StockerYale, Inc. Form 10-K 12/31/2003

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-K/A-2

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2003

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000 - 27372

STOCKERYALE, INC.

Massachusetts
(STATE OF INCORPORATION )

04-2114473
( I.R.S. ID)

32 HAMPSHIRE ROAD, SALEM, NEW HAMPSHIRE 03079
(603) 893-8778

Securities registered pursuant to Section 12(b) of the Act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 par value

Name of each exchange on which registered:
The NASDAQ Stock Market, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule12b-2, of the Act). YES o NO x

The registrant's revenues for the fiscal year ended December 31, 2003 were $14,117,000.

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2003 was $8,500,972.

The number of shares outstanding of the registrant's common stock as of October 1, 2004 was 21,570,237.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held May 17, 2004 are incorporated by reference into Part III.

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2003 Form 10-K/A-2

StockerYale, Inc.

FORM 10-K/A-2

For the Fiscal Year Ended December 31, 2003

INDEX

Part I
Item 3	Legal Proceedings	3

Part II
Item 8	Financial Statements and Supplementary Data	4

Part IV
Item 15	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	31
	Signatures	35

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2003 Form 10-K/A-2

Table of Contents

Part I
Item 3

Explanatory Note

This Form 10-K/A-2 of StockerYale, Inc. amends the annual report on Form 10-K for the year ended December 31, 2003 filed on March 30, 2004. On April 12, 2004 the Company reported a change in certifying accountant to Vitale, Caturano & Company Ltd. and subsequently chose to reaudit its consolidated financial statements for the two years ended December 31, 2003. While no modifications were made to the income statement, balance sheet or the net change in cash and cash equivalents, certain components of the cash flow statements for the two years ended December 31, 2003 were reclassified between operating cash flow, financing cash flow, investing cash flow and effect of exchange rate categories. In 2003 Operating cash flows, financing cash flows, investing cash flows and effect of exchange rates changed by $430,000; ($823,000); ($167,000); and $560,000 respectively. In 2002 Operating cash flows, investing cash flows and effect of exchange rates changed by ($311,000), $247,000 and $64,000 respectively. This 2003 Form 10-K/A-2 also modifies certain footnote disclosures and includes updates to legal proceedings and the new audit opinion for the two years ending December 31, 2003.

This Form 10-K/A-2 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.You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," " intend," "estimate," "assume," and other similar expression which predict or indicate future events and trends and which do not relate to historical matters. The Company's actual results, performance or achievements could differ materially from our expectations expressed or implied by the forward-looking statements sometimes for reasons that are beyond the Company's control. Such reasons include, without limitation: the existence of other suppliers of optical components and illumination products, who may have greater resources than the Company; the risk that the Company's products may infringe patents held by other parties; the uncertainty that the Company's significant investments in R&D will result in products that achieve market acceptance; the Company's ability to attract and maintain key personnel; whether the Company is able to design products to meet the special needs of its customers; and that market conditions could make it more difficult or expensive for the Company to obtain the necessary capital to finance necessary research and development projects, operations as well as its ability to refinance existing debt. Additional factors that might cause such a difference are discussed in the section entitled "Certain Factors Affecting Future Operating Results" beginning on page 23 of the Company's Form 10-K filed with the Securities and Exchange Commission on March 30, 2004.

Part I
Item 3

ITEM 3. LEGAL PROCEEDINGS

At times, the Company may be involved in disputes and/or litigation with respect to its products and operations in its normal course of business. The Company does not believe that the ultimate impact of the resolution of such matters would have a material adverse effect on the Company's financial condition or results of operations. In August of 2004 StockerYale was informed by the staff of the Securities and Exchange Commission (the "SEC") that the SEC is conducting a formal investigation into certain matters relating to the company. The company understands that the SEC's investigation relates to press releases that the company issued on April 19, 2004 and April 21, 2004, and trading in the company's securities on or around the time the press releases were issued. The SEC has not concluded that there has been any wrongdoing, and the company is cooperating fully with the SEC in the conduct of this inquiry. The Company is not currently involved in any other legal proceedings.

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2003 Form 10-K/A-2

Table of Contents

Part II
Item 8

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 is presented on pages 4 through 30 of this Form 10-K/A-2.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Item	Page
Independent Auditor's Reports	4
Consolidated Balance Sheets as of December 31, 2003 and 2002	6
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002 and 2001	7
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2003, 2002 and 2001	8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001	9
Notes to Consolidated Financial Statements	10

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of StockerYale, Inc.:

Salem, New Hampshire

We have audited the accompanying consolidated balance sheets of StockerYale, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. Our audits also included the 2003 and 2002 financial statement schedules listed in the Index at Item 15(a) 2. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. The consolidated financial statements and the financial statement schedule for the year ended December 31, 2001, before the inclusion of the goodwill disclosures discussed in Note 8 to the financial statements, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that the 2001 financial statement schedule, when considered in relation to the 2001 basic financial statements taken as a whole, presented fairly, in all material respects, the information set forth therein, in their report dated February 25, 2002 (except with respect to the matter discussed in Note 18 to the 2001 financial statements, as to which the date was March 8, 2002).

We conducted our audits in accordance with auditing standards of the Public Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 2003 and 2002 consolidated financial statements present fairly, in all material respects, the financial position of StockerYale, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2003 and 2002 financial statement schedules, when considered in relation to the 2003 and 2002 basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

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Item 8

As discussed above, the consolidated financial statements of StockerYale Inc. and subsidiaries for the year ended December 31, 2001, were audited by other auditors who have ceased operations. As described in Note 8, the 2001 consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 8 with respect to 2001 included (1) comparing the previously reported net loss to the previously issued financial statements and the adjustment to reported net loss representing amortization expense (including any related tax effects) recognized in 2001 related to goodwill to the Company's underlying analysis obtained from management, and (2) testing the mathematical accuracy of the reconciliation of adjusted net loss to reported net loss and the related loss-per-share amounts. In our opinion, the disclosures for 2001 in Note 8 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 consolidated financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

As discussed in Note 8, in the year ended December 31, 2002, the Company changed its method of accounting for goodwill and intangible assets to conform with the provisions of SFAS No. 142.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, at December 31, 2003, the Company's recurring losses from operations, need to obtain additional financing, and its negative working capital position raise substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ VITALE, CATURANO & CO. LTD.

Vitale, Caturano & Co., Ltd.

Boston, Massachusetts

October 8, 2004

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Note:

The following audit report of Arthur Andersen LLP (Andersen) is a copy of the report previously issued by Arthur Andersen on February 25, 2002 (and on March 8, 2002 with respect to other matters) in connection with StockerYale, Inc.'s filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K.

To the Directors and Stockholders of StockerYale, Inc.:

We have audited the accompanying consolidated balance sheets of StockerYale, Inc. (a Massachusetts corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of StockerYale, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

/s/ Arthur Andersen LP

Arthur Andersen LLP

Boston, Massachusetts

February 25, 2002

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Item 8

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

In thousands (except share data)
Year Ended December 31	2003		2002
Assets
Current assets:
Cash and cash equivalents	$	1,008	$	3,070
Restricted cash		-		2,000
Accounts receivable, less allowances of approximately $103 in 2003 and $155 in 2002		2,102		2,200
Inventories		3,799		4,478
Prepaid expenses and other current assets		188		747
Total current assets		7,097		12,495
Property, plant and equipment, net		20,550		23,650
Goodwill		2,677		2,677
Acquired intangible assets, net		1,463		1,785
Officer note receivable		263		249
Other long-term assets		639		464
Total assets	$	32,689	$	41,320
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt, net of unamortized discount of $155 in 2003 and $269 in 2002	$	3,365	$	5,306
Short-term debt		5,091		7,446
Accounts payable		2,061		2,050
Accrued expenses		943		1,399
Short-term portion of capital lease obligation		47		61
Total current liabilities		11,507		16,262
Long-term debt and capital lease obligations net of unamortized discount of $958 in 2003		3,934		96
Other long-term liabilities		17		-
Commitments and contingencies (See Note 19)
Stockholders' equity:
Common stock, par value $0.001-shares authorized 100,000,000; Shares issued and outstanding 14,791,123 and 12,771,524 at December 31, 2003 and 2002, respectively		15		13
Paid-in capital		70,948		68,637
Accumulated other comprehensive income (loss)		1,340		(266)
Accumulated deficit		(55,072)		(43,422)
Total stockholders' equity		17,231		24,962
Total liabilities and stockholders' equity	$	32,689	$	41,320

See the notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF OPERATIONS

In thousands, except earnings per share
Year Ended December 31	2003			2002			2001
Revenue	$	14,117		$	12,992		$	15,581
Cost of sales		11,173			11,159			11,303
Gross profit		2,944			1,833			4,278
Operating expenses:
Selling		2,825			3,451			4,466
General and administrative		4,560			5,513			7,825
Amortization		322			329			678
Research and development		3,664			6,203			5,465
Asset Impairment		1,905			1,570			-
Total operating expenses		13,276			17,066			18,434
Loss from operations		(10,332	)		(15,233	)		(14,156	)
Interest and other income (expense)		(169)			142			441
Interest expense		(1,224	)		(417	)		(757	)
Loss from continuing operations before income tax (benefit)		(11,725	)		(15,508	)		(14,472	)
Income tax (benefit)		(75)			-			(801	)
Loss from continuing operations		(11,650	)		(15,508	)		(13,671	)
Loss from discontinued operations		-			-			(191	)
Net loss	$	(11,650	)	$	(15,508	)	$	(13,862	)
Basic and diluted loss per share:
Loss per share from continuing operations	$	(0.85	)	$	(1.22	)	$	(1.28	)
Loss per share from discontinued operations		-			-			(0.02	)
Net loss per share	$	(0.85	)	$	(1.22	)	$	(1.30	)
Weighted average shares outstanding:
Basic and diluted		13,707			12,685			10,683

See the notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

		Common Stock
		Shares		$0.001 Par Value		Paid-in Capital	Accumulated (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity			Comprehensive Income (Loss)
Balance, December 31, 2000		9,386	$	9	$	42,071	$	(14,052	)	$	(129	)	$	27,899		$	-
	Sale of common stock net of issuance costs of $1.4 million	1,700	$	2	$	15,904	$	-		$	-		$	15,906		$	-
	Issuance of common stock to employees	306	$	-	$	334	$	-		$	-		$	334		$	-
	Cumulative translation adjustment	-	$	-	$	-	$	-		$	(252	)	$	(252	)	$	(252	)
	Net loss	-	$	-	$	-	$	(13,862	)	$	-		$	(13,862	)	$	(13,862	)
	Comprehensive net loss for the year ended December 31, 2001															$	(14,114	)
Balance, December 31, 2001		11,392	$	11	$	58,309	$	(27,914	)	$	(381	)	$	30,025		$	-
	Sale of common stock net of issuance costs of $0.11 million	1,243		2		9,534		-			-			9,536			-
	Issuance of common stock to employees	103		-		324		-			-			324			-
	Issuance of common stock for acquisition of CIENA Group	34		-		200		-			-			200			-
	Warrants to purchase common stock	-		-		270		-			-			270			-
	Cumulative translation adjustment	-		-		-		-			115			115			115
	Net loss	-		-		-		(15,508	)		-			(15,508	)		(15,508	)
	Comprehensive net loss for the year ended December 31, 2002															$	(15,393	)
Balance, December 31, 2002		12,772	$	13	$	68,637	$	(43,422	)	$	(266	)	$	24,962
	Sale of common stock net of issuance costs of $0.08 million	1,610		2		891		-			-			893			-
	Issuance of common stock to employees	25		-		24		-			-			24			-
	Issuance of common stock for StockerYale Ireland shareholders	319		-		380		-			-			380			-
	Issuance of common stock for Laurus convertible note	65		-		69		-			-			69			-
	Warrants and beneficial conversion option to purchase common stock					947								947
	Cumulative translation adjustment	-		-		-					1,606			1,606			1,606
	Net loss							(11,650	)					(11,650	)		(11,650	)
	Comprehensive net loss for the year ended December 31, 2003															$	(10,044	)
Balance, December 31, 2003		14,791	$	15	$	70,948	$	(55,072	)	$	1,340		$	17,231

See the notes to consolidated financial statements.

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CONSOLIDATED CASH FLOWS STATEMENTS

In thousands
Year Ended December 31	2003			2002			2001
Operations
Net loss	$	(11,650	)	$	(15,508	)	$	(13,862	)
Less: net loss on discontinued operations		-			-			(191)
		(11,650	)		(15,508	)		(13,671	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,656			2,580			2,066
Asset impairment		1,905			1,570			-
Accretion of original issue discount		258			-			-
Gain on disposal of assets		(28	)		-			-
Deferred income taxes and other charges		-			(263	)		(696	)
Loss on investment in joint venture		-			167			380
Other changes in assets and liabilities:
Accounts receivable, net		98			(109	)		580
Officer note receivable		(14	)		(249	)		-
Inventories		679			746			(28	)
Prepaid expenses and other current assets		559			331			(216	)
Accounts payable		93			(1,741	)		2,155
Accrued expenses		(59	)		(403	)		106
Other assets and liabilities		158			(198	)		-
Net cash used in operations		(5,345	)		(13,077	)		(9,324	)

Financing
Proceeds from sale of common stock		917			9,860			16,240
Borrowings (repayments) of revolving credit facilities		(2,285)			3,713			2,688
Net proceeds from repayments of convertible note		2,334			(253	)		-
Proceeds from long-term debt		3,012			4,000			-
Principal repayment of long-term debt		(3,148	)		(1,195	)		-
Restricted cash related to Merrill Lynch		1,809			-			(1,500	)
Debt acquisition costs		(110)			(244	)		-
Net cash provided by financing activities		2,529			15,881			17,428

Investing
Proceeds from sale of assets		322			-			-
Purchases of property, plant and equipment		(80	)		(958	)		(18,912	)
Net investment in joint venture		-			(260	)		(600	)
Net proceeds from sale of discontinued operations		-			-			659
Proceeds from note receivable		-			104			90
Cash paid for acquisition		-			(375	)		-
Net cash provided (used for) investing		242			(1,489	)		(18,763	)
Effect of exchange rates		512			179			(252	)
Net change in cash and equivalents		(2,062	)		1,494			(10,911	)
Cash and equivalents, beginning of year		3,070			1,576			12,487
Cash and equivalents, end of year	$	1,008		$	3,070		$	1,576
Supplemental disclosure of cash flow information:
Interest paid		1,105			417			757
Stock issued in CIENA acquisition		-			200			-
Conversion of BES shares		380			-			-
Conversion of Laurus convertible note		69			-			-

See the notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003

(1) ORGANIZATION AND BASIS OF PRESENTATION

StockerYale, Inc. (the Company) was incorporated in 1951, and is primarily engaged in the design, manufacture and distribution of structured light lasers, specialized fiber optic and fluorescent illumination products used in a wide range of markets and industries, including: machine vision, telecommunications, aerospace, defense and security, utilities, industrial inspection and medical markets.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the consolidated financial statements, during the years ended December 31, 2003, 2002 and 2001, the Company incurred net losses of $11,650,000, $15,508,000 and $13,862,000 respectively, and, as of December 31, 2003, the Company's current liabilities exceeded its current assets by $4,410,000. These factors among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to comply with the terms and covenants of its financing agreements, to obtain additional financing or refinancing as may be required, and ultimately to attain successful operations. Management is continuing its efforts to obtain additional funds so that the Company can meet its obligations and sustain operations from sources that are described in Note 2 to the consolidated financial statements.

(2) MANAGEMENT PLAN

In 2000 the Company made a strategic decision to utilize its optics and manufacturing expertise in phase masks and fiber optic illumination to expand into specialty optical fiber and optical components. This was based on high growth expectations for the telecommunications infrastructure in order to facilitate the rapid growth in Internet traffic. Given management's expectations of the optical component industry's rapid growth and the communications industry's growing demand for advanced telecommunications equipment, the Company over the following three years invested significant equity capital in plant and equipment, research and development and commercialization expenses.

However, as the original equipment manufacturers (OEMs) in the telecommunication sector continued to curtail purchases in the first half of 2002, the Company realized that while the telecom equipment market still offered long-term growth potential, near-term revenue opportunities for optical components would be adversely affected. This change in market conditions required the Company to significantly modify its expectations for specialty fiber and component revenue in the foreseeable future.

In 2002, the Company began to significantly reduce its overall cost structure, and most importantly, its investment in research and development expenses related to optical components. The Company ceased funding two joint ventures and reduced its headcount in research and development, as well as selling and general and administration expenses.

As the recession and telecommunications slump continued into 2003, the Company focused its sales and research and development efforts on new laser, LED and related products for the machine vision/illumination sector and reduced manufacturing overhead and operating expenses, resulting in a $4.9 million or 32% reduction in its operating loss from $15.2 million in 2002 to $10.3 million in 2003.

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Based upon the Company's current forecast for 2004, the Company plans to increase revenues, reduce costs and pursue various options to raise additional funds to finance operations through the end of 2004. The Company can give no assurances to the timing or terms of such arrangements, assuming it is able to consummate one or more of these options. If the Company is unable to raise sufficient funds through these options by the end of the of 2004, it will need to implement further cost reduction strategies, and the Company may not have adequate capital to sustain its current operations. Financing options in process or under consideration are the sale of real estate and/or a private placement of equity/debt securities. The Company expects to close several of these financing options by the end of 2004. See the disclosure in Subsequent Events (22) regarding financing activity subsequent to December 31, 2003.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying consolidated financial statements and notes.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries, StockerYale (IRL) Ltd, Lasiris Holdings, Inc., which holds all of the outstanding shares of StockerYale Canada, Innovative Specialty Optical Fiber Components LLC and StockerYale Asia PTE Ltd. All intercompany balances and transactions have been eliminated. The Company has a 49% ownership interest in Optune Technologies, Inc. that has been accounted for under the equity method.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments with original maturities of three months or as of the balance sheet date.

RESTRICTED CASH

The Company maintained certain levels of restricted cash required as collateral under the original borrowing agreement with Merrill Lynch. The agreement required that $2,000,000 be held in escrow as long as there is an outstanding balance under the agreement. The Company maintained the restricted cash in highly liquid investments with original maturities of three months or less. On September 30, 2003, the credit facility with Merrill Lynch was amended and the $2,000,000 restricted cash was applied to reduce the term note outstanding. As of December 31, 2003, there are no funds in the restricted cash account with Merrill Lynch.

ACCOUNTS RECEIVABLE

The Company reviews the financial condition of new customers prior to granting credit. After completing the credit review, the Company establishes a credit line for each customer. Periodically, the Company reviews the credit line for major customers and adjusts the credit limit based upon an updated financial condition of the customer, historical sales and payment information and expected future sales. The Company has a large number of customers; therefore, material credit risk is limited.

The Company periodically reviews the collectibility of its accounts receivable. Provisions are established for accounts that are potentially uncollectible. Determining adequate reserves for accounts receivable requires management's judgment. Conditions impacting the collectibility of the Company's receivables could change causing actual write-offs to be materially different than the reserved balances.

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INVENTORY

The Company values inventories at the lower of cost or market using the first in, first-out ("FIFO") method. The Company specifically evaluates historical and forecasted demand of the illumination product line to determine if the carrying value of both finished goods and raw materials is recoverable through future sales. The Company also estimates the impact of increased revenues for new products versus the potential obsolescence of older products on a case-by-case basis. As a result of this analysis, the Company reduces the carrying value amount of the inventory. Actual results could be different from management's estimates and assumptions.

INTANGIBLE ASSETS

The Company's intangible assets consist of goodwill, which ceased being amortized in 2002 and amortizing intangibles, which consist of patents, trademarks and purchased patented technologies, which are being amortized over their useful lives. All intangible assets are subject to impairment tests on a periodic basis.

Note 8 describes the impact of accounting for the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Intangible Assets, and the annual impairment methodology that the Company will employ on January 1st of each year in calculating the recoverability of goodwill. This same impairment test will be performed at other times during the course of the year should an event occur which suggests that the recoverability of goodwill should be challenged. Amortizing intangibles are evaluated for impairment using the methodology set forth in SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of. Recoverability of these assets is assessed only when events have occurred that may give rise to an impairment. When a potential impairment has been identified, forecasted undiscounted cash flows of the operations to which the asset relates are compared to the current carrying value of the long-lived assets present in that operation. If such cash flows are less than such carrying amounts, long-lived assets, including such intangibles, are written down to their respective fair values.

LONG-LIVED ASSETS

The Company reviews the recoverability of its long-lived assets, primarily property, plant and equipment, when events or changes in circumstances occur that indicate that the carrying value of the assets may not be recoverable. This review is based on the Company's ability to recover the carrying value of the assets from expected undiscounted future cash flows. If an impairment is indicated, the Company measures the loss based on the fair value of the asset using various valuation techniques. If an impairment loss exists, the amount of the loss will be recorded in the consolidated statements of operations. It is possible that future events or circumstances could cause these estimates to change.

During the fourth quarter of 2002, the Company recorded a $1,570,000 asset impairment charge. The impairment charge is primarily attributed to the reduction in the carrying value of fixed assets and equity investments in joint ventures for selective research and development projects. The Company has determined that they will not continue to fund these projects and the joint venture was not able to raise additional outside funding. The Company has reduced the carrying value of the assets based on various cash flow techniques including discounted cash flow and market analysis.

During the third and fourth quarters of 2003, the Company recorded asset impairment charges of $605,000 and $1,300,000 respectively. The third quarter charge related to the closing of the Company's Maryland specialty optical fiber facility and the write-off of equipment deposits for the optical segment of the business. The fourth quarter charge relates to a reduction in the market value of the Salem headquarter facility.

LOSS PER SHARE

Loss per share, basic and diluted, is calculated by dividing the net loss by the weighted average number of common shares outstanding. For the years ended December 31, 2003, 2002, and 2001, 3,552,673, 3,204,143, 2,309,274 options and 1,259,957, 269,957, and 19,957 warrants, respectively, were excluded from the calculation of diluted shares, as their effects were anti-dilutive.

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REVENUE RECOGNITION

The Company recognizes revenue from product sales at the time of shipment and when persuasive evidence of an arrangement exists, performance of the Company's obligation is complete, the price to the buyer is fixed or determinable, and collectibility is reasonably assured. In certain limited situations, customers have the right to return products. Such rights of return have not precluded revenue recognition because the Company has a long history with such returns and accordingly is able to provide a reasonable estimate for sales returns and allowances.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is valued at the lower of cost or estimated carrying values. The Company provides for depreciation on a straight-line basis over the assets estimated useful lives or lease terms, if shorter. The following table summarizes the estimated useful lives by asset classification:

Asset Classification	Estimated Useful Life
Building and building improvements	10 to 40 years
Computer equipment	3 to 5 years
Machinery and equipment	5 to 10 years
Furniture and fixtures	3 to 10 years

Total depreciation expense of property, plant and equipment was approximately $2.2 million in 2003, $2.1 million in 2002, and $1.4 million in 2001. Maintenance and repairs are expensed as incurred.

INCOME TAXES

The Company accounts for income taxes under the liability method. Under this method the Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax basis of the assets and liabilities using tax rates expected to be in place when the differences reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized.

STOCK-BASED COMPENSATION

The Company accounts for employee stock options and share awards under the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25), with pro-forma disclosures of net earnings and earnings per share, as if the fair value method of accounting defined in Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, "SFAS No. 123" was used. SFAS No. 123 establishes a fair value based method of accounting for stock-based employee compensation plans. Under the fair value method, compensation cost is measured based on the fair value of the award and is recognized over the service period, which is usually the vesting period.

Had the Company determined the stock-based compensation expense for the Company's stock options under the provisions of SFAS No. 123, the Company's net loss and net loss per share based upon the fair value at the grant date for stock options awards in 2002, 2001, and 2000, would have increased the pro-forma net loss amounts as indicated below:

	For the Year Ended December 31,
(in thousands)	2003	2002	2001
Net loss
As reported	$ (11,650)	$ (15,508)	$ (13,862)
Additional compensation expense	(4,602)	(4,877)	(3,848)
Pro forma net loss	$ (16,252)	$ (20,385)	$ (17,710)
Net loss per share (basic and diluted)
As reported	$ (0.85)	$ (1.22)	$ (1.30)
Pro forma	$ (1.19)	$ (1.60)	$ (1.66)

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TRANSLATION OF FOREIGN CURRENCIES

The balance sheet accounts of non-U.S. operations, exclusive of stockholders' equity, are translated at year-end exchange rates, and income statement accounts are translated at weighted-average rates in effect during the year; any translation adjustments related to the balance sheet accounts are recorded as a component of stockholders' equity. Foreign currency transaction gains and losses are recorded in the statements of operations and have not been material.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as net income plus the change in the net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Accumulated other comprehensive income (loss) included in the accompanying balance sheets consists of foreign currency translation adjustments.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist mainly of cash and cash equivalents, accounts receivable, short-term debt, accounts payable and long-term debt. The estimated fair value of these financial instruments approximates their carrying value due to the short term maturity of certain instruments and the variable interest rates associated with certain instruments which have the effect of repricing such instruments regularly.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade receivables. The risk is limited due to the relatively large number of customers composing the Company's customer base and their dispersion across many industries and geographic areas within the United States, Europe and Asia. The Company also insures approximately 90% of export receivables from its Canadian subsidiary and performs ongoing credit evaluations of existing customers' financial condition. No customer accounted for more than 10% of sales in 2003. One customer accounted for 16% of sales in 2002 and no other customer accounted for more than 10% of sales in 2002 and 2001.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results in the future could vary from the amounts derived from management's estimates and assumptions.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity instruments. Implementation of this statement had no material effect on the company's financial statements.

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In January 2003 and December 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation for Variable Interest Entities (FIN 46) and its revision, FIN 46-R, respectively. FIN 46 and FIN 46-R address the consolidation of entities whose equity holders have either not provided sufficient equity at risk to allow the entity to finance its own activities or do not possess certain characteristics of a controlling financial interest. FIN 46 and FIN 46-R require the consolidation of these entities, known as variable interest entities (VIEs), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that is subject to a majority of the risk of loss from the VIE's activities, entitled to receive a majority of the VIE's residual returns, or both. FIN 46 and FIN 46-R are applicable for financial statements of public entities that have interests in VIEs or potential VIEs referred to as special purpose entities for periods ending after December 15, 2003, of which the Company had none. Application by public entities for all other types of entities is required in financial statements for periods ending after March 15, 2004. Adoption of FIN 46-R is not expected to have a material impact on our financial position, results of operations or cash flows.

RECLASSIFICATION

Certain amounts reported for prior periods have been reclassified to be consistent with the current period presentation.

(4) INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out basis) or market and include materials, labor and overhead. Inventories are as follows:


	December 31,
(in thousands)	2003			2002
Finished goods	$	992		$	1,417
Work in-process		78			101
Raw materials		4,100			4,195
Reserve for obsolescence		(1,371	)		(1,235	)
Net inventories	$	3,799		$	4,478

Management performs quarterly reviews of inventory and disposes of items not required by their manufacturing plan and reduces the carrying cost of inventory to the lower of cost or market. The Company recorded a charge of $0.7 million in 2003 and $0.4 million in 2002.

(5) OFFICER NOTE RECEIVABLE

On May 31, 2002, Mark W. Blodgett, the chairman and chief executive officer of the Company, issued a promissory note to the Company in the principal amount of $250,000. The note is a full recourse note and is payable upon demand with interest on the unpaid principal accruing at a rate per annum equal to 4.5%. As of December 31, 2003 the Company has received $5,000 in payments and the principal and accrued interest outstanding is $248,750 and $14,000 respectively. The Board of Directors of the Company approved this loan transaction. The Company is not contemplating that its demand rights will be exercised during 2004. Accordingly, the Note has been classified as long-term in the accompanying 2003 Consolidated Balance Sheet.

(6) NOTE RECEIVABLE

On September 19, 2001, the Company sold its machine components and accessories division for $850,000 in cash and a note receivable of $250,000 from the buyer. The note requires payment of interest at a rate of 6.25% only for the first six months with interest and principal payable over the following twelve months. The balance due as of December 31, 2003 is $53,334.

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(7) PROPERTY, PLANT AND EQUIPMENT

Major classes of property, plant and equipment were as follows:


	December 31,
(in thousands)	2003			2002
Land	$	759		$	962
Buildings and improvements		11,206			11,801
Machinery and equipment		15,294			15,125
Furniture and fixtures		1,709			1,557
		28,968			29,445
Less: Accumulated depreciation		(8,418	)		(5,795	)
	$	20,550		$	23,650

(8) GOODWILL

In June 2001, the Financial Accounting Standards Board, ("FASB") issued SFAS No. 142, Goodwill and other Intangible Assets. SFAS No. 142 addresses financial accounting and reporting for goodwill and other intangible assets acquired individually or with a group of other assets at acquisition. The statement also addresses financial accounting and reporting for goodwill and other intangibles subsequent to their acquisition. SFAS No. 142 supersedes APB Opinion No. 17, Intangible Assets. Under SFAS No. 142, the amortization of goodwill ceased beginning January 1, 2002 and the Company assesses the realizability of this asset annually and whenever events or changes in circumstances indicate they might be impaired. The Company estimates the fair value of its reporting units by using forecasts of discounted cash flows. In applying SFAS No. 142, the Company performed the transitional assessment and impairment test required and determined that there was no impairment of goodwill. The Company completed another test for impairment in the fourth quarter of 2003 and determined that goodwill was not impaired. At December 31, 2003, the carrying value of goodwill was approximately $2.7 million.

The transitional disclosure for reported loss for the fiscal year ended December 31, 2001 as adjusted is presented in the table below:


	2001
Net loss as reported	$	(13,862	)
Add back amortization of goodwill, net of tax		326
Adjusted net loss	$	(13,536	)

Loss per share, basic and diluted:
Net loss as reported	$	(1.30	)
Add back amortization of goodwill, net of tax		0.03
Adjusted net loss per share	$	(1.27	)

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(9) INTANGIBLE ASSETS

Intangible assets consist of acquired patented technology and trademarks. Intangible assets are amortized over their estimated useful lives which range from two to five years. The Company has no intangible assets with indefinite lives. The Company reviews intangible assets when indications of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Intangible assets as of December 31, 2002 and 2001 are as follows:

	December 31,
(in thousands)	2003			2002
Acquired patented technology	$	3,078		$	3,078
Trademarks		471			471
Less: accumulated amortization		(2,086	)		(1,764	)
	$	1,463		$	1,785

Amortization of intangible assets was $322,000, $329,000 and $358,000, respectively in fiscal 2003, 2002 and 2001.

The estimated future amortization expense of intangible assets, in thousands, is as follows:

2004				2005				2006				2007				2008 and thereafter
$	318			$	318			$	318			$	319			$	190

(10) ACQUISITIONS

CIENA Acquisition

On May 13, 2002, the Company announced the acquisition of CIENA Corporation's specialty optical fiber (SOF) assets. StockerYale entered into the transaction to take advantage of distressed prices for capital assets, to expand its current product line of specialty optical fibers and become an independent supplier to a major OEM in the telecommunications sector. The acquisition included CIENA's specialty fiber manufacturing equipment and related test and measurement assets, intellectual property related to CIENA's specialty optical fiber technology, a fully developed SOF product line, and a three-year primary supply agreement between CIENA and the Company. The purchase price of $575,000 included $375,000 of cash and 33,613 shares of common stock with an approximate market value of $200,000 of stock which has been allocated to the fiber manufacturing equipment and the related test measurement assets. The Company recorded an asset impairment charge of $266,000 in the third quarter of 2003 related to this asset purchase, which was the result of the Company's decision to not utilize the equipment. The impairment was calculated based upon current market values.

(11) DISCONTINUED OPERATIONS

During 2000, the Company decided to discontinue its machine components and accessories division ("Stilson Die-Draulic"). On March 6, 2001, the Company signed a letter of intent to sell the net assets of the division for $1.1 million. Accordingly, the Company reported the results of the operations of the machine tool and accessories division and the associated impairment charges as discontinued operations. The net loss from discontinued operations was $1.9 million in fiscal 2000 which includes a $1.2 million charge for impairment, principally related to goodwill and net assets of $0.7 million of $0.4 million, respectively. The Company has provided a full valuation allowance on the loss from discontinued operations. In September 2001, the Company completed the sale of Stilson Die-Draulic for $1.1 million, which resulted in an additional loss of $191,000, which has been recorded in the accompanying 2001 statement of operations.

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Certain information with respect to discontinued operations is summarized as follows:


(in thousands)	Year Ended December 31, 2001

Statement of Operations:
Net sales	$	1,453
Cost of sales		1,284
Selling, general and administrative		177
Other expense (income)		(8	)
Cost and expenses		1,453
Loss from discontinued operations		-
Loss on disposal of discontinued operations		(191	)
Net loss from discontinued operations	$	(191	)

(12) TAXES

The components of the provision (benefit) for income taxes are as follows:


(in thousands)	For the Years Ended December 31,
	2003			2002			2001
Current
Federal	$	-		$	-		$	-
State		-			-			-
Foreign		-			263			(186	)
		-			263			(186	)
Deferred
Federal		-			-			-
State		-			-			-
Foreign		(75	)		(263	)		(615	)
Total	$	(75	)	$	-		$	(801	)

The following is a reconciliation of the federal income tax (benefit) provision calculated at the statutory rate of 34% to the recorded amount:


(in thousands)	For the Year Ended December 31,
		2003			2002			2001
Applicable statutory federal income tax benefit	$	(3,987	)	$	(5,273	)	$	(4,923	)
State income taxes, net of federal income tax benefit		(648	)		(857	)		(629	)
Non-deductible amortization and impairment charge		127			177			64
Foreign tax rate differential		-			154			239
Other, net		646			538			(19	)
Valuation allowance		3,787			5,261			4,467
Net federal income tax (benefit)	$	(75	)	$	0		$	(801	)

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The significant items comprising the deferred tax asset and liability at December 31, 2003 and 2002 are as follows:


in thousands)	For the Year Ended December 31,
		2003			2002
Net operating loss carry forwards	$	16,182		$	11,818
Financial reporting reserves not yet deductible for tax purpose		861			967
Accelerated depreciation and property-basis differences		(1,490	)		(1,019	)
Other		(245	)		(245	)
Valuation allowance		(15,308	)		(11,521	)
	$	0		$	0

As of December 31, 2003, the Company had net operating loss carry forwards (NOLs) of approximately $40.5 million available to offset future taxable income, if any. These carry forwards expire through 2023 and are subject to review and possible adjustment by the Internal Revenue Service. The Company's historical operating losses raise doubt as to the realizability of the deferred tax assets. As a result, management has provided a valuation allowance for the net deferred tax assets that may not be realized. The increase in the valuation allowance during 2003 and 2002 is principally the result of the Company's net loss.

The tax benefits recorded in 2003 and 2001 relates primarily to net operating losses and research and development tax credits being benefited in the Canadian tax jurisdiction. In accordance with SFAS No. 109, Accounting for Income Taxes, the deferred tax assets were recognized up to the amount offsetting deferred tax liabilities in the applicable tax jurisdiction.

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(13) DEBT AND CAPITAL LEASE OBLIGATIONS

As of December 31, 2002 the Company had classified certain debt and capital lease obligations as current due to violation of provisions within the underlying debt agreements. Debt and capital lease obligations consisted of the following:


	December 31,
(in thousands)	2003		2002
Borrowings under Credit Agreement with Merrill Lynch (1)	$ 3,428		$ 6,387
Borrowings under Line of Credit Agreement with Toronto Dominion Bank (1)	-		877
Borrowings under Term Loans with Toronto Dominion Bank	-		374
Borrowings under Line of Credit Agreement with National Bank of Canada (1)	1,393		-
Note Payable to TJJ Corporation maturing on December 28, 2005, with an interest rate of 8.50%, net of unamortized discount of $155 as of December 31, 2003	4,544		3,731
Convertible Note Payable to Laurus Master Funds, LTD maturing on September 26, 2006, with an interest rate of 7.50%, net of unamortized discount of $802 as of December 31, 2003	1,628		-
Borrowings under equipment line of credit	-		85
Mortgage notes payable to Toronto Dominion bank, maturing December 2015 and July 2016, with an interest rate of bank's prime plus 0.875%.	-		1,181
Mortgage note payable to National Bank of Canada, maturing June 2008 with an interest rate of bank's prime plus 2.25%.	1,110		-
Term loan with the Bank of Ireland, maturing on December 31, 2003, with an interest rate of 6.5%	-		2
Revolving line of credit, maturing on demand, payable to the Bank of Ireland, with interest rate of 9.45% (1)	-		33
Revolving line of credit, maturing on demand, payable to a Singapore bank, with interest of prime plus 2% (1)	-		149
Marshall Wace, debt convertible into common stock May 2004	270		-
Machinery & equipment capital lease obligations, maturing April 8, 2005	64		90
Sub-total debt and capital lease obligations	12,437		12,909
Less -- Short-term (1)	(5,091	)	(7,446	)
-- Short-term portion of capital lease obligations	(47	)	(61	)
-- Current portion of long-term debt	(3,365	)	(5,306	)
Total long-term debt and capital leases	$ 3,934		$ 96

BORROWING AGREEMENTS

Debt Compliance

The Company has various debt covenants under its multiple credit facilities. As of December 31, 2003, the Company was in compliance with or has obtained waivers or amendments for all debt covenants.

As of December 31, 2003, the Company was not in compliance with the stockholders equity and inventory covenants with the National Bank of Canada.

As of December 31, 2003, the company was in compliance with the additional debt and excess private placement proceeds covenants with Merrill Lynch. However, as a result of the private placement of equity and the Convertible Note discussed in footnote 22 of the financial statements, the Company was not in compliance with the Merrill Lynch covenants during the first quarter of 2004.

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The Company subsequently received waivers and/or amendments for both credit agreements, which brought the Company into compliance as of December 31, 2003. The waivers and/or amendments are described in the following section under Borrowing Agreements.

Merrill Lynch Financial Services

On September 30, 2003, the Company entered into an agreement to modify the terms of its credit facility with Merrill Lynch Business Financial Services. The new agreement provides a credit facility of $3,450,000 through a term note of $2,450,000 and a line of credit of $1,000,000. The new facility matures on October 31, 2004 and bears an interest rate of one month LIBOR + 5.5% and is partially guaranteed (maximum $1,000,000) by an officer of the Company. On December 31, 2003 the interest rate was approximately 6.5%. Outstanding borrowings as of December 31, 2003 were $3,428,162.

The Company's obligations under the credit facility are secured by substantially all the Company's Salem assets, excluding real property. The facility is also subject to various financial covenants, including having a minimum net worth of $10.0 million at all times. The Company is also required to repay amounts under the credit facility using 100% of the net excess proceeds from the sale of its Salem facility; 80% of net proceeds from assets sales and 50% of the net proceeds from equity offerings.

On March 25, 2004, the Company entered into an amended agreement with Merrill Lynch. The amended agreement changes the maturity date from October 31, 2004 in the prior agreement to June 30, 2004 in the March 25, 2004 agreement. The amended agreement also increased the interest from LIBOR + 5.5% in the prior agreement to LIBOR + 7.5% in the March 25, 2004 agreement. All other provisions of the September 30, 2003 agreement remained the same.

Laurus Master Funds

On September 24, 2003, the Company sold a Convertible Note to Laurus Master Funds, LTD. The $2,500,000 Convertible Note matures on September 24, 2006, bears interest at a rate equal to the Prime Rate plus 3. 5%, but in no event less than 7.5%, and provides the holder with the option to convert the loan to common stock at $1.07 per share subject to certain adjustment features. StockerYale has the right to elect to make the monthly required payments on the convertible note (comprised of principal amortization and interest) in the form of shares of common stock, determined based on the $1.07 conversion price. The Company also issued to the holder seven-year warrants to purchase shares in the following warrant amounts and exercise prices per share of common stock: 225,000 shares at $1.23 per share, 150,000 shares at $1.34 per share and 100,000 shares at $1.44 per share. The aggregate purchase price of the convertible note and warrants ($2,500,000) was allocated between the note, the common stock conversion option and warrants based upon their relative fair market value. The purchase price assigned to the note, common stock beneficial conversion option and warrants was $1,551,700, $546,650 and $401,650 respectively. The difference between the face amount of the convertible note of $2.5 million and the aggregate purchase price of the convertible note of $1,551,700 was recorded as a debt discount and is being amortized over the life of the convertible note. The Company used the Black-Scholes Model to calculate the fair value of the warrants. The underlying assumptions included in the Black-Scholes Model were: a risk-free interest rate of 2.7%; an expected life of five years; and an expected volatility of 114% with no dividend yield.

The Company can elect to pay monthly principal amortization in cash at 103% of the principal amount. The Company may also elect to pay both principal amortization and interest in common stock, if the market price of the stock at the time of the payment is 110% of the fixed conversion price. The Company may elect to redeem the principal amount outstanding at 120% within the first year, 115% within the second year and 110% during the third year. The principal amortization payments begin 120 days from the execution of the agreement at a rate of $78,125 per month. As of December 31, 2003, $2,430,450 was outstanding under the Convertible Note of which $937,500 has been classified as short-term debt and $1,492,950 has been classified as long-term debt. The obligation has been reported net of $802,000 related to debt discount on warrants.

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Bank of Ireland

On September 24, 2003, StockerYale, Inc. entered into a guarantee of a Euros125,000 in connection with a credit facility provided by the Bank of Ireland to StockerYale Ireland. The credit facility provides a Euro 50,000 line of credit and a Euro 75,000 overdraft facility. The credit facility is secured by the assets of StockerYale Ireland and StockerYale, Inc.'s guarantee and bears a variable interest rate approximating 9.0%. As of December 31, 2003, there were no outstanding borrowings under the credit facility.

TJJ Corporation

On December 27, 2002, the Company entered into a Term Note agreement with TJJ Corporation. The Term Note was a $5,000,000 three-year note due December 26, 2005, secured by the Company's Salem headquarters and bears an interest rate of 8.5%. The Company also issued warrants to purchase shares of the Company's common stock. The warrants can be exercised over a five-year period and each warrant can be exchanged for one share of common stock at a purchase price of $1.35 per share. The aggregate purchase price of the Term Note and the warrants of $5,000,000 was allocated between the Term Note and warrants based upon their relative fair market values. The purchase price assigned to the Term Note and warrants was $4,730,825 and $269,175, respectively. The difference between the face amount of the Term Note and the aggregate purchase price allocated to the Term Note of $4,730,825 was recorded as a debt discount, and is being amortized over the life of the Term Note.

On September 18, 2003, the Company entered into an agreement with TJJ Corporation amending the $5,000,000 Term Note maturing in December 26, 2005. The new agreement resulted in loan amortization commencing in October 2003 and a reduction in the stockholders' equity covenant from $22,000,000 to $20,000,000. The new principal amortization beginning in October 2003 was $100,000 per month for three months, $150,000 for the next three months and $200,000 per month for the following eleven months. As of December 31, 2003, $4,700,000, excluding debt discount of $155,833, was outstanding under the Term Note. On of February 25, 2004, the Company paid the note in full including outstanding principal and accrued interest of $4,400,000 and $25,000, respectively, with proceeds from a private placement of equity and convertible note discussed in footnote 22 of the financial statements.

National Bank of Canada

On May 26, 2003, the Company entered into a credit agreement with the National Bank of Canada replacing the facility with Toronto Dominion Bank. The new agreement provided total borrowing availability up to C$4,050,000 ($3,000,000 US), including a line of credit of C$2,500,000 ($1,850,000 US) and a ten-year term note of C$1,550,000 ($1,150,000 US). Initial proceeds were used to pay off the credit agreement with Toronto Dominion Bank.

On August 23, 2003, the Company amended its credit facility with National Bank of Canada to reduce the restricted term deposit from C$1,000,000 ($740,000 US) to C$250,000 ($185,000 US) and reduce the term loan from C$2,300,000 ($1,702,000 US) to C$1,550,000 ($1,147,000 US). The net availability of the term loan remained the same. In addition, the bank added Canadian Provincial Government research and development tax credits as additional eligible accounts receivable, which increased the availability of the revolving credit facility by approximately C$300,000 ($222,000 US). All other terms of the credit facility remained the same, including StockerYale, Inc.'s guarantee to fund StockerYale Canada's deficits if requested by the bank.

On November 20, 2003, the credit facility was amended increasing the interest rate on the line of credit to the Canadian prime rate plus 2.00% and the term note to the Canadian prime rate plus 2.75%.

As of December 31, 2003, C$1,801,000 ($1,393,000 US) was outstanding under the line of credit and C$1,435,000 ($1,110,000 US) was outstanding under the term note. As of December 31, 2003, the interest rate on the line of credit and the term note were 7.00% and 7.75%, respectively. Annual principal payments are C$236,000 ($168,000 US).

The National Bank of Canada credit facility requires the following financial covenants, including working capital, net worth, capital expenditures, a financial coverage ratio and maximum inventory levels.

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On March 19, 2004, the Company entered into an amended agreement with the National Bank of Canada. The new agreement includes a line of credit of C$2,500,000 ($1,875,000 US) and a five-year term note of C$1,396,000 ($1,050,000 US). The amended agreement reduced the net worth covenant from C$10,800,000 in the May 26, 2003 agreement to C$8,000,000 in the March 19, 2004 agreement as of December 31, 2003. The amended agreement also requires a C$10,000,000 net worth as of September 30, 2004 and thereafter. The amended agreement also reduced the inventory component of the line of credit availability from C$750,000 to C$625,000 and requires the Company to achieve specific net profit targets throughout 2004.

Scheduled future maturities of debt and capital lease obligations for the next five years.


Year Ending December 31,		(in thousands)
2004	$	8,503
2005		3,686
2006		783
2007		229
2008		194
	$	13,395

(14) STOCKHOLDERS' EQUITY

On May 31, 2001, the Company completed a private placement of 1,700,000 shares of its common stock, par value $.001 per share. The Company offered these shares to eighteen purchasers at $10.25 per share. The Company did not engage any underwriters in connection with the private placement, but the Company did enter into an agreement with William Blair & Company to act as exclusive placement agent for the shares. The Company paid a commission of $1,219,750 to William Blair & Company. The private placement resulted in net proceeds to the Company of approximately $16 million. Proceeds were used for facility expansion, capital expenditures and working capital.

On March 8, 2002, the Company completed a private placement of 1,242,600 common shares at a price of $7.76 per share, which resulted in net proceeds to the Company of approximately $9.5 million. The Company did not engage any underwriters in connection with the private placement.

On June 23, 2003 the Company completed a private placement of 1,610,000 common shares at a price of $ 0.60 per share and $270,000 of notes which resulted in net proceeds to the Company of approximately $1.2 million. The notes are convertible into common stock at $0.60 per share. The Company did not engage any underwriters in connection with the private placement.

As of December 31, 2003, there were 3,557,814 shares reserved for stock options and 1,259,957 shares reserved for warrants.

As of December 31, 2003, there were 19,957 warrants outstanding at a price of $22.50 per share, which expire in 2004; 250,000 warrants outstanding at a price of $1.35 per share, which expire in 2007; 475,000 warrants outstanding at $1.31 per share, which expire in 2010; and 515,000 warrants outstanding at $1.20 per share, which expire in 2006.

In connection with the acquisition of CorkOpt, Ltd. in 2000, the Company assumed the obligation to repay BES shareholders their investment in CorkOpt, Ltd. In 2003. The BES shareholders agreed to convert their outstanding investment into StockerYale common shares. On November 12, 2003, the BES shareholders converted their StockerYale Ireland 265,500 shares into 319,580 StockerYale, Inc. shares.

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(15) STOCK OPTION PLANS

In March 1996, the Company adopted the 1996 Stock Option and Incentive Plan (the 1996 Option Plan) for the purpose of issuing both Incentive Options and Nonqualified Options to officers, employees and directors of the Company. A total of 1,200,000 shares of common stock are reserved for issuance under this plan.

Options may be granted under the Option Plan on such terms and at such prices as determined by the Board of Directors, except that the options cannot be granted at less than 100%, or in certain circumstances not less than 110%, of the fair market value of the common stock on the date of the grant. Each option will be exercisable after the period or periods specified in the option agreement, but no option may be exercised after the expiration of 10 years from the date of grant.

In May 2000, the Company adopted the 2000 Stock Option and Incentive Plan (the 2000 Option Plan) for the purpose of issuing both Incentive Options and Nonqualified Options to officers, employees and directors of the Company. A total of 2,800,000 shares of common stock were reserved for issuance under this plan. Options may be granted under the Option Plan on such terms and at such prices as determined by the Board of Directors, except that the options cannot be granted at less than 100%, or in certain circumstances not less than 110%, of the fair market value of the common stock on the date of the grant. Each option will be exercisable after the period or periods specified in the option agreement, but no option may be exercised after the expiration of 10 years from the date of grant.

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The following is a summary of the activity for the Company's stock options:
									Weighted
		Number							Average Exercise
		of shares		Price Range					Price
Outstanding at December 31, 2000		1,395,900		$	0.66	-	$	38.00	$	4.75

	Granted	1,273,010		$	6.60	-	$	18.13	$	11.59
	Forfeited/cancelled	(68,450	)	$	0.84	-	$	32.38	$	7.67
	Exercised	(291,186	)	$	0.66	-	$	0.88	$	0.78
Outstanding at December 31, 2001		2,309,274		$	0.69	-	$	38.00	$	8.92

Exercisable at December 31, 2001		559,464		$	0.69	-	$	38.00	$	2.03

	Granted	1,356,147		$	0.73	-	$	11.06	$	4.67
	Forfeited/cancelled	(385,878	)	$	3.78	-	$	28.88	$	11.38
	Exercised	(75,400	)	$	0.75	-	$	3.78	$	2.88
Outstanding at December 31, 2002		3,204,143		$	0.69	-	$	38.00	$	6.95

Exercisable at December 31, 2002		1,183,617		$	0.69	-	$	38.00	$	6.31

	Granted	631,300		$	0.52	-	$	1.30	$	0.76
	Forfeited/cancelled	(276,320	)	$	0.63	-	$	15.75	$	7.00
	Exercised	(6,450	)	$	0.73	-	$	0.81	$	0.78
Outstanding at December 31, 2003		3,552,673		$	0.52	-	$	38.00	$	5.86

Exercisable at December 31, 2003		1,714,583		$	0.69	-	$	38.00	$	6.86


						Options Outstanding					Options Exercisable
Range of Exercise Prices						Number Outstanding at December 31, 2003	Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Number Exercisable at December 31, 2003		Weighted Average Exercise Price
	$	0.00	-	$	3.80	1,703,664		7.5	$	1.22		813,489	$	1.68
	$	3.80	-	$	7.60	747,065		7.9	$	6.11		231,175	$	6.20
	$	7.60	-	$	11.40	33,499		3.8	$	9.75		24,374	$	9.68
	$	11.40	-	$	15.20	941,295		6.7	$	12.12		527,245	$	12.23
	$	15.20	-	$	19.00	63,875		2.8	$	16.65		59,125	$	16.62
	$	19.00	-	$	22.80	47,875		3.6	$	20.27		47,875	$	20.27
	$	22.80	-	$	26.60	12,000		6.6	$	24.96		11,000	$	24.95
	$	26.60	-	$	34.20	3,200		0.4	$	28.75		3,150	$	28.78
	$	34.20	-	$	38.00	200		6.8	$	38.00		150	$	38.00
						3,552,673		7.2	$	5.86		1,714,583	$	6.86

The Company had 74,291 and 429,271 shares available for grant as of December 31, 2003 and 2002, respectively.

During 2003 and 2002, the weighted average fair value of options granted was $0.76 and $4.67 respectively.

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(16) STOCK-BASED COMPENSATION

The Company elected to account for its stock-based compensation plan under APB 25. However, the Company has computed, for pro forma disclosure purposes, the value of all options granted during 2002, 2001 and 2000 using the Black-Scholes option pricing model as prescribed by SFAS No. 123, using the following weighted-average:

	2003	2002	2001
Risk-free interest rate	2.27% - 3.10%	3.38% - 5.19%	3.65% - 5.19%
Expected dividend yield	-	-	-
Expected life	5 years	5 years	5 years
Expected volatility	114%	115%	101%

The total value of options granted during 2003, 2002, and 2001 would be amortized on a pro forma basis over the vesting period of the options. Options generally vest equally over two or four years.

(17) EMPLOYEE STOCK PURCHASE PLAN

In May 2000, the Company adopted the 2000 Employee Stock Purchase Plan (the "Stock Purchase Plan"), which permits the eligible employees of the Company and its subsidiaries to purchase shares of the Company's common stock, at a discount, through regular monthly payroll deductions of up to 10% of their pre-tax gross salary. Subject to adjustment for stock splits, stock dividends and similar events, a maximum of 100,000 shares of common stock may be issued under the Stock Purchase Plan. For the year ended December 31, 2003 and 2002, there were 18,573 and 28,086 shares issued respectively under the Stock Purchase Plan.

(18) EMPLOYEE BENEFIT PLANS

On January 17, 1994, the Company established the StockerYale 401(k) Plan (the Plan). Under the Plan, employees are allowed to make pretax retirement contributions. In addition, the Company may make matching contributions, not to exceed 100% of the employee contributions, and profit sharing contributions at its discretion. The Company made matching contributions of $35,000, $36,000, and $57,000 in fiscal years 2003, 2002, and 2001, respectively. The Company incurred costs of approximately $2,000, $2,000, and $12,000 in 2003, 2002, and 2001, respectively, to administer the Plan.

(19) COMMITMENTS AND CONTINGENCIES

The Company leases facilities and equipment under operating leases. The future minimum lease payments as of December 31, 2003 are as follows (in thousands):

For the Year Ended December 31,		Operating Leases		Capital Leases
2004	$	377	$	50
2005		126		18
2006		14		-
2007		2		-
Less interest		-		(4	)
Total	$	519	$	64

Total rent expense for operating leases charged to operations was $635,000, $556,000 and $207,000 in 2003, 2002 and 2001, respectively.

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The Company is party to various legal proceedings generally incidental to its business. Although the disposition of such legal proceedings cannot be determined with certainty, it is the Company's opinion that any pending or threatened litigation will not have a material adverse effect on the Company's results of operations, cash flow or financial condition.

(20) JOINT VENTURES

Giant Loop Corporation

In June 2000, the Company purchased 75,075 shares for $250,000 to obtain a less than 1% interest in the Giant Loop Corporation. The investment is accounted for on the cost basis and is adjusted for any other than temporary impairment in value. No impairment was recorded in 2001. In the fourth quarter of 2002, the Company determined that the investment in Giant Loop was impaired and recorded a $250,000 impairment charge.

Optune Technologies, Inc.

On October 12, 2000, the Company entered into a joint venture with Dr. Nicolae Miron and formed Optune Technologies, Inc., a Quebec corporation, to develop a new class of tunable optical filters. Under the terms of this joint venture arrangement, the Company owns a 49% equity interest in Optune and the Company initially agreed to contribute an aggregate of $4,000,000 toward all operating costs of the joint venture including salaries, equipment and facility costs. The contributions were to be made over a two-year period pursuant to a fixed milestone schedule. The Company recorded 100% of the losses associated with the research and development joint venture in the accompanying statement of operations as research and development expense. The Company provided approximately $936,000 CDN ($600,000 USD) through December 31, 2001 and recorded $400,000 USD of research and development expenses related to the joint venture. During 2002, the Company has provided $394,000 CDN ($260,000 USD) of funding to the joint venture and recorded approximately $337,000 of research and development expenses related to the operating losses.

The Board of Directors of the joint venture, which includes Dr. Nicolae Miron and representatives of StockerYale, (the Joint Venture Board), held four meetings during 2002 to discuss product development progress as well as the market for tunable optical filters in light of the economic conditions that had negatively impacted the telecommunications market. The Joint Venture Board concluded that although the potential demand for the tunable optical filters was promising, that material product and/or license revenue from the technology in the short term was unlikely.

Therefore, the Joint Venture Board on August 8, 2002 unanimously approved an amendment to the original joint venture agreement, whereby StockerYale would cease funding the joint venture and was no longer obligated to fund up to the $4,000,000 as originally contemplated in the joint venture. Both Dr. Miron and StockerYale will continue to own 51% and 49%, respectively of the joint venture.

In the fourth quarter of 2002, the Company determined based upon a lack of funding from the Company and the joint venture's inability to raise additional capital from other sources that the net investment in the joint venture was impaired. The Company recorded a $474,000 CDN ($308,000 US) asset impairment to write off the Company's remaining investment in the joint venture.

Innovative Specialty Optical Fiber Components LLC

In April 2001, the Company entered into a research and development joint venture agreement to form Innovative Specialty Optical Fiber Components LLC (iSOFC) with Dr. Danny Wong to develop specialty optical fiber products. In exchange for a 60% ownership interest in Innovative Specialty Optical Fiber Components LLC, the Company committed to fund up to $7.0 million over a two-year period toward all operating costs of the majority owned subsidiary, including salaries, equipment and facility costs. Innovative Specialty Optical Fiber Components LLC has been consolidated by the Company and the Company has recorded 100% of the losses associated with Innovative Specialty Optical Fiber Components LLC as research and development expense in the accompanying statement of operations. The Company provided approximately $418,000 of funding through December 31, 2001. During the twelve months ending December 31, 2002, the Company has provided $298,000 of funding and recorded $565,000 of research and development expenses relating to the operating losses for the twelve months ending December 31, 2002.

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Dr. Wong resigned from iSOFC on May 22, 2002. In a letter sent to Dr. Wong on August 19, 2002, iSOFC exercised its right under the Limited Liability Company Agreement to repurchase Dr. Wong's entire equity interest in the joint venture for fair market value. Although he had the right to dispute the repurchase price within ten business days, Dr. Wong did not respond to the exercise notice and the repurchase was effective as of August 29, 2002. The purchase price for all outstanding shares owned by Dr. Wong was $10,000.

As a result, StockerYale currently owns 100% of iSOFC, which has revised its business plan to operate as a wholly-owned subsidiary of StockerYale funded on a significantly reduced "as needed" basis, and StockerYale is no longer obligated to fund up to the $7,000,000 as originally contemplated in the joint venture.

(21) SEGMENT INFORMATION

SFAS No. 131, Disclosures About Segments of an Enterprise and Related information. SFAS No. 131 requires financial and supplementary information to be disclosed on an annual and interim basis of each reportable segment of an enterprise. SFAS No. 131 also establishes standards for related disclosures about product and services, geographic areas and major customers. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief decision-making group, in making decisions how to allocate resources and assess performance. The Company's chief decision-maker is the chief executive officer.

Prior to January 1, 2002, the Company operated in a single segment. In 2002 the Company began to operate in two segments, Illumination and Optical Components. The Company has not restated its 2001 segment disclosures as it was not practical to do so.

The illumination segment develops and manufactures specialized illumination products for the inspection, machine vision, medical and military markets. Illumination products are sold both through distributors as well as directly to original equipment manufacturers (OEM's), the optical components segment develops and manufactures specialty optical fibers and phase masks used primarily in sensor, gyroscope and telecommunication equipment. Optical component products are sold primarily to original equipment manufacturers (OEM's).

The Company evaluates performance and allocates resources based on revenues and operating income (loss). The operating loss for each segment includes selling, research and development and expenses directly attributable to the segment. In addition, the operating loss includes amortization of acquired intangible assets, including any impairment of these assets and of goodwill. The Company's non-allocable overhead costs, which include corporate general and administrative expenses, are allocated between the segments based upon an estimate of costs associated with each segment. Segment assets include accounts receivable, inventory, machinery and equipment, goodwill and intangible assets directly associated with the product line segment.

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The Corporate assets include cash and cash equivalents, buildings and furniture and fixtures.

		Year Ended December 31, 2003											Year Ended December 31, 2002

Statement of operations		Illumination			Optical Components			Total					Illumination		Optical Components			Total
Revenue	$	13,127		$	990		$	14,117				$	11,851	$	1,141		$	12,992
Gross profit (loss)		3,465			(521	)		2,944					2,974		(1,141	)		1,833
Operating loss		(4,709	)		(5,623	)		(10,332	)				(4,193)		(11,040	)		(15,233	)

		As of December 31, 2003											As of December 31, 2002

Assets		Illumination			Optical Components			Corporate			Total		Illumination		Optical Components			Corporate			Total
Total current assets	$	5,827		$	425		$	859		$	7,111	$	6,301	$	404		$	5,790		$	12,495
Property, plant and equipment		978			7,847			11,725			20,550		777		9,699			13,174			23,650
Intangible assets		1,463									1,463		1,785								1,785
Goodwill		2,677									2,677		2,677								2,677
Other assets								888			888		405		59			249			713
	$	10,945		$	8,272		$	13,472		$	32,689	$	11,945	$	10,162		$	19,213		$	41,320

The Company's export sales are denominated in U.S. dollars. These sales are as follows:

Year Ended			(in thousands)
December 31,	USA	Canada	Europe	Asia	Total
2003	$ 7,331	$ 1,325	$ 3,725	$ 1,736	$ 14,117
2002	$ 7,758	$ 1,119	$ 2,869	$ 1,246	$ 12,992

The Company's long-lived assets consist of property, plant and equipment located in the following geographic locations:

Year Ended			(in thousands)
December 31,	USA	Canada	Europe	Asia	Total
2003	$ 13,386	$ 6,906	$ 223	$ 35	$ 20,550
2002	$ 16,756	$ 6,568	$ 277	$ 49	$ 23,650

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(22) SUBSEQUENT EVENTS

On February 3, 2004, the Company completed a private placement of 2,330,129 shares of common stock with existing and new institutional investors at a price of $1.15 per share, which resulted in net proceeds to the Company of approximately $2.6 million. These institutional shareholders were also issued 582,531 warrants entitling them to purchase common stock at $1.50 per share over five years. In addition, the investors were granted 582,531 additional investment rights entitling them to purchase common stock at $1.15 per share. These rights expire ninety trading days after StockerYale completes the registration of the common stock shares.

On February 25, 2004, the Company issued a Convertible Note to Laurus Master Funds, Ltd. The $4,000,000 Convertible Note matures on February 25, 2007, bears an interest rate of Prime Rate plus 2%, but no less than 6% and provides the holder with the option to convert the loan to common stock at $1.30 per share.

On February 25, 2004, the Company paid TJJ Corporation $4,425,000 representing the outstanding principal and accrued interest on the term note secured by the Company's Salem facility.

As of May 4, 2004, Laurus Master Funds had converted the total $2,500,000 Convertible Note issued September 24, 2003 into 2,336,449 shares of common stock. This conversion resulted in a non-cash charge to the statement of operations during the second quarter of 2004 equal to a portion of the unamortized discount.

On May 7, 2004, the chairman and chief executive officer paid the Company $266,562, which represented the entire balance of principal and accrued interest outstanding for the Officer Note issued on May 31, 2002.

On June 10, 2004, the Company raised $5.5 million through the placement of a convertible note. The net proceeds of $5.2 million were used to retire its $3.4 million senior U.S. credit facility with Merrill Lynch Business Financial Services. The remaining $1.9 million was used for general working capital purposes.

On August 6, 2004, the Company was informed by the staff of the Securities and Exchange Commission (the "SEC") that the SEC is conducting a formal investigation into certain matters relating to the company. The company understands that the SEC's investigation relates to press releases that the company issued on April 19, 2004 and April 21, 2004, and trading in the company's securities on or around the time the press releases were issued. The SEC has not concluded that there has been any wrongdoing, and the company is cooperating fully with the SEC in the conduct of this inquiry.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES

Note:

To StockerYale, Inc.:

We have audited in accordance with accounting standards generally accepted in the United States, the consolidated financial statements included in StockerYale, Inc.'s Form 10-K and have issued our report thereon dated February 25, 2002 (except with respect to the matter discussed in Note 18, as to which the date is March 8, 2002). Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

Arthur Andersen LLP

Boston, Massachusetts

February 25, 2002

STOCKERYALE, INC
SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2003, 2002 and 2001


			(Credit)
	Balance at		Charge to		Other		Balance at
	Beginning		Costs and		Charges		End
(in thousands)	of Period		Expenses		Deductions (1)		of Period
2003 Allowance for doubtful accounts	$	155	$	0	$	(52)	$	103
2002 Allowance for doubtful accounts	$	128	$	51	$	(24)	$	155
2001 Allowance for doubtful accounts	$	134	$	143	$	(149)	$	128

(1) Reflects uncollectible accounts written off.

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FINANCIAL STATEMENTS AND SCHEDULES

None.

REPORTS ON FORM 8-K

On January 8, 2004, the Company filed a Form 8-K concerning the appointment of Ricardo Diaz as Chief Operating Officer.

On February 3, 2004, the Company filed a Form 8-K concerning the placement of common stock with institutional investors.

On February 26, 2004, the Company filed a Form 8-K concerning the placement of common stock and a convertible note to institutional investors.

On March 15, 2004, the Company filed a Form 8-K concerning financial results for its fourth quarter and fiscal year ended December 31, 2003.

EXHIBIT LISTING

Number	Description
3.1(a)	Amended and Restated Articles of Organization of StockerYale, Inc., incorporated by reference to Exhibit 3.1 of StockerYale, Inc.'s Form 10-KSB for the fiscal year ended December 31, 2000.
3.1(b)	Amendment, dated May 24, 2001, to the Amended and Restated Articles of Organization of StockerYale, Inc., incorporated by reference to Exhibit 3.1 of StockerYale, Inc.'s Form 10 QSB for the fiscal quarter ended June 30, 2001.
3.2	Amended and Restated Bylaws of StockerYale, Inc., incorporated by reference to Exhibit 3.2 of StockerYale, Inc.'s Form 10-SB, as amended, filed on November 2, 1995.
10.1(a)	1996 Stock Option and Incentive Plan, incorporated by reference to Exhibit 99.1 of the Form S-8 filed by StockerYale, Inc. on June 9, 2000 (No. 333-39080).
10.1(b)	Form of Incentive Option Agreement for employees under the 1996 Stock Option and Incentive Plan, incorporated by reference to exhibit 10.1(b), 10.1(c) and 10.1(d) of Form 10-K for the year ended December 31, 2001.
10.1(c)	Form of Nonqualified Option Agreement for employees under the 1996 Stock Option and Incentive Plan, incorporated by reference to exhibit 10.1(b), 10.1(c) and 10.1(d) of Form 10-K for the year ended December 31, 2001.
10.1(d)	Form of Nonqualified Option Agreement for non-employee directors under the 1996 Stock Option and Incentive Plan, incorporated by reference to exhibit 10.1(b), 10.1(c) and 10.1(d) of Form 10-K for the year ended December 31, 2001.
10.2	Form of Option Agreement for Outside Directors outside the Amended and Restated 1994 Stock Option Plan, incorporated by reference to Exhibit 10.9 of StockerYale, Inc.'s Form 10-SB, as amended, filed on November 2, 1995.
10.3(a)	2000 Stock Option and Incentive Plan, incorporated by reference to Exhibit 99.1 to the Form S-8 filed by StockerYale, Inc. on June 9, 2000 (No. 333-39082).
10.3(b)	Amendment No. 1 to the 2000 Stock Option and Incentive Plan, incorporated by reference to Exhibit 10.3(e) of StockerYale, Inc.'s Form 10 QSB for the fiscal quarter ended June 30, 2001.
10.3(c)	Amended Form of Incentive Stock Option Agreement for employees under the 2000 Stock Option and Incentive Plan, incorporated by reference to Exhibit 10.3(f) of StockerYale, Inc.'s Form 10 QSB for the fiscal quarter ended June 30, 2001.
10.3(d)	Amended Form of Nonqualified Stock Option Agreement for employees under the 2000 Stock Option and Incentive Plan, incorporated by reference to Exhibit 10.3(g) of StockerYale, Inc.'s Form 10 QSB for the fiscal quarter ended June 30, 2001.
10.3(e)	Amended Form of Nonqualified Stock Option Agreement for Outside Directors under the 2000 Stock Option and Incentive Plan, incorporated by reference to Exhibit 10.3(h) of StockerYale, Inc.'s Form 10 QSB for the fiscal quarter ended June 30, 2001.
10.4(a)	2000 Employee Stock Purchase Plan, incorporated by reference to Exhibit 99.1 to the Form S-8 filed by StockerYale, Inc. on June 9, 2000 (No. 333-39082).
10.4(b)	Amendment No. 1 to 2000 Employee Stock Purchase Plan, dated June 26, 2001, incorporated by reference to exhibit 10.4(b) of Form 10-K for the year ended December 31, 2001.

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10.5	Voting, Support and Exchange Agreement between Lasiris Holding, Inc., StockerYale, Inc. and the stockholders' of Lasiris, Inc. and certain other parties named therein, dated May 13, 1998, incorporated by reference to Exhibit 10.16(a) of StockerYale, Inc.'s Form 10-QSB, as amended, for the fiscal quarter ended June 30, 1998
10.6	Employment Agreement by and among Lasiris, Inc., StockerYale, Inc. and Alain Beauregard, dated as of May 13, 1998, incorporated by reference to Exhibit 10.16(b) of StockerYale, Inc.'s Form 10-QSB, as amended, for the fiscal quarter ended June 30, 1998.
10.7	Lasiris, Inc. Executive Incentive Compensation Plan, incorporated by reference to Exhibit 10.16(d) of StockerYale, Inc.'s Form 10-QSB, as amended, for the fiscal quarter ended June 30, 1998.
10.8(a)	Stock Purchase Agreement by and among StockerYale, Inc., CorkOpt Ltd., W.M. Kelly, Gary Duffy and Thomas Meade, incorporated by reference to Exhibit 2.1 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.8(b)	Stock Purchase Agreement between University College Cork - National University of Ireland, Cork and StockerYale, Inc., incorporated by reference to Exhibit 2.2 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.8(c)	Stock Purchase Agreement between Anne Kelly and StockerYale, Inc., incorporated by reference to Exhibit 2.3 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.8(d)	Stock Purchase Agreement between Gerard Conlon and StockerYale, Inc., incorporated by reference to Exhibit 2.4 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.8(e)	Stock Purchase Agreement between Enterprise Ireland and StockerYale, Inc., incorporated by reference to Exhibit 2.5 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.8(f)	Deed of Tax Indemnity by and among StockerYale, Inc., CorkOpt Ltd., W.M. Kelly, Gary Duffy and Thomas Meade., incorporated by reference to Exhibit 2.6 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.8(g)	Deed of Indemnity by Liam Kelly in favor of CorkOpt Ltd. and StockerYale, Inc., incorporated by reference to Exhibit 2.7 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.8(i)	Assignment of certain inventions by William Kelly to CorkOpt Ltd., incorporated by reference to Exhibit 10.2 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.8(j)	License Agreement between William Kelly and CorkOpt Ltd., incorporated by reference to Exhibit 10.3 of StockerYale, Inc.'s Form 8-K, filed on June 30, 2000.
10.9(a)	Subscription Agreement, dated November 17, 2000, between StockerYale, Inc. and Optune Technologies, Inc., incorporated by reference to Exhibit 10.5(a) of StockerYale, Inc.'s Form 10 KSB for the fiscal year ended December 31, 2000.
10.9(b)	Stockholders Agreement, dated November 17, 2000, by and among Optune Technologies, Inc., StockerYale, Inc. and Nicolae Miron, incorporated by reference to Exhibit 10.5(b) of StockerYale, Inc.'s Form 10 KSB for the fiscal year ended December 31, 2000
10.10	Limited Liability Company Agreement of Innovative Specialty Optical Components, LLC, dated as of April 26, 2001, incorporated by reference to Exhibit 10.7 of StockerYale, Inc.'s Form 10-QSB for the fiscal quarter ended June 30, 2001.
10.11	Purchase and Sale Agreement, dated as of August 28, 1995, by and between the Company and John Hancock Mutual Life Insurance Company, incorporated by reference to Exhibit 10.6 of StockerYale, Inc.'s Form 10-SB, as amended, filed on November 2, 1995.
10.12(a)	Promissory Note, due August 29, 2011, issued by StockerYale, Inc. to Granite Bank, incorporated by reference to Exhibit 10.14(a) of StockerYale, Inc.'s Form 10-KSB for the fiscal year ended December 31, 1996.
10.12(b)	Mortgage Deed and Security Agreement, dated August 29, 1996, granted by StockerYale, Inc. to Granite Bank, incorporated by reference to Exhibit 10.14(b) of StockerYale, Inc.'s Form 10-KSB for the fiscal year ended December 31, 1996

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10.12(c)	Collateral Assignment of Leases and Rents, dated August 29, 1996, granted by StockerYale, Inc. to Granite Bank, incorporated by reference to Exhibit 10.14(c) of StockerYale, Inc.'s Form 10-KSB for the fiscal year ended December 31, 1996.
10.13(a)	Credit Agreement, dated as of May 13, 1998, by and between Toronto-Dominion Bank and Lasiris, Inc., incorporated by reference to Exhibit 10.17(a) of StockerYale, Inc.'s Form 10-QSB, as amended, for the fiscal quarter ended June 30, 1998
10.13(b)	Guarantee and Postponement of Claim, dated as of May 13, 1998, by StockerYale, Inc., incorporated by reference to Exhibit 10.17(b) of StockerYale, Inc.'s Form 10-QSB, as amended, for the fiscal quarter ended June 30, 1998.
10.13(c)	Amendment to Toronto Dominion Credit Facility dated December 5, 2000, incorporated by reference to Exhibit 10.13(c) of StockerYale, Inc.'s Form 10-K405 for the fiscal year ended December 31, 2001.
10.13(d)	Amendment to TD Bank credit facility, incorporated by reference to Exhibit 10.13(d) of StockerYale's Form 10-K for the year ended December 31, 2002.
10.14(a)	Reducing Revolver Loan and Security Agreement, dated as of May 3, 2001, by and between Merrill Lynch Financial Services Inc. and StockerYale, Inc., as amended by letter dated May 16, 2001, incorporated by reference to Exhibit 10.8(a) of StockerYale, Inc.'s Form 10-QSB for the fiscal quarter ended June 30, 2001
10.14(b)	Loan and Security Agreement, dated as of May 3, 2001, by and between Merrill Lynch Financial Services Inc. and StockerYale, Inc., as amended by letter dated May 16, 2001, incorporated by reference to Exhibit 10.8(b) of StockerYale, Inc.'s Form 10-QSB for the fiscal quarter ended June 30, 2001.
10.14(c)	Financial Asset Security Agreement, dated as of May 1, 2001, by and between Merrill Lynch Financial Services Inc. and StockerYale, Inc., incorporated by reference to Exhibit 10.8(c) of StockerYale, Inc.'s Form 10 QSB for the fiscal quarter ended June 30, 2001.
10.14(d)	Amendment to Merrill Lynch Line of Credit, incorporated by reference to Exhibit 10.14(d) of StockerYale's Form 10-K for the year ended December 31, 2002.
10.14(e)	Merrill Lynch Term Note, incorporated by reference to Exhibit 10.14(e) of StockerYale's Form 10-K for the year ended December 31, 2002.
10.15(a)	TJJ Corporation Term Note, incorporated by reference to Exhibit 10.15(a) of StockerYale's Form 10-K for the year ended December 31, 2002.
10.15(b)	TJJ Corporation Mortgage, incorporated by reference to Exhibit 10.15(b) of StockerYale's Form 10-K for the year ended December 31, 2002.
10.15(c)	Amendment to Credit Facility with National Bank, incorporated by reference to exhibit 10.15(c) of Form 10-K for the year ended December 31, 2003.
10.15(d)	Amendment to Credit Facility with Merrill Lynch, incorporated by reference to exhibit 10.15(d) of Form 10-K for the year ended December 31, 2003.
10.16	Separation Plan for Executive Officers
10.17	Form of Stock Purchase Agreement between the Investor(s) and StockerYale, Inc., incorporated by reference to Exhibit 99.1 of StockerYale's Form S-3, filed on October 17, 2003.
10.18(a)	Form of Secured Convertible Note between Laurus Master Fund, Ltd. and StockerYale, Inc., incorporated by reference to Exhibit 99.2 of StockerYale, Inc.'s Form S-3, filed on October 17, 2003.
10.18(b)	Form of Common Stock Purchase Warrant between Laurus Master Fund, Ltd. and StockerYale, Inc., incorporated by reference to Exhibit 99.3 of StockerYale, Inc.'s Form S-3, filed on October 17, 2003.
10.18(c)	Form of Securities Purchase Agreement between Laurus Master Fund, Ltd. and StockerYale, Inc., incorporated by reference to Exhibit 99.4 of StockerYale, Inc.'s Form S-3, filed on October 17, 2003.
21.1	Subsidiaries of the Company, incorporated by reference to exhibit 21.1 of Form 10-K for the year ended December 31, 2001.
*23.1	Consent of Vitale, Caturano & Company, Ltd.
99.1	Letter to the Securities and Exchange Commission pursuant to Temporary Note T3 regarding Arthur Andersen LLP, incorporated by reference to Exhibit 99.1 of StockerYale, Inc.'s Form 10-K for the fiscal year ended December 31, 2001.
*31.1	Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
*31.2	Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
*32.1	Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
*32.2	Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

* Filed herewith

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in the City of Salem, State of New Hampshire, as of October 22, 2004.

STOCKERYALE, INC

By /s/ RICHARD P. LINDSAY

Richard P. Lindsay,

Executive Vice President, Chief Financial Officer

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END

2003 Form 10-K/A-2