-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RQOHh5ZToFwc55S02zPXc+zVeaHXCsBpersjHbWsy6pWGWFRPp1d+W4XAitc25Ep 7COKcnk09NH8CjAlbYcKlw== 0000912057-00-017726.txt : 20000414 0000912057-00-017726.hdr.sgml : 20000414 ACCESSION NUMBER: 0000912057-00-017726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHMITT INDUSTRIES INC CENTRAL INDEX KEY: 0000922612 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 931151989 STATE OF INCORPORATION: OR FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23996 FILM NUMBER: 599824 BUSINESS ADDRESS: STREET 1: 2765 NW NICOLAI ST CITY: PORTLAND STATE: OR ZIP: 97210 BUSINESS PHONE: 5032277908 MAIL ADDRESS: STREET 1: 2765 NW NICOLAI ST CITY: PORTLAND STATE: OR ZIP: 97210 10-Q 1 10-Q 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 SCHMITT INDUSTRIES, INC. INDEX TO FORM 10-Q
Page ----------- 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
Page 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SCHMITT INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
ASSETS February 29, 2000 Unaudited May 31, 1999 ----------------------- ---------------------- 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 ======================= ======================
The accompanying notes are an integral part of these financial statements Page 3 SCHMITT INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 (UNAUDITED)
Three Months Ended Nine Months Ended ------------------------------------ ------------------------------------ February 29, February 28, February 29, February 28, 2000 1999 2000 1999 ---------------- --------------- ---------------- --------------- 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) ================ ================ ================ ================
The accompanying notes are an integral part of these financial statements Page 4 SCHMITT INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28,1999 (UNAUDITED)
Nine Months Ended ------------------------------------------------- February 29, 2000 February 28, 1999 ----------------------- ---------------------- 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
The accompanying notes are an integral part of these financial statements Page 5 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
Three Months Ended Nine Months Ended ------------------------------------- ------------------------------------- February 29, February 28, February 29, February 28, 2000 1999 2000 1999 ---------------- ---------------- ---------------- ---------------- 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 ================ ================ ================ ================
NOTE 3: COMPREHENSIVE INCOME (LOSS)
Three Months Ended Nine Months Ended ------------------------------------- ------------------------------------- February 29, February 28, February 29, February 28, 2000 1999 2000 1999 ---------------- ---------------- ---------------- ---------------- 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) ================ ================ ================ ================
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 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 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 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 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 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 EX-27 2 EXHIBIT 27
5 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. 9-MOS MAY-31-2000 JUN-01-1999 FEB-29-2000 908,588 0 1,892,970 0 4,248,050 7,348,482 2,531,562 986,605 10,897,354 885,397 0 0 0 7,244,065 2,767,892 10,897,354 6,899,102 6,899,102 3,075,213 6,253,901 41,602 0 673 686,803 193,000 493,803 0 0 0 493,803 0.06 0.06
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