, 1997 and 1996
Issued and outstanding -- 2,567,894 shares
at December 31, 1997 and 1996 2,568 2,568
Paid-in capital 10,822,705 10,822,705
Retained earnings 406,944 1,133,804
---------- ----------
Total stockholder's investment 11,232,217 11,959,077
---------- ----------
$ 20,990,751 $ 19,836,364
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996
<S> <C> <C>
Net Sales $ 11,162,026 $ 10,782,078
Cost of Sales 6,898,970 6,909,266
___________ ___________
Gross Profit 4,263,056 3,872,812
Selling Expenses 2,040,637 1,749,492
General and Administrative Expenses 2,140,403 2,073,101
Research and Development 725,539 424,637
___________ ___________
Operating Loss (643,523) (374,418)
Interest Expense (388,337) (546,770)
----------- -----------
Loss before income tax benefit (1,031,860) (921,188)
Income Tax Benefit (305,000) (277,892)
___________ ___________
Net Loss $ (726,860) $ (643,296)
=========== ===========
Loss Per Share $ (0.28) $ (0.34)
=========== ===========
Weighted-Average Common Shares 2,567,894 1,891,116
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Total
Common Stock Paid-in Retained Stockholders
Shares Amount Capital Earnings Investment
<S> <C> <C> <C> <C> <C>
Balance,
December 31 ,1995 1,712,914 $ 1,713 $6,845,685 $1,777,100 $8,624,498
Sale of Common Stock,
net of issuance cost 850,000 850 3,950,885 - 3,951,735
Issuance of Common
Stock to employees 4,980 5 26,135 - 26,140
Net loss - - - (643,296) (643,296)
---------- ------- ---------- ---------- ---------
BALANCE, DECEMBER 31,
1996 2,567,894 2,568 10,822,705 1,133,804 11,959,077
Net loss - - - (726,860) (726,860)
---------- ------- ----------- --------- -----------
BALANCE, DECEMBER 31,
1997 2,567,894 2,568 10,822,705 406,944 11,232,217
========== ======= =========== ========= ===========
The accompanying notes are an integral part
of these consolidated financial statements.
STOCKER & YALE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended
December 31
1997 1996
<S>
Cash Flows from Operating Activities: <C> <C>
Net loss $ (726,860) $ (643,296)
Adjustments to reconcile net loss to
net cash provided by operating
activities
Depreciation and amortization 676,258 781,664
Deferred income taxes (305,000) (232,300)
Other changes in assets and liabilities
Accounts receivable, net (449,850) 487,169
Inventories (1,256,076) 135,634
Prepaid expenses 14,124 27,535
Accounts payable 485,815 (154,347)
Accrued expenses (5,986) 72,518
Cash value of life insurance (52,546) 0
Accrued and refundable taxes 0 (265,918)
Issuance of common stock to employees 0 26,140
Other long-term liabilities (26,492) (119,791)
--------- ---------
Net cash (used in)/provided by operating (1,646,613) 115,008
activities --------- ---------
Cash Flows Used for Investing Activities:
Purchases of property, plant and equipment (882,540) (196,302)
--------- --------
Cash Flows from Financing Activities:
Net proceeds from sale of common stock 0 3,951,735
Payments of bank debt (227,466) (1,188,587)
Proceeds from bank debt and equipment loans 1,611,678 41,108
Proceeds from subordinated notes 0 1,350,000
Repayments of term loans and subordinated notes 0 (2,753,017)
Payments on capital lease (25,957) (58,560)
Deferred financing costs 0 (39,000)
-------- --------
Net cash provided by 1,358,255 1,303,679
financing activities -------- --------
Net Increase/(Decrease) in Cash and (1,170,898) 1,222,385
Cash Equivalents
Cash and Cash Equivalents, Beginning of Year 1,244,418 22,033
--------- --------
Cash and Cash Equivalents, End of Year $ 73,520 $1,244,418
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 426,409 $ 601,776
---------- ---------
Taxes paid $ 67,492 $ 241,691
---------- ---------
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Capital lease obligations incurred for new
equipment $ 153,008 $ 0
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND OPERATIONS
On June 14, 1989, Stocker & Yale, Inc. (the Company) was acquired by S&Y
Acquisition Corp., a privately held corporation. The Company was merged
with and into S&Y Acquisition Corp., with the Company being the surviving
corporation. S&Y Acquisition Corp. financed the acquisition through the
issuance of its common stock, borrowings under a revolving line of credit,
issuance of subordinated notes payable and cash of the Company.
The Company, incorporated in 1951, designs, manufactures, assembles and
markets a diversified line of products. In its Salem, New Hampshire, facility,
the Company manufactures a variety of optical and measuring instruments,
including microscope illuminators, magnifiers and machine vision lighting
systems, machine tool projectors and tool analyzers, land navigation
compasses and millitary-type mechanical watches. The Company sells its
compasses and watches to a wide variety of customers including the U.S.
Government. Under the MFE brand name, the Company manufactures a broad
range of oscillographic recorders and thermal printers. These products
are produced for both the original equipment manufacturer and end-user
markets and are used in diverse applications including medical, laboratory,
general industrial and commercial applications. In 1996, the Company
expanded its product line by marketing and developing fiber-optic lighting
products.
The Company's Stilson and Die-Draulics Divison manufactures a wide range of
machine tool components, material handling accessories and pressure control
systems at its facility in Fraser, Michigan. These products are sold to
the automotive, electronic, food, pharmaceutical and appliance industries.
Stocker & Yale Hong Kong Limited was formed in March 1995 as a 95%-owned
subisidiary of the Company. This entity was formed to facilitate distribution
of watches and compasses in Southeast Asia. The Company is presently in the
process of ceasing the operations of this subsidiary. The operations of this
entity are consolidated into the accompanying consolidated financial statements.
Radiant Asiatec Pte. Ltd. (Radiant) was established in December 1997 as an
80% owned Singapore-based distribution company. When fully operational,
Radiant will sell industrial microscopes, imaging application software,
production accessories and lighting systems manufactured by the Company.
The operations of this entity are consolidated into the accompanying
consolidated financial statements.
<PAGE>
STOCKER & YALE, INC. AND SUBIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of
the financial statements and the reported amounts of income and expenses
during the reporting periods. Operating results in the future could vary
from the amounts derived from management's estimates and assumptions.
Accounting for Long-Lived Assets
The Company periodically assesses the realizability of its long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121
(SFAS No. 121), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of. Based on its review, the Company does
not believe that any material impairment of its long-lived assets has
occurred.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subisidiaries, Stocker & Yale Foreign Sales Corp., Stocker
& Yale Hong Kong Limited and Radiant Asiatech Pte. Ltd. All significant
intercompany balances and transactions have been eliminated.
Revenue Recognition
The Company recognizes revenue as products are shipped.
Property, Plant and Equipment
The Company provides for depreciation on a straight-line basis by charges to ex-
pense in amounts estimated to amortize the costs of property, plant and equip-
ment over their estimated useful lives. Rates used to compute depreciation are
based on the following estimated useful lives:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
Building and building improvements 10 to 40 years
Machinery and Equipment 5 to 10 years
Furniture and fixtures 3 to 10 years
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANICAL STATEMENTS
DECEMBER 31, 1997
(Continued)
Property, plant and equipment, net, consist of the following:
------------December 31, 1997--------
Accumulated Net Book
Cost Depreciation Value
Land $ 446,300 $ - $ 446,300
Building and building improvements 2,670,191 379,879 2,290,312
Machinery and equipment 4,676,554 4,031,048 645,506
Furniture and fixtures 974,283 498,897 475,386
----------- ----------- -----------
$ 8,767,328 $ 4,909,824 $ 3,857,504
=========== =========== ===========
------------December 31, 1996--------
Accumulated Net Book
Cost Depreciation Value
Land $ 446,300 $ - $ 446,300
Building and building improvements 2,469,609 371,203 2,098,406
Machinery and equipment 4,140,402 3,835,242 305,160
Furniture and fixtures 828,477 543,626 284,851
----------- ----------- -----------
$ 7,884,788 $ 4,750,071 $ 3,134,717
=========== =========== ===========
Total depreciation of property, plant and equipment amounted to approximately
$312,449 and $424,000 for the periods ended December 31, 1997 and 1996, respec-
tively.
Goodwill and Debt Issuance Costs
The 1989 acquisition of Stocker & Yale, Inc. by S & Y Acquisition Corp. resulted
in $10,749,000 of goodwill, which is being amortized over 40 years.
Intangibles consist of the following:
------------December 31, 1997------------
Accumulated Net Book
Cost Amortization Value
Goodwill $ 10,749,000 $ 2,296,000 $ 8,453,000
Debt issuance costs 316,053 276,277 39,776
------------December 31, 1996------------
Accumulated Net Book
Goodwill $ 10,749,000 $ 2,027,200 $ 8,721,800
Debt issuance costs 316,053 177,563 138,490
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
Amortization of goodwill was approximately $268,800 for the year ended
December 31, 1997 and approximately $284,000 for the year ended December 31,
1996.
The Company evaluates the net realizable value of intangible assets on an on-
going basis relying on a number of factors including operating results,
business plans, budgets and economic projections. In addition, the Company's
evaluation considers nonfinancial data such as market trends, product
development cycles and changes in management's market emphasis. When an
impairment in the carrying value has occurred, it is the Company's policy to
reduce the carrying amount of the impaired asset to its fair market value.
Financing costs related to certain loans have been capitalized and are being
amortized over the life of the related loans. Amortization expense related to
financing cost was approximately $98,714 and $70,000 for the years ended
December 31, 1997 and 1996, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method the Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax basis
of the assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market and include materials, labor and overhead.
Earnings Per Share
In 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per Share.
This statement was issued by the FASB in March 1997 and establishes the stan-
dards for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock. This state-
ment replaces the presentation of primary EPS with a presentation of basis EPS.
It also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerators and denominators for the basic and diluted EPS
computations for all prior-period EPS data presented. The Company has reported a
net loss for the years ended December 31, 1997 and 1996. Accordingly, all
options and warrants have been excluded from diluted earnings per share as they
would be antidilutive.
All share amounts and per share amounts in the accompanying consolidated finan-
cial statements have been adjusted to reflect the 1-to-5 reverse stock split,
which occurred on December 28, 1995.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
Cash and Cash Equivalents and Financial Instruments
For purposes of the consolidated statements of cash flows, cash and cash equiva-
lents consist of highly liquid investments with original maturities of three
months or less.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. The risk is limited due to
the relatively large number of customers composing the Company's customer base
and their dispersion across many industries and geographic areas within the
United States, Europe and Asia.
Fair Values of Financial Instruments
The Comapny's financial instruments consist mainly of cash and cash equivalents,
accounts receivable, current maturities of long-term debt, accounts payable and
long-term debt. The estimated fair value of these financial instruments approxi-
mates their carrying value as of December 31, 1997.
Reclassification
Certain amounts reported for prior periods have been reclassified to be consis-
tent with the current period presentation.
(3) INCOME TAXES
The components of the income tax (benefit) are as follows:
For the Years Ended
December, 31
1997 1996
Current-
Federal $ - $ -
State - -
------------ ------------
- -
____________ ____________
Deferred-
Federal (234,850) (216,345)
State (70,150) (61,547)
------------ ------------
(305,000) (277,892)
------------ ------------
$ (305,000) $ (277,892)
============ ============
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
The following is a reconciliation of the federal income tax (benefit) calculated
at the statutory rate of 34% to the recorded amount:
For the Years
Ended December 31,
1997 1996
Applicable statutory federal income tax
benefit $ (350,834) $ (313,204)
State income taxes, net of federal
income tax benefit (64,698) (55,271)
Goodwill amortization 91,392 96,560
Other, net 19,140 (5,977)
----------- -----------
$ (305,000) $ (277,892)
=========== ===========
The significant items composing the deferred tax asset and liability at
December 31, 1997 and 1996 are as follows:
1997 1996
Current Long-Term Current Long-Term
Assets
Reserves not currently
deductible $ 240,772 $ - $ 252,548 $ -
Other 338,560 - 101,120 -
--------- ----------- --------- -------
Total assets 579,332 - 353,668 -
--------- ----------- --------- --------
Liabilities-
Accelerated depreciation and
property-basis differences - (672,602) - (746,217)
Note receivable - (402,700) - (402,700)
Other - 198,398 - 136,232
--------- ----------- --------- ---------
Total liabilities - (876,904) - (1,012,685)
--------- ----------- --------- -----------
Net assets (liabilities) $ 579,332 $ (876,904) $ 353,668$(1,012,685)
========= =========== ========= ============
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(4) Inventories
Inventories are as follows:
December 31,
1997 1996
Finished goods $ 435,201 $ 895,672
Work-in-process 431,142 398,433
Raw materials 4,090,752 2,406,914
----------- -----------
$ 4,957,095 $ 3,701,019
=========== ===========
(5) NOTE RECEIVABLE
On September 5, 1995, the Company sold its manufacturing facility in Beverly,
Massachusetts, for $1.2 million in cash and a note receivable of $1 million from
the buyer. The note bears interest at 6.32%, payable monthly in arrears. The
terms of the note require interest-only payments for the first five years, with
monthly principal and interest payments of $19,482 commencing October 1, 2000
through maturity on September 1, 2005. The note is secured by a letter of credit
with a bank.
(6) LONG-TERM DEBT
As of December 31, 1997 and 1996, debt consisted of the following:
December 31,
1997 1996
Revolving line of credit, maturing March 31, 1998,
payable to a bank, with an interest rate at the
bank's prime lending rate plus 1/2% at December
31, 1997 (9.00%) $ 1,307,053 $ -
Revolving line of credit, maturing April 1998,
payable to a Hong Kong bank, with an interest
rate at the bank's prime lending rate as defined
(8.50%) at December 31, 1997 202,121 124,799
Mortgage note payable, maturing August 29, 2011,
payable to a bank, with an interest rate of 9.25%
as of December 31, 1997 1,434,395 1,484,446
Term loan, maturing on March 1, 2000, payable to
a bank, with an interest rate of prime plus 1/2%
(9.00%) at December 31, 1997 1,175,945 1,336,986
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
Convertible subordinated notes payable, maturing
on May 1, 2001, interest payable quarterly in
arrears at 7.25% 1,350,000 1,350,000
Equipment loan, maturing October 17, 2000,
payable to a bank, with an interest rate at 8.80% 66,534 82,908
Auto loan, maturing February 2002, payable to a
bank, with an interest rate at 8.50% 17,524 -
Equipment capital lease obligation, maturing
August 31, 2000, with an interest rate at 7.81% 153,008 -
Equipment lease line of credit, maturing on
October 31, 2002, payable to a bank, with an
interest rate of prime plus 3/4% (9.25%) at
December 31, 1997 209,759 -
---------- ---------
Less--Current portion of long term debt 533,106 357,569
---------- ---------
$ 5,383,233 $ 4,021,570
---------- -----------
---------- -----------
The revolving line of credit has a maximum credit limit of the lessor of
$4,000,000 or a borrowing base as defined in the Credit Agreement, which
is composed of the Company's eligible accounts receivable and inventory.
The line has a floating interest rate of 1/2% above the bank's prime
lending rate.
The Company has a five-year term loan with the same bank, with an original
principal amount of $2,767,000. The monthly principal payments on this
note are $13,420. The loan has a floating interest rate of 1/2% above the
bank's prime lending rate. The loan matures on March 1,2000, at which
time all unpaid interest and principal amounts are due in full.
The revolving line of credit and the term loan discussed above require the
Company to comply with several affirmative and negative covenants, including
certain fiancial tests and ratios such as debt service coverage, net income
requirements and other items. The loans are collateralized by substantially
all of the Company's assets and a personal guaranty, to the extent of
$1,000,000 by the Chairman of the Board.
In exchange for the personal guarantees discussed above, the Chairman of
the Board received 5% of the face amount of the guarantees in common
stock of the Company, which amounted to $112,500. This amount is included
in debt acquisition costs and is being amortized over the lives of the
respective loan and note agreements.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
On September 5, 1995, the Company sold its manufacturing facility in Beverly,
Massachusetts, and purchased a manufacturing facility in Salem, New Hampshire.
In conjunction with this purchase, the Company issued a one-year $1,500,000
mortgage note payable to the buyer of its Beverly, Massachusetts facility
in exchange for $1,500,000 in cash, which was utilized to purchase the Salem
facility. This mortgage note payable was paid in full in August 1996 with
proceeds from a new 15 year mortgage note payable to a bank for $1,500,000.
The interest rate on the note is fixed at 9.25% until August 29, 1999.
Thereafter, the interest rate shall be calculated by the bank on an annual
basis, at the Bank's prime rate, as defined, plus one percent (1.00%). The
note is secured by the property.
In May 1996, the Company paid in full the holders of $1,000,000 in subordinated
notes payable with proceeds from the issuance of $1,350,000 in convertible sub-
ordinated notes payable. These new notes pay interest quarterly in arrears at
7.25% and mature on May 1, 2001. At the option of the holders, the principal
portion of the notes is convertible into shares of the Company's common stock at
a conversion rate of $7.38 per share. These notes are subordinated to the
Company's revolving line of credit and five-year term loan.
As of December 31, 1997, the Company was not in compliance with certain finan-
cial covenants set forth in the Credit Agreement of it's revolving line of
credit and five-year term loan, as amended. On March 5, 1998, the Company ob-
tained a waiver for these events of noncomplaince. This waiver is effective for
the period ended December 31, 1997.
On March 27, 1998, the Company entered into an agreement to extend the maturity
dates of its revolving line of credit and term loan to January 2, 1999. Under
the terms of the extension, the revolving line of credit's maximum credit limit
decreased from $4.0 million to the lesser of $2.5 million or a borrowing base as
defined in the Amended Credit Agreement. Also, both the term loan and the
revolving line of credit will bear interest at a rate equal to the Bank's base
rate plus 1% through June 30, 1998, after which the rate will increase to the
Bank's base rate plus 2%. The Company will pay quarterly extension fees of
$10,000 on March 31, 1998 and $20,000 on June 30, 1998, and monthly extension
fees of $7,000 payable on the last day of July, August and September, and
$10,000 payable on the last day of October, November and December. The Amended
Credit Agreement deletes the minimum debt service covenant and requires the
Company to report a pretax profit in the month of March 1998, and for each of
the subsequent quarters in fiscal year 1998.
(7) STOCKHOLDERS' INVESTMENT
On September 17, 1996, the Company amended and restated their articles of incor-
poration, whereby common stock authorized for issuance increased from 2,400,000
shares to 10,000,000 shares.
In October 1996, the Company completed a secondary public offering. A total of
850,000 shares of the Company's common stock was sold for $3,951,735, net of
issuance costs.
(8) EMPLOYEE BENEFITS AND STOCK OPTIONS
The Company has two noncontributory defined benefit pension plans that cover a
majority of Company employees. The accrued benefit is determined based on
credited service as of the employee's retirement date. Employees become fully
vested after five years.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
The Company froze the benefits of the defined benefit pension plan during August
1993. The Company will report a curtailment gain in accordance with SFAS No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, after all benefit payments are made;
the Company does not believe that the curtailment gain will have a material
impact on the financial position or operations of the Company.
The following table sets forth the plans' funded status and amounts recognized
in the Company's consolidated balance sheets:
December 31,
1997 1996
Actuarial present value of benefit obligations
Accumulated benefit obligation, including
vesting benefits of $440,931 in 1997 and
$407,825 in 1996 $ (456,444) $ (425,760)
=========== ===========
Projected benefit obligation for service
rendered to date $ (456,444) $ (425,760)
Plan assets at fair value, guaranteed
investment contract with an insurance
company 775,505 678,377
Unrecognized net gain (297,597) (217,733)
Unrecognized net (assets) liabilities 13,365 (45,727)
----------- -----------
Prepaid (accrued) pension cost $ 34,829 $ (10,843)
=========== ===========
Net periodic pension cost (income) includes the following components:
For the Years Ended
December 31,
1997 1996
Service cost-income earned during
the period $ - $ -
Interest cost on projected benefit
obligation 29,861 27,853
Return on plan assets (57,445) (50,250)
Amortization (18,087) (13,224)
---------- ----------
Net periodic pension income $ (45,671) $ (35,621)
========== ==========
The weighted average discount rate and rate of increase in future compensation
used in determining the actuarial present value of the projected benefit obli-
gation was 7% in 1997 and 1996. The expected long-term rate of return on assets
was 8% in 1997 and 1996.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
On January 17, 1994, the Company established the Stocker & Yale 401(k) Plan (the
Plan). Under the Plan employees are allowed to make pretax retirement contri-
butions. In addition, the Company may make matching contributions, not to ex-
ceed 100% of the employee contributions, and profit sharing contributions at its
discretion. The Company made no such contributions for the plan years ended
December 31, 1997 and 1996. The Company incurred costs of $5,169 and $3,661 in
1997 and 1996, respectively, to administer the Plan.
During 1994, the Company adopted a stock option plan (the Option Plan) for the
purpose of issuing both Incentive Options and Nonqualified Options to officers,
employees and directors of the Company. Options may be granted under the Option
Plan on such terms and at such prices as determined by the Board of Directors,
except that the options cannot be granted at less than 100%, or in certain cir-
cumstances not less than 110%, of the fair market value of the common stock on
the date of the grant. Each option will be exercisable after the period or
periods specified in the option agreement, but no option may be exercised after
the expiration of 10 years from the date of grant.
In March 1996, the Company adopted the 1996 Stock Option and Incentive Plan (the
Option Plan) for the purpose of issuing both Incentive Options and Nonqualified
Options to officers, employees and directors of the Company. A total of 150,000
shares of common stock were reserved for issuance under this plan. In December
1996, the Company awarded 4,980 shares of common stock to employees through the
1996 Stock Option Plan. Accordingly, the Company has recognized approximately
$26,000 in compensation expense in the accompanying financial statements.
Options may be granted under the Option Plan on such terms and at such prices
as determined by the Board of Directors, except that the options cannot be
granted at less than 100%, or in certain circumstances not less than 110%, of
the fair market value of the common stock on the date of the grant. Each option
will be exercisable after the period or periods specified in the option agree-
ment, but no option may be exercised after the expiration of 10 years from the
date of the grant.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FIANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
The following is a summary of the activity for the 1996 and 1994
Stock Option Plans:
Number of Weighted
Shares Price Range Average Price
Outstanding at December 31, 1995 134,440 $ 3.70-$ 7.25 $ 6.23
Granted 70,000 $ 5.25-$ 6.00 $ 5.99
Lapsed (1,000) $ 4.55 $ 4.55
-------- ------------- -------
Outstanding at December 31, 1996 203,440 $ 3.70-$ 7.25 $ 6.14
======== ============= =======
Exercisable at December 31, 1996 84,440 $ 7.25 $ 7.25
======== ============= =======
Granted 61,600 $ 4.50-$ 5.38 $ 5.27
-------- ------------- -------
Outstanding at December 31, 1997 265,040 $ 3.70-$ 7.25 $ 5.97
======== ============= =======
Exercisable at December 31, 1997 123,040 $ 3.70-$ 7.25 $ 6.36
======== ============= =======
Weighted average option price for all options $ 5.88
======
In addition to the options listed above, as of December 31, 1997, there are
44,000 options outstanding to nonemployees to purchase shares of the Company's
common stock at prices ranging from $4.30-$7.25 per share. These options were
issued in 1994 and 1995 and expire beginning on August 26, 1998.
During 1995, the FInancial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which defines a fair value based
method of accounting for an employee stock option or similar equity intrument
and encourages all entities to adopt that method of accounting for all of ther
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation costs for those plans using the method of accounting
prescribed by APB Opinion 25. Entities electing to remain with the accounting in
APB Opinion 25 must make pro forma disclosures of net income and, if presented,
earnings per share as if the fair value based method of accounting defined in
SFAS No. 123 has been applied.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
The Company elected to account for its stock-based compensation plan under
APB 25. However, the Company has computed, for pro-forma disclosure purposes,
the value of all options granted during 1996 and 1997 using the Black-Scholes
option pricing model as prescribed by SFAS No. 123, using the following
weighted-average assumptions for grants in 1997 and 1996:
1997 1996
Risk-free interest rate 5.87%-6.9% 6.08%-7.91%
Expected dividend yield - -
Expected life 10 years 10 years
Expected volatility 32.29% 50.10%
The total value of options granted during 1996 and 1997 would be amortized on a
pro forma basis over the vesting period of the options. Options generally vest
equally over two years. Because the SFAS No. 123 method of accounting has not
been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation costs may not be representative of that to be expected in
future years. If the Company had accounted for these plans in accordance with
SFAS No. 123, the Company's net loss and net loss per share, would have
increased as reflected in the following pro forma amounts:
Year Ended December 31,
1997 1996
Net loss-
As reported $ (726,860) $ (643,296)
Pro forma (1,057,884) (808,071)
Net loss per share-
As reported (.28) (.34)
Pro forma (.41) (.43)
Set forth below is a summary of options granted in 1997 and 1996:
__________Options Outstanding_______ __Options Exercisable__
Weighted
Oustanding Average Weighted Per Weighted
Shares at Remaining Average Share Average
Exercise December 31, Contractual Exercise Fair Exercisable Exercise
Price Range 1997 Life (Years) Price Value Options Price
1996 $5.25-$6.00 $79,000 9 years 5.89 4.16 - -
1997 $4.50-$5.38 $72,000 10 years 5.28 3.96 - -
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(9) COMMITMENTS AND CONTINGENCIES
Total rent expense for operating leases charged to operations for the periods
ended December 31, 1997 and 1996 was $17,862 and $20,100, respectively.
Minimum commitments under leases in effect at December 31, 1997 are as follows:
Operating
Year Leases
1998 $ 17,888
1999 15,903
2000 3,981
Thereafter -
-------
Total minimum lease payments 37,772
-------
-------
In December 1997, the Company began exclusive negotiations to acquire
Lasiris, a Canadian company that manufactures and distributes Laser Lighting
products. The acquisition is subject to the successful completion of
negotiation and other numerous conditions and provisions, and there is no
guarantee that the acquisition will be consummated.
(10) SEGMENTED INFORMATION
The Company's operations were conducted primarily within the following industry
segments for the fiscal years ended December 31, 1997 and 1996:
------------December 31, 1997----------------------
Measuring Machine
and Components
Inspection and
Instruments Accessories Total
Net sales $ 7,213,876 $ 3,948,150 $ 11,162,026
Operating income (loss) (325,314) (318,209) (643,523)
Capital expenditures 751,293 282,763 1,034,056
Depreciation expense 133,013 179,436 312,449
Amortization expense 220,508 147,006 367,514
Fixed assets, net 2,707,700 1,149,804 3,857,504
Total identifiable assets 19,666,636 1,324,115 20,990,751
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
------------December 31, 1996---------------------
Measuring Machine
and Components
Inspection and
Instruments Accessories Total
Net sales $ 6,694,860 $ 4,087,218 $ 10,782,078
Operating income (loss) (383,751) 9,333 (374,418)
Capital expenditures 172,876 8,249 181,125
Depreciation expense 224,871 204,514 429,385
Amortization expense 211,367 140,911 352,278
Fixed assets, net 2,188,748 945,969 3,134,717
Total identifiable assets 18,284,051 1,552,313 19,836,364
Sales to unaffiliated customers in foreign countries represented approximately
17% and 11% of net sales for fiscal 1997 and 1996, respectively. The Company's
export sales are denominated in U.S. dollars.
<PAGE>
STOCKER & YALE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
On March 16, 1998, the Company entered into an agreement to acquire Lasiris, a
Canadian company that manufactures and distributes lasers and related products
for the machine vision industry. The purchase price is approximately $5.3
million and will be paid in cash and common stock of the Company.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
Information pertaining to directors and executive officers of the Company is set
forth under "Election of Directors" in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 6, 1997 (the "Proxy State-
ment"), and is incorporated herein by reference.
The information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 by the directors, executive officers and beneficial owners
of more than 10% of the Company's Common Stock required by this item is set
forth under "Compliance with Section 16(a) of the Exchange Act" in the Company's
Proxy Statement and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
Information pertaining to executive compensation is set forth under "Compen-
sation of Executive Officers and Directors" in the Company's Proxy Statement and
is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information pertaining to security ownership of management and certain bene-
ficial owners of Company Common Stock is set forth under "Voting Securities and
Principal Holders Thereof" in the Company's Proxy Statement and is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information pertaining to certain relationships and related transactions is set
forth under "Certain Relationships and Related Transactions" in the Company's
Proxy Statement and is incorporated herein by reference.
<PAGE>
ITEM 13. EXHIBITS, LISTS, AND REPORTS ON FORM 8-K
(a) The following is a complete list of Exhibits filed as part of this
Form 10-KSB.
Exhibit
Number Description
- ------- -----------
3.1 Amended and Restated Articles of Organization of the
Registrant, incorporated by reference to Exhibit 3.1 of
Stocker & Yale's Form SB-2, Amendment No. 1, filed
October 11, 1996.
3.2 Amended and Restated Bylaws of the Registrant, incorporated
by reference to Exhibit 3.2 of Stocker & Yale's Form 10-SB,
as amended, filed on November 2, 1995.
4.1 Escrow Agreement by and among the Registrant and the parties
named therein, incorporated by reference to Exhibit 4.1 of
Stocker & Yale's Form 10-SB, as amended, filed on November 2,
1995.
4.2 Subordinated Note & Warrant Purchase Agreements, incorporated
by reference to Exhibit 10.7 of Stocker & Yale's Form 10-SB,
as amended, filed on November 2, 1995.
10.1 (a) Credit Agreement, dated as of March 6, 1995, by and between
the Company and Shawmut Bank, N.A., incorporated by reference
to Exhibit 10.1 (a) of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.1 (b) Waiver and Amendment No. 1 to the Credit Agreement, dated as
of August 16, 1995, incorporated by reference to Exhibit
10.1 (b) of Stocker & Yale's Form 10-SB, as amended, filed on
November 2, 1995.
10.1 (c) Consent under, and Second Amendment, to the Credit Agreement
and Amendment to Term Note, dated as of August 25, 1995,
incorporated by reference to Exhibit 10.1 (c) of Stocker &
Yale's Form 10-SB, as amended, filed on November 2, 1995.
10.1 (d) Waiver and Amendment No. 3 to the Credit Agreement, dated as
of March 15, 1996, incorporated by reference to Exhibit 10.14
of Stocker & Yale's Form 10-KSB for the fiscal year ended
December 31, 1995.
10.1 (e) Waiver of certain provisions of the Credit Agreement dated
May 24, 1996, incorporated by reference to Exhibit 10.1 of
Stocker & Yale's Form 10-QSB for the period ended June 30,
1996.
<PAGE>
10.1 (f) Waiver of certain provisions of the Credit Agreement dated
July 31, 1996, incorporated by reference to Exhibit 10.2 of
Stocker & Yale's Form 10-QSB for the period ended June 30,
1996.
10.1 (g) Amendment No. 4 to the Credit Agreement, dated August 13,
1996, for the fiscal year ending December 31, 1996, incorpo-
rated by reference to Exhibit 10.3 of Stocker & Yale's Form
10-QSB for the period ending June 30, 1996.
10.1 (h) Waiver and Amendment No. 5 to the Credit Agreement, dated
March 14, 1997, for the year ending December 31, 1996, incor-
porated by reference to Exhibit 10.1(h) of Stocker & Yale's
Form 10-KSB for the fiscal year ended December 31, 1996.
10.1 (i) Waiver and Amendment of the Credit Agreement, dated November
12, 1997, for the period ending September 30, 1997, incorpo-
rated by reference to Exhibit 27.2 of Stocker & Yale's Form
10-QSB for the period ending September 30, 1997.
* 10.1 (j) Commitment Letter, dated March 30, 1998, by and between
Stocker & Yale and Fleet National Bank, relating to amending
certain terms of the Credit Agreement.
10.2 Security Agreement, dated March 6, 1995, by and between the
Company and Shawmut Bank, N.A., incorporated by reference to
Exhibit 10.2 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
10.3 Mortgage (Michigan), incorporated by reference to Exhibit
10.3 of Stocker & Yale's Form 10-SB, as amended, filed on
November 2, 1995.
10.4 Promissory Note, due September 1, 1996, issued by the Company
to Beverly Hospital Corporation, incorporated by reference to
Exhibit 10.4 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
10.5 Mortgage (New Hampshire), incorporated by reference to
Exhibit 10.5 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
10.6 Purchase and Sale Agreement, dated as of August 28, 1995, by
and between the Company and John Hancock Mutual Life
Insurance Company, incorporated by reference to Exhibit 10.6
of Stocker & Yale's Form 10-SB, as amended, filed on November
2, 1995.
10.7 Form of Convertible Subordinated Note Purchase Agreement by
and between the Company and the Purchasers named therein,
incorporated by reference to Exhibit 4.1 of Stocker & Yale's
Form 10-QSB for the period ended March 31, 1996.
<PAGE>
10.8 (a) Amended and Restated 1994 Stock Option Plan, incorporated by
reference to Exhibit 10.8(a) of Stocker & Yale's Form 10-SB,
as amended, filed on November 2, 1995.
10.8 (b) Form of Incentive Option Agreement for employees under the
Amended and Restated 1994 Stock Option Plan, incorporated by
reference to Exhibit 10.8(b) of Stocker & Yale's Form 10-SB,
as amended, filed on November 2, 1995.
10.8 (c) Form of Nonqualified Option Agreement for employees under the
Amended and Restated 1994 Stock Option Plan, incorporated by
reference to Exhibit 10.8(c) of Stocker & Yale's Form 10-SB,
as amended, filed on November 2, 1995.
10.8 (d) Form of Nonqualified Option Agreement for Outside Directors
under the Amended and Restated 1994 Stock Option Plan, incor-
porated by reference to Exhibit 10.8(d) of Stocker & Yale's
Form 10-SB, as amended, filed on November 2, 1995.
10.9 Form of Option Agreement for Outside Directors outside the
Amended and Restated 1994 Stock Option Plan, incorporated by
reference to Exhibit 10.9 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.10 1995 Senior Management Profit Sharing Plan, incorporated by
reference to Exhibit 10.10 of Stocker & Yale's Form 10-SB, as
amended, filed on November 2, 1995.
10.11 1994 Employee Stock Bonus Plan, incorporated by reference to
Exhibit 10.11 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
10.12 1995 Employee Stock Bonus Plan, incorporated by reference to
Exhibit 10.12 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
10.13 (a) 1996 Stock Option and Incentive Plan, incorporated by ref-
erence to Exhibit A of Stocker & Yale's Proxy Statement for
the 1996 Annual Meeting of Stockholders, filed on April 3,
1996.
10.13 (b) Form of Incentive Option Agreement for employees under the
1996 Stock Option and Incentive Plan, incorporated by ref-
erence to Exhibit 10.13(b) of Stocker & Yale's Form 10-KSB,
for the fiscal year ended December 31, 1995.
10.13 (c) Form of Nonqualified Option Agreement for employees under the
Restated 1995 Stock Option Plan, incorporated by reference to
Exhibit 10.13(d) of Stocker & Yale's Form 10-FSB, for the
fiscal year ended December 31, 1995.
<PAGE>
10.14 (a) Promissory Note, due August 29, 2011, issued by the Company
to Primary Bank.
10.14 (b) Mortgage Deed and Security Agreement, dated August 29, 1996,
granted by the Company to Primary Bank.
10.14 (c) Collateral Assignment of Leases and Rents, dated August 29,
1996, granted by the Company to Primary Bank.
21.1 Subsidiaries of the Company, incorporated by reference to
Exhibit 21.1 of Stocker & Yale's Form 10-SB, as amended,
filed on November 2, 1995.
_______________________________
* Filed herewith
(b) Reports on Form 8-K
There were no reports filed on Form 8-K
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf, thereunto duly authorized.
STOCKER & YALE, INC.
Date: March 30, 1998 By: /s/Mark W. Blodgett
-------------- ---------------------
Mark W. Blodgett, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the Registrant
and in the capacities and on the date set forth above.
Signature Title Date
----------- ------------ ----
/s/ Mark W. Blodgett Chairman of the Board March 30, 1998
--------------------- of Directors and Chief
Mark W. Blodgett Executive Officer
/s/ James Bickman President and Director March 30, 1998
---------------------
James Bickman
/s/ Alex W. Blodgett Director March 30, 1998
----------------------
Alex W. Blodgett
/s/ Clifford Abbey Director March 30, 1998
----------------------
Clifford Abbey
/s/ Steven E. Karol Director March 30, 1998
----------------------
Steven E. Karol
/s/ John M. Nelson Director March 30, 1998
----------------------
John M. Nelson
/s/ Susan H. Sundell Senior Vice President-Finance March 30, 1998
----------------------- and Treasurer
Susan H. Sundell
[TYPE] EX-10.1
[DESCRIPTION] Mortgage Deed and Security Agreement
Exhibit 10.1(j)
[Letterhead of Fleet Bank]
COMMITMENT LETTER
March 30, 1998
Mr. Mark W. Blodgett
Chairman and Chief Executive Officer
Stocker & Yale, Inc.
32 Hampshire Road
Salem, NH 03079
Dear Mr. Blodgett:
Fleet National Bank ("Fleet") agrees to extend its existing revolving credit
facility and modify the existing term loan (the "Credit Accomodations") to
Stocker & Yale, Inc. ("S&Y") under the following terms and conditions:
Amount: Reduced to $2,500,000.
Maturity Date: January 2, 1999
Advance Rates: The advance rate for eligible inventory will be reduced
to 32 percent.
Inventory Cap: Availability derived from eligible inventory will be
capped at $1,300,000.
Pricing: The revolving credit facility and the existing term loan
facility will bear interest at Fleet's Prime rate plus
one (1) percent through June 30, 1998 and at Fleet's
Prime rate plus two (2) percent from July 1, 1998
through the maturity date.
Personal Guarantor: Mark Blodgett limited to $1.0 million. This guarantee
will be secured by a pledge of 228,000 shares of S&Y
common stock. Further, a personal financial statement
acceptable to Fleet on Fleet's standard form of personal
financial statement must be received by close of business
March 31, 1998.
<PAGE>
Covenants: The Minimum Debt Service Coverage Ratio will deleted. A
minimum pretax profit covenant will be established. This
covenant will require a monthly pretax profit for March
and quarterly pretax profits for each quarter ending June
30, September 30, and December 31. Additionally, S&Y must
not incur a pretax loss greater there $50,000 for any
month beginning with April. Capital expenditures in fiscal
year 1998 will not exceed $500,000.
Appraisals: S&Y agrees to pay for real estate as well as machinery and
equipment appraisals at Fleet's request.
Fees: In addition to all other amounts due respecting the Credit
Accomodations, S&Y agrees to pay Fleet the following:
$10,000 due and payable March 31, 1998
$20,000 due and payable June 30, 1998
$7,000 due and payable July 31, 1998
$7,000 due and payable August 31, 1998
$7,000 due and payable September 30, 1998
$10,000 due and payable October 31, 1998
$10,000 due and payable November 30, 1998
$10,000 due and payable December 31, 1998
Documentation: All closing documents for the Credit Accomodations shall
be consistent with this letter and shall contain such
other terms and conditions as are customarily required by
Fleet in transactions of this nature, and may be required
by counsel to Fleet.
Legal Opinions: Prior to closing, there shall be delivered to Fleet the
opinion of S&Y's counsel that, without limitation: (1) all
loan documents, as affected by all modification documents
executed pursuant to the terms of this letter, have been
validly authorized and executed by and on behalf of S&Y
and the guarantors, if any; (2) all loan documents, as
affected by all modification documents executed pursuant
to the terms of this letter, are enforceable in accordance
with their terms and do not violate any legal require-
ments; and (3) Fleet has a perfected security interest in
all collateral granted to Fleet by S&Y and any guarantor
of the Credit Accomodations.
Representations: All representations made by S&Y to Fleet in connection
with the Credit Accomodations shall be deemed to be
material and relied upon by the Fleet in issuing this
letter and shall survive the closing.
Expenses: Whether or not the Credit Accomodations are closed, all
costs and expenses incurred by the Fleet, including but
not limited to attorneys' fees and any and all other
expenses in connection with the Credit Accomodations shall
be paid by S&Y. Such expenses shall be in addition to, and
shall not be offset against, any other fee due and owing
to the Fleet.
<PAGE>
Naturally, this letter does not include all the terms and conditions that will
be covered in Fleet's legal documentation for the Credit Accomodations, but they
do state the essential business terms of Fleet's commitment. These terms have
been proposed in reliance on the financial statements, projections, and other
information provided by S&Y and any guarantor to Fleet, and are therefore con-
ditional upon there being no material adverse change in the S&Y's (or any
guarantor's) financial condition or any adverse change, governmental or judicial
action concerning S&Y's business or assets, and is also subject to the execution
of documentation that is satisfactory to the Fleet and its counsel, which shall
include additional terms and conditions, including without limitation
additional reporting requirements.
If you have any questions or comments on the terms of this proposal, please do
not hesitate to call me. If the foregoing terms and conditions are acceptable to
you, please acknowledge below and return a signed counterpart to this letter on
or before March 31, 1998.
FLEET NATIONAL BANK
By: /s/H. Ellery Perkinson
-----------------------------
H. Ellery Perkinson,
Assistant Vice President
Agreed and Accepted:
STOCKER & YALE, INC.
By: /s/Mark W. Blodgett
----------------------
Mark W. Blodgett,
Chairman & CEO
/s/Mark W. Blodgett
---------------------
Mark W. Blodgett as
Personal Guarantor
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AND FOOTNOTES THERETO, FOR THE TWELVE
MONTH PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CAPTION>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 73,520
<SECURITIES> 0
<RECEIVABLES> 1,860,624
<ALLOWANCES> 0
<INVENTORY> 4,957,095
<CURRENT-ASSETS> 7,587,925
<PP&E> 3,857,504
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,990,751
<CURRENT-LIABILITIES> 2,933,709
<BONDS> 0
0
0
<COMMON> 2,568
<OTHER-SE> 11,229,649
<TOTAL-LIABILITY-AND-EQUITY> 20,990,751
<SALES> 11,162,026
<TOTAL-REVENUES> 11,162,026
<CGS> 6,898,970
<TOTAL-COSTS> 4,906,579
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 388,337
<INCOME-PRETAX> (1,031,860)
<INCOME-TAX> (305,000)
<INCOME-CONTINUING> (726,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (726,860)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
