-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KejArWFWc2UUUayqWKHPqBF0KMRxk4AxykoAN30WbwOmLeU/vgr6byrOVoiJZVpn VOVGCkaGeqvvzg6q59XRfQ== 0001005477-99-005301.txt : 19991117 0001005477-99-005301.hdr.sgml : 19991117 ACCESSION NUMBER: 0001005477-99-005301 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STOCKER & YALE INC CENTRAL INDEX KEY: 0000094538 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 042114473 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27372 FILM NUMBER: 99754139 BUSINESS ADDRESS: STREET 1: 32 HAMPSHIRE ROAD CITY: SALEM STATE: NH ZIP: 03079 BUSINESS PHONE: 6038938778 10QSB 1 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - -------------------------------------------------------------------------------- FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 Commission file number 0-5460 -------------------------------------------- STOCKER & YALE, INC. (Name of small business issuer in its charter) Massachusetts 04-2114473 (State of other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 32 Hampshire Road Salem, New Hampshire 03079 (Address of principal executive offices) (Zip Code) (603) 893-8778 (Issuer's telephone number) -------------------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |X| Yes |_| No As of October 31, 1999 there were 3,406,581 shares of the issuer's common stock outstanding. Transitional Small Business Disclosure Format (check one): |_| Yes |X| No PART I FINANCIAL STATEMENTS Item 1.1 CONSOLIDATED BALANCE SHEETS STOCKER & YALE, INC.
ASSETS September 30, 1999 December 31, 1998 (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ -- $ 85,854 Marketable securities -- 86,407 Accounts receivable, net of reserves of approximately $140,000 and $209,000 in 1999 and 1998, respectively 2,158,894 2,131,472 Prepaid taxes 399,357 373,039 Inventory 6,152,515 6,260,779 Prepaid expenses 214,223 276,565 ------------ ------------ Total current assets 8,924,989 9,214,116 ------------ ------------ Property, Plant and Equipment, net 3,682,318 4,340,654 Note Receivable 100,000 -- Goodwill, net of accumulated amortization 2,274,111 2,470,796 Identified intangible assets 2,653,815 2,902,675 Other Assets 78,447 52,546 ------------ ------------ $ 17,713,680 $ 18,980,787 ============ ============ LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES: Current portion of long-term debt $ 2,790,563 $ 4,420,085 Accounts payable 3,273,752 3,134,933 Accrued expenses 674,219 756,970 Short-term lease obligation 222,227 224,046 ------------ ------------ Total current liabilities 6,960,761 8,536,034 ------------ ------------ Long-Term Debt 4,618,585 3,691,140 Other Long-Term Liabilities 564,688 564,688 Deferred Income Taxes 1,518,670 1,501,925 STOCKHOLDERS' INVESTMENT: Common stock, par value $0.001 Authorized--10,000,000 Issued and outstanding--3,802,525 and 3,679,448 shares at September 30, 1999 and December 31, 1998, respectively 3,803 3,679 Paid-in capital 14,424,720 14,224,841 Accumulated other comprehesive income (93,964) 57,432 Accumulated deficit (10,283,583) (9,598,952) ------------ ------------ Total stockholders' investment 4,050,976 4,687,000 ------------ ------------ $ 17,713,680 $ 18,980,787 ============ ============
PART I FINANCIAL STATEMENTS Item 1.2 CONSOLIDATED STATEMENTS OF OPERATIONS STOCKER & YALE, INC. (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Net sales $ 3,570,758 $ 3,563,158 $ 10,417,724 $ 9,058,439 Cost of sales 2,359,175 2,240,701 6,761,105 5,791,668 ------------ ------------ ------------ ------------ Gross profit 1,211,583 1,322,457 3,656,619 3,266,771 Selling expenses 471,538 553,126 1,440,727 1,318,652 General and administrative expenses 893,889 850,266 2,513,074 2,362,233 Research and development 181,753 256,697 618,360 643,397 Goodwill impairment -- -- -- 7,365,662 Acquired in process R&D -- -- -- 1,087,914 ------------ ------------ ------------ ------------ Operating loss (335,597) (337,632) (915,542) (9,511,087) Gain on sale of assets 679,051 -- 679,051 -- Other income 4,320 -- 95,241 -- Interest expense 185,396 177,000 541,439 427,806 ------------ ------------ ------------ ------------ Income (loss) before income taxes 162,378 (514,632) (682,689) (9,938,893) Income tax expense (benefit) (4,337) 101,921 1,942 123,391 ------------ ------------ ------------ ------------ Net income (loss) 166,715 (616,553) $ (684,631) $(10,062,284) ============ ============ ============ ============ Basic and diluted income (loss) per common share $ 0.04 $ (0.18) $ (0.18) $ (3.38) ============ ============ ============ ============ Basic and diluted weighted-average common shares 3,802,525 3,364,340 3,762,401 2,980,096 ============ ============ ============ ============
PART I FINANCIAL STATEMENTS Item 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS STOCKER & YALE, INC. (UNAUDITED)
Nine Months Ended September 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (684,631) $(10,062,284) Adjustments to reconcile net loss to net cash used in/provided by operating activities- Goodwill impairment -- 7,365,662 Acquired in process research and development -- 1,087,914 Depreciation and amortization 855,143 573,725 Gain on sale of assets (679,051) -- Deferred income taxes 16,745 (260,369) Other changes in assets and liabilities- Accounts receivable, net (27,422) 449,176 Inventories (25,456) (201,017) Prepaid income taxes (26,318) 201,215 Prepaid expenses 62,342 (207,160) Accounts payable 49,159 583,173 Accrued expenses (82,751) 275,075 Other assets (13,553) -- ------------ ------------ Net cash provide by (used in) operating activities (555,793) (194,890) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (523,179) (435,650) Proceeds from sale of assets, net of notes assumed 1,562,000 -- Acquisition of Lasiris -- (3,815,234) ------------ ------------ Net cash provided by (used in) investing activities 1,038,821 (4,250,884) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock 200,003 1,134,837 Proceeds (payments) of bank debt (703,896) 3,401,667 ------------ ------------ Net cash provided by (used in) financing activities (503,893) 4,536,504 ------------ ------------ EXCHANGE RATE EFFECTS ON CASH (64,989) (30,537) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (85,854) 60,193 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 85,854 73,520 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ 133,713 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest 345,063 308,924 ------------ ------------ Cash paid for taxes 6,956 7,961 ------------ ------------
PART 1. FINANCIAL STATEMENTS Notes to Financial Statements 1. Basis of Presentation The interim consolidated financial statements presented have been prepared by Stocker & Yale, Inc. (the "Company") without audit and, in the opinion of the management, reflect all adjustments of a normal recurring nature necessary for a fair statement of (a) the results of operations for the three and nine months ended September 30, 1999 and 1998, respectively, (b) the Company's financial position at September 30, 1999, and (c) the cash flows for the nine month periods ended September 30, 1999 and 1998, respectively. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of December 31, 1998, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes are condensed as permitted by Form 10-QSB and do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-KSB. On May 13, 1998, the Company acquired Lasiris, Inc. The acquisition was accounted pursuant to the purchase method of accounting and accordingly, the Company's financial statements include the results of operations for Lasiris since the acquisition date. 2. Net income (loss) Per Share In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, basic and diluted net loss per common share for the three months ended September 30, 1998 and the nine months ended September 30 1999 and 1998 is calculated by dividing the net loss applicable to common stockholders by the weighted average number of common shares outstanding. For the three months ended September 30, 1999 basic net income per common share is calculated by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding for the three month period then ended. Dilutive net income per common share was calculated by dividing net income by the weighted average number of common shares and the dilutive effect of all options and warrants outstanding for the three month period. Options, warrants and convertible securities to purchase 644,743 shares of common stock were outstanding as of September 30, 1999 but were not included in the computation of diluted earnings per share because the exercise prices exceed the average market price of common shares and their effect would be anti-dilutive. 3. Segment Information The Company's operations were conducted primarily within the following industry segments for the three months ended September 30, 1999 and 1998:
Measuring Machine and Components Inspection and Instruments Accessories Total Three Months Ended September 30, 1999: Net sales $ 2,921,931 $ 648,827 $ 3,570,758 Operating loss (256,050) (79,547) (335,597) Three Months Ended September 30, 1998: Net sales $ 2,813,296 $ 749,862 $ 3,563,158 Operating loss (188,427) (149,205) (337,632)
3. Segment Information (Continued) The Company's operations were conducted primarily within the following industry segments for the nine months ended September 30, 1999 and 1998:
Measuring Machine and Components Inspection and Instruments Accessories Total Nine Months Ended September 30, 1999: Net sales $ 8,378,806 $ 2,038,918 $ 10,417,724 Operating loss (720,573) (194,969) (915,542) Nine Months Ended September 30, 1998: Net sales $ 6,486,270 $ 2,572,169 $ 9,058,439 Operating loss (5,215,003) (4,296,084) (9,511,087)
4. Comprehensive Income/(loss) For the year ended December 31, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This pronouncement sets forth requirements for disclosure of the Company's comprehensive income and accumulated other comprehensive items. In general, comprehensive income combines net income and "Other comprehensive items" includes certain amounts that are reported as components of shareholders' investment in the accompanying balance sheet, such as foreign currency translation adjustments and unrealized, net of tax, gains and losses from available-for-sale investments. During the three-month periods ended September 30, 1999 and 1998, the Company had comprehensive income of $167,086 and a comprehensive loss of $621,062, respectively. During the nine-month periods ended September 30, 1999 and 1998, the Company's comprehensive loss was $836,028 and $10,092,821, respectively. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS This Quarterly Report on Form 10-QSB contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements. Results of Operations The following discussion should be read in conjunction with the attached consolidated financial statements and notes thereto and with the Company's audited financial statements and notes thereto for the fiscal year ended December 31, 1998. On May 13, 1998, the Company acquired Lasiris, Inc. The acquisition was accounted for pursuant to the purchase method of accounting and accordingly, the Company's financial statements include the results of operations for Lasiris since the acquisition date. For the Three Months Ended September 30, 1999 and 1998 Net sales for the three months ended September 30, 1999 were $3,570,758 compared to $3,563,158 in the comparable period in the prior year. Sales from the Company's lighting products were $2,502,750 for the three months ended September 30, 1999 compared to $2,257,917 in the comparable period in 1998, an increase of $244,833 or 10.8%. The increase was largely due to higher fiber optic and florescent lighting sales from the Company's Salem division which was slightly offset by lower laser lighting sales from its Lasiris division. The net increase reflects the Company's continued business strategy to shift its focus towards industrial lighting products. Net sales from military products, largely compasses and watches, were $107,516 in the third quarter of 1999 compared to $114,573 in the third quarter in 1998, a decrease of approximately 6.2%. On September 27, 1999, the Company consumated the sale of its military compass product line to a third party and recorded a gain of $163,951. Net sales from the Company's printer and recorder products declined approximately 29% to $311,665 for the three months ended September 30, 1999 from $440,806 in the prior year primarily due to lower unit sales of older, mature products. Net sales of machine components and accessories for the three months ended September 30, 1999 were $648,827 or 13.5% lower than sales in the comparable quarter of the previous year of $749,862. Gross profit for the three months ended September 30, 1999 was $1,211,583 compared to $1,322,457 for the comparable period in 1998, and declined as a percentage of net sales to 33.9% compared to 37.1% for the same period in the prior year. The decline in gross margin was mainly due to higher unabsorbed manufacturing costs. Selling expenses were $471,538 or 13.2% of net sales in the three month period ended September 30, 1999 compared to $553,126 or 15.5% of net sales in the comparable period in 1998. General and administrative expenses were $893,889 for the period ended September 30, 1999 or 25.0% of net sales compared to $850,266 or 23.9% of net sales for the corresponding period in the prior year. Research and development expenses were $181,753 for the period ended September 30, 1999 or 5.1% of net sales compared to $256,697 or 7.2% of net sales in the comparable period of the prior year. During the three months ended September 30, 1999, the Company recorded a gain of $515,100 from the sale of its Fraser, Michigan manufacturing facility. This transaction was separate from the sale of the military compass product line. Including the gains from these transactions, the Company recorded net income of $0.04 per share for the three months ended September 30, 1999 compared to a net loss of $0.18 per share for the comparable period of the prior year. Without taking the other income into account, the Company would have experienced a net loss of $0.14 per share. For the Nine Months Ended September 30, 1999 and 1998 Net sales for the nine months ended September 30, 1999 were $10,417,724 compared to $9,058,439 in the comparable period in the prior year, which represents an increase of 15.0% or $1,359,285. Sales from the Company's lighting products were $7,118,611 for the nine months ended September 30, 1999 compared to $4,974,906 in the comparable period in 1998, an increase of $2,143,732 or 43.1%. This increase was largely due to the addition of laser lighting sales contributed by Lasiris, increased fiber optic lighting sales from the Company's Salem division and microscope lighting sales from the Company's Singapore subsidiary, Radiant Asiatec Pte., Ltd. These increases reflect the Company's strategic business decision to shift its focus over the last two years toward industrial lighting products. Net sales from military products, largely compasses and watches, were $345,367 for the nine months ended September 30, 1999 compared to $321,254 in the comparable period in 1998, an increase of 7.5%. Net sales from the Company's printer and recorder products declined approximately 23.1% to $914,828 for the nine months ended September 30, 1999 from $1,190,110 in the comparable quarter of the prior year mostly due to lower unit sales of older, mature products reflecting the Company's strategic business decision to focus its efforts toward industrial lighing products. Net sales of machine components and accessories were $2,038,918 for the nine months ended September 30, 1999 or 20.7% lower than the previous years' sales of $2,572,169 in the comparable period. Gross profit for the nine months ended September 30, 1999 was $3,656,619 compared to $3,266,771 for the comparable period in 1998, and as a percentage of net sales declined to 35.1% compared to 36.1% in 1998. Selling expenses were $1,440,727 or 13.8% of net sales in the period ended September 30, 1999 compared to $1,318,652 or 14.6% of net sales in the comparable period in 1998. General and administrative expenses were $2,513,074 for the nine months ended September 30, 1999 or 24.1% of net sales compared to $2,362,233 or 26.1% of net sales in the prior year. Research and development expenses were $618,360 for the nine months ended September 30, 1999 or 5.9% of net sales compared to $643,397 or 7.1% of net sales in the comparable period of the prior year. Operating expenses increased over the prior year, primarily due to the acquisition of Lasiris; however, these expenses decreased as a percentage of sales from approximately 47.7% for the first nine months in 1998 to 43.9% in 1999. Liquidity and Capital Resources The Company historically has financed its operations primarily through third-party credit facilities and cash from operations. Net cash used in operations was $523,677 for the nine months ended September 30, 1999 which resulted primarily from a net loss on operations of $915,542 and interest expense of $541,439, which was partially offset by non-cash charges of $855,143 of depreciation and amortization expenses and a one-time gain of $679,051 from the sale of assets. On February 11, 1999 the Company entered in a new credit agreement with Wells Fargo Business Credit, Inc., formerly Norwest Business Credit, Inc., with total borrowing availability up to $3,500,000. Initial proceeds were used to payoff the amounts outstanding under the credit agreement between the Company and Fleet National Bank of Massachusetts, N.A. The new credit facility with Wells Fargo consists of a $500,000 term loan that requires 60 monthly principal payments of $8,333, beginning April 1, 1999. The credit facility also provides for a revolving line of credit of up to $3.5 million less the amount of the term loan. The amount available for borrowing under this facility is also subject to a defined borrowing base consisting of eligible accounts receivable and inventory. As of October 31, 1999, $2,485,399 was outstanding under the term loan and revolving credit line and approximately $241,280 was available for additional borrowings. The outstanding principal balance of all advances under this credit facility bears interest at a floating rate of the bank's base rate plus 2.5%. The Company's obligation under the Wells Fargo credit agreement is evidenced by a demand note and may be terminated at any time by Wells Fargo in its sole discretion, prior to the stated maturity date of March 1, 2002. The Company's obligations under this credit facility are secured by substantially all of the Company's assets other than real property. In addition, Mark W. Blodgett, the Company's Chief Executive Officer, has unconditionally guaranteed all amounts outstanding. The Credit and Security Agreement between the Company and Wells Fargo requires the Company to comply with certain affirmative and negative covenants. As of September 30, 1999, the Company was in compliance with all of its covenants On January 21, 1999, the Company entered into an $824,000 mortgage loan with Comerica Bank, which was scheduled to mature on January 1, 2004 and was secured by a first mortgage on the Fraser, Michigan property. The loan bore interest at Comerica's prime rate. Payments were amortized over a 15-year period assuming a 7.75% rate of interest. The Company used a portion of the proceeds of the sale of the Fraser, Michigan property to repay in full this indebtedness in August, 1999. In connection with the Lasiris acquisition, the stockholders of Lasiris received cash in an aggregate amount of approximately $3.3 million and 444,146 shares of capital stock of Lasiris Holding, Inc., which are exchangeable for shares of the Company's common stock on a one-for-one basis. The aggregate value of the shares was deemed to be $1,732,167 as of May 13, 1998. On May 13, 1998, the Company entered into a $750,000 second mortgage loan with Danvers Savings Bank (the "Danvers Loan"). This loan bears interest at a rate of 11%, requires monthly payments of interest only, and its original maturity date of May 13, 1999 has been extended to January 10, 2001. The Danvers Loan generated net proceeds after expenses of $731,196, which were used to finance a portion of the Lasiris acquisition. The balance at September 30, 1999 is $750,000. On May 13, 1998, Lasiris entered into a credit agreement with Toronto Dominion Bank ("TD Bank"). The credit agreement provides for (i) a $1,000,000 CDN Operating Line of Credit (the "TD Line of Credit"); (ii) a $1,000,000 CDN Term Loan (the "TD Four Year Term Loan"); (iii) an $83,333 CDN Term Loan (the "TD Two Year Term Loan"); and (iv) a $4,461 CDN Letter of Guarantee of (the "Letter of Guarantee"). The TD Line of Credit bears interest at 1% over the TD Bank prime rate, requires monthly payments of interest only, and is payable on demand. As of September 30, 1999, borrowings on the TD Line of Credit were $923,220 CDN ($628,898 US). The TD Four Year Term Loan bears interest at 2% over the TD Bank prime rate, matures on May 13, 2002, and requires monthly principal payments of $20,833 CDN (approximately $14,500 US) plus interest. As of September 30, 1999, the outstanding balance on the TD Four-Year Term Loan was $666,667 CDN ($454,133 US). The TD Two Year Term Loan bears interest at 2% over the TD Bank prime rate, matures on May 13, 2000, and requires monthly principal payments of $4,167 CDN (approximately $2,900 US) plus interest. As of September 30, 1999, the outstanding balance on the TD Two-Year Term Loan was $16,667 CDN ($11,353 US). On May 20, 1997 the Company entered into an equipment line of credit agreement with Granite Bank to finance capital equipment related to new product development. The line of credit 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 September 30, 1999, the Company had borrowed $299,669 pursuant to such line of credit. The Company has issued and outstanding Subordinated Notes in an original principal amount of $1,350,000. These notes mature on May 1, 2001. They bear interest at 7.25% and are convertible into shares of the Company's common stock at a price of $7.375 per share. From time to time, the Company contemplates raising additional capital by the issuance of equity securities, the proceeds of which may be used, among other things, in connection with refinancing existing indebtedness. Although the Company has no reason to believe that Wells Fargo will do so, the structure of the Company's credit facility with Wells Fargo allows the lender to terminate the facility and demand payment of the Company's obligations at any time. In addition, the availability for borrowing under the Wells Fargo credit facility is limited by a defined borrowing base of eligible accounts receivable and inventory, which fluctuates from time to time. Assuming Wells Fargo does not terminate the credit facility, demand repayment and, the Company's borrowing base remains at its current level or higher, the Company believes that its available financial resources are adequate to meet foreseeable working capital, debt service and capital expenditure requirements through the next twelve months. If these factors do not continue as expected, then the Company's lenders may declare a default and the Company would not be able to continue to operate. Year 2000 Readiness The statements in the following section include "Year 2000 readiness disclosure" within the meaning of the Year 2000 Information and Readiness Act. The Company has undertaken a plan to address the potential impact to its business of "Year 2000 issues" (i.e., issues that may arise as a result of computer programs that use only the last two, rather than all four, digits of the year). The plan addresses Internal Matters, which relate to the Company's operations and over which the Company exercises some control, and External Matters, which are outside the Company's control and influence. The Company is well under way in its plans to review internal matters and has begun to review external matters related to its customer and supplier base. Internal Matters Review of Internal Matters is the first phase of the Company's Year 2000 Compliance Program and is broken down into five categories; each are identified and addressed separately below. 1) Mission critical hardware, operating system, and associated equipment such as terminals and printers. The Company utilizes an IBM AS/400 hardware platform to support its mission critical software. The hardware, operating system, and related software components were upgraded to a RISC-based architecture with operating system version 3.7 in 1997. All hardware and software listed above have been represented to be Year 2000 Compliant by IBM. All associated peripherals including terminals, printers, and modems have been confirmed compliant by suppliers with the exception of 5 terminals, which will be eliminated or replaced at an approximate cost of $2,000 or less. 2) Mission Critical Software The Company's primary information systems software have been reviewed and have been, or will be, upgraded as follows: a) Integrated Manufacturing Software, MACPAC written by Andersen Consulting and supported by The Development Center, Inc. MACPAC was upgraded in 1997 so that it would function with the Company's upgraded computer system hardware. The cost for the new software was approximately $80,000. The company completed installation of MACPAC Year 2000 compliant Version 10.2 in March of 1998. This software is represented by Andersen Consulting to be Year 2000 compliant. b) Payroll Software As of April 1, 1999, the Company elected to utilize an outsource payroll processing company which has represented to the Company that it is fully Year 2000 compliant. c) Marketing Sales Management (MSM) Software supported by IMA The Year 2000 compliant version of MSM became available in November 1998. The Company installed Year 2000 Compliant Version 6.5A in February 1999. This software is represented by IMA to be Year 2000 compliant. 3. Personal Computer Hardware and Software The Company also utilizes a number of personal computers which are operated independently (i.e., not linked by a network). These computers use a wide variety of software packages and are of various ages. The Company has compiled an inventory of these personal computers, their hardware, as well as their operating systems and installed application software packages. This information will be assessed initially to determine if suppliers represent that they are Year 2000 compliant. The Company estimates that it has completed this assessment (preliminary results indicate compliance for the majority, with minor issues relating to Windows 95). Following the assessment phase, the Company will undertake to upgrade and replace software and, if necessary, replace personal computers so that all equipment and software is represented compliant by the providers. The Company estimates that the cost for such upgrades and replacements will not exceed $30,000. The Company is in the process of obtaining written certification of Year 2000 testing and performing our own in-house Year 2000 tests. The Company intends to fund Year 2000 upgrades and changes through operating cash flow and indebtedness. Software upgrades related to Year 2000 are captured as part of the individual software's annual upgrade charge; hardware upgrades are budgeted at $30,000. 4. The Products and Product Components manufactured by the Company Comprehensive review and testing has been completed for all of the Company's products. As a part of this process, the Company's engineers have compiled a Product Compliance Listing (the "List") to inform customers regarding "year 2000 compliance readiness" of products manufactured by the Company. A copy of the List is available from the Company upon request. The List denotes those products that are "Year 2000 Compliant", those that are not affected by "Year 2000 Compliance", and those that do not meet the definition "Year 2000 Compliant" set forth below. Year 2000 Compliant: The Company's products identified on the List as "Compliant" will be able to accurately process date (including leap year); provided that, at the commencement of the Year 2000; (1) the products were functioning normally as specified in their operator's manuals; (2) the products have been used and will continue to be used in accordance with the terms of the limited warranty and operator's manual given with the products at the time of original purchase, regardless of whether this warranty has expired; and (3) any products which are connected or integrated to the products listed on the List are also Year 2000 Compliant. Not Applicable: Certain of the Company's products indicated on the List do not have a date function and, therefore, do not present any Year 2000 readiness issues. These products are identified by the phrase "Not Applicable" on the List. Non-Compliant: Company products which have a date function and which do not meet the definition of Year 2000 Compliant set forth above are identified as "Non-Compliant" on the List. Products that the Company has manufactured, distributed or sold over the course of its fifty year history but which the Company is not currently manufacturing or servicing are not included on the List and have not been tested for Year 2000 compliance. The Company does not plan to test any products other than those listed on the List and will not provide Year 2000 support for any products other than those identified on the list so that the Company can focus its efforts on those products about which its customers will be most concerned. The Company also will not be assessing the Year 2000 compliance of any products manufactured or sold by third parties. The Company's current products should not be affected by the potential failure of such third party products because all of its products function independently of other equipment. The information contained on the List is based on data available to the Company at the time of its preparation. From time to time, the Company may change the information in the List without notice to the customer. As a result of the product review and testing process, the Company has determined that Year 2000 compliance exposure is limited to certain older model Printer products that incorporate date functionality which does not interfere with normal operation of the printers. Those printers will not be made Year 2000 Compliant. However, this will not preclude the customer(s) from utilizing the product. Surveys of the primary customers indicated that they are not using the date functionality. Therefore, management believes the risk of potential impact to revenue to be less than $25,000 per year, and that the current customer base will probably continue to purchase the product(s) regardless of the Non-Compliant designation. 5. Ancillary systems such as test equipment, communications equipment and security systems The Company's ancillary systems are largely provided by third parties, most of which have not yet completed their own assessments of Year 2000 exposure. The Company will continue to solicit such information from these third parties. Due to the incompleteness of this information, contingency plans have not yet been finalized. The following is a list of known Year 2000 issues: Stilson Division Telephone System $3,000 to Upgrade for Year 2000 Compliance Salem Division Telephone System Manual Clock Date Set Required The Internal Matter review process was completed in the third quarter of 1999. External Matters The Company has commenced a review of External Matters that are outside the Company's control and influence. This process comprised of a review and assessment of the customer and supplier relationships that could have a potential material impact upon the Company and its ongoing operations by means of analysis of response to questionnaires sent to these parties. As a result of the preliminary nature of the Company's review of External Matters, a contingency plan has not yet been developed and there can be no assurance that Year 2000 problems resulting from customer or supplier relationships will not have a material adverse impact on the Company. The Company completed this process in the third quarter of 1999. The Company estimates that it has completed approximately 80% of its overall Year 2000 plan. Although the Company believes that it has an effective plan in place that will resolve any Year 2000 issues in a timely manner, the Company may be adversely impacted by Year 2000 issues if its proposed updates, modifications or replacements are not completed on schedule. In the event that third parties do not complete the necessary remediation, the Company could be subject to interruption of its normal business activities, including its ability to take customer orders, manufacture and ship products, invoice customers, collect payments or engage in similar business activities. Such an event could result in a material adverse effect on the Company's revenues or in litigation surrounding such business interruptions. In addition, disruptions in the economy generally resulting from the Year 2000 issue could materially adversely affect the Company. The amount of potential liability and revenues cannot reasonably be estimated at this time. PART II ITEM. 6 EXHIBITS, LISTS AND REPORTS ON FORM 8-K (a) The following is a complete list of Exhibits filed as part of this Form 10-QSB: Exhibit Number Description - ------ ----------- 27.1 Financial Data Schedule (b) There were no reports filed on Form 8-K SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized. Stocker & Yale, Inc. November 15, 1999 /s/ Mark W. Blodgett -------------------- Mark W. Blodgett, Chairman and Chief Executive Officer November 15, 1999 /s/ Gary B. Godin ----------------- Gary B. Godin, Senior Vice President-Finance and Treasurer EX-27 2 FDS FOR STOCKER & YALE, INC.
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 0 0 2,158,894 140,000 6,152,515 8,924,989 9,048,169 5,365,851 17,713,680 6,960,761 4,618,585 0 0 3,803 4,047,173 17,713,680 10,417,724 10,417,724 6,761,105 6,761,105 4,572,161 0 541,439 (682,689) 1,942 (684,631) 0 0 0 (684,631) (0.18) (0.18)
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