<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 FORM 10-QSB/A-1
                                (AMENDMENT NO. 1)
                 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                          Commission file number 0-5460
                -------------------------------------------------

                              STOCKER & YALE, INC.
                 (Name of small business issuer in its charter)

<TABLE>
  <S>                                                              <C>
                         MASSACHUSETTS                                        04-2114473
  (State or other jurisdiction of incorporation or organization)   (I.R.S. employer identification no.)
</TABLE>

                                 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 December 22, 1998 there were 3,364,340 shares of the issuer's common stock
outstanding.

Transitional Small Business Disclosure Format (check one): / / Yes  /X/ No

                                  Page 1 of 15

<PAGE>


                           PART I FINANCIAL STATEMENTS
                      ITEM 1.1 CONSOLIDATED BALANCE SHEETS
                              STOCKER & YALE, INC.
<TABLE>
<CAPTION>
                  ASSETS                           September 30, 1998   December 31, 1997
                                                       (Unaudited)          (Audited)
<S>                                                 <C>                <C>
CURRENT ASSETS:
   Cash .........................................   $    133,713       $     73,520
   Accounts Receivable ..........................      2,085,692          1,860,624
   Prepaid Taxes ................................        503,022            579,332
   Inventory ....................................      5,961,724          4,957,095
   Prepaid expenses .............................        332,894            117,354
                                                    ------------       ------------
       Total current assets .....................      9,017,045          7,587,925
                                                    ------------       ------------
PROPERTY, PLANT AND EQUIPMENT, NET ..............      4,242,537          3,857,504
                                                    ------------       ------------
NOTE RECEIVABLE .................................             --          1,000,000

GOODWILL, NET OF ACCUMULATED AMORTIZATION .......      2,560,534          8,453,000
                                                    ------------       ------------
IDENTIFIED INTANGIBLE ASSETS ....................      2,961,361                 --

OTHER ASSETS ....................................         76,457             92,322
                                                    ------------       ------------
                                                    $ 18,857,934       $ 20,990,751
                                                    ============       ============

       LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:

   Current portion of long-term debt ............   $    215,912       $    443,334
   Short Term Debt ..............................        746,796                 --
   Accounts payable .............................      2,975,221          1,858,936
   Accrued expenses .............................        810,570            541,668
   Accrued Taxes ................................        129,038                 --
     Current Lease Obligations ..................        197,062             89,771
                                                    ------------       ------------
        Total current liabilities ...............      5,074,599       $  2,933,709
                                                    ------------       ------------
LONG-TERM DEBT ..................................      5,357,436          3,809,658
                                                    ------------       ------------
LONG TERM LEASE OBLIGATIONS .....................        634,246            223,575
                                                    ------------       ------------
OTHER LONG-TERM LIABILITIES .....................        564,688            564,688
                                                    ------------       ------------
SUBORDINATED NOTES ..............................      1,350,000          1,350,000
                                                    ------------       ------------
DEFERRED INCOME TAXES ...........................      1,870,567            876,904
                                                    ------------       ------------

STOCKHOLDERS' INVESTMENT:
   Common stock, par value $0.001
     Authorized--10,000,000
     Issued and outstanding--3,364,340 ..........          3,364              2,568
     shares at September 30, 1998 and
     2,567,894 shares at December 31, 1997
   Cumulative Translation Adjustment ............        (30,537)
   Paid-in capital ..............................     13,688,913         10,822,705
   Retained earnings ............................     (9,655,342)           406,944
                                                    ------------       ------------
       Total stockholders' investment ...........      4,006,398         11,232,217
                                                    ------------       ------------
                                                    $ 18,857,934       $ 20,990,751
                                                    ============       ============
</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,
                                                                   1998           1997                   1998            1997
<S>                                                           <C>                <C>                <C>                <C>
NET SALES ..............................................      $  3,563,158       $  2,689,583       $  9,058,439       $  8,227,525
COST OF SALES ..........................................         2,240,701          1,882,681          5,791,668          5,139,564
                                                              ------------       ------------       ------------       ------------
     Gross Profit ......................................         1,322,457            806,902          3,266,771          3,087,961
SELLING EXPENSES .......................................           553,126            594,870          1,318,652          1,434,227
GENERAL AND ADMINISTRATIVE EXPENSES ....................           850,266            635,895          2,362,233          1,488,138
ACQUIRED IN PROCESS R&D ................................                --                 --          1,087,914                 --
     Goodwill Impairment ...............................                --                 --          7,365,662                 --
RESEARCH AND DEVELOPMENT ...............................           256,697            222,415            643,397            553,940
                                                              ------------       ------------       ------------       ------------
     Operating Loss ....................................          (337,632)          (646,278)        (9,511,087)          (388,344)
INTEREST EXPENSE .......................................          (177,000)          (107,913)          (427,806)          (272,217)
                                                              ------------       ------------       ------------       ------------
     Loss Before Income Taxes ..........................          (514,632)          (754,191)        (9,938,893)          (660,561)
INCOME TAX EXPENSE/(BENEFIT) ...........................           101,921           (277,000)           123,391           (185,000)
                                                              ------------       ------------       ------------       ------------
     Net loss ..........................................      $   (616,553)      $   (477,191)      $(10,062,284)      $   (475,561)
                                                              ============       ============       ============       ============
PER SHARE INFORMATION
(1):Basic net loss per common share ....................      $      (0.18)      $      (0.19)      $      (3.38)      $      (0.19)
                                                              ============       ============       ============       ============
Weighted average number of common shares
outstanding ............................................         3,364,340          2,567,894          2,980,096          2,567,894
(2):Diluted net loss per common and
dilutive potential common shares outstanding ...........      $      (0.18)      $      (0.19)      $      (3.38)      $      (0.19)
                                                              ============       ============       ============       ============
Weighted Average Number of Common
and dilutive potential common shares outstanding .......         3,364,340          2,567,894          2,980,096          2,567,894
                                                              ============       ============       ============       ============
</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
                                                                                         1998                   1997
<S>                                                                                  <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss ...............................................................          $(10,062,284)          $   (475,561)
   Adjustments to reconcile net loss to net cash used in/provided
     by operating activities--
     Acquired in Process Research and Development .........................             1,087,914                     --
     Goodwill Impairment ..................................................             7,365,662                     --
     Depreciation and amortization ........................................               573,725                429,750
     Deferred income taxes ................................................              (260,369)               (40,000)
     Other changes in assets and liabilities--
       Accounts receivable, net ...........................................               449,176               (411,356)
       Inventories ........................................................              (201,017)            (1,109,190)
       Prepaid expenses ...................................................              (207,160)              (295,372)
       Prepaid taxes ......................................................               201,215                     --
       Accounts payable ...................................................               583,173                (23,236)
       Accrued expenses ...................................................               146,041                    419
       Other assets .......................................................                  --                  (52,166)
       Accrued and refundable taxes .......................................               129,034                     --
                                                                                     ------------           ------------
         Net cash provided by financing activities ........................              (194,890)            (1,976,712)
                                                                                     ------------           ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property, plant and equipment .............................              (435,650)              (791,196)
   Acquisition of Lasiris .................................................            (3,815,234)                  --
                                                                                     ------------           ------------
         Net cash used in investing activities ............................            (4,250,884)              (791,196)
                                                                                     ------------           ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Danvers Savings Bank Financing .........................................               750,000                   --
   Toronto Dominion Financing .............................................               798,675                   --
   Proceeds-- Equipment Lease Financing ...................................               503,365                387,027
   Advances/(Payments) of bank debt .......................................               349,627              1,311,593
   Issuance of Common Stock ...............................................                10,121                   --
   Private Placement of Common Stock ......................................             1,124,716                   --
   Receipt of Beverly Hospital note receivable ............................             1,000,000                   --
                                                                                     ------------           ------------
         Net cash provided by financing activities ........................             4,536,504              1,698,620
                                                                                     ------------           ------------

EFFECT OF EXCHANGE RATE ON CHANGES IN CASH ................................               (30,537)                  --
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS ......................                60,193             (1,069,288)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................                73,520              1,244,418
                                                                                     ------------           ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD ..................................          $    133,713           $    175,130
                                                                                     ============           ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES
   Cash paid for interest .................................................               308,924                299,229
                                                                                     ------------           ------------
   Cash paid for taxes ....................................................                 7,961                 26,592
                                                                                     ------------           ------------
</TABLE>

<PAGE>


                          PART 1. FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS

NOTE 1. GENERAL

The interim consolidated financial statements presented have been prepared by
Stocker & Yale, Inc. (the "Company") without audit and, in the opinion of the
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of (a) the results of operations for the three month and nine
month periods ended September 30,1998 and September 30,1997 (b) the financial
position at September 30,1998 and (c) the cash flows for the nine month periods
ended September 30, 1998 and September 30, 1997. Interim results are not
necessarily indicative of results for a full year.

The consolidated balance sheet presented as of December 31, 1997 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.

NOTE 2. ACQUISITION OF LASIRIS AND PURCHASE PRICE ALLOCATION

OVERVIEW
On May 13, 1998, the Company acquired Lasiris, Inc. ("Lasiris"), a Canadian
manufacturer of industrial lasers for the machine vision and industrial
inspection industries. The Company acquired Lasiris through Lasiris Holdings,
Inc., a newly formed New Brunswick corporation ("LHI") and a subsidiary of the
Company. Lasiris will be operated as a wholly-owned Canadian subsidiary of LHI.

In connection with the acquisition, the stockholders of Lasiris received an
aggregate of approximately $3.2 million in cash and 444,146 shares of LHI's
capital stock which are exchangeable for shares of the Company's common stock on
a one for one basis. The Company financed the cash portion of the consideration
through (i) a private placement of 350,000 shares of the Company's common stock
at a price of $3.50 per share; (ii) a loan in the amount of $750,000 from a bank
which is secured by a second mortgage interest in the Company's headquarters;
(iii) a loan of approximately $800,000 pursuant to a credit agreement between
the Toronto Dominion Bank and Lasiris; and (iv) cash in the amount of $950,000
received pursuant to the prepayment of a note receivable due to the Company.

ALLOCATION OF PURCHASE PRICE
The acquisition was accounted for as a purchase, and accordingly, the initial
purchase price and acquisition costs aggregating approximately $5.5 million have
preliminarily been allocated to the assets acquired, which consist of
approximately $4.0 million in identifiable assets, approximately $0.4 million in
goodwill, and approximately $1.1 million of in-process research and development
which was charged to operations in the second quarter of 1998. The purchase
price allocations represent the fair values determined by an independent
appraisal.

The following outlines the allocation of purchase price for the acquisition of
Lasiris.

<TABLE>
         <S>                                               <C>
         Purchased in-process research and
           development .......................    $    1,087,914
         Developed Patented Technology .......         2,364,122
         Trademarks/Tradenames ...............           470,732
         Assembled workforce .................           240,596
         Goodwill and Deferred Taxes .........         1,669,530
                                                  --------------
                                                       5,832,894
         Net book value of assets acquired ....          944,686
                                                  --------------
                                                       6,777,580
         Less deferred taxes .................        (1,230,180)
                                                  --------------
                                                       5,547,400
</TABLE>

In connection with the acquisition of Lasiris, the Company allocated $1.088
million of the purchase price to incomplete research and development projects.
This allocation represents the estimated fair value based on risk-adjusted cash
flows related to the incomplete products. At the date of acquisition, the
development of these projects had not reached technological feasibility and the
research and development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.

<PAGE>

Lasiris' acquired research and development value is comprised of research and
development programs designed to significantly enhance the Company's current
product line, as well as to develop new laser products and technologies.
Management expects that the projects will be completed during the period from
the fourth quarter of 1998 through the end of the calendar year 2000. At the
acquisition date, programs ranged in completion from 10% to 80%, and aggregate
continuing research and development commitments to complete the projects are
expected to be approximately $1.5 million. The acquired research and development
represents developmental efforts associated with the introduction of new and
enhanced laser systems. Remaining development activities for these programs
included the research, development and testing of advanced electronic, optical,
and thermal technologies. Expenditures to complete these projects are expected
to total approximately $400,000 in 1998, $500,000 in 1999, and $500,000 in 2000.
These estimates are subject to change, given the uncertainties of the
development process, and no assurance can be given that deviations from these
estimates will not occur.

As evidenced by the continuation of these projects, management believes the
Company has a reasonable chance of successfully completing each of the major
research and development programs. However, there is substantial risk associated
with the completion of the projects and there is no assurance that any will
achieve either technological or commercial success. If none of the research and
development projects is successfully completed, the sales and profitability of
the combined company would be adversely affected and the value of the research
and development projects will not be realized.

Further information about the acquisition of Lasiris may be found in the
Company's Form 8-K, which was filed with the Securities and Exchange Commission
(the "SEC") on May 27, 1998, and amended on Form 8-K/A, filed with the SEC on
July 27, 1998.

NOTE 3. PROFORMA FINANCIAL INFORMATION

The following proforma financial information assumes that the acquisition of
Lasiris took place at the beginning of each respective period, including the
related expense adjustments.

<TABLE>
<CAPTION>
                                        Nine month periods ended
                                              September 30,
                                         1998             1997
<S>                                  <C>              <C>
Net Revenues .....................   $  10,628,707    $  11,183,754
Net Income ...................... .    (10,270,309)        (682,115)
Earnings per Share ...............   $       (3.22)    $      (0.23)
Average shares outstanding .......       3,194,225        3,012,041
</TABLE>


NOTE 4. WRITE DOWN OF GOODWILL

In accordance with the provisions of Statement of Financial Standards (SFAS) No.
121 -- "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company periodically assesses the realizability
of its long-lived assets. In addition to this periodic review, the Company is
obliged to initiate such an assessment in the event of a change in the Company's
assets or in the valuation of its assets. Based on its most recent assessment,
the Company has recorded a non-recurring, non-cash charge of $7.4 million during
the three months ended June 30, 1998, to write down the carrying value of its
goodwill to its estimated fair value.

On July 14, 1998, the Company announced that it had signed a non-binding letter
of intent to sell its Stilson Division ("Stilson"). As of June 30, 1998 the
carrying value of Stilson's net assets was $2.0 million plus a portion of the
goodwill recorded in 1989 when the Company, including Stilson, was acquired. The
proposed sale of Stilson required the Company to assess the realizability of
goodwill. There was no allocation of goodwill to the individual divisions of the
Company at the time of the acquisition in 1989. Accordingly, management of the
Company has evaluated the cash flow generated by Stilson for the five years
preceding and the five years following the acquisition relative to the cash flow
of the entire Company. Management has also reviewed their expectations, at the
time of the 1989 acquisition, of the future cash flow of Stilson. Based on this
assessment, management allocated approximately 60% of the goodwill resulting
from the 1989 acquisition to Stilson, $4.9 million net of amortization at June
30, 1998. Therefore the net assets of Stilson at June 30, 1998 inclusive of
goodwill were approximately $6.9 million. The purchase price for the net assets
of Stilson set forth in the letter of intent was $3.0 million. Accordingly, at
June 30, 1998 the Company wrote down the carrying value of the net assets of
Stilson to $3.0 million and recorded a charge of $3.9 million which was included
in the goodwill impairment in the three-month period ended June 30, 1998. On
November 9, 1998, the Company announced that

<PAGE>

the agreement, dated July 14, 1998, for the proposed sale of the assets of its
Stilson Division to De-Sta-Co Industries had been terminated.

After allocating the portion of the goodwill associated with Stilson, the
Company assessed the realizability of the remaining goodwill from the 1989
acquisition, $3.5 million, net of amortization as of June 30, 1998. Based upon
the changes in the Company since 1989 and the recent history of losses, the
Company has concluded that the realizability of the remaining goodwill is
uncertain and that the carrying value should be written down to zero. As a
result of this assessment the Company recorded a charge of $3.5 million which
was included in the goodwill impairment in the three months ended June 30, 1998
to write down the remaining goodwill from the 1989 acquisition not allocated to
Stilson.


                  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. THE FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANTICIPATED RESULTS
INCLUDE, WITHOUT LIMITATION, THE COMPANY'S ABILITY TO (i) COMPETE WITH ENTITIES
THAT HAVE GREATER FINANCIAL, TECHNICAL AND MARKETING RESOURCES THAN THE COMPANY,
(ii) DEVELOP AND MARKET NEW PRODUCTS IN ITS VARIOUS BUSINESS LINES, (iii)
COMPETE FOR AND OBTAIN CERTAIN U.S. GOVERNMENT CONTRACTS, (iv) ADDRESS RISKS
ASSOCIATED WITH THE YEAR 2000 PROBLEM OR (v) OBTAIN FINANCING ON FAVORABLE
TERMS. IN ADDITION, GENERAL ECONOMIC CONDITIONS IN THE UNITED STATES, SOUTHEAST
ASIA, AND ELSEWHERE MAY AFFECT THE COMPANY'S RESULTS.

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, 1997.

THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997

Consolidated net revenues increased 32% from $2,689,583 in the third quarter of
1997 to $3,563,158 in the third quarter of 1998. Despite significantly reduced
sales to Southeast Asia, Lighting Products revenues increased 117% from
$1,041,169 to $2,257,888 due to the addition of $1,413,966 in laser lighting
revenues contributed by Lasiris and $66,354 in microscope lighting revenues
contributed by the Company's Singapore subsidiary. Government and civilian sales
of Military Products decreased $201,901 from $316,474 to $114,573 reflecting the
absence in 1998 of a large contract with a direct mail marketing firm which
favorably impacted 1997, the diminished peacetime demand for military supplies,
and the closing in December, 1997 of the Company's Hong Kong subsidiary which
sold Military Products to the civilian market. Sales of Machine Tool Accessories
decreased from $948,223 in the third quarter of 1997, to $749,891 in the third
quarter of 1998, due to a slowdown in orders from distributors. Sales of Printer
and Recorder Products increased from $383,717 in the third quarter of 1997, to
$440,806 in the third quarter of 1998. Of the total net revenues reported for
the three month period ended September 30, 1998, Salem Division contributed 37%,
Stilson contributed 21%, Lasiris contributed 40%, and Radiant Asiatec Pte., Ltd.
contributed 2%.

Gross profit increased $515,555 from $806,902 in the third quarter of 1997 to
$1,322,457 in the third quarter of 1998, as the Company experienced the positive
effects of the acquisition of Lasiris, through increased revenues and higher
gross profit margins. Selling expenses decreased $41,744, reflecting reduced
commission expense on lower sales at the Stilson Division and reduced costs of
sales personnel in the Salem division. Research and Development Expenses
increased by $34,282 in 1998, which includes $83,042 in research and development
expenses from Lasiris. General and Administrative costs increased $214,371 from
$635,895 in the third quarter of 1997 to $850,266 in the third quarter of 1998.
Of this increase, $338,692 is attributable to expenses reported by the Company's
new Singapore subsidiary and Lasiris and associated corporate expenses, with the
balance due largely to increased personnel costs, legal expenses and bank
charges. Interest expense increased by $69,087 in the third quarter of 1998 as
compared to the third quarter of 1997, primarily as a result of the Company's
increased indebtedness.

NINE-MONTH PERIODS ENDING SEPTEMBER 30, 1998 AND 1997

Consolidated net revenues increased 10% from $8,227,525 in the third quarter of
1997 to $9,058,439 in the third quarter of 1998. Despite significantly reduced
sales to Southeast Asia, Lighting Products revenues increased

<PAGE>

65% from $3,007,329 to $4,974,879 due to the addition of $2,093,461 in laser
lighting revenues contributed by Lasiris and $189,568 in microscope lighting
revenues contributed by the Company's Singapore subsidiary. Government and
civilian sales of Military Products decreased $827,784 from $1,149,038 to
$321,254 reflecting the absence in 1998 of a large contract with a direct mail
marketing firm which favorably impacted 1997, the diminished peacetime demand
for military supplies, and the closing in December, 1997 of the Company's Hong
Kong subsidiary which sold Military Products to the civilian market. Sales of
Machine Tool Accessories decreased from $2,944,940 in the third quarter of 1997,
to $2,572,198 in the third quarter of 1998, due to a slowdown in orders from
distributors. Sales of Printer and Recorder Products increased from $1,126,308
in the third quarter of 1997, to $1,190,110 in the third quarter of 1998. Of the
total net revenues reported for the three month period ended September 30, 1998,
Salem Division contributed 47%, Stilson contributed 28%, Lasiris contributed
23%, and Radiant Asiatec Pte., Ltd. contributed 2%.

Gross profit increased $178,810 from $3,087,961 in the first nine months of 1997
to $3,266,771 in the first nine months of 1998, as the Company experienced the
positive effects of the acquisition of Lasiris, through increased revenues and
higher gross profit margins. Selling expenses decreased $115,575, reflecting
reduced commission expense on lower sales at the Stilson division and reduced
costs of sales personnel in the Salem division. Research and Development
Expenses increased by $89,457 in 1998, which includes of $120,468 of expenses
from Lasiris. General and Administrative costs increased $874,095 from
$1,488,138 in the first nine months of 1997 to $2,362,233 in the first nine
months of 1998. Of this increase, $703,812 is attributable to expenses reported
by the Company's new Singapore subsidiary and Lasiris and associated corporate
expenses, with the balance due largely to increased personnel costs, legal
expenses and bank charges. Interest expense increased $155,589 in 1998 as a
result of the Company's increased indebtedness.

In accordance with the provisions of Statement of Financial Standards (SFAS) No.
121 --"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company periodically assesses the realizability
of its long-lived assets. In addition to this periodic review, the Company is
obliged to initiate such an assessment in the event of a change in the Company's
assets or in the valuation of its assets.

On July 14, 1998, the Company announced that it had signed a non-binding letter
of intent to sell Stilson. As of June 30, 1998 the carrying value of Stilson's
net assets was $2.0 million plus a portion of the goodwill recorded in 1989 when
the Company, including Stilson, was acquired. This proposed sale of Stilson
required the Company to assess the realizability of goodwill. There was no
allocation of goodwill to the individual divisions of the Company at the time of
the acquisition in 1989. Accordingly, management of the Company has evaluated
the cash flow generated by Stilson for the five years preceding and the five
years following the acquisition relative to the cash flow of the entire Company.
Management also reviewed their expectations, at the time of the 1989
acquisition, of the future cash flow of Stilson. Based on this assessment
management has allocated approximately 60% of the goodwill resulting from the
1989 acquisition to Stilson, $4.9 million net of amortization at June 30, 1998.
Therefore the net assets of Stilson at June 30, 1998 inclusive of goodwill was
approximately $6.9 million. The purchase price for the net assets of Stilson set
forth in the letter of intent was $3.0 million. Accordingly, at June 30, 1998
the Company wrote down the carrying value of the net assets of Stilson to $3.0
million and recorded a charge of $3.9 million which is included in the goodwill
impairment in the three-month period ended June 30, 1998. On November 9, 1998,
the Company announced that the agreement, dated July 14, 1998, for the proposed
sale of the assets of its Stilson Division to De-Sta-Co Industries had been
terminated.

After allocating the portion of the goodwill associated with Stilson, the
Company assessed the realizability of the remaining goodwill from the 1989
acquisition, $3.5 million, net of amortization as of June 30, 1998. Based upon
the changes in the Company since 1989 and the recent history of losses, the
Company concluded that the realizability of the remaining goodwill is uncertain
and that the carrying value should be written down to zero. As a result of this
assessment the Company recorded a charge of $3.5 million which was included in
the goodwill impairment in the three months ended June 30, 1998 to write down
the remaining goodwill from the 1989 acquisition not allocated to Stilson.

LIQUIDITY AND CAPITAL RESOURCES

The Company finances its operations primarily through third party credit
facilities and cash from operations. Net cash used in operations was $194,890
for the nine months ended September 30, 1998 and $1,976,712 for the nine months
ended September 30, 1997.

The Company's primary third party financing relationship is with Fleet National
Bank of Massachusetts, N.A. (the "Bank"). The initial Credit Agreement between
the Company and the Bank, dated March 6, 1995 (the "Credit Agreement"), provided
for a Revolving Line of Credit Loan (the "Revolving Loan") and a Long Term Loan
(the "Term Loan") both due March 31, 1998. As of April 1, 1998, the Company and
the Bank entered into

<PAGE>

an agreement to extend the maturity dates of its Revolving Loan and Term Loan to
January 2, 1999. The Revolving Loan and the Term Loan bear interest at the
Bank's base rate plus 2% from July 1, 1998 through the maturity date. The
Company is obligated to pay monthly extension fees of $10,000 payable on the
last day of each of October, November and December. At September 30, 1998 there
was a total of $2,959,031 borrowed under the Credit Agreement and availability
to borrow of $149,090 under the Revolving Loan. The Company is exploring
financing alternatives and intends to refinance before maturity.

Under the terms of the Credit Agreement, as amended, the Company is required to
comply with a quarterly minimum net income covenant. As of June 30, 1998, the
Company was not in compliance with this covenant, and on July 21, 1998, the Bank
granted a waiver of the net income covenant for the quarter ended June 30, 1998.
As of September 30, 1998 the Company was not in compliance with this covenant,
and on November 5, 1998 the Bank granted a waiver of the net income covenant for
the quarter ended September 30, 1998.

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.

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. The Company financed a portion of the cash
consideration paid for Lasiris through a private placement of 350,000 shares of
the Company's common stock at a price of $3.50 per share, which generated net
proceeds to the Company of $1,124,716, after offering expenses of $100,284.

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 matures on May 13, 1999.
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, 1998 is $746,796. The Company intends to refinance this indebtedness prior
to its maturity but can give no assurance as to whether such indebtedness will
be refinanced or as to the terms of such refinancing.

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 payable on
demand. As of September 30, 1998, borrowings on the TD Line of Credit were
$515,000 CDN ($345,050 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, 1998, the outstanding balance on the TD Four-Year Term Loan was
$916,667 CDN ($641,667 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, 1998, the outstanding balance on the TD Two-Year Term Loan was $66,667 CDN
($46,667 US).

On May 7, 1998, Beverly Hospital Corporation prepaid its $1,000,000 Note
Receivable due to the Company, less a $50,000 discount for early payment. The
proceeds were used to finance a portion of the Lasiris acquisition.

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,
1998, the Company had borrowed $331,656 against such line of credit.

Accounts payable increased $1,116,285 from December 31, 1997 to September 30,
1998. Of this increase $698,902 resulted from the Lasiris acquisition and the
balance is attributable to increased payment cycles. Company expenditures for
capital equipment were $435,650 in the first nine months of 1998 as compared to
$791,196 in the same period of 1997. The majority of the 1997 expenditures
related to the Company's new fiber optic product line. The majority of the 1998
expenditures related to the purchase of new CNC machinery at Stilson.

On July 14, 1998, the Company announced that it had signed a non-binding letter
of intent to sell Stilson to De-Sta-Co Industries. On November 9, 1998, the
Company announced that the agreement, dated July 14, 1998, for

<PAGE>

the proposed sale of the assets of its Stilson Division to De-Sta-Co Industries
had been terminated. As a result, the Company will have increased general and
administrative expenses incurred in the negotiation and due diligence process
and increased accounts payable attributable to payment cycles which the Company
lengthened in anticipation of the sale.

The Company contemplates that it may seek to raise additional capital by the
issuance of equity the proceeds of which may be used among other things in
connection with refinancing its senior credit facility. The Company's existing
Credit Agreement with the Bank will expire on January 1, 1999 by its terms.
While the Company is currently exploring establishing a replacement credit
facility with various commercial lenders, the Company can give no assurance as
to whether such a replacement credit facility will be established or as to the
terms of such credit facility. Assuming the continued availability of the
Company's Credit Agreement with the Bank or a replacement credit facility, the
Company believes that its available financial resources are adequate to meet its
foreseeable working capital, debt service and capital expenditure requirements
through the next twelve months. If the Company is unable to refinance or extend
its Credit Agreement with the Bank prior to maturity, then it will be unable to
repay such indebtedness when due and the Bank may declare a default. Were a
default to be declared, the Company would not be able to continue to operate
absent alternative financing sources. The Company has been advised by its
independent public accountants that, if this contingency has not been resolved
prior to the completion of their audit of the Company's financial statements for
the year ending December 31, 1998, their auditors' report on those financial
statements will be modified for that contingency. Based on management's
discussions with the Bank and various other lenders, management believes that it
has reasonable prospects for refinancing the Credit Agreement and that, in the
event such refinancing is not completed prior to January 1, 1999, it will be
able to negotiate an extension to the maturity of the Credit Agreement. However,
there can be no assurance that any such refinancing will be consummated or as to
the terms and conditions of any refinancing. At this time the Company has not
developed alternative financing sufficient to fund the repayment of the tota1
amount of its indebtedness maturing on January 2,1999.

FOREIGN CURRENCY FLUCTUATIONS

Historically, foreign currency fluctuations have had only a minor impact on the
Company's results of operations. In 1997 and 1996, such foreign currency
fluctuations were favorable and totaled $30,709 in 1997 and $13,103 in 1996. The
Company's direct exposure to foreign currency exchange fluctuations is limited
to contracts denominated in Swiss Franc. The Company has Swiss Franc contracts
to purchase watches at an agreed fixed cost and corresponding contracts with the
General Services Administration to sell those watches at a fixed price. For
1997, the Company recorded favorable Swiss Franc currency exchange rate
fluctuations of $13,303. At December 31, 1997, the Company had a total foreign
currency liability of $273,148 Swiss Francs.

With the exception of these Swiss Franc contracts, the financial operations of
the Salem and Stilson Divisions are conducted in U.S. dollars. All sales
originated by United States operations, including those sales to foreign
customers, are denominated in U.S. dollars. Similarly, the financial operations
of each of the Company's subsidiaries are conducted in the local currency (i.e.,
sales by Stocker & Yale Hong Kong, Ltd, were denominated in Hong Kong dollars,
and sales by Radiant Asiatec Pte Ltd. are denominated in Singapore dollars.)

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 are under the Company's
operation and over which the Company exercises some control, and External
Matters, which are outside the Company's control and influence. The Company has
elected first to address Internal Matters, in the belief that most other
companies and institutions are similarly working to resolve their own
mission-critical issues and that as a result an early assessment of External
Matters would be premature.

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

<PAGE>

        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.

        c)  Marketing Sales Management (MSM) Software supported by IMA

            The Year 2000 compliant version of MSM became available in
            November, 1998. The Company plans to install this Year 2000
            Compliant Version 6.5A prior to March, 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 different 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 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. Subsequent phases will include obtaining written
        certification of Year 2000 testing by providers followed by 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, our engineers have
        compiled a Product Compliance Listing (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 listed on the Company Web Site at www.stkr.com. The
        listing 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
<PAGE>

        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 will soon be provided along with the List 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 Stocker &
        Yale 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. Stocker & Yale 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
        Stocker & Yale 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 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, the information in the
        List may be changed by Stocker & Yale without notice to the customer.
        Therefore, please contact the Company for further updates and confirm
        Year 2000 readiness of the products in your own environment. 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, it has been
        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 Stocker & Yale Telephone System Manual Clock Date Set
        Required

The Company estimates that it has completed approximately 60% of its year 2000
Plan regarding Internal Matters. The Internal Matter review process is planned
for completion by the end of the first quarter 1999.

EXTERNAL MATTERS

        The Company is about to commence review of External Matters which are
outside the Company's control and influence. This process will be 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

<PAGE>

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 27% 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/A-1

<TABLE>
<CAPTION>
    EXHIBIT NUMBER             DESCRIPTION
    <S>                        <C>
    10.1(p)                    Waiver of Certain Provisions of the Credit Agreement
                               dated November 5, 1998.*

    27.1                       Financial Data Schedule*
</TABLE>


(b)     The Company's Form 8-K (as amended by 8-K/A) relating to the acquisition
        of Lasiris, Inc. was filed with the Securities and Exchange Commission
        on May 27, 1998.

* Previously filed as part of Form 10-QSB, for the quarterly period ended
  September 30, 1998, filed on November 16, 1998

<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.



Date: February 28, 2000         By: /s/ Mark W. Blodgett
                                ------------------------------------------------
                                Mark W. Blodgett, Chairman and Chief Executive
                                  Officer



Date: February 28, 2000         By: /s/ Gary B. Godin
                                ------------------------------------------------
                                Gary B. Godin, Senior Vice President-Finance
                                  and Treasurer