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
<PAGE>

                           PART I FINANCIAL STATEMENTS
                      Item 1.1 CONSOLIDATED BALANCE SHEETS
                              STOCKER & YALE, INC.

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                        September 30, 1999     December 31, 1998
                                                                                            (UNAUDITED)
<S>                                                                                        <C>                    <C>
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
                                                                                           ============           ============
</TABLE>

<PAGE>

                           PART I FINANCIAL STATEMENTS
                 Item 1.2 CONSOLIDATED STATEMENTS OF OPERATIONS
                              STOCKER & YALE, INC.
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                  Three Months Ended               Nine Months Ended
                                                     September 30,                    September 30,
                                                 1999            1998            1999            1998
<S>                                          <C>             <C>             <C>             <C>
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
                                             ============    ============    ============    ============
</TABLE>

<PAGE>

                           PART I FINANCIAL STATEMENTS
                 Item 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS
                              STOCKER & YALE, INC.
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                     1999            1998
<S>                                                                              <C>             <C>
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
                                                                                 ------------    ------------
</TABLE>

<PAGE>

                          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.

<PAGE>

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:

<TABLE>
<CAPTION>
                                          Measuring       Machine
                                             and         Components
                                          Inspection        and
                                         Instruments    Accessories        Total
<S>                                      <C>            <C>            <C>
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)
</TABLE>

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:

<TABLE>
<CAPTION>
                                          Measuring        Machine
                                             and         Components
                                          Inspection         and
                                         Instruments     Accessories        Total
<S>                                     <C>             <C>             <C>
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)
</TABLE>

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.
<PAGE>

                  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.

<PAGE>

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

<PAGE>

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).
<PAGE>

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.
<PAGE>

      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
<PAGE>

      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

<PAGE>

      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.
<PAGE>

                                     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

<PAGE>

                                   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