<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- ------
XX QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------ SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: FEBRUARY 28, 1997
---------------------------------
or
- ------
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: 0-23996
-----------------------------------------------------
SCHMITT INDUSTRIES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
OREGON 93-1151989
------------------------ ------------------------
(Place of Incorporation) (IRS Employer ID Number)
2765 NW NICOLAI STREET, PORTLAND, OREGON 97210
- --------------------------------------------------------------------------------
(Address of registrant's principal executive office)
(503) 227-7908
- --------------------------------------------------------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 of 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 XX No
------ ------
The number of shares of each class of common stock outstanding as of February
28, 1997 Common stock, no par value 7,045,139
<PAGE>
SCHMITT INDUSTRIES, INC.
INDEX TO FORM 10-Q
PAGE
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets:
- February 28, 1997 and May 31, 1996....................... 3
Consolidated Statements of Income:
- For the Three Months and Nine Months Ended
February 28, 1997 and February 29, 1996.................. 5
Consolidated Statements of Cash Flows
- For the Nine Months Ended
February 28, 1997 and February 29, 1996.................. 6
Notes to Consolidated Financial Statements.................. 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 8
Part II- OTHER INFORMATION........................................... 10
Signatures - ....................................................... 10
Exhibits - .......................................................... 11
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHMITT INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
February 28, 1997 May 31, 1996
----------------- ------------
Unaudited
Cash $ 673,178 $ 508,240
Marketable securities
& commercial paper 322,382 145,600
Accounts receivable 2,171,545 1,411,805
Inventories 2,671,790 1,781,331
Deferred tax asset 918,081 593,740
Prepaid expenses 29,849 15,906
---------- ----------
Total current assets 6,786,825 4,456,622
Property and equipment
Land 299,000 299,000
Buildings & leasehold improvements 939,201 834,850
Furniture and equipment 834,956 660,371
---------- ----------
2,073,157 1,794,221
Less accumulated depreciation 467,989 312,189
---------- ----------
Total property & equipment 1,605,168 1,482,032
Other assets
Marketing rights 735,914 735,914
Less accumulated amortization 685,439 663,521
---------- ----------
Total other assets 50,475 72,393
Total assets $8,442,468 $6,011,047
---------- ----------
---------- ----------
Page 3
<PAGE>
SCHMITT INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES
February 28, 1997 May 31, 1996
Unaudited
----------------- ------------
Current liabilities
Trade accounts payable $ 523,584 $ 344,828
Accrued liabilities 271,032 244,613
Income taxes payable 206,609 294,749
Current portion of long term debt 40,346 40,346
Line of credit payable 400,000 -0-
---------- ----------
Total current liabilities 1,441,571 924,536
Long term deferred tax liability 25,107 25,107
Long-term debt, net of current portion 174,532 174,532
---------- ----------
Total liabilities $1,641,210 $1,124,175
STOCKHOLDERS' EQUITY
Common stock
Authorized: 20,000,000 shares
without par value
Issued and outstanding:
February 28, 1997 7,045,139 shares 4,707,024 4,098,512
May 31, 1996 6,918,139 shares
Retained earnings 2,094,234 788,360
--------- ---------
Total stockholders' equity 6,801,258 4,886,872
--------- ---------
Total liabilities and stockholders' equity $8,442,468 $6,011,047
--------- ---------
--------- ---------
Page 4
<PAGE>
SCHMITT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 1997
AND FEBRUARY 29, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
02/28/97 02/29/96 02/28/97 02/29/96
------------------------- -----------------------
<S> <C> <C> <C> <C>
Sales $2,918,912 $1,855,938 $7,450,924 $4,722,835
Cost of sales 1,391,054 581,584 3,127,832 1,682,263
---------- ---------- ---------- ----------
Gross profit 1,527,858 1,274,354 4,323,092 3,040,572
General and administrative
expenses 768,690 694,329 2,453,099 1,926,190
---------- ---------- ---------- ----------
Income from operations 759,168 580,025 1,869,993 1,114,382
Other income and expense
Interest income 14,805 9,881 27,156 18,292
Interest expense (5,593) (5,625) (5,609) (16,324)
Depreciation (77,614) (50,048) (199,768) (142,912)
Amortization (750) (44,947) (23,815) (130,883)
Misc. income 38,448 10,680 69,127 21,432
---------- --------- ---------- ----------
(30,704) (80,059) (132,909) (250,395)
Income before income tax 728,464 499,966 1,737,084 863,987
Provision for income tax 269,809 15,679 430,809 88,208
---------- --------- ---------- ----------
Net income for period $ 458,655 $ 484,287 $1,306,275 $ 775,779
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net income per common share and
common share equivalent
Primary .06 .07 .18 .11
--- --- --- ---
--- --- --- ---
Weighted average number of
shares 7,407,175 7,175,477 7,327,403 7,116,715
--------- --------- --------- ---------
Fully Diluted .06 .07 .18 .11
--- --- --- ---
--- --- --- ---
Weighted average number of
shares 7,407,262 7,202,112 7,384,402 7,167,530
--------- --------- --------- ---------
</TABLE>
Page 5
<PAGE>
SCHMITT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(UNAUDITED)
Cash flows from operating activities: Feb. 28, 1997 Feb. 29, 1996
------------- -------------
Net earnings from operations $1,306,275 $775,779
Items not affecting cash:
Amortization 23,815 130,883
Depreciation 199,768 142,912
Deferred taxes (5,659) -0-
---------- ----------
1,524,199 1,049,574
Cash flows from changes in assets & liabilities:
Increase (decrease) in accounts payable 178,756 73,897
Increase (decrease) in rent deposit -0- 900
Increase (decrease) in current-mortgage -0- 921
Increase (decrease) in other liabilities 26,419 -0-
Decrease (increase) in accounts receivable (759,740) (377,502)
Decrease (increase) in marketable securities
& commercial paper (176,782) 126,148
Decrease (increase) in inventory (890,459) (610,001)
Decrease (increase) in prepaid expenses (13,943) (10,328)
Decrease (increase) in other assets -0- (39,961)
Increase (decrease) in corp income tax (88,140) 112,037
Decrease (increase) in income tax receivables -0- 50,000
Decrease (increase) in note receivable -0- 10,000
--------- ----------
(1,723,889) (663,889)
--------- ----------
Net cash provided (used) by operating activities: (199,690) 385,685
Cash flows from investing activities:
Acquisition of capital assets (313,884) (287,356)
--------- ----------
Net cash provided (used) by financing activities: (313,884) (287,356)
Cash flows from financing activities:
Line of credit 400,000 -0-
Mortgage payable -0- (10,462)
Exercise of stock options 278,512 -0-
---------- ---------
Net cash provided (used) by financing activities: 678,512 (10,462)
Increase (decrease) in cash 164,938 87,867
Cash beginning of period 508,240 141,244
Cash end of period $ 673,178 $ 229,111
--------- ----------
--------- ----------
Page 6
<PAGE>
February 28, 1997 February 29, 1996
----------------- -----------------
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Income tax benefit of stock options exercised ($330,000)
---------
---------
Supplemental Information
Income taxes paid $ 124,100 $ 3,897
Interest paid $ 5,609 $ 16,324
NOTES TO INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information,
and all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month and nine-month periods ended February 28, 1997 are not necessarily
indicative of the results that may be experienced for the fiscal year ending May
31, 1997.
These financial statements are those of the Company and its wholly owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in the preparation of the consolidated financial statements.
Page 7
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations:
The following information contains certain forward-looking statements that
anticipate future trends or events. These statements are based on certain
assumptions that may prove to be erroneous and are subject to certain risks
including but not limited to the uncertainties of the Company's new product
introduction and the risks of increased competition and technological change in
the Company's industry. Accordingly, actual results may differ, possibly
materially, from the predictions contained herein.
Company operations improved dramatically during the third quarter of fiscal
1997, ended February 28, 1997, as evidenced by major increases in sales and
profit levels. During the third quarter, the Company completed its acquisition
of "Schmitt Hofmann Systems GmbH" in Germany. The Company purchased the assets
of Hofmann Maschinenbau GmbH and then formed a new wholly owned subsidiary as of
12/1/96 for a total cost of $500,000.
During the third quarter ended February 28, 1997, the Company, through its
wholly owned subsidiary Schmitt Measurement Systems, Inc. ("SMS"), continued to
sell TMS-2000 non-contact laser texture measurement systems (TMS 2000) to the
computer hard drive market. The Company has secured additional orders for these
products and expects increased delivery during the balance of fiscal 1997.
RESULTS OF OPERATIONS:
Sales in the third quarter of fiscal 1997 increased to $2,918,912 versus
$1,855,938 in the same period last year. Sales for the nine months ended
February 28, 1997, totaled $7,450,924 versus $4,722,835 in the same period last
year. The three months sales level was a 57% increase, the nine months results
increased by 58% over the same period last year. These increases were caused by
across-the-board gains in orders from both domestic and international customers.
Management believes sales increases resulted from improved marketing coverage
and advertising and the weakening of competitors. Additionally, SMS sales
accounted for $916,226 of the third quarter sales as the TMS-2000 had increased
shipments, as compared to $737,690 in third quarter 1996 SMS sales.
Third quarter cost-of-sales increased to 48% of sales versus 31% in the same
period last year. Third quarter fiscal 1997 net profits before taxes increased
46% to $728,464 versus $499,966 in fiscal 1996. Net profits after taxes for the
third quarter of fiscal 1997 were $458,655 versus $484,287 for the third quarter
of fiscal 1996. Nine-month net profit after tax totaled $1,306,275 versus
$775,779 for the same period last year. This is a 68% increase of net profits
after tax for the first nine months of fiscal 1997.
The third quarter general and administrative expenses totaled $768,690 versus
$694,329 for the same period last year. The nine-month general administrative
expenses totaled $2,453,099 versus $1,926,190 for the same period last year.
These increases are attributed to increased sales levels this year and lower
levels of expenses in the same period last year. The expansion in advertising,
sales training costs, computer purchases and employee salaries continued. Also,
an increasing percentage of the Company's products are being sold through
commissioned agents and salesmen, as compared with last year, a trend management
expects to continue.
Sales in the German subsidiary, Schmitt Hofmann Systems GmbH, totaled
approximately $600,000 of total reported sales for the quarter. These sales
levels are higher than expected by management, as many efforts were expended
during this quarter in Germany to physically move the Company to a new location,
install a new computer and accounting
Page 8
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
system, and non-recurring costs were incurred as a result of these activities.
Earnings before taxes in Germany totaled approximately $120,000. Management
expects earnings in Germany will increase as the full result of quantity
purchases of inventory impact Schmitt Hofmann Systems GmbH future income
statements.
General and administrative expenses as a percentage of sales during the third
quarter of fiscal 1997 were 33% compared to 41% for the same period last year,
and management feels these costs will stabilize at approximately 40% for fiscal
1997, down from 43% for fiscal 1996 and 47% in fiscal 1995.
In the nine-month period ended February 28, 1997 net income totaled $1,306,275
versus $775,779 for the same period last year. For the third quarter period
ended February 28, 1997, net income totaled $458,655 versus $484,287 for the
same period last year. Taxes were accrued at an increased rate for the third
quarter given a total of 25% rate compared with 10% in the same period last year
for the first nine months of fiscal 1997. Management anticipates that the tax
rate for fiscal 1997 will approximate 30% due to prior year tax credits and
refunds.
Third quarter net income per common share and common share equivalent on both a
primary and a fully diluted basis totaled $0.06 versus $0.07 last year for the
same period. Fiscal 1997 nine-month primary and fully diluted net income per
common share and common share equivalent were $0.18 versus $0.11 last year for
the same period.
LIQUIDITY AND CAPITAL RESOURCES:
The Company increased its working capital position during the third quarter
while still financing the growth of the new SMS products and inventory growth.
Working capital totaled $5,345,254 at February 28, 1997 versus $3,532,086 at May
31, 1996 fiscal year end. Corporate cash and marketable securities levels stood
at $995,560 at February 28, 1997.
During the nine-month period ended February 28, 1997, net cash used in operating
activities totaled $199,690. Included in cash flow from operations was a
$890,459 increase in inventory. Increases in inventory were planned to take
advantage of quantity purchases from vendors and to service increased sales
levels. During the period, accounts receivable increased by $759,740 to a total
of $2,171,545 and marketable securities and commercial paper increased by
$176,782 to $322,382.
The increase in accounts receivable occurred because of the increased sales
during the third quarter ended February 28, 1997 compared with the first six
months of fiscal 1997. As a result of its high-quality customer base, the
Company has experienced near 100% collection and no reserve for uncollectables,
returns or allowances has been established.
Management believes that its cash flow from operations, available credit
resources and its improving cash position will provide adequate funds on a
short-term basis to cover currently foreseeable debt payments, lease commitments
and payments under existing and anticipated supplier agreements. Management
believes that such cash flow is sufficient to finance current short-term
operations, projected capital expenditures, anticipated short-term sales
agreements and other contingencies during the next six months.
Page 9
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Default Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders:
-- None --
Item 5. Other Information - None
Item 6(a) Exhibit 10.1 - Sales Contract between Herr Dirk Pfeil, receiver
of Hofmann Maschinenbau GmbH, and Schmitt Hofmann Systems
GmbH, dated November 19, 1996
Exhibit 11.1 - Schedule of Computation of Net Income Per Share
Exhibit 27 - Financial Data Schedule
Item 6(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements 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.
SCHMITT INDUSTRIES, INC.
------------------------
(Registrant)
Date: 4/11/97
-----------------------------------------------------
Wayne A. Case, President/CEO/Director
Date: 4/11/97
-----------------------------------------------------
Annie Windsor, Chief Financial Officer
Page 10
<PAGE>
SCHMITT INDUSTRIES, INC.
FOR 10-Q
EXHIBIT INDEX
Number Description Location
- ---------- -------------------------------------------- ------------
10.1 Sales Contract between Herr Dirk Pfeil, Page 12
receiver of Hofmann Maschinenbau GmbH,
and Schmitt Hofmann Systems GmbH, dated
November 19, 1996
11.1 Schedule of Computation of Net Income Per Share Page 17
27 Financial Data Schedule Page 18
Page 11
<PAGE>
SALES CONTRACT
between
Herr Dirk Pfeil
receiver of
Hofmann Maschinenbau GmbH
Werner-von-Siemens-Strasse 2, 64319 Pfungstadt
Eschersheimer Landstrasse 60
60332 Frankfurt/Main
-Seller-
and
B U R - Vermoegensverwaltung GmbH
(registered at the court of Mannheim under HRB 16085)
in future registered under the name
Schmitt Hofmann Systems GmbH
represented by its Geschaeftsfuehrer Wayne Case
who has the right for exclusive representation
Mannheimer Strasse 66
68782 Bruehl
-Buyer-
PRELIMINARY STATEMENT
On 1 October 1996, follow-up bankruptcy proceedings were initiated against
Hofmann Maschinenbau GmbH ("Common Debtor") in Pfungstadt. The Amtsgericht
Darmstadt appointed Seller as the trustee in bankruptcy. Buyer acknowledges
that within the framework of the bankruptcy proceedings, Seller will continue
the business of the Common Debtor. The "Schwingungsmesstechnik" division that
Buyer intends to take over forms part of the business of the Common Debtor.
Subject of this sales contract are the rights and goods and equipment that
directly pertain to the "Schwingungsmesstechnik" division of the Common Debtor's
business located in Pfungstadt. Buyer acknowledges that the Common Debtor does
not own any real estate. The present facility is rented from Wegmann & Co and
therefore is not part of the sales contract. Furthermore, Buyer acknowledges
that Seller's knowledge of the business is only from carrying on the business
within the framework of the bankruptcy proceedings. Seller does not make any
guarantees that are not mentioned in this contract.
On the basis of this understanding, the two parties have made the following
agreement:
Page 12
<PAGE>
1. Buyer will acquire the following rights and goods and equipment that
pertain to the business of the Common Debtor in Pfungstadt for the
"Schwingungsmesstechnik" division:
a. All machinery, tools and pieces of furniture set forth in the list
provided to Buyer. Items sold to the Buyer also include items used
exclusively for this division by Seller.
b. Raw materials, auxiliary materials and factory supplies as well as
unfinished goods and finished goods as set forth in the list provided
to Buyer.
c. Available trade/manufacturing expertise shall be made available by
handing over all documents, plans, technical drawings, piece lists,
work plans, list of customers, purchasing documents, calculations,
customer documents etc. available in Pfungstadt from the Common Debtor
as set forth in the list provided to Buyer.
d. Commercial patent rights that can be transferred and that are in
possession of the Common Debtor as set forth in the list provided to
Buyer. If a formal transfer of the patent rights to Buyer is not
possible, Seller grants Buyer unlimited, irrevocable and exclusive
usufructuary rights. In this case Buyer will bear the cost for the
maintenance of the patent rights.
Seller warrants that all items and rights sold are freely disposable and
can be transferred free from rights of third parties. However, Seller
points out that with respect to the patent rights, the employee inventors
have a legal preemptive right.
2. The purchase price for the objects and rights mentioned under Section 1 of
this contract is DM 750,000.00 plus 15% value-added tax ("VAT"), if this tax
must be paid. The net purchase price of DM 750,000.00 is payable at 2 December
1996. The purchase price will be paid into the following bankruptcy deposit
account:
Number: 26 001008
with B H F Bank, AG, Frankfurt/Main
bank code number: 500 202 00.
It is the opinion of both parties that all items are sold within the
framework of a sale of a whole business according to Section 1 Sec. 1 a of
the VAT law and that consequently no VAT has to be paid. If this opinion
is not correct, Buyer shall be obligated to pay the VAT at the current
rate, which is 15% of the purchase price to Seller.
Seller only has to pay VAT if and so long as the financial authorities in
charge of Buyer's affairs accept VAT as an reimbursement for Buyer. In
this case, Seller will prepare an invoice on which VAT is shown separately
for Buyer.
Page 13
<PAGE>
If the financial authorities do not have any counterclaims which can be set
off against Seller, Buyer transfers his right for VAT-refund from the
financial authorities, which may exist because of this sales contract, to
Seller. Consequently Seller can set off the transferred right for
VAT-refund against his VAT liability to the financial authorities due to
this sales contract according to Section 46 Sec. 2 AO. The rights are to
be transferred on an official form. If the financial authorities do not
agree with the transfer or if a transfer is not possible for other reasons,
the whole amount of the value-added- tax must be paid to Seller by
15 January 1997.
If Buyer does not pay the complete purchase price as of the required date,
interest of 10% per annum must be paid from the date when payment was due.
3. The acquired rights and items are taken over by the Buyer as inspected; he
acknowledges their condition. Warranty claims, defects and other
warranties of any kind are excluded. The Buyer renounces any possible
warranties for cancellation, reduction of the sales price, compensation
payment or an eventual right of rescission from this contract. The right
of rescission mentioned in Section 16 of this contract is not affected
hereby.
4. The transfer is valid effective from 1 December 1996 on, provided Seller
receives the net sales price of DM 750.000,00 by 2 December 1996. Seller
retains title to the items sold until complete payment of the sales price
has been effected. Buyer has the right to assemble the goods in stock in
the ordinary course of business and to sell them as long as he does not
delay payment. Assembly or change always takes place for Seller as a
producer, but without obligations for him. Buyer hereby fully transfers
any claims resulting from reselling goods under reservation of ownership to
the Seller.
5. Seller will make sure that the normal course of business is continued until
the date of transfer. Buyer agrees to process orders received until the
date of transfer and to carry out the orders properly. This is also valid
for orders submitted to suppliers by Seller, etc. Seller will be
reimbursed by Buyer for eventual prepayments for goods that have not yet
been delivered or for services that have not yet been rendered. Incoming
invoices for services already rendered at the date of transfer or goods
already received will be paid by the Seller.
6. Both parties agree to discuss all present contracts immediately after
signing this contract. They will decide which contracts will be terminated
by Seller before the date of transferral.
7. Buyer takes over those warranty and guarantee obligations (reworking and
delivery of spare parts) which result from orders processed after the
opening of the bankruptcy proceedings or of orders which had been in
process.
Page 14
<PAGE>
8. A list of orders received at the "Schwingungsmesstechnik" division as of
18 November 1996 has been provided to Buyer. Orders which have been
completed as of the date of the transfer and services that had been
rendered at that time will be dealt with between Seller and customer.
Deliveries and services which took place after the transferral will be
dealt with between Buyer and customer. Both parties will do their best in
order to transfer the orders received as of the date of transfer from
Seller to Buyer in accordance with the customer.
9. Seller shall continue the initiated legal proceedings against Dionys
Hofmann and his companies, respectively, concerning the
"Schwingungsmesstechnik" division. To the best of his abilities, Seller
will also support Buyer in any similar future conflicts with Dionys Hofmann
or one of his companies.
10. Buyer acknowledges that the Common Debtor employs 20 people in the
"Schwingungsmesstechnik" division in Pfungstadt. However, Buyer is only
willing to employ a maximum of 14 people. Therefore, Buyer is granted the
right to ask Seller to pay DM 35,000.00 for each additional person Buyer
has to employ according to the regulations of Section 613 a BGB. Buyer
may decide which employees he intends to continue to employ. Seller shall
regulate all claims of continuing employees existing at the date of
transfer within the framework of the bankruptcy proceedings so that no
obligations for Buyer may result. All claims arising after the date of
transfer will be dealt with by Buyer. Holiday entitlements and holiday pay
of the continuing employees will be established as of the date of transfer.
Seller has no pension obligations to the continuing employees.
11. Buyer has the right to use the current facilities for the
"Schwingungsmesstechnik" division until 31 January 1997, at the latest, for
which payment of a monthly flat rate of DM 10,000.00 plus VAT is due.
Seller has no warranty obligations for these facilities.
12. In the future, Buyer will pass orders to Seller for part "zerspanende
Fertigung." Buyer or third persons named by Buyer will have the
opportunity to observe the execution of these orders in order to get
fabrication know-how. Seller hereby agrees to help Buyer and will ensure
that Buyer's competitors will not have access to this know-how.
13. Both parties will engage an outside EDP-company to transfer the technical
and trading data concerning the objects sold to Buyer and remove them from
the EDP-system of Seller. The costs therefor shall be borne by Buyer.
Existing backup copies will be handed over to Buyer.
14. Seller allows Buyer to remove tools with a maximum value of DM 5,000.00
from the tools in stock in Pfungstadt.
Page 15
<PAGE>
15. Seller has the right to withdraw from this sales contract if the Buyer
delays payment for more than three days. Written withdrawal from the
contract must be given to Buyer.
16. Buyer has the right to withdraw from this contract if Mr. Menigat does not
renounce his preemptive right according to the employee invention law. The
right for withdrawal must be carried out by 26 November 1996 by written
notice to Seller.
17. If any provision of this contract is or becomes invalid, the validity of
the whole contract is not affected. Both parties will do their best to
correct any invalid provision so that it complies legally and economically
and comes as close as possible to the intention of the original provision.
18. Place of performance and jurisdiction is Frankfurt/Main.
Frankfurt/Main, 19 November 1996
- ----------------------------------- -----------------------------------
- -Seller- -Buyer-
Page 16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 11.1
SCHMITT INDUSTRIES, INC.
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
02/28/97 02/29/96 02/28/97 02/29/96
-------------------- ----------------------
<S> <C> <C> <C> <C>
I. Net income for period $ 458,655 $ 484,287 $ 1,306,275 $ 775,779
--------- --------- ----------- ---------
II. Determination of shares
Weighted average number of
common shares outstanding 7,042,886 6,886,889 7,012,557 6,886,889
Common equivalent shares 364,289 288,588 314,846 229,826
(determined using the "treasury stock"
method) representing shares issuable upon
exercise of employee stock options
Weighted average number of shares used 7,407,175 7,175,477 7,327,403 7,116,715
in calculation of primary income per share
Shares issuable on exercise of stock options, 87 26,635 56,999 50,815
net of shares assumed to be purchased out of
proceeds at market price
Weighted average number of shares used in
fully diluted income per share 7,407,262 7,202,112 7,384,402 7,167,530
--------- --------- --------- ---------
III. Net income per common share and common
share equivalent
Primary .06 .07 .18 .11
--- --- --- ---
Fully diluted .06 .07 .18 .11
--- --- --- ---
</TABLE>
Page 17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q OF
FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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