<PAGE>

                     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 MARCH 31, 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 identification no.)
incorporation or organization)

                                32 HAMPSHIRE ROAD
                           SALEM, NEW HAMPSHIRE 03079
               (Address of principal executive offices) (Zip Code)

                                 (603) 893-8778
                           (Issuer's telephone number)

                  --------------------------------------------
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 April 30, 1999 there were 3,358,306 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>
                                                                                     March 31, 1999      December 31,1998
                                                                                     --------------      ----------------
                                                                                      (unaudited)           (audited)

<S>                                                                                  <C>                 <C>
                                      ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                                         $     12,357        $     85,854
   Marketable Securities                                                                   82,208              86,407
   Accounts receivable, net of reserves of $208,016 and $209,000 in 1999 and 1998,
     respectively                                                                       2,203,518           2,131,472
   Prepaid taxes                                                                          368,979             373,039
   Inventory                                                                            6,144,922           6,260,779
   Prepaid expenses                                                                       328,280             276,565
                                                                                     ------------        ------------
         Total current assets                                                           9,140,264           9,214,116
                                                                                     ------------        ------------

PROPERTY, PLANT AND EQUIPMENT, NET                                                      4,238,663           4,340,654
                                                                                     ------------        ------------

GOODWILL, NET OF ACCUMULATED AMORTIZATION                                               2,421,484           2,470,796
                                                                                     ------------        ------------
IDENTIFIED INTANGIBLE ASSETS                                                            2,807,589           2,902,675
                                                                                     ------------        ------------
OTHER ASSETS                                                                               52,546              52,546
                                                                                     ------------        ------------

                                                                                     $ 18,660,546        $ 18,980,787
                                                                                     ------------        ------------
                                                                                     ------------        ------------

                      LIABILITIES AND STOCKHOLDERS' INVESTMENT

CURRENT LIABILITIES:

   Current portion of long-term debt                                                 $  3,762,745        $  4,420,085
   Accounts payable                                                                     2,686,110           3,134,933
   Accrued expenses                                                                       889,653             756,970
   Short-term lease obligation
                                                                                          224,046             224,046


         Total current liabilities                                                      7,562,554           8,536,034
                                                                                     ------------        ------------

LONG-TERM DEBT                                                                          4,543,247           3,691,140
                                                                                     ------------        ------------

OTHER LONG-TERM LIABILITIES                                                               564,688             564,688
                                                                                     ------------        ------------

DEFERRED INCOME TAXES                                                                   1,505,254           1,501,925
                                                                                     ------------        ------------

STOCKHOLDERS' INVESTMENT:
   Common stock, par value $0.001
     Authorized--10,000,000
     Issued and outstanding--3,802,452 and 3,679,448 shares at March 31, 1999 and
       December 31, 1998, respectively                                                      3,803               3,679
   Paid-in capital                                                                     14,424,720          14,224,841
   Accumulated other comprehesive income                                                   26,538              57,432
   Accumulated deficit                                                                 (9,970,258)         (9,598,952)
                                                                                     ------------        ------------

         Total stockholders' investment                                                 4,484,803           4,687,000
                                                                                     ------------        ------------

                                                                                     $ 18,660,546        $ 18,980,787
                                                                                     ------------        ------------
                                                                                     ------------        ------------
</TABLE>

<PAGE>


                           PART I FINANCIAL STATEMENTS
                 ITEM 1.2 CONSOLIDATED STATEMENTS OF OPERATIONS
                               STOCKER & YALE, INC.


<TABLE>
<CAPTION>

                                          Three Months Ended
                                              March 31,
                                       ---------------------------
                                           1999            1998
                                       -----------    ------------
                                       (unaudited)     (unaudited)

<S>                                    <C>            <C>
NET SALES                              $ 3,420,827     $ 2,435,341

COST OF SALES                            2,107,198       1,650,026
                                       -----------     -----------

         Gross profit                    1,313,629         785,315

SELLING EXPENSES                           457,803         346,512

GENERAL AND ADMINISTRATIVE EXPENSES        808,498         553,727

RESEARCH AND DEVELOPMENT                   222,214         189,745
                                       -----------     -----------


         Operating loss                   (174,886)       (304,669)


INTEREST EXPENSE                           171,572         114,672
                                       -----------     -----------

         Loss before income taxes         (346,548)       (419,341)

INCOME TAX  EXPENSE/(BENEFIT)               24,848        (140,000)
                                       -----------     -----------

         Net loss                      $  (371,306)    $  (279,341)
                                       -----------     -----------
                                       -----------     -----------

BASIC LOSS PER SHARE                   $     (0.10)   $      (0.11)
                                       -----------     -----------
                                       -----------     -----------

BASIC WEIGHTED-AVERAGE COMMON SHARES     3,680,816       2,569,894
                                       -----------     -----------
                                       -----------     -----------
</TABLE>

<PAGE>


                           PART I FINANCIAL STATEMENTS
                   ITEM 1.3 CONSOLIDATED STATEMENTS OF CASH FLOWS
                             STOCKER & YALE, INC.


<TABLE>
<CAPTION>
                                                                                          Three Months Ended
                                                                                              March 31
                                                                                      ------------------------------
                                                                                          1999              1998
                                                                                      -----------       ------------
                                                                                       (unaudited)       (unaudited)
<S>                                                                                   <C>               <C> 
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                           $  (371,306)      $  (279,341)
   Adjustments to reconcile net loss to net cash used in/provided by operating
          activities-
     Depreciation and amortization                                                        355,069           157,910
     Deferred income taxes                                                                  3,329           (25,000)
     Other changes in assets and liabilities-
       Accounts receivable, net                                                           (72,046)          185,735
       Inventories                                                                        115,857          (149,736)
       Prepaid income taxes                                                                 4,060                --
       Prepaid expenses                                                                   (51,715)         (359,279)
       Accounts payable                                                                  (448,823)          444,320
       Accrued expenses                                                                   132,683           (42,644)
       Other assets                                                                            --                --
                                                                                      -----------       -----------
           Net cash used in operating activities                                         (332,892)          (68,035)
                                                                                      -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                                             (108,681)         (303,790)
                                                                                      -----------       -----------

           Net cash used in investing activities                                         (108,681)         (303,790)
                                                                                      -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock                                                     200,003            10,121
   Payments of bank debt                                                               (2,856,526)          (85,516)
   Proceeds from  bank debt                                                             3,051,293           522,794
                                                                                      -----------       -----------
           Net cash used in/provided by financing activities                              394,770           447,399
                                                                                      -----------       -----------

EXHANGE RATE EFFECTS ON CASH                                                              (26,694)               --
                                                                                      -----------       -----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                                      (73,497)           75,574

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                             85,854            73,520
                                                                                      -----------       -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                              $    12,357       $   149,094
                                                                                      -----------       -----------
                                                                                      -----------       -----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest                                                                  158,035           103,498
                                                                                      -----------       -----------
  Cash paid for taxes                                                                       5,456                --
                                                                                      -----------       -----------
                                                                                      -----------       -----------
</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 months 
ended March 31,1999 and March 31,1998, (b) the financial position at March 
31,1999, and (c ) the cash flows for the three month periods ended March 
31,1999 and March 31,1998. 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.  Earnings per Share

The Company has reported a net loss for the three months ended March 31, 1999 
and 1998. Accordingly, all options, warrants and convertible securities have 
been excluded from diluted earnings per share as they would be antidilutive.

3.  Segment Information

The Company's operations were conducted primarily within the following 
industry segments for the three months ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>


                                                      Three Months Ended March 31, 1999
                                             ----------------------------------------------------
                                             Measuring and         Machine 
                                              Inspection        Components and
                                              Instruments        Accessories            Total
                                             ------------       ---------------      ------------
        <S>                                  <C>                <C>                  <C>
        Net sales                            $  2,718,179        $  702,648          $  3,420,827
        Operating income (loss)                  (123,290)          (51,596)             (174,886)


                                                      Three Months Ended March 31, 1998
                                             ----------------------------------------------------
                                             Measuring and         Machine 
                                              Inspection        Components and
                                              Instruments        Accessories            Total
                                             ------------       ---------------      ------------
        Net sales                            $  1,446,773        $  988,568          $  2,435,341
        Operating income (loss)                 (167,335)          (137,334)             (304,669)

</TABLE>

<PAGE>

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 March 31, 1999 and 1998, the Company's 
comprehensive loss was $402,200 and $279,341, 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 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.

FISCAL QUARTERS ENDED MARCH 31, 1999 AND 1998

Net sales for the three months ended March 31, 1999 were $3,420,827 compared 
to $2,435,341 in the comparable period in the prior year, which represents an 
increase of approximately 40.5% or $985,486. Sales from the Company's 
lighting products were $2,334,005 compared to $988,372 in the comparable 
period in 1998, an increase of $1,345,633 or 136.2%. This increase was 
largely due to the addition of laser lighting sales contributed by Lasiris, 
Inc., microscope lighting sales from the Company's Singapore subsidiary, 
Radiant Asiatec Pte., Ltd. and increased fiber optic lighting sales from the 
Company's Salem division. These increases reflect the Company's strategic 
business decision to shift its focus over the last two years toward 
industrial lighting products and away from other products with lower gross 
margins. Net sales from military products, largely compasses and watches, 
were $111,360 compared to $97,570 in the first quarter in 1998, an increase 
of 14%. Net sales from the Company's printer and recorder products declined 
approximately 24.4% to $272,817 from $360,831 in the prior year mostly due to 
lower unit sales of older, mature products. Net sales of machine components 
and accessories were $702,648 or 28.9% lower than the previous years' sales 
of $988,568.

Gross profit for the three months ended March 31, 1999 was $1,313,629 
compared to $785,315 for the comparable period in 1998, and improved as a 
percentage of net sales to 38.4% compared to 32.3% for the same period in the 
prior year. The increase in gross profit was mainly due to the increase in 
sales from the Company's lighting products which carry a higher gross margin.

Loss from operations for the three months ended March 31, 1999 was $174,886 
compared to loss of $304,669 for the three months ended March 31, 1998. The 
lower operating loss reflects higher gross profit on increased sales, which 
was partially offset by higher operating expenses. Operating expenses for the 
three months ended March 31, 1999 increased $398,531 to $1,488,515 compared 
to $1,089,984 for the corresponding period in the prior year but decreased as 
a percentage of net sales to 43.5% in the period ended March 31, 1999 from 
44.8% of net sales for the corresponding period in the prior year. The 
increase in operating expenses were mostly due to the integration of Lasiris, 
Inc and higher banking fees associated with transfer of the Company's credit 
facility. Selling expenses were $457,803 or 13.4% of net sales in the period 
ended March 31, 1999 compared to $346,512 or 14.2% of net sales in the 
comparable period. General and administrative expenses were $808,498 or 23.6% 
of net sales compared to $553,727 or 22.7% of net sales in the prior year. 
Engineering expenses were 

<PAGE>

$222,214 or 6.5% of net sales compared to $189,745 or 7.8% of net sales in 
the comparable period of the prior year.

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 $332,892 for the three months ended March 31, 1999 which resulted 
primarily from a decrease in accounts payable of $448,823 and a net loss of 
$371,306, which was partially offset by non-cash charges of $355,069 of 
depreciation and amortization expenses.

On February 11, 1999 the Company entered in a new credit agreement with Wells 
Fargo Business Credit, Inc., formerly Norwest Business Credit, Inc., ("Wells 
Fargo") with total borrowing availability up to $3,500,000. Initial proceeds 
were used to payoff the credit agreement between the Company and Fleet 
National Bank of Massachusetts, N.A. This new credit facility with Wells 
Fargo consists of a $500,000 term loan that requires 60 monthly principal 
payments of $8,334, 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 April 30, 1999, $2,375,680 was outstanding 
under the term loan and revolving credit line and $151,307 was available for 
additional borrowings. The outstanding principal balance of all advances 
under this credit facility bear 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 require the 
Company to comply with certain affirmative and negative covenants.

On January 21, 1999, the Company entered into an $824,000 mortgage loan with 
Comerica Bank, which matures on January 1, 2004 and is secured by a first 
mortgage on the Fraser, Michigan property. The loan bears interest at 
Comerica's prime rate. Payments are amortized over a 15-year period assuming 
a 7.75% rate of interest.

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 LHI, 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 90 days. 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 March 30, 1999 is 
$750,000.

Also 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 

<PAGE>

payable on demand. As of March 31, 1999, borrowings on the TD Line of Credit 
were $907,957 CDN ($601,794 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 March 31, 1999, the outstanding balance on the TD Four-Year Term Loan 
was $791,667 CDN ($524,717 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 March 31, 1999, the outstanding balance on the TD Two-Year Term Loan was 
$41,667 CDN ($27,617 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 March 31, 1999, the Company had borrowed $299,669 against 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. The Danvers 
Loan maturity date has been extended 90 days to August 11, 1999 and. while 
the Company is in discussions with lenders regarding extending or refinancing 
the loan, the Company can give no assurance as to whether a refinancing will 
be in place prior to the maturity date. Assuming Wells Fargo does not 
terminate the Wells Fargo credit facility and demand repayment, the Company's 
borrowing base remains at its current level or higher and that the Danvers 
Loan is refinanced prior to maturity, 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

<PAGE>

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, MAPICS supported by MARCAM

         The MAPICS Payroll software was upgraded to the Year 2000 Compliant 
         Version DB Mod 4, PTF 4000 in November 1997. This software is 
         represented by Marcam to be Year 2000 compliant. 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 approximately 85% of this 
     assessment (preliminary results indicate compliance for the majority, 
     with minor 

<PAGE>

     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 and will be posted on the Company's Web site at 
     www.stkr.com. 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.

     A letter along with the List are available by request and can be viewed 
     on the Company's Web site as a convenience for our customers. The 
     information in this letter will be subject to, and will not supplement, 
     extend or modify any agreement between the Company and the customer 
     relating to the applicable product, including the period, terms, 
     conditions or scope of any warranty given with respect to the Products 
     at the time of original purchase. The Company makes no representation or 
     warranty as to, and will not address, the Year 2000 readiness of any 
     hardware, firmware, software (such as any BIOS or operating system), 
     services protocols, data, interfaces to third party systems, or user 
     customized functions or features that may be used with the Company 
     software other than those Company products listed on the List. Products 
     that it 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 

<PAGE>

     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 Stocker 
     & Yale at the time of its preparation. From time to time, Stocker & Yale 
     may change the information in the List without notice to the customer. 
     The information contained in the List is provided "as is", without 
     warranties or guarantees of any kind.

     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 Company estimates that it has completed approximately 75% of its year 
2000 Plan regarding Internal Matters. The Internal Matter review process is 
planned for completion by the end of the second quarter 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 
anticipates completion of this process by the first half of 1999.

The Company estimates that it has completed approximately 60% 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.

May 17, 1999                       /S/ MARK W. BLODGETT
                                   --------------------
                                   Mark W. Blodgett,
                                   Chairman and Chief Executive Officer


May 17, 1999                       /S/ GARY B. GODIN
                                   -----------------
                                   Gary B. Godin,
                                   Senior Vice President-Finance and Treasurer