<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: November 30, 1999
-------------------------------
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 No
--------------- ---------------
The number of shares of each class of common stock outstanding as of November
30, 1999
Common stock, no par value 8,184,889
<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:
- November 30, 1999 and May 31, 1999... 3
Consolidated Statements of Income:
- For the Three and Six Months Ended November 30, 1999 and 1998 4
Consolidated Statements of Cash Flows:
- For the Six Months Ended November 30, 1999 and 1998 5
Supplemental Disclosure of Cash Flow Information and Supplemental Schedule of
Noncash Financing Activities 5
Notes to Interim Consolidated 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
November 30, 1999
Unaudited May 31, 1999
----------------------- ----------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 737,740 $ 268,888
Accounts receivable 1,566,808 1,423,611
Inventories 4,232,329 4,444,012
Prepaid expenses 132,375 75,454
Income taxes receivable 209,545 295,964
----------------------- ----------------------
TOTAL CURRENT ASSETS 6,878,797 6,507,929
----------------------- ----------------------
PROPERTY AND EQUIPMENT
Land 299,000 299,000
Buildings and improvements 1,194,664 1,194,664
Furniture and equipment 1,040,470 1,086,840
----------------------- ----------------------
2,534,134 2,580,504
Less accumulated depreciation and amortization 926,988 926,314
----------------------- ----------------------
TOTAL PROPERTY AND EQUIPMENT 1,607,146 1,654,190
----------------------- ----------------------
OTHER ASSETS
Long-term investment 1,290,000 2,135,000
Long-term deferred tax asset 1,132,628 898,628
Other assets 76,667 86,667
----------------------- ----------------------
TOTAL OTHER ASSETS 2,499,295 3,120,295
----------------------- ----------------------
TOTAL ASSETS $ 10,985,238 $ 11,282,414
======================= ======================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 443,166 $ 392,287
Accrued liabilities 357,259 303,567
----------------------- ----------------------
TOTAL CURRENT LIABILITIES 800,425 695,854
----------------------- ----------------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 20,000,000 shares
authorized, 8,184,889 shares issued and outstanding at November,
1999 and May 31, 1999 respectively 7,284,445 7,284,445
Accumulated other comprehensive income (loss) (835,854) (201,781)
Retained earnings 3,736,222 3,503,896
----------------------- ----------------------
TOTAL STOCKHOLDERS' EQUITY 10,184,813 10,586,560
----------------------- ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,985,238 $ 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 SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------- --- ---------------- ---------------- --- ----------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 2,343,343 $ 2,161,653 $ 4,356,140 $ 4,146,324
Cost of sales 1,057,490 1,176,025 2,014,761 2,199,193
---------------- ---------------- ---------------- ----------------
Gross profit 1,285,853 985,628 2,341,379 1,947,131
---------------- ---------------- ---------------- ----------------
Operating expenses:
General, administrative and sales
Expenses 1,041,198 1,057,947 1,874,268 1,911,403
Research and development 100,095 97,032 230,020 273,861
---------------- ---------------- ---------------- ----------------
1,141,293 1,154,979 2,104,288 2,185,264
---------------- ---------------- ---------------- ----------------
Operating income (loss) 144,560 (169,351) 237,091 (238,133)
---------------- ---------------- ---------------- ----------------
Other income 25,224 53,733 51,235 82,557
---------------- ---------------- ---------------- ----------------
Income (loss) before provision for
income taxes 169,784 (115,618) 288,326 (155,576)
Provision for income taxes 22,000 -- 56,000 11,500
---------------- ---------------- ---------------- ----------------
Net income (loss) $147,784 $ (115,618) $ 232,326 $ (167,076)
================ ================ ================ ================
Net income (loss) per common share:
Basic $ .02 $ (.02) $ .03 $ (.02)
================ ================ ================ ================
Diluted $ .02 $ (.02) $ .03 $ (.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 SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------
November 30, 1999 November 30, 1998
----------------------- ----------------------
<S> <C> <C>
CASH FLOWS RELATING TO OPERATING ACTIVITIES
Net income (loss) $ 232,326 $ (167,076)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Depreciation 135,676 149,479
Amortization 10,000 3,333
(Increase) decrease in:
Accounts receivable (143,197) (347,290)
Inventories 211,683 (705,197)
Prepaid expenses (56,921) 60,083
Income taxes receivable 106,419 126,153
Increase (decrease) in:
Accounts payable 50,879 (61,877)
Accrued liabilities 53,692 42,232
----------------------- ----------------------
Net cash provided by (used in) operating activities 600,557 (900,160)
----------------------- ----------------------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Purchase of property and equipment (102,956) (64,240)
Disposals of property and equipment 14,324 3,452
----------------------- ----------------------
Net cash (used in) investing activities (88,632) (60,788)
----------------------- ----------------------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Advance on line of credit -- 300,000
Repurchase of company stock -- (47,258)
----------------------- ----------------------
Net cash (used in) financing activities -- 252,742
----------------------- ----------------------
EFFECT OF FOREIGN EXCHANGE TRANSLATION ON CASH (43,073) 171,624
----------------------- ----------------------
INCREASE (DECREASE) IN CASH 468,852 (536,582)
CASH, BEGINNING OF PERIOD 268,888 1,127,076
----------------------- ----------------------
CASH, END OF PERIOD $ 737,740 $ 590,494
======================= ======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 673 $ 3,543
Cash paid during the period for income taxes $ -- $ 6,300
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
(Decrease) in market value of long-term investment $ (845,000) $ --
Increase in long-term deferred tax asset $ 254,000 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 5
<PAGE>
SCHMITT INDUSTRIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
(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 six-month period ended November 30, 1999 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 Six Months Ended
------------------------------------- -------------------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Weighted average shares (basic) 8,184,889 7,089,139 8,184,889 7,093,784
Effect of dilutive stock options 466,750 -- 466,750 --
---------------- ---------------- ---------------- ----------------
Weighted average shares (diluted) 8,651,639 7,089,139 8,651,639 7,093,784
================ ================ ================ ================
</TABLE>
NOTE 3: COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------- -------------------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) $ 147,784 $ (115,618) $ 232,326 $ (167,076)
Other comprehensive income (loss):
(Decrease) in fair market value of
long-term investment, net of taxes (902,000) -- (591,000) --
Foreign currency translation
Adjustment (54,512) 25,434 (43,073) 171,624
---------------- ---------------- ---------------- ----------------
Total comprehensive income (loss) $ (808,728) $ (90,184) $ (401,747) $ 4,548
================ ================ ================ ================
</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 $4,122,674 for the six months ended November 30, 1999, including
inter-company sales of $440,111. This segment reported gross sales of $4,317,405
for the six months ended November 30, 1998, including inter-company sales of
$540,225. The segment, which manufactures laser measurement systems, reported
gross sales of $690,007 for the six months ended November 30, 1999, including
inter-company sales of $16,430. For the six months ended
Page 6
<PAGE>
November 30, 1998, the measurement products segment reported gross sales of
$369,144 with no inter-company sales. Geographically, US sales were
$2,852,867 and $2,517,072 for six months ended November 30, 1999 and 1998
respectively. Foreign sales were $1,959,814 and $2,169,477 for the same
six-month period, respectively. This includes inter-company sales of $456,541
for the six months ended November 30, 1999 and $540,225 for the six months
ended November 30, 1998. For the six months ended November 30, 1999 and 1998,
respectively, export sales by the US segment totaled $479,052 and $156,235.
Income (loss) from operations for the six months ended November 30, 1999 and
1998 for the mechanical components segment was $31,664 and $(120,558),
respectively. Income (loss) from operations for the six months ended November
30, 1999 and 1998 of the laser measurement segment was $205,427, and
$(117,575), respectively. Consolidated income (loss) from operations includes
an adjustment of $15,000 for the elimination of inter-company rent for the
six months ended November 30, 1999 and 1998. Income (loss) from operations
for the US segment was $324,014 and $(119,184) respectively, for the six
months ended November 30, 1999 and 1998 and for the foreign segment, (loss)
from operations was $(86,923) and $(118,949) respectively for the same six
months.
Long-term assets at November 30, 1999 were $3,492,347and $614,094
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 November 30, 1999 were $4,010,595 and $95,846 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 six months ended November 30, 1999
and 1998 by the mechanical components segment was $98,443 and $98,187,
respectively. The laser measurement segment incurred depreciation expense of
$37,233 and $51,292 for the six months ended November 30, 1999 and 1998,
respectively. Amortization expense incurred during the six months ended
November 30, 1999 and 1998 by the mechanical components segment was $10,000
and $3,333. The laser measurement segment did not incur amortization expense
for the six months ended November 30, 1999 and 1998. The US segment incurred
depreciation expense of $98,314 and $112,596 during the six months ended
November 30, 1999 and 1998, respectively. The foreign segment incurred
depreciation expense of $37,362 and $36,883 respectively, for these same
six-month periods. The US segment incurred amortization expense of $10,000
and $3,333 in the six months ended November 30, 1999 and 1998. The foreign
segment has not incurred amortization expense. Capital expenditures for the
six months ended November 30, 1999 and 1998, were $100,386 and $64,240 by the
mechanical components segment and $2,570 and -0- by the laser measurement
segment, respectively. Capital expenditures for the six months ended November
30, 1999 and 1998 were $85,736 and $25,252 by the US segment and $ 17,220 and
$38,988 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.
Page 7
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
SECOND 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 second quarter of fiscal 2000, ended
November 30, 1999, as sales increased over the first quarter of fiscal 2000
and were the highest level since the fourth quarter of fiscal 1998. In
addition, the net earnings were the best since the second quarter of fiscal
1998 and this was the second consecutive quarter with profitable operations.
In comparison to the same period last year, Balancer product sales have grown
in the United States while softness in the industry in the United Kingdom and
Germany has resulted in a decline in sales in those markets. The overall
result is that Balancer sales are flat when compared to year-ago levels.
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 $147,784 for the
second quarter of fiscal 2000 and net income for the first six months of
fiscal 2000 of $232,326.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998:
Sales in the second quarter of fiscal 2000 increased to $2,343,343 versus
$2,161,653 in the same period last year. This increase occurred in the
measurement segment of the business. SMS sales totaled $444,022 in the second
quarter of fiscal 2000 compared to $201,477 in the second quarter of fiscal
1999. The Company expects 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 $1,899,321 for the three-months ended
November 30, 1999 compared to $1,960,176 for the same period last year. As
with the first quarter of fiscal 2000, domestic sales were higher while sales
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 be short-term. Revenues in those markets improved from first quarter
results and are expected to improve over the remainder of fiscal 2000.
Second quarter cost-of-sales decreased to 45% of sales versus 54% in the same
period last year. Cost-of-sales of SMS products was 34% for the second
quarter 2000 versus 51% in the same period last year and the cost of sales
percentage of Balancer products was 48% compared to 55% 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.
Second quarter general, administrative and R&D expenses totaled $1,141,293
versus $1,154,979 for the same period last year. As a percentage of revenues,
operating expenses (including R&D) during the second quarter of fiscal 2000
were 49% 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 $526,102 for the quarter versus
$749,794 for the same quarter last year. There was some softness in the
market during the second quarter but these changes in the markets are
expected to be only short term as management anticipates revenues for the
remainder of the fiscal year to approximate year ago levels.
In the three-month period ended November 30, 1999, pretax earnings amounted
to $169,784 compared to a pretax loss of ($115,618) for the same period last
year. Taxes were accrued at approximately 13% of domestic pretax income,
consistent with management's expectation of a fiscal 2000 tax rate. The rate
is low in comparison to the Federal and State statutory rates as the majority
of the quarter's income was in the measurement subsidiary. That Company has a
net operating loss carryforward and therefore income tax expense at that
Company is minimal. Three-month net earnings were $147,784 compared to a net
loss of $(115,618) for the same period last year. Three-
Page 8
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
SECOND QUARTER FISCAL YEAR 2000
month earnings per share, basic and diluted, were $.02 versus a net loss per
share, basic and diluted, of $(0.02) last year.
SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
Sales in the first six months of fiscal 2000 increased to $4,356,140 versus
$4,146,324 in the same period last year. This increase occurred in the
measurement segment of the business. SMS sales totaled $673,577 in the first
six months of fiscal 2000 compared to $369,144 for the same period in fiscal
1999. The Company expects 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 $3,682,563 for the six-months ended November
30, 1999 compared to $3,777,180 for the same period last year. Once again,
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 be short-term. Revenues in those markets improved from first quarter
results and are expected to improve over the remainder of fiscal 2000.
Cost-of-sales for the period decreased to 46% of sales versus 53% in the same
period last year. Cost-of-sales of SMS products was 37% for the six-months
ended November 30, 1999 versus 58% in the same period last year and the cost
of sales percentage of Balancer products was 48% compared to 53% 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 six months ended November 30, 1999 totaled
$2,104,288 versus $2,185,264 for the same period last year. As a percentage
of revenues, operating expenses (including R&D) during the second quarter of
fiscal 2000 were 48% 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 $1,024,221 for the six-month period
versus $1,473,018 for the same period last year. There was some softness in
the European markets for balancer products during the six months ended
November 30, 1999 but these changes are expected to be only short term as
management anticipates revenues for the remainder of the fiscal year to
approximate year ago levels.
In the six-month period ended November 30, 1999, pretax earnings amounted to
$288,326 compared to a pretax loss of ($155,576) for the same period last
year. Taxes were accrued at approximately 19% of domestic pretax income,
consistent with management's expectation of a fiscal 2000-tax rate. Six-month
net earnings were $232,326 compared to a net loss of $(167,076) for the same
period last year. Six-month earnings per share, basic and diluted, were $.03
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 $6,078,372 at November 30,
1999 compared to $5,812,075 at May 31, 1999. Cash stood at $737,740 at
November 30, 1999 compared to $268,888 at May 31, 1999.
During the six-month period ended November 30, 1999, net cash provided by
operating activities totaled $600,557, including net operating income of
$232,326. Included in cash flow from operating activities were a $143,197
increase in accounts receivable, a $211,683 decrease in inventories and a
$104,571 increase in accounts payable and accrued expenses. The increase in
the Company's accounts receivable was due to the sales mix during the
six-month period ended November 30, 1999 compared with the immediately
preceding quarter. 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.
Page 9
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
SECOND QUARTER FISCAL YEAR 2000
During the six-month period ended November 30, 1999, net cash used by
investing activities was $88,632 (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 six months.
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:
The Company has completed an assessment of the impact of the Year 2000 issue
on its internal systems and equipment, on its products and on the systems of
its significant vendors. Based on this assessment, the Company believes that
its internal systems have been updated to address the Year 2000 issue, its
products will properly recognize calendar dates beginning in the Year 2000,
and its significant vendors are appropriately addressing the Year 2000 issue.
Accordingly, the Company believes it is year 2000 ready and does not expect
that the Year 2000 will have a material impact on the Company's business,
results of operations or financial condition. However, there can be no
assurance that the systems of other companies on which the Company relies
will not have an adverse effect on the Company's systems.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
INTEREST RATE RISK
The Company does not have any derivative financial instruments as of November
30, 1999. 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>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
SECOND QUARTER FISCAL YEAR 2000
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:
The Company conducted an Annual Shareholders Meeting on October
29, 1999. The matters voted upon, together with the results of
voting, were as follows:
1) The following persons were elected to fill the vacancies
on the Board of Directors created by the expiration of the
Class 2 directors' terms, to serve until the year 2002
annual meeting of the shareholders and until their
successors shall be duly elected:
<TABLE>
<CAPTION>
Director Shares Voted in Favor Shares Voted Against Shares Withheld
--------------------------- -------------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Trevor S. Nelson 7,300,163 -- 4,200
John A. Rupp 7,299,563 -- 4,800
</TABLE>
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: 1/14/2000 /s/ Wayne A. Case
-------------- --------------------------------------------
Wayne A. Case, President/CEO/Director
Date: 1/14/2000 /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 10Q
FOR NOVEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 737,740
<SECURITIES> 0
<RECEIVABLES> 1,566,808
<ALLOWANCES> 0
<INVENTORY> 4,232,329
<CURRENT-ASSETS> 6,878,797
<PP&E> 2,534,134
<DEPRECIATION> 926,988
<TOTAL-ASSETS> 10,985,238
<CURRENT-LIABILITIES> 800,425
<BONDS> 0
0
0
<COMMON> 7,284,445
<OTHER-SE> 2,900,368
<TOTAL-LIABILITY-AND-EQUITY> 10,985,238
<SALES> 4,356,140
<TOTAL-REVENUES> 4,356,140
<CGS> 2,014,761
<TOTAL-COSTS> 4,119,049
<OTHER-EXPENSES> 51,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 673
<INCOME-PRETAX> 288,326
<INCOME-TAX> 56,000
<INCOME-CONTINUING> 232,326
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,326
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
