<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: AUGUST 31, 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 XX No
--------- ---------
The number of shares of each class of common stock outstanding as of
August 31, 2000:
Common stock, no par value 8,231,224
<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:
- August 31, 2000 and May 31, 2000 3
Consolidated Statements of Income:
- For the Three Months Ended August 31, 2000 and 1999 4
Consolidated Statements of Cash Flows:
- For the Three Months Ended August 31, 2000 and 1999 5
Supplemental Schedule of Non-Cash Financing Activities 5
Notes to Interim Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 11
Part II - OTHER INFORMATION 12
Signatures - 12
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHMITT INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31, 2000
Unaudited May 31, 2000
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,003,911 $ 1,264,475
Accounts receivable 1,329,053 1,377,422
Inventories 5,006,090 4,635,792
Prepaid expenses 119,103 65,022
Income taxes receivable 29,099 24,918
----------------- -----------------
TOTAL CURRENT ASSETS 7,487,256 7,367,629
----------------- -----------------
PROPERTY AND EQUIPMENT
Land 299,000 299,000
Buildings and improvements 1,211,897 1,213,553
Furniture and equipment 1,046,446 933,841
----------------- -----------------
2,557,343 2,446,394
Less accumulated depreciation and amortization 948,472 896,844
----------------- -----------------
TOTAL PROPERTY AND EQUIPMENT 1,608,871 1,549,550
----------------- -----------------
OTHER ASSETS
Long-term investment 709,000 812,000
Long-term deferred tax asset 1,191,871 1,156,871
Other assets 474,851 66,667
----------------- -----------------
TOTAL OTHER ASSETS 2,375,722 2,035,538
----------------- -----------------
TOTAL ASSETS $ 11,471,849 $ 10,952,717
================= =================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 412,778 $ 471,596
Accrued liabilities 345,531 353,050
----------------- -----------------
TOTAL CURRENT LIABILITIES 758,309 824,646
----------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 20,000,000 shares 7,943,321 7,259,399
authorized, 8,231,224 and 7,980,389 shares issued and
outstanding at August 31, 2000 and May 31, 2000
respectively
Accumulated other comprehensive (loss) (1,324,274) (1,196,683)
Retained earnings 4,094,493 4,065,355
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 10,713,540 10,128,071
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,471,849 $ 10,952,717
================= =================
</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 MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended August 31,
----------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Net sales $ 1,942,990 $ 2,012,797
Cost of sales 766,129 957,271
----------------- -----------------
Gross profit 1,176,861 1,055,526
----------------- -----------------
Operating expenses:
General, administrative and sales 1,035,466 833,070
Research and development 103,998 129,925
----------------- -----------------
Total operating expenses 1,139,464 962,995
----------------- -----------------
Operating income 37,397 92,531
Other income 6,741 26,011
----------------- -----------------
Income before provision for income taxes 44,138 118,542
Provision for income taxes 15,000 34,000
----------------- -----------------
Net income $ 29,138 $ 84,542
================= =================
Net income per common share:
Basic $ .00 $ .01
================= =================
Diluted $ .00 $ .01
================= =================
Shares used in per share calculations:
Basic 8,241,043 8,184,889
================= =================
Diluted 8,737,941 8,536,639
================= =================
</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 THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-------------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS RELATING TO OPERATING ACTIVITIES
Net income $ 29,138 $ 84,542
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 56,450 70,457
Amortization 13,640 5,001
(Increase) decrease in:
Accounts receivable 113,628 155,551
Inventories (296,058) (139,067)
Prepaid expenses (47,735) (30,825)
Income taxes receivable (4,181) 80,662
Increase (decrease) in:
Accounts payable (64,535) 218,685
Accrued liabilities (7,519) 7,387
--------------- ---------------
Net cash (used in) provided by operating activities (207,172) 452,393
--------------- ---------------
CASH FLOWS RELATING TO INVESTING ACTIVITIES
Purchase of property and equipment (43,602) (59,166)
Disposal of property and equipment -- 2,698
Cash acquired in purchase of wholly-owned subsidiary 113,604 --
--------------- ---------------
Net cash provided by (used in) investing activities 70,002 (56,468)
--------------- ---------------
CASH FLOWS RELATING TO FINANCING ACTIVITIES
Repurchase of company stock (63,803) --
--------------- ---------------
Net cash (used in) financing activities (63,803) --
--------------- ---------------
EFFECT OF FOREIGN EXCHANGE TRANSLATION ON CASH (59,591) 11,439
--------------- ---------------
(DECREASE) INCREASE IN CASH (260,564) 407,364
CASH, BEGINNING OF PERIOD 1,264,475 268,888
--------------- ---------------
CASH, END OF PERIOD $ 1,003,911 $ 676,252
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ -- $ 673
Cash paid during the period for income taxes $ 13,570 $ --
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Increase in market value of long-term investment $ 103,000 $ 444,000
Increase in long-term deferred tax liability $ 35,000 $ 133,000
Increase in other comprehensive income $ 127,591 $ 322,439
Common stock issued for purchase of wholly-owned subsidiary $ 747,725 $ --
Wholly-owned subsidiary - net tangible assets acquired $ (325,901) $ --
Wholly-owned subsidiary - intangible assets acquired $ (421,824) $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 5
<PAGE>
SCHMITT INDUSTRIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2000 AND 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 three-month period ended August 31, 2000 are
not necessarily indicative of the results that may be experienced for the fiscal
year ending May 31, 2001.
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 August 31,
--------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
Weighted average shares (basic) 8,241,043 8,184,889
Effect of dilutive stock options 496,898 451,750
-------------------- --------------------
Weighted average shares (diluted) 8,737,941 8,536,639
==================== ====================
</TABLE>
NOTE 3: COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Three Months Ended August 31,
--------------------------------------------
2000 1999
-------------------- --------------------
<S> <C> <C>
Net income $ 29,138 $ 84,542
Other comprehensive (loss) income:
(Decrease) increase in fair market value of long-term
investment, net of taxes (68,000) 311,000
Foreign currency translation adjustment (59,591) 11,439
-------------------- --------------------
Total comprehensive (loss) income $ (98,453) $ 406,981
==================== ====================
</TABLE>
The long-term investment is classified as 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 nature.
NOTE 4: SEGMENTS OF BUSINESS
The Company operates principally in two segments of business: 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 $1,762,942 for the three months ended August
31, 2000, including inter-company sales of $215,998. This segment reported gross
sales of $1,972,378 for the three months ended August 31, 1999, including
inter-company sales of $189,136. The segment that manufactures laser measurement
systems reported gross sales of $417,691 for the three months ended August 31,
2000, including inter-company sales of $21,645. For the three months ended
August 31, 1999, the measurement products segment reported gross sales of
$234,651 with $5,096 in intercompany sales. Geographically, US sales were
$1,498,873 and $1,514,678 for three months ended August 31, 2000 and 1999
respectively. Foreign sales were $681,760 and $692,351 for the same three-month
period, respectively. This includes inter-company sales of $237,643 for the
three months ended August 31, 2000 and $194,232 for the three months ended
August 31, 1999. For the three months ended August 31, 2000 and 1999,
respectively, export sales by the US segment totaled $244,871 and $347,358.
Page 6
<PAGE>
SCHMITT INDUSTRIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
Income from operations for the three months ended August 31, 2000 and 1999 for
the mechanical components segment was $104,570 and $54,055, respectively. (Loss)
income from operations for the three months ended August 31, 2000 and 1999 of
the laser measurement segment was $(67,173), and $38,476 respectively.
Consolidated income from operations includes an adjustment of $7,500 for the
elimination of inter-company rent for the three months ended August 31, 2000 and
1999. (Loss) income from operations for the US segment was $(29,715) and
$143,155 respectively, for the three months ended August 31, 2000 and 1999 and
for the foreign segment, income (loss) of $67,112 and $(50,624) respectively for
the same three months.
Long-term assets at August 31, 2000 were $3,009,991 and $974,602 respectively
for the mechanical components and laser measurement segments. At May 31, 2000,
long-term assets for the mechanical components and laser measurement segments
were $3,107,721 and $477,367 respectively. Long-term assets at August 31, 2000
were $3,893,099 and $91,494 for the US and foreign segments respectively. At
May 31, 2000, long-term assets for the US and foreign segments were $3,489,686
and $95,402 respectively.
Depreciation expense incurred during the three months ended August 31, 2000 and
1999 by the mechanical components segment was $39,249 and $51,011, respectively.
The laser measurement segment incurred depreciation expense of $17,201 and
$19,446 for the three months ended August 31, 2000 and 1999, respectively.
Amortization expense incurred during the three months ended August 31, 2000 and
1999 by the mechanical components segment was $5,000 and $5,001 respectively.
Amortization expense for the laser measurement segment was $8,640 for the three
months ended August 31, 2000 while that segment did not incur amortization
expense for the three months ended August 31, 1999. The US segment incurred
depreciation expense of $46,602 and $48,985 during the three months ended August
31, 2000 and 1999, respectively. The foreign segment incurred depreciation
expense of $9,848 and $21,472 respectively, for these same three-month periods.
The US segment incurred amortization expense of $13,640 and $5,001 in the three
months ended August 31, 2000 and 1999. The foreign segment has not incurred
amortization expense. Capital expenditures for the three months ended August 31,
2000 and 1999, were $13,830 and $56,596 by the mechanical components segment and
$29,772 and $2,570 by the laser measurement segment, respectively. Capital
expenditures for the three months ended August 31, 2000 and 1999, were $38,348
and $41,996 by the US segment and $5,254 and $17,170 by the foreign segment,
respectively.
Income 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 business segment are those used in the
Company's operations of each segment. There are no unallocated Company assets.
NOTE 5: ACQUISITION OF ACUITY RESEARCH INCORPORATED
On June 1, 2000, in a business combination accounted for as a purchase, the
Company acquired Acuity Research Incorporated. Acuity designs manufactures and
markets precision dimensional laser measurement sensors. The results of
operations of Acuity are included in the accompanying consolidated financial
statements since the date of acquisition. The Company issued 275,000 of its
common shares, valued at $747,725, in exchange for all of the outstanding stock
of Acuity. The purchase price was allocated, based upon management estimates, to
the estimated fair value of assets and liabilities acquired, with the allocation
as follows:
<TABLE>
<S> <C>
Current assets net of current liabilities $ 253,732
Fair value of equipment acquired $ 72,169
Intangible assets, patented technology acquired $ 421,824
----------------
$ 747,725
================
</TABLE>
The patents acquired are being amortized over useful lives ranging from eleven
to seventeen years.
NOTE 6: STOCK OPTIONS
On July 1, 2000, FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation-an Interpretation of Accounting
Principles Board Opinion No. 25" (FIN44) became effective. FIN 44 clarifies the
Page 7
<PAGE>
SCHMITT INDUSTRIES, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
application of Opinion 25 for certain issues including the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award. In May 1999, the Company decreased the exercise prices of
426,750 outstanding stock options to $3.00 per share (the "repriced options").
In accordance with FIN 44, any of these options which are not exercised or
cancelled will be accounted for pursuant to a variable stock option plan.
Accordingly, compensation expense would have been recorded to the extent the
quoted market price of the Company's common stock exceeded the revised exercise
price of the repriced options. The quoted market price did not exceed the
revised exercise price during any portion of the three-month period ended
August 31, 2000.
During the three-months ended August 31, 2000, management offered to repurchase
the affected options and all of the employees and directors accepted this offer.
At the time of this offer, 329,250 of the repriced options were outstanding. The
cost to repurchase these options of $87,510 was included in operating expenses
for the three months ended August 31, 2000.
NOTE 7: PRO FORMA RESULTS - IMPACT OF PURCHASE OF ACUITY RESEARCH
The following pro forma results of operations is provided for illustrative
purposes only and does not purport to be indicative of the consolidated results
of operations for future periods or what actually would have been realized had
the Company and Acuity Research been a consolidated entity during the periods
presented. The pro forma results combine the results of operations as if Acuity
had been acquired as of the beginning of the periods presented. The results
include the impact of the valuation assigned to the patented technology
acquired.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
August 31, August 31,
2000 1999
(Actual) (Pro forma)
----------------- -----------------
<S> <C> <C>
Net sales $ 1,942,990 $ 2,122,794
Net income $ 29,138 $ 106,353
Net income per share, basic $ .00 $ .01
Net income per share, diluted $ .00 $ .01
</TABLE>
Page 8
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
FIRST QUARTER FISCAL YEAR 2001
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.
The three months ended August 31, 2000 was a period where gross profit
percentages increased significantly over those percentages realized in the prior
year. In comparison to the same period last year, Balancer product sales were
soft in both North America and Europe with overall Balancer sales declining 13%
compared to year-ago levels. Sales of Measurement products were at expected
levels for the quarter and up slightly from the prior year. The increase
occurred primarily from the revenue of Acuity Research, Inc., the subsidiary
purchased in June 2000. The overall result was a net income of $29,138 for the
first quarter of fiscal 2001.
RESULTS OF OPERATIONS:
Sales in the first quarter of fiscal 2000 decreased to $1,942,990 versus
$2,012,797 in the same period last year. Measurement system sales totaled
$396,046 in the first quarter of fiscal 2001 compared to $229,555 in the first
quarter of fiscal 2000, with the increase due to the revenues realized from the
new subsidiary, Acuity Research, acquired June 1, 2000. The Company expects
continued improvement in measurement sales throughout fiscal 2001 as the sales
of the new Precision Roll Monitor and TMS-DUV2000 begin to be realized.
Worldwide sales of balancer products were $1,546,944 for the three months ended
August 31, 2000 compared to sales of $1,783,242 for the same period last year.
The softness in sales in North America and Europe was expected as many companies
defer significant buying decisions until after a large biannual trade show that
was held in September 2000. The trend is sales is expected to reverse over the
remainder of fiscal 2001.
First quarter cost-of-sales decreased to 39% of sales versus 48% in the same
period last year. Cost-of-sales of Measurement products as a percentage of sales
was 31% for the first quarter 2000 versus 43% in the same period last year and
the cost of sales as a percentage of Balancer product net sales was 42% compared
to 48% for the same period last year. The reduction of the cost-of-sales
percentage of Measurement products was due to the sales mix while the
improvement in Balancer products was from improved margin on sales in the
European market. Management expects cost-of-sales of Balancer and Measurement
products to approximate these levels for the remainder of fiscal 2001.
First quarter general and administrative and R&D expenses totaled $1,139,464
versus $962,995 for the same period last year. This increase is attributable
primarily to amounts paid to employees and directors to repurchase their option
rights to purchase Company stock and the operating expenses of the new
subsidiary, Acuity Research. As a percentage of net sales, operating expenses
(including R&D) during the first three months of fiscal 2001 were 59% compared
to 48% for the same period last year. Both general and administrative and
research and development expenses increased as a percentage of revenues compared
to year ago levels. Management estimates if revenue projections are reached over
the remainder of fiscal 2001 these costs as a percentage of sales will decline
to levels approximating the prior year's results.
On July 1, 2000, FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation an Interpretation of Accounting
Principles Board Opinion No. 25" (FIN44) became effective. That pronouncement
requires an accounting treatment that effectively eliminates the ability of a
company to reprice options. As long as the affected options were outstanding,
Schmitt would have been required to report compensation expense for the increase
in the fair market value of the stock above the exercise price, even though no
economic event occurred. This could have had a negative impact on earnings per
share in future periods, a situation that was not acceptable to management.
Therefore, management initiated an action to purchase common stock options that
had been repriced in May 1999. The options purchased had been repriced to
provide incentive to the key employee group at Schmitt. As a result of this
longer-term strategic action, $87,510 of compensation expense was realized in
repurchasing these options.
Page 9
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
FIRST QUARTER FISCAL YEAR 2001
Sales by the foreign subsidiaries totaled $444,117 for the quarter versus
$498,119 for the same quarter last year. There was some softness in the market
during the first quarter but these changes are expected to be only short term as
management anticipates revenues for the remainder of the fiscal year to exceed
year ago levels.
In the three-month period ended August 31, 2000, pretax earnings amounted to
$44,138 compared to pretax earnings of $118,542 for the same period last year.
Taxes were accrued at approximately 34% of domestic pretax income, compared with
29% in the same period last year. Management anticipates that the tax rate for
fiscal 2000 will approximate 34%. Three-month net earnings were $29,138 compared
to net earnings of $84,542 for the same period last year. Three-month earnings
per share, basic and diluted, were $0.00 versus net income per share, basic and
diluted, of $0.01 last year.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's working capital position improved to $6,728,943 at August 31, 2000
compared to $6,542,983 at May 31, 2000. Cash stood at $1,003,911 at August 31,
2000 compared to $1,264,475 at May 31, 2000.
During the three-month period ended August 31, 2000, net cash used by operating
activities totaled $207,172, including net operating income of $29,138. Included
in cash flow from operating activities was a $296,058 increase in inventories,
with most of the increase in finished goods. Management has initiated an
inventory reduction program and expects inventory levels to decline over the
remainder of fiscal 2001. Net cash provided from investing activities was
$70,002 consisting of the net cash acquired in the purchase of Acuity Research
less additions to property and equipment. Net cash used in financing activities
amounted to $63,803, which consists of the purchase of 24,165 shares of the
Company's common stock.
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 and 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.
Page 10
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
FIRST QUARTER FISCAL YEAR 2001
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
Interest Rate Risk
The Company does not have any derivative financial instruments as of August 31,
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 and marketable securities 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 11
<PAGE>
SCHMITT INDUSTRIES, INC.
FORM 10-Q
FIRST QUARTER FISCAL YEAR 2001
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)
<TABLE>
<S> <C>
Date: 10/16/2000 /s/ Wayne A. Case
------------------------------------------------------------
Wayne A. Case, President/CEO/Director
Date: 10/16/2000 /s/ Robert C. Thompson
------------------------------------------------------------
Robert C. Thompson, Chief Financial Officer
</TABLE>
Page 12
