<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 29, 2000
---------------------------------------------
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 X No
------- --------
The number of shares of each class of common stock outstanding as of February
29, 2000
Common stock, no par value 7,992,389
<PAGE>
SCHMITT INDUSTRIES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
-----------
<S> <C> <C>
Part I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets:
- February 29, 2000 and May 31, 1999 3
Consolidated Statements of Income:
- For the Three and Nine Months Ended February 29, 2000 and February 28, 1999 4
Consolidated Statements of Cash Flows:
- For the Nine Months Ended February 29, 2000 and February 28, 1999 5
Supplemental Disclosure of Cash Flow Information and Supplemental Schedule of 5
Noncash Financing Activities
Notes to Consolidated Interim Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 10
Part II - OTHER INFORMATION 11
Signatures - 11
Exhibits - 12
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHMITT INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
February 29, 2000
Unaudited May 31, 1999
----------------------- ----------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 908,588 $ 268,888
Accounts receivable 1,892,970 1,423,611
Inventories 4,248,050 4,444,012
Prepaid expenses 125,380 75,454
Income taxes receivable 173,494 295,964
----------------------- ----------------------
TOTAL CURRENT ASSETS 7,348,482 6,507,929
----------------------- ----------------------
PROPERTY AND EQUIPMENT
Land 299,000 299,000
Buildings and improvements 1,194,664 1,194,664
Furniture and equipment 1,037,898 1,086,840
----------------------- ----------------------
2,531,562 2,580,504
Less accumulated depreciation and amortization 986,605 926,314
----------------------- ----------------------
TOTAL PROPERTY AND EQUIPMENT 1,544,957 1,654,190
----------------------- ----------------------
OTHER ASSETS
Long-term investment 774,000 2,135,000
Long-term deferred tax asset 1,158,248 898,628
Other assets 71,667 86,667
----------------------- ----------------------
TOTAL OTHER ASSETS 2,003,915 3,120,295
----------------------- ----------------------
TOTAL ASSETS $ 10,897,354 $ 11,282,414
======================= ======================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 534,384 $ 392,287
Accrued liabilities 351,013 303,567
----------------------- ----------------------
TOTAL CURRENT LIABILITIES 885,397 695,854
----------------------- ----------------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 20,000,000 shares
authorized, 7,992,389 and 8,184,889 shares issued and 7,244,065 7,284,445
outstanding at February 29, 2000 and May 31, 1999 respectively
Accumulated other comprehensive income (loss) (1,229,807) (201,781)
Retained earnings 3,997,699 3,503,896
----------------------- ----------------------
TOTAL STOCKHOLDERS' EQUITY 10,011,957 10,586,560
----------------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,897,354 $ 11,282,414
======================= ======================
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 3
<PAGE>
SCHMITT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ ------------------------------------
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 2,542,962 $ 1,767,427 $ 6,899,102 $ 5,913,751
Cost of sales 1,060,452 769,727 3,075,213 2,968,920
---------------- ---------------- ---------------- ----------------
Gross profit 1,482,510 997,700 3,823,889 2,944,831
---------------- ---------------- ---------------- ----------------
Operating expenses:
General, administrative and sales
expenses 1,002,674 918,760 2,876,942 2,830,163
Research and development 71,726 55,854 301,746 329,715
---------------- ---------------- ---------------- ----------------
1,074,400 974,614 3,178,688 3,159,878
---------------- ---------------- ---------------- ----------------
Operating income (loss) 408,110 23,086 645,201 (215,047)
---------------- ---------------- ---------------- ----------------
Other income (expense) (9,633) (17,742) 41,602 64,815
---------------- ---------------- ---------------- ----------------
Income (loss) before provision for
income taxes 398,477 5,344 686,803 (150,232)
Provision for (benefit from) income
taxes 137,000 (11,500) 193,000 - 0 -
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 261,477 $ 16,844 $ 493,803 $ (150,232)
================ ================ ================ ================
Net income (loss) per common share:
Basic $ .03 $ .00 $ .06 $ (.02)
================ ================ ================ ================
Diluted $ .03 $ .00 $ .06 $ (.02)
================ ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 4
<PAGE>
SCHMITT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28,1999
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------------
February 29, 2000 February 28, 1999
----------------------- ----------------------
<S> <C> <C>
CASH FLOWS RELATING TO OPERATING ACTIVITIES
Net income (loss) $ 493,803 $ (150,232)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Depreciation 203,895 225,216
Amortization 15,000 8,333
Deferred taxes 108,000 --
(Increase) decrease in:
Accounts receivable (469,359) 36,016
Inventories 195,962 (517,705)
Prepaid expenses (49,926) 31,127
Notes receivable -- (11,058)
Income taxes receivable 122,470 123,443
Increase (decrease) in:
Accounts payable 142,097 (332,385)
Accrued liabilities 47,446 (45,728)
----------------------- ----------------------
Net cash provided by (used in) operating activities 809,388 (632,973)
----------------------- ----------------------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Purchase of property and equipment (110,445) (104,940)
Disposals of property and equipment 15,783 1,613
----------------------- ----------------------
Net cash (used in) investing activities (94,662) (103,327)
----------------------- ----------------------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Advance on line of credit -- 300,000
Repurchase of company stock -- (47,258)
----------------------- ----------------------
Net cash provided from financing activities -- 252,742
----------------------- ----------------------
EFFECT OF FOREIGN EXCHANGE TRANSLATION ON CASH (75,026) (35,897)
----------------------- ----------------------
INCREASE (DECREASE) IN CASH 639,700 (519,455)
CASH, BEGINNING OF PERIOD 268,888 1,127,076
----------------------- ----------------------
CASH, END OF PERIOD $ 908,588 $ 607,621
======================= ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest 673 $ 3,647
Cash paid during the period for income taxes 3,941 $ 6,800
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
(Decrease) in market value of long-term investment $1,361,000 $ --
Increase in long-term deferred tax asset 408,000 $ --
Income tax benefit of stock options exercised -- $ 234,083
Purchase of long-term investment in common stock -- $ 2,135,000
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 5
<PAGE>
SCHMITT INDUSTRIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(UNAUDITED)
NOTE 1:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information,
and all adjustments considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended February 29, 2000
are not necessarily indicative of the results that may be experienced for the
fiscal year ending May 31, 2000.
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.
NOTE 2: EPS RECONCILIATION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- -------------------------------------
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Weighted average shares (basic) 8,053,735 7,987,978 8,141,331 7,395,434
Effect of dilutive stock options 515,805 -- 474,666 --
---------------- ---------------- ---------------- ----------------
Weighted average shares (diluted) 8,569,540 7,987,978 8,615,997 7,395,434
================ ================ ================ ================
</TABLE>
NOTE 3: COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- -------------------------------------
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) $ 261,477 $ 16,844 $ 493,803 $ (150,232)
Other comprehensive income (loss):
(Decrease) in fair market value of
long-term investment, net of taxes (362,000) -- (953,000) --
Foreign currency translation
adjustment (31,953) (207,521) (75,026) (35,897)
---------------- ---------------- ---------------- ----------------
Total comprehensive income (loss) $ (132,476) $ (190,677) $(534,223) $ (186,129)
================ ================ ================ ================
</TABLE>
The long-term investment is considered an "Available-for-sale security". As
required under Statement of Financial Accounting Standards No. 115, all
unrealized gains and losses, net of tax benefits, are included in Accumulated
Other Comprehensive Income (Loss) and reported as a separate component of Other
Comprehensive Income (Loss) in Stockholders' Equity until realized. The
cumulative translation adjustment consists of unrealized gains/losses from
translation adjustments on intercompany foreign currency transactions that are
of a long-term investment nature.
NOTE 4: SEGMENTS OF BUSINESS
The Company operates two principal business segments: the manufacturing of
mechanical components for the machine tool industries and the manufacturing of
laser measurement systems for the computer disk, silicon wafer and dimensional
sizing industries. The segment that manufactures mechanical components reported
gross sales of $6,212,769 for the nine months ended February 29, 2000, including
inter-company sales of $672,626. This segment reported gross sales of $6,208,291
for the nine months ended February 28, 1999, including inter-company sales of
$729,680. The segment, which manufactures laser measurement systems, reported
gross sales of $1,375,389 for the nine months ended February 29, 2000, including
inter-company sales of $16,430. For the nine months ended
Page 6
<PAGE>
February 28, 1999, the measurement products segment reported gross sales of
$435,140 with no inter-company sales. Geographically, US sales were $4,573,810
and $3,564,990 for nine months ended February 29, 2000 and February 28, 1999
respectively. Foreign sales were $3,014,348 and $3,078,440 for the same
nine-month period, respectively. This includes inter-company sales of $689,056
for the nine months ended February 29, 2000 and $729,680 for the nine months
ended February 28, 1999. For the nine months ended February 29, 2000 and
February 28, 1999, respectively, export sales by the US segment totaled $693,698
and $330,720.
Income (loss) from operations for the nine months ended February 29, 2000 and
February 28, 1999 for the mechanical components segment was $33,716 and
$(51,902), respectively. Income (loss) from operations for the nine months ended
February 29, 2000 and February 28, 1999 of the laser measurement segment was
$611,485, and $(163,145), respectively. Consolidated income (loss) from
operations includes an adjustment of $22,500 for the elimination of
inter-company rent for the nine months ended February 29, 2000 and February 28,
1999. Income (loss) from operations for the US segment was $702,092 and
$(206,352) respectively, for the nine months ended February 29, 2000 and
February 28, 1999 and for the foreign segment, (loss) from operations was
$(56,891) and $(8,695) respectively for the same nine months.
Long-term assets at February 29, 2000 were $3,040,750 and $508,122 respectively
for the mechanical components and laser measurement segments. At May 31, 1999,
long-term assets for the mechanical components and laser measurement segments
were $4,097,803 and $676,682 respectively. Long-term assets at February 29, 2000
were $3,474,965 and $73,907 for the US and foreign segments respectively. At May
31, 1999, long-term assets for the US and foreign segments were $4,654,796 and
$119,689 respectively.
Depreciation expense incurred during the nine months ended February 29, 2000 and
February 28, 1999 by the mechanical components segment was $149,688 and
$148,609, respectively. The laser measurement segment incurred depreciation
expense of $54,207 and $76,607 for the nine months ended February 29, 2000 and
February 28, 1999, respectively. Amortization expense incurred during the nine
months ended February 29, 2000 and February 28, 1999 by the mechanical
components segment was $15,000 and $8,333. The laser measurement segment did not
incur amortization expense for the nine months ended February 29, 2000 and
February 28, 1999. The US segment incurred depreciation expense of $146,447 and
$168,687 during the nine months ended February 29, 2000 and February 28, 1999,
respectively. The foreign segment incurred depreciation expense of $57,448 and
$56,529 respectively, for these same nine-month periods. The US segment incurred
amortization expense of $15,000 and $8,333 in the nine months ended February 29,
2000 and February 28, 1999. The foreign segment has not incurred amortization
expense. Capital expenditures for the nine months ended February 29, 2000 and
February 28, 1999, were $107,875 and $103,445 by the mechanical components
segment and $2,570 and $1,495 by the laser measurement segment, respectively.
Capital expenditures for the nine months ended February 29, 2000 and February
28, 1999 were $94,314 and $39,453 by the US segment and $16,131 and $65,487 by
the foreign segment, respectively.
Income (loss) from operations represents sales less costs and operating
expenses. In computing income from operations, all overhead expenses have been
allocated to both industry segments, as they are an integral part of profit
recognition for each segment. Identifiable assets by segment of business are
those assets used in the Company's operations in each segment. There are no
unallocated Company assets.
NOTE 5: NOTES RECEIVABLE - EMPLOYEES:
During the third quarter of fiscal 2000, a note receivable agreement with an
officer/employee was mutually terminated under a written agreement between the
officer/employee and the Company. The note was secured by outstanding common
stock of the Company that had been issued upon exercise of stock options. In
return for cancellation of the note, the officer/employee surrendered the shares
that secured the note. The shares were subsequently cancelled.
Page 7
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
THIRD QUARTER FISCAL YEAR 2000
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
introductions 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 during the third quarter of fiscal 2000, ended
February 29, 2000, as sales increased over the first and second quarters of
fiscal 2000 and were at the highest level since the second quarter of fiscal
1998. In addition, the net earnings were the best since the third quarter of
fiscal 1998 and this was the third consecutive quarter with profitable
operations. In comparison to the same period last year, Balancer product sales
have grown in both the United States and Europe. Sales of Schmitt Measurement
Systems, Inc. ("SMS") products were at expected levels for the quarter and up
significantly from both the prior quarter and same period last year. The overall
result was net income of $261,477 for the third quarter of fiscal 2000 and net
income for the first nine months of fiscal 2000 of $493,803.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999:
Sales in the third quarter of fiscal 2000 increased to $2,542,962 versus
$1,767,427 in the same period last year. This increase occurred in both business
segments. SMS sales totaled $685,382 in the third quarter of fiscal 2000
compared to $65,996 in the third quarter of fiscal 1999. The Company expects
continued improvement in Measurement sales in future fiscal quarters as new
products are introduced, the computer industry continues to rebound and sales of
higher end research products continue to be realized. Worldwide sales of
Balancer products were $1,857,580 for the three-months ended February 29, 1999
compared to $1,701,431 for the same period last year. Both domestic and European
market sales were higher, trends that are expected to continue in future months.
Third quarter cost-of-sales decreased to 42% of sales versus 44% in the same
period last year. Cost-of-sales of SMS products was 23% for the third quarter
2000 versus 49% in the same period last year and the cost of sales percentage of
Balancer products was 49% compared to 43% for the same period last year.
Management expects cost-of-sales of Balancer and Measurement products to
approximate these levels for the remainder of fiscal 2000.
Third quarter general, administrative and R&D expenses totaled $1,074,400 versus
$974,614 for the same period last year. As a percentage of revenues, operating
expenses (including R&D) during the third quarter of fiscal 2000 were 42%
compared to 55% for the same period last year. Both general, administrative and
sales plus research and development expenses declined as a percentage of
revenues when compared to year ago levels. Management estimates if revenue
projections are reached, these costs will stabilize at approximately 45% for
fiscal 2000.
Sales by the foreign subsidiaries totaled $607,673 for the quarter versus
$545,522 for the same quarter last year. The market softness experienced during
the first six months of the current fiscal year improved in the most recent
quarter, with sales exceeding year ago levels in the European markets.
In the three-month period ended February 29, 2000, pretax income amounted to
$398,477 compared to pretax income of $5,344 for the same period last year.
Taxes were accrued at approximately 34% of domestic pretax income, consistent
with management's expectation of the fiscal 2000 tax rate. Three-month net
income was $261,477 compared to net income of $16,844 for the same period last
year. Three-month earnings per share, basic and diluted, were $.03 and $.00 for
the three months ended February 29, 2000 and February 28, 1999 respectively.
NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999:
Sales in the first nine months of fiscal 2000 increased to $6,899,102 versus
$5,913,751 in the same period last year. The majority of this increase occurred
in the Measurement segment of the business. SMS sales totaled $1,358,959 in the
first nine months of fiscal 2000 compared to $435,140 for the same period in
fiscal 1999. The Company expects
Page 8
<PAGE>
continued improvement in Measurement sales throughout fiscal 2000 as the
computer industry continues to rebound and sales of higher end research products
continue to be realized. Worldwide sales of Balancer products were $5,540,143
for the nine-months ended February 29, 2000 compared to $5,478,611 for the same
period last year. Domestic sales of Balancer products were higher while sales of
those products into the European markets declined slightly. The upward trend in
sales in the United States is expected to continue while the decline in Europe
is believed to have reversed. Revenues in the European markets improved from
results in the first six months of fiscal 2000 and are expected to improve over
the remainder of the fiscal year.
Cost-of-sales for the period decreased to 45% of sales versus 50% in the same
period last year. Cost-of-sales of SMS products was 30% for the nine-months
ended February 29, 1999 versus 55% in the same period last year and the cost of
sales percentage of Balancer products was 48% compared to 50% for the same
period last year. Management expects cost-of-sales of Balancer and Measurement
products to approximate these levels for the remainder of fiscal 2000.
Operating expenses for the nine months ended February 29, 2000 totaled
$3,178,688 versus $3,159,878 for the same period last year. As a percentage of
revenues, operating expenses (including R&D) during the third quarter of fiscal
2000 were 46% compared to 53% for the same period last year. Both general,
administrative and sales plus research and development expenses declined as a
percentage of revenues compared to year ago levels. Management estimates if
revenue projections are reached these costs will stabilize at approximately 45%
for fiscal 2000.
Sales by the foreign subsidiaries totaled $1,631,894 for the nine-month period
versus $2,018,539 for the same period last year. There was some softness in the
European markets for Balancer products during the first six months of fiscal
2000, but this has reversed in the three months ended February 29, 2000. Sales
for the remainder of the fiscal year are expected to approximate year ago
levels.
In the nine-month period ended February 29, 2000, pretax earnings amounted to
$686,803 compared to a pretax loss of ($150,232) for the same period last year.
Taxes were accrued at approximately 28% of domestic pretax income, consistent
with management's expectation of a fiscal 2000-tax rate. Nine-month net earnings
were $493,803 compared to a net loss of $(150,232) for the same period last
year. Nine-month earnings per share, basic and diluted, were $.06 versus a net
loss per share, basic and diluted, of $(0.02) last year.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's working capital position improved to $6,463,085 at February 29,
2000 compared to $5,812,075 at May 31, 1999. Cash stood at $908,588 at February
29, 2000 compared to $268,888 at May 31, 1999.
During the nine-month period ended February 29, 2000, net cash provided by
operating activities totaled $809,388, including net operating income of
$493,803. Included in cash flow from operating activities were a $469,359
increase in accounts receivable, a $195,962 decrease in inventories and a
$189,543 increase in accounts payable and accrued expenses. The increase in the
Company's accounts receivable was due to the sales mix in the weeks preceding
February 29, 2000, compared the mix in the weeks preceding May 31, 1999. As a
result of its high-quality customer base, the Company has experienced nearly
100% collection and no reserve for uncollectable accounts, returns or allowances
has been established. Inventories decreased as part of a management plan to
reduce the overall level of inventories at all companies.
During the nine-month period ended February 29, 2000, net cash used by investing
activities was $94,662 (consisting primarily of net additions to property and
equipment). There was no cash used by financing activities.
Management believes that cash from operations, available credit resources and
its working capital position will provide adequate funds on a short-term basis
to cover currently foreseeable payments, commitments and payments under existing
and anticipated supplier agreements. Management believes that such cash flow is
also sufficient to finance current short-term operations, projected capital
expenditures, anticipated short-term sales agreements and other contingencies
during at least the next twelve months.
Page 9
<PAGE>
Management is currently reviewing long-range capital requirements as they relate
to expansion of products and markets. This analysis may or may not result in
future decisions to seek additional funding for the Company via debt or equity
to service the Company's future growth requirements.
IMPACT OF THE YEAR 2000 ISSUE:
During the quarter ended February 29, 2000, the Company completed its planned
Year 2000 compliance activities with respect to products, internal systems,
software, equipment and facilities. To date, the Company has not encountered any
material Year 2000 problems with respect to any products, internal systems,
software, equipment and facilities nor has it encountered any vendor supply
disruptions related to Year 2000 problems.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
INTEREST RATE RISK
The Company does not have any derivative financial instruments as of February
29, 2000. However, the Company is exposed to interest rate risk. The Company
employs established policies and procedures to manage its exposure to changes in
the market risk of its marketable securities.
The Company's interest income and expense are most sensitive to changes in the
general level of U.S. and European interest rates. In this regard, changes in
U.S. and European interest rates affect the interest earned on the Company's
cash equivalents as well as interest paid on debt.
The Company has a line of credit whose interest rate is based on various
published prime rates that may fluctuate over time based on economic changes in
the environment. The Company is subject to interest rate risk and could be
subject to increased interest payments if market interest rates fluctuate. The
Company does not expect any change in the interest rates to have a material
adverse effect on the Company's results from operations.
FOREIGN CURRENCY RISK
The Company operates subsidiaries in the United Kingdom and Germany. The
Company's business and financial condition is, therefore, sensitive to currency
exchange rates or any other restrictions imposed on their currencies. To date,
the foreign currency exchange rates have not significantly impacted the
Company's profitability.
Page 10
<PAGE>
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 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: 4/14/2000 /s/ Wayne A. Case
---------------------------------------------------------
Wayne A. Case, President/CEO/Director
Date: 4/14/2000 /s/ Robert C. Thompson
---------------------------------------------------------
Robert C. Thompson, Chief Financial Officer
Page 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-Q FOR FEBRUARY 29, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 908,588
<SECURITIES> 0
<RECEIVABLES> 1,892,970
<ALLOWANCES> 0
<INVENTORY> 4,248,050
<CURRENT-ASSETS> 7,348,482
<PP&E> 2,531,562
<DEPRECIATION> 986,605
<TOTAL-ASSETS> 10,897,354
<CURRENT-LIABILITIES> 885,397
<BONDS> 0
0
0
<COMMON> 7,244,065
<OTHER-SE> 2,767,892
<TOTAL-LIABILITY-AND-EQUITY> 10,897,354
<SALES> 6,899,102
<TOTAL-REVENUES> 6,899,102
<CGS> 3,075,213
<TOTAL-COSTS> 6,253,901
<OTHER-EXPENSES> 41,602
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 673
<INCOME-PRETAX> 686,803
<INCOME-TAX> 193,000
<INCOME-CONTINUING> 493,803
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 493,803
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
