UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: February 28, 2005

Or

o		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
(State 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes

The number of shares of each class of common stock outstanding as of March 31, 2005

Common stock, no par value

2,557,271

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SCHMITT INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

	February 28, 2005			May 31, 2004
	Unaudited
ASSETS
Current assets
Cash	$	658,370		$	604,194
Accounts receivable, net of allowance of $33,200 and $32,550 at February 28, 2005 and May 31, 2004, respectively	1,994,083			1,815,417
Inventories	3,661,815			2,915,093
Prepaid expenses	187,790			124,348
Income taxes receivable	—			35,894
	6,502,058			5,494,946

Property and equipment
Land	299,000			299,000
Buildings and improvements	1,216,125			1,214,500
Furniture, fixtures and equipment	1,129,721			1,115,788
Vehicles	96,849			94,261
	2,741,695			2,723,549
Less accumulated depreciation and amortization	1,434,918			1,395,634
	1,306,777			1,327,915

Other assets
Long-term deferred tax asset	—			—
Other assets	251,660			277,612
	251,660			277,612

TOTAL ASSETS	$	8,060,495		$	7,100,473

LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	605,716		$	565,546
Accrued commissions	245,932			189,679
Customer deposits	11,138			53,203
Accrued liabilities	100,163			111,165
Income taxes payable	5,535			—
Current portion of long-term debt	31,309			39,831
Total current liabilities	999,793			959,424

Long-term debt	25,558			27,242

Stockholders’ equity
Common stock, no par value, 20,000,000 shares authorized, 2,549,609 and 2,474,461 shares issued and outstanding at February 28, 2005 and May 31, 2004, respectively	7,480,402			7,360,819
Accumulated other comprehensive loss	(396,346		)	(376,249		)
Accumulated deficit	(48,912		)	(870,763		)
Total stockholders’ equity	7,035,144			6,113,807

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,060,495		$	7,100,473

The accompanying notes are an integral part of these financial statements.

SCHMITT INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004

(UNAUDITED)

	Three Months Ended					Nine Months Ended
	February 28, 2005		February 29, 2004			February 28, 2005		February 29, 2004

Net sales	$	2,553,521	$	1,772,556		$	7,415,021	$	5,156,491
Cost of sales	1,097,387		793,350			3,167,105		2,363,264
Gross profit	1,456,134		979,206			4,247,916		2,793,227

Operating expenses:
General, administration and sales	1,200,485		995,902			3,387,902		2,909,633
Research and development	9,679		13,968			42,395		26,105
Total operating expenses	1,210,164		1,009,870			3,430,297		2,935,738

Operating income (loss)	245,970		(30,664		)	817,619		(142,511		)

Other income	12,659		31,718			22,232		123,146

Income (loss) before provision for income taxes	258,629		1,054			839,851		(19,365		)

Provision for income taxes	6,000		—			18,000		—

Net income (loss)	$	252,629	$	1,054		$	821,851	$	(19,365	)

Net income (loss) per common share:

Basic	$	.10	$	—		$	.33	$	(.01	)

Diluted	$	.09	$	—		$	.30	$	(.01	)

The accompanying notes are an integral part of these financial statements.

SCHMITT INDUSTRIES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2005

(UNAUDITED)

	Shares	Amount		Accumulated Other Comprehensive (Loss)			(Accumulated Deficit)			Total			Total Comprehensive Income (Loss)

Balance, May 31, 2004	2,474,461	$	7,360,819	$	(376,249	)	$	(870,763	)	$	6,113,807
Stock options exercised	75,148	119,583		—			119,583
Net income	—	—		—			821,851			821,851			$	821,851
Other comprehensive (loss)	—	—		(20,097		)	—			(20,097		)	(20,097		)
Balance, February 28, 2005	2,549,609	$	7,480,402	$	(396,346	)	$	(48,912	)	$	7,035,144
Comprehensive income, Nine months ended February 28, 2005													$	801,754

The accompanying notes are an integral part of these financial statements

SCHMITT INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2005 AND FEBRUARY 29, 2004

(UNAUDITED)

	Nine Months Ended
	February 28, 2005			February 29, 2004
Cash Flows Relating to Operating Activities
Net income (loss)	$	821,851		$	(19,365	)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
Depreciation	131,866			102,910
Amortization	25,952			32,617
Increase (decrease) in provision for bad debts	—			(9,252		)
(Increase) decrease in:
Accounts receivable	(178,666		)	107,208
Inventories	(746,722		)	(264,903		)
Prepaid expenses	(63,442		)	(23,141		)
Income taxes receivable	41,429			800
Increase (decrease) in:
Accounts payable	40,170			(29,580		)
Accrued liabilities and customer deposits	3,186			79,176
Net cash provided by (used in) operating activities	75,624			(23,530		)

Cash Flows Relating to Investing Activities
Purchase of property and equipment	(118,631		)	(166,876		)
Disposals of property and equipment	7,903			3,201
Net cash used in investing activities	(110,728		)	(163,675		)

Cash Flows Relating to Financing Activities
Additions to long-term debt	27,861			78,477
Repayments on long-term debt	(38,067		)	(24,384		)
Common stock issued on exercise of stock options	119,583			21,999
Common stock repurchased	—			(40,000		)
Net cash provided by financing activities	109,377			36,092

Effect of foreign exchange translation on cash	(20,097		)	(70,891		)

Increase (decrease) in cash	54,176			(222,004		)

Cash, beginning of period	604,194			410,245

Cash, end of period	$	658,370		$	188,241

Supplemental Disclosure of Cash Flow Information

Cash paid during the period for interest	$	—		$	2,795
Cash paid during the period for income taxes	$	26,974		$	—

The accompanying notes are an integral part of these financial statements.

SCHMITT INDUSTRIES, INC.

FORM 10-Q

THIRD QUARTER FISCAL YEAR 2005

Note 1: Basis of Presentation

These financial statements are those of the Company and its wholly owned subsidiaries. In the opinion of Management, the accompanying unaudited Consolidated Financial Statements of Schmitt Industries, Inc. have been prepared pursuant to the rules and regulations of the Securities Exchange Commission and contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly its financial position as of February 28, 2005 and its results of operations and its cash flows for the Nine-months ended February 28, 2005 and February 29, 2004. Operating results for the nine-month period ended February 28, 2005 are not necessarily indicative of the results that may be experienced for the fiscal year ending May 31, 2005. The accompanying unaudited financial statements and related notes should be read in conjunction with the audited financial statements and Form 10-K of the Company for the fiscal year ended May 31, 2004.

Note 2: Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. For sales to all customers, including manufacturer representatives, distributors or their third-party customers, these criteria are met at the time product is shipped. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled.

Note 3: Recent Accounting Pronouncements

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, Inventory Costs an Amendment to ARB No. 43, Chapter 4 in November 2004. This Statement requires that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) costs be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company does not expect this pronouncement to have a material impact on the financial statements.

The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29 in December 2004. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company does not expect this pronouncement to have a material impact on the financial statements.

The Financial Accounting Standards Board revised Statement of Financial Accounting Standards No. 123, Share-Based Payment in December 2004. Under the revised standard, The Company will be required to recognize compensation cost, related to its stock options, beginning in its second quarter which begins on September 1, 2005. The cost of services received from employees in exchange for awards of share-based compensation generally shall be measured based on the grant-date fair value of the equity instruments issued. The Company expects the effect of this pronouncement to approximate the proforma amounts disclosed in Note 4.

Note 4: Stock – Based Compensation

Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (SFAS 123) encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). The Company has adopted the disclosure only provisions of SFAS 123. Accordingly, no compensation cost has been recognized for the stock option plans. Adjustments are made for options forfeited prior to vesting.

For the nine months ended February 28, 2005, the total value of options granted was computed to be $301,193 which would be amortized on the straight-line basis over the vesting period of the options. For the three months ended February 28, 2005, there were no options issued. If the Company had used the fair value based method of accounting for its plans, the Company’s net income (loss) and net income (loss) per share would approximate the pro forma disclosures below:

	Three Months Ended						Nine Months Ended,
	February 28, 2005			February 29, 2004			February 28, 2005			February 29, 2004

Net income (loss) as reported	$	252,629		$	1,054		$	821,851		$	(19,365	)

Stock based compensation determined under the fair value method	(41,985		)	(5,515		)	(171,305		)	(16,545		)

Net income (loss) pro forma	$	210,644		$	(4,461	)	$	650,546		$	(35,910	)

Net income (loss) per share as reported

Basic	$	.10		$	—		$	.33		$	(.01	)

Diluted	$	.09		$	—		$	.30		$	(.01	)

Net income (loss) per share pro forma:

Basic	$	.08		$	—		$	.26		$	(.01	)

Diluted	$	.08		$	—		$	24		$	(.01	)

Pursuant to SFAS 123, the fair value of each option granted is estimated on the date of the grant using the Black-Scholes option and pricing model. The weighted average assumptions used for the nine-months ended February 28, 2005 was a risk-free interest rate of 4.00%, an expected dividend yield of 0%, an expected life of nine and one-half years and a volatility of 99%.

The effects of applying SFAS No. 123 in the pro forma disclosure are not necessarily indicative of future amounts.

Note 5: EPS Reconciliation

	Three Months Ended		Nine Months Ended
	February 28, 2005	February 29, 2004	February 28, 2005	February 29, 2004
Weighted average shares (basic)	2,538,699	2,436,265	2,525,716	2,434,334

Effect of dilutive stock options	194,198	76,870	184,363	—

Weighted average shares (diluted)	2,732,897	2,513,135	2,710,079	2,434,334

Basic earnings per share are computed using the weighted average number of shares outstanding. Diluted earnings per share are computed using the weighted average number of shares outstanding, adjusted for dilutive incremental shares attributed to outstanding options to purchase common stock. Incremental shares of 76,870 for the nine-months ended February 29, 2004 were excluded from the diluted earnings (loss) per share calculation when their effect was anti-dilutive.

Note 6: Long-term deferred tax asset

The Company has recorded a deferred tax asset primarily related to net operating loss carryforwards for federal income tax purposes and other temporary differences between book and tax bases of assets and liabilities. The asset arose when the Company acquired the stock and therefore the net operating loss carryforwards of its wholly owned subsidiary, Schmitt Measurement Systems in 1996. Due to the uncertainty of utilization of the Company’s NOLs and in consideration of other

factors, Management has recorded a valuation allowance on the deferred tax asset at February 28, 2005 and May 31, 2004 to reduce the net deferred tax asset to the amount that it has deemed will more likely than not be realized.

Note 7: Segments of Business

Segment Information

	Three Months Ended
	February 28, 2005						February 29, 2004
	Balancer			Measurement			Balancer			Measurement
Gross sales	$	2,143,065		$	635,190		$	1,502,689		$	452,650
Intercompany sales	(215,553		)	(9,181		)	(170,150		)	(12,633		)
Net sales	$	1,927,512		$	626,009		$	1,332,539		$	440,017

Income (Loss) from operations	$	173,051		$	72,919		$	(90,661	)	$	59,997

Intercompany rent	$	—		$	7,500		$	—		$	7,500

Depreciation expense	$	34,681		$	11,505		$	26,336		$	9,680

Amortization expense	$	—		$	8,651		$	—		$	8,650

Capital expenditures	$	42,912		$	8,938		$	115,674		$	3,183

Geographic Information

	Three Months Ended
Geographic Sales	February 28, 2005			February 29, 2004
North American Sales
United States	$	1,350,383		$	965,469
Canada	44,162			11,358
Mexico	—			3,260
North American total	1,394,545			980,087

European Sales
Germany	159,731			121,257

United Kingdom	354,062			285,093
Intercompany	(224,734		)	(182,783		)
United Kingdom total	129,328			102,310

Other European Sales	314,745			226,033

Total Europe	603,804			449,600

Asia	432,441			303,957
Others	122,731			38,912
	$	2,553,521		$	1,772,556

	Three Months Ended
	February 28, 2005					February 29, 2004
	United States		Europe			United States		Europe
Income (Loss) from operations	$	283,687	$	(37,717	)	$	7,036	$	(37,700	)

Depreciation expense	$	43,272	$	2,914		$	34,395	$	1,621

Amortization expense	$	8,651	$	—		$	8,650	$	—

Capital expenditures	$	46,862	$	4,988		$	121,448	$	(2,591	)

Note – Europe is defined as the two European subsidiaries, Schmitt Europe, Ltd. and Schmitt Europa, GmbH.

	Nine Months Ended
	February 28, 2005						February 29, 2004
	Balancer			Measurement			Balancer			Measurement
Gross sales	$	5,937,660		$	2,112,569		$	4,701,768		$	994,925
Intercompany sales	(614,455		)	(20,753		)	(524,446		)	(15,756		)
Net sales	$	5,323,205		$	2,091,816		$	4,177,322		$	979,169

Income (Loss) from operations	$	285,654		$	531,965		$	(76,502	)	$	(66,009	)

Intercompany rent	$	—		$	22,500		$	—		$	22,500

Depreciation expense	$	102,402		$	29,464		$	74,784		$	28,126

Amortization expense	$	—		$	25,952		$	6,665		$	25,952

Capital expenditures	$	101,368		$	17,263		$	147,214		$	19,662

Geographic Information

	Nine Months Ended
Geographic Sales	February 28, 2005			February 29, 2004
North American Sales
United States	$	4,087,845		$	2,625,457
Canada	122,578			116,183
Mexico	7,971			44,131
North American total	4,218,394			2,785,771

European Sales
Germany	419,209			380,797

United Kingdom	994,646			844,146
Intercompany	(635,208		)	(540,202		)
United Kingdom total	359,438			303,944

Other European Sales	837,047			733,118

Total Europe	1,615,694			1,417,859

Asia	1,301,916			830,004
Others	279,017			122,857
	$	7,415,021		$	5,156,491

	Nine Months Ended
	February 28, 2005								February 29, 2004
	United States					Europe			United States			Europe
Income (Loss) from operations	$				911,055	$	(93,436	)	$	(81,948	)	$	(60,563	)

Depreciation expense	$			127,387		$	4,479		$	97,982		$	4,928

Amortization expense	$		25,952			$	—		$	32,617		$	—

Capital expenditures	$	113,643				$	4,988		$	157,046		$	9,830

Long-term Assets

	February 28, 2005		May 31, 2004
Segment:
Balancer	$	1,034,166	$	1,041,032
Measurement	$	524,271	$	564,495

Geographic:
United States	$	1,543,255	$	1,585,021
Europe	$	15,182	$	20,506

Note – Europe is defined as the two European subsidiaries, Schmitt Europe, Ltd. and Schmitt Europa, GmbH.

Note 8: Related Party Transactions

The Company has identified a potential new market segment for its Balancer products with PulverDryer USA, Inc., a manufacturer of a specialized pulverizing and drying machine. Due to the market potential with this customer, in October 2003 the Board of Directors of the Company authorized the CEO, Mr. Wayne Case, to actively pursue this new market segment by supporting PulverDryer in its product design, development and guidance on management. Mr. Case thus expanded this new market segment by generating additional sales to the Company of over $208,000 for the period from July 2003 to February 2005.

As these efforts expanded, effective June 1, 2004, the Company entered into a contract with PulverDryer to provide consulting services to PulverDryer, pursuant to which PulverDryer paid the Company $8,000 a month from June 2004 through October 2004. Those services generated successful results, and the Company and PulverDryer extended the contract from November 1, 2004 forward at that same monthly fee of $8,000. The contract may be terminated by either party upon 30 days written notice.

The Board has authorized that Mr. Case receive as compensation the total consulting fees paid by PulverDryer from June 2004 through October 2004 in recognition of his efforts in generating both potential and additional revenues for the Company. Effective November 1, 2004, Mr. Case will receive 40% of the ongoing consulting fee from PulverDryer, which percentage was determined by the Compensation Committee.

In addition, effective November 1, 2004, Mr. Case’s base monthly salary was increased by $5,674 to bring it back in line with peers in the industry. That increase in base salary will consist of two parts, a return to his original salary in effect at October 1, 2001, when he voluntarily accepted a reduction in pay in the light of market conditions, and a performance-related increase.

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations:

These financial statements are those of the Company and its wholly owned subsidiaries. In the opinion of Management, the accompanying unaudited Consolidated Financial Statements of Schmitt Industries, Inc. have been prepared pursuant to the rules and regulations of the Securities Exchange Commission and contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly its financial position as of February 28, 2005 and its results of operations and its cash flows for the Nine months ended February 28, 2005 and February 2004. Operating results for the nine month period ended February 28, 2005 are not necessarily indicative of the results that may be experienced for the fiscal year ending May 31, 2005. The accompanying unaudited financial statements and related notes should be read in conjunction with the audited financial statements and Form 10-K of the Company for the fiscal year ended May 31, 2004.

RESULTS OF OPERATIONS

Overview

Balancer segment sales focus throughout the world on end-users, rebuilders and original equipment manufacturers of grinding machines with the target geographic markets in North America, Asia and Europe. Beginning in March 2004, improving economic conditions in North America resulted in increased sales in that geographic market. Sales people, representatives and distributors throughout these geographic areas spend a large amount of time with targeted customers. They are finding many of the customers in the automotive, bearing and aircraft industries refer to improved economic conditions and its impact on the machine tool industry in North America as the reason for their increased orders. While those customers are optimistic regarding short term demand for Balancer products, they remain uncertain as to the strength and duration of current business conditions in North America for their products which incorporate the Balancer segment product line. Market demand in Asia for the Balancer segment products continues to be strong. As with the North American market, the duration of the strong demand in Asia cannot be forecasted with any certainty. Despite a soft European market, there have been some increases in the number of units sold into that geographic market. This is attributed to more focused and aggressive sales and marketing techniques by the European based sales and marketing staff. However, until the markets for the products of the Company improve in Europe, there is no guarantee these more aggressive efforts will continue to generate increasing unit sales.

The Measurement segment product line consists of both laser light-scatter and dimensional sizing products. The business operations and prospects for these two product lines are summarized as follows:

• Laser light-scatter products for disk drive and silicon wafer manufacturers – The primary target markets for Measurement products have been disk drive and silicon wafer manufacturers and companies and organizations involved in research efforts. Management and the sales staff monitor industry publications and public financial information in order to judge the potential demand for products by the targeted industries. Over the past several months, this information has indicated improving demand for and sales of the products of those industries. Also, frequent discussions with customers have confirmed the information presented in the public information. Sales to customers in these industries can be very cyclical and therefore the impact of this recovery on sales to the Company’s laser light-scatter products is unknown at this time, although sales personnel have seen increasing interest and inquiries regarding the Company’s products.

• Laser light-scatter products for research organizations – The Company continues to receive inquiries for these products and provide quotes to interested parties. However, in the current Fiscal year, no sales of these products have been realized.

• Dimensional sizing products – These products are marketed and sold into a wide array of industries. In Fiscal 2004 Management built a sales distribution network that covers all fifty states. As a result of this action, the Company experienced increasing interest and sales in these products in the most recent fiscal period when compared to the same period in the prior fiscal year. During the quarter ended August 31, 2003, Management consolidated the operations related to these products (which had been located in Menlo Park, California) into the Measurement segment operations in Portland, Oregon. This action reduced the engineering and administrative staff by four people and, beginning in November 2003, reduced monthly rental costs by $7,500. As a result of the physical relocation of the business in the fiscal quarter ended August 31, 2003, operations were suspended for a

period of time and served to dampen the sales volume of dimensional sizing products in that period. The relocation was completed as of August 31, 2003.

Critical Accounting Policies

Revenue Recognition – The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. For sales to all customers, including manufacturer representatives, distributors or their third-party customers, these criteria are met at the time product is shipped. When other significant obligations remain after products are delivered, revenue is recognized only after such obligations are fulfilled.

Accounts Receivable – The Company maintains credit limits for all customers that are developed based upon several factors, including but not limited to payment history, published credit reports and use of credit references. On a monthly basis, Management performs various analyses to evaluate accounts receivable balances to ensure recorded amounts reflect estimated net realizable value. This review includes accounts receivable agings, other operating trends and relevant business conditions, including general economic factors, as they relate to each of the Company’s domestic and international customers. If these analyses lead Management to the conclusion that potential significant accounts are uncollectible, a reserve is provided.

Inventories – These assets are stated at the lower of cost or market on an average cost basis. Each fiscal quarter, Management utilizes various analyses based on sales forecasts, historical sales and inventory levels to ensure the current carrying value of inventory accurately reflects current and expected requirements within a reasonable timeframe. As a result of this analysis at February 28, 2005, Management believes the inventory levels are sufficient based upon the expected requirements in the remainder of Fiscal 2005 and beyond.

Long-term Deferred Tax Asset – The Company applies the asset and liability method in recording income taxes, under which deferred income tax assets and liabilities are determined, based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws. Additionally, deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. In a prior fiscal year, Management believed it was prudent for the Company to increase the valuation reserve to fully offset the estimated value of the deferred tax assets. Management continues to review the level of the valuation allowance on a quarterly basis.

Intangible Assets – There is a periodic review of intangible and other long-lived assets for impairment. This review consists of the analysis of events or changes in circumstances that would indicate the carrying amount of the asset may not be recoverable. Recoverability is determined by comparing the forecasted future net cash flows from the operations to which the assets relate, based on Management’s best estimates using the appropriate assumptions and projections at the time, to the carrying amount of the assets. If the carrying value is determined to be in excess of future operating cash flows, the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets. As of February 28, 2005, Management does not believe impairment, as defined above, exists.

Recently issued accounting pronouncements –

• The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 151, Inventory Costs an Amendment to ARB No. 43, Chapter 4 in November 2004. This Statement requires that abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) costs be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company does not expect this pronouncement to have a material impact on the financial statements.

• The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29 in December 2004. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges

of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company does not expect this pronouncement to have a material impact on the financial statements.

• The Financial Accounting Standards Board revised Statement of Financial Accounting Standards No. 123, Share-Based Payment in December 2004. Under the revised standard, The Company will be required to recognize compensation cost, related to its stock options, beginning in its second quarter which begins on September 1, 2005. The cost of services received from employees in exchange for awards of share-based compensation generally shall be measured based on the grant-date fair value of the equity instruments issued. The Company expects the effect of this pronouncement to approximate the proforma amounts disclosed in Note 4.

Three months ended February 28, 2005 and February 29, 2004:

	Three months ended February 28, 2005
	Consolidated			Balancer			Measurement
	Dollars		%	Dollars		%	Dollars		%
Sales	$	2,553,521	100.0	$	1,927,512	100.0	$	626,009	100.0
Cost of sales	1,097,387		43.0	862,105		44.7	235,282		37.6
Gross profit	1,456,134		57.0	$	1,065,407	55.3	$	390,727	62.4
Operating expenses	1,210,164		47.4
Income from operations	$	245,970	9.6

	Three months ended February 29, 2004
	Consolidated					Balancer			Measurement
	Dollars			%		Dollars		%	Dollars		%
Sales	$	1,772,556		100.0		$	1,332,539	100.0	$	440,017	100.0
Cost of sales	793,350			44.8		627,003		47.1	166,347		37.8
Gross profit	979,206			55.2		$	705,536	52.9	$	273,670	62.2
Operating expenses	1,009,870			57.0
Loss from operations	$	(30,664	)	(1.8	)

Worldwide sales of Balancer products increased in the most current fiscal period when compared to the same period in the prior fiscal year as sales to the North American and European markets increased by 68% and 32% respectively. These increases were offset by decreases in the Asian market of 11%. Unit sales prices of balancer products are relatively stable and therefore any increases or decreases in the dollar amount of sales between fiscal periods can generally be attributed to an increase or decrease in the number of units sold. The increase in units sold in North America is attributed to growing demand and stronger economic conditions. The increase units sold in Europe is attributed to two factors, the continued aggressive marketing and sales efforts by the European based sales staff and changes in foreign exchange rates between the two periods. The decrease in Asia is attributed to delays in customers placing orders as there is continued strong demand in that geographic market.

Measurement product sales increased in the most current fiscal period when compared to the same period in the prior fiscal year as sales of the Company’s surface measurement and dimensional sizing products increased by 21% and 64% respectively. The sales of surface measurement products in the most recent fiscal period increased as they included more unit sales of large value laser light-scatter products than in the same fiscal period in the prior year. The increases in the dimensional sizing products are due to increasing unit sales which are directly attributed to the expanding sales and marketing efforts the by Company’s sales staff that is devoted exclusively to the sale of these products.

Cost of sales for the Balancer segment decreased (as a percentage of sales) in the most current fiscal period when compared to the same period in the prior fiscal year due to the product sales mix and lower production labor and overhead costs as a percentage of sales. Labor costs to produce Balancer products (as a percentage of sales) for the fiscal period ended February 28, 2005 was 5.0% compared to 6.1% for the fiscal period ended February 29, 2004 while overhead costs (as a percentage of sales) for the fiscal period ended February 28, 2005 was 2.6% compared to 3.4% for the fiscal period ended February 29, 2004. Both of these costs

categories include some costs that are fixed in nature and therefore will decrease as a percentage of sales due to the higher sales levels realized in the most recent fiscal period when compared to the same fiscal period in the prior fiscal year. Cost of sales as a percentage of sales for the Measurement segment were relatively consistent between periods. The increase in operating expenses occurred due to the expanding level of sales.

Sales by the foreign subsidiaries totaled $578,252 for the most recent quarter versus $446,454 for the same quarter last year. Approximately 87% of the increase was due to higher unit sales volumes with the remainder due to the changes in foreign exchange rates between the two fiscal periods. The higher sales volumes were realized as a result of the continued aggressive marketing and sales efforts by the European based sales staff.

The amount of taxes on income for the current fiscal period is minimal due to realization of a portion of the valuation allowance on the Company’s deferred tax asset related to the expected realization of net operating loss carryforwards. As taxes on income are provided based upon earnings, the Company has reduced the amount of the valuation allowance which in turn reduces the amount of income tax expense. Management continues to evaluate the level of the valuation allowance at the end of each fiscal period in order to determine if projected business and economic conditions would require elimination of all or part of the valuation allowance.

In the three month period ended February 28, 2005, net income was $252,629 compared to net income of $1,054 for the same period last year. Net income per share, both basic and diluted, for the three months ended February 28, 2005 were $.10, and $.09 respectively, compared to net income per share, both basic and diluted, of $.00 for the three months ended February 29, 2004.

Nine months ended February 28, 2005 and February 29, 2004:

	Nine months ended February 28, 2005
	Consolidated			Balancer			Measurement
	Dollars		%	Dollars		%	Dollars		%
Sales	$	7,415,021	100.0	$	5,323,205	100.0	$	2,091,816	100.0
Cost of sales	3,167,105		42.7	2,489,284		46.8	677,821		32.4
Gross profit	4,247,916		57.3	$	2,833,921	53.2	$	1,413,995	67.6
Operating expenses	3,430,297		46.3
Income from operations	$	817,619	11.0

	Nine months ended February 29, 2004
	Consolidated					Balancer			Measurement
	Dollars			%		Dollars		%	Dollars		%
Sales	$	5,156,491		100.0		$	4,177,322	100.0	$	979,169	100.0
Cost of sales	2,363,264			45.8		1,978,880		47.4	384,384		39.3
Gross profit	2,793,227			54.2		$	2,198,442	52.6	$	594,785	60.7
Operating expenses	2,935,738			56.9
Loss from operations	$	(142,511	)	(2.8	)

Worldwide sales of Balancer products increased in the most current fiscal period when compared to the same period in the prior fiscal year as sales to the North American and European markets increased by 45% and 13% respectively while they decreased in the Asian markets by 7%. Unit sales prices of balancer products are relatively stable and therefore any increases or decreases in the dollar amount of sales between fiscal periods can generally be attributed to an increase or decrease in the number of units sold. The increase in units sold in North America is attributed to growing demand and stronger economic conditions while the increase in units sold in Europe is attributed to two factors, the continued aggressive marketing and sales efforts by the European based sales staff and changes in foreign exchange rates between the two periods. The decrease in Asia is attributed to timing of shipments as demand for and interest in Balancer products continues to be strong.

Measurement product sales increased in the most current fiscal period when compared to the same period in the prior fiscal year due to increasing sales levels of the Company’s surface measurement (a 150% increase) and dimensional sizing products (a 93% increase). The sales of surface measurement products in the most recent fiscal period increased as they included more unit sales of large value laser light-scatter products than in the same fiscal period in the prior year. The increases in the dimensional sizing

products are due to increasing unit sales which are directly attributed to the expanding sales and marketing efforts by the Company’s sales staff that is devoted exclusively to the sale of these products.

Cost of sales for the Balancer segment were relatively consistent between the two fiscal periods while the decrease in the cost-of-sales (as a percentage of sales) in the Measurement segment was due to lower material and direct labor costs as a percentage of sales. Materials costs as a percentage of sales in the current fiscal year were 12.7% compared to 16.9% in the same period in the prior fiscal year. In the prior year the Company had higher materials costs than normal on a large product order. These higher materials costs occurred because the customer cancelled the order but the materials purchased for the product were expensed as they had been ordered specifically for that project. If the impact of the higher than normal materials costs resulting from that order is excluded from the prior year results, the materials costs as a percentage of sales would have been more in line with the current fiscal period results. Direct labor costs (as a percentage of sales) for the fiscal period ended February 28, 2005 was 19.0% compared to 21.4% for the fiscal period ended February 29, 2004. The decline in direct labor costs as a percentage of sales occurred due to the types of products produced and improved efficiency of the labor force. The increase in operating expenses occurred due to the expanding level of sales.

Sales by the foreign subsidiaries totaled $1,576,458 for the most recent period versus $1,388,228 for the same period last year. Approximately 31% of the increase was due to higher unit sales volumes with the remainder due to the changes in foreign exchange rates between the two fiscal periods. The higher sales volumes were realized as a result of the continued aggressive marketing and sales efforts by the European based sales staff.

For the nine-month period ended February 28, 2005, net income was $821,851 compared to a net loss of ($19,365) for the same period last year. Net income per share, basic and diluted, for the nine months ended February 28, 2005 was $.33 and $.30 respectively, compared to a net loss per share of ($.01) for the nine months ended February 29, 2004.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s ratio of current assets to current liabilities increased to 6.5 to 1 at February 28, 2005 compared to 5.7 to 1 at May 31, 2004. As of February 28, 2005, the Company had $658,370 in cash compared to $604,194 at May 31, 2004.

During the nine-months ended February 28, 2005, cash provided by operating activities amounted to $75,624 with the changes described as follows:

• Net income for the nine-months ended February 28, 2005 of $821,851 plus one non-cash item: depreciation and amortization of $157,818.

• Accounts receivable used cash as the balance increased by $178,666 to a February 28, 2005 balance of $1,994,083 compared to $1,815,417 at May 31, 2004. The Company generally experiences a payment cycle of 30-90 days on invoices, depending on the geographic market. Management believes its credit and collection policies are effective and appropriate for the marketplace. There can be no assurance that the Company’s collection procedures will continue to be successful, particularly with current economic conditions.

• Inventories increased $746,722 to a February 28, 2005 balance of $3,661,815 compared to $2,915,093 at May 31, 2004, a 26% increase. The increase in inventories occurred due to the increasing product sales being realized by the Company as sales for the nine months ended February 28, 2005 are 44% higher than for the nine months ended February 29, 2004, The Company maintains levels of inventory sufficient to satisfy normal customer demands plus an increasing short-term delivery requirement for a majority of its Balancer products. Management believes its ability to provide prompt delivery gives it a competitive advantage for certain sales.

• Prepaid expenses increased by $63,442 to $187,790 from a balance of $124,348 at May 31, 2004 with the increase due to prepaid fees, trade show costs and various business and insurance costs.

• Trade accounts payable increased by $40,170 to $605,716 from a balance of $565,546 at May 31, 2004.

• Other accrued liabilities (including customer deposits, commissions, payroll items and other accrued expenses) increased by $3,186 to a balance of $357,233 from $354,047 at May 31, 2004, with the largest changes a $56,253 increase in accrued commissions and a $42,065 decrease in customer deposits. The policy for the accrual and payment of sales commissions has been consistent between periods and therefore, the increase in the liability is attributed to a larger proportion of sales and accounts receivable prior to February 28, 2005 that used outside sales representatives than in the period prior to May 31, 2004. Those groups receive a higher commission percentage than internal sales people and therefore when there is a larger portion of sales using these sales representative groups, the commission expense and liability will be higher. The lower amount of deposits reflects a smaller amount of customer orders at February 28, 2005 that require a prepayment prior to shipment than was the case at May 31, 2004.

During the nine-months ended February 28, 2005, net cash used in investing activities was $110,728, consisting of net additions to property and equipment. Net cash provided by financing activities amounted to $109,377 which consisted of $27,861 in additions to long-term debt and common stock issued to employees who exercised stock options in the amount of $119,583. These sources of cash were reduced by repayments of long-term debt of $38,067.

The following summarizes contractual obligations at February 28, 2005 and the effect on future liquidity and cash flows:

Years Ending February 28,	Capital Lease and Purchase Contract		Operating Leases		Total Contractual Obligations
2006	$	31,309	$	21,295	$	52,604
2007	16,812		7,852		24,664
2008	8,746		—		8,746
2009	—		—
Total	$	56,867	$	29,147	$	86,014

Management has historically responded to business challenges that had a negative impact on operations and liquidity by reducing operating expenses, developing new products and attempting to penetrate new markets for the Company’s products. As a result of these efforts, results of operations and cash flow from operations have improved. Management believes its cash flows from operations, its available credit resources and its cash position will provide adequate funds on both a short-term and long-term basis to cover currently foreseeable debt payments, lease commitments and payments under existing and anticipated supplier agreements. Management believes that such cash flow (without the raising of external funds) is sufficient to finance current operations, projected capital expenditures, anticipated long-term sales agreements and other expansion-related contingencies during Fiscal 2005 and 2006. However, in the event the Company fails to achieve its operating and financial goals for Fiscal 2005, Management may be required to take certain actions to finance operations in that time period. These actions could include, but are not limited to, implementation of cost cutting measures and/or entering into additional borrowing arrangements collateralized by assets.

Business Risks

This report includes “forward-looking statements” as that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates,” or “hopes,” or the negative of those terms or other comparable terminology, or by discussions of strategy, plans or intentions. For example, this section contains numerous forward-looking statements. All forward-looking statements in this report are made based on Management’s current expectations and estimates, which involve risks and uncertainties, including those described in the following paragraphs. Among these factors are the following:

• Demand for Company products may change.

• New products may not be developed to satisfy changes in customer demands.

• Failure to protect intellectual property rights could adversely affect future performance and growth.

• Production time and the overall cost of products could increase if any of the primary suppliers are lost or if any primary supplier increased the prices of raw materials.

• Fluctuations in quarterly and annual operating results make it difficult to predict future performance.

• The Company may not be able to reduce operating costs quickly enough if sales decline.

• The Company maintains a significant investment in inventories in anticipation of future sales.

• The lack of a line of credit agreement could impact future liquidity.

• Future success depends in part on attracting and retaining key management and qualified technical and sales personnel.

• The Company faces risks from international sales and currency fluctuations.

Such risks and uncertainties could cause actual results to be materially different from those in the forward-looking statements. Readers are cautioned not to place undue reliance on the forward-looking statements in this report. We assume no obligation to update such information.

Demand for Company products may change:

Over the past four fiscal quarters, the Company has experienced increasing demand for its Balancer products in North America and Europe. These increases are attributed to an improving economy in North America and more focused and aggressive sales and marketing techniques in Europe. The conditions and circumstances could change in future periods and as a result demand for the Company’s products could decline. Management is responding to these risks in two ways. First, it appears there is a significant portion of the marketplace that is not using the automatic balancing products of the Company or any of its competitors. The Company will therefore continue to devote part of its future R&D efforts toward developing products that will both broaden the scope of Balancing products offered to the current customer base. Second, there are uses for the Company’s Balancer products in industries other than those in the Company’s historic customer base. Management is devoting a significant portion of its time to identify these markets and educate those markets on the value of those products within their operations.

The laser light-scatter products of the Measurement segment have relied heavily upon sales to disk drive and silicon wafer manufacturers. Conditions in those markets adversely affected sales beginning in Fiscal 1999 and those poor conditions continued into Fiscal 2004 and consequently, demand for drives fell over these periods. As the operations of those companies suffered, they in turn reduced capital spending resulting in minimal demand for and sporadic sales of the Company’s laser light-scatter products. Industry forecasts are for improving conditions and the Company has experienced increasing sales in Fiscal 2005 to those industries. However, the long-term impact on demand for the Company’s surface Measurement products cannot be predicted with any certainty.

The semiconductor industry has also faced a down cycle over the past few fiscal years. Beginning in Fiscal 2002 the semiconductor industry experienced backlog cancellations, resulting in slower revenue growth and these conditions continued into Fiscal 2004. The result is similar to disk drive manufacturers in that capital spending has declined significantly and consequently so has demand for and sales of the Company’s wafer products. Some improvement in market conditions is forecasted to occur sometime in the next several months, although there is no certainty if and when those improvements will occur.

Management will continue to market these products to these historic markets as it appears no other technology has been introduced that would make the laser light-scatter products technologically obsolete. There is the belief that once market conditions improve in the disk drive and silicon wafer markets, demand for the Company’s products and technology will increase although most likely not to historic levels. Also, Management believes there are other uses for the Company’s laser light scatter technology and continues to evaluate R&D efforts to develop new products and introduce them to the marketplace.

New products may not be developed to satisfy changes in customer demands:

The failure to develop new technologies, or react to changes in existing technologies, could materially delay development of new products, which could result in decreased revenues and a loss of market share to competitors. Financial performance depends on the ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. New product opportunities may not be identified and developed and brought to market in a timely and cost-effective manner. Products or technologies developed by other companies may render products or technologies obsolete or noncompetitive or a fundamental shift in technologies in the product markets could have a material adverse effect on the Company’s competitive position within historic industries.

Failure to protect intellectual property rights could adversely affect future performance and growth:

Failure to protect existing intellectual property rights may result in the loss of valuable technologies or paying other companies for infringing on their intellectual property rights. The Company relies on patent, trade secret, trademark and copyright law to protect

such technologies. There is no assurance any of the Company’s U.S. patents will not be invalidated, circumvented, challenged or licensed to other companies.

Production time and the overall cost of products could increase if any of the primary suppliers are lost or if a primary supplier increased the prices of raw materials:

Manufacturing operations depend upon obtaining adequate supplies of raw materials on a timely basis. The results of operations could be adversely affected if adequate supplies of raw materials cannot be obtained in a timely manner or if the costs of raw materials increased significantly.

Fluctuations in quarterly and annual operating results make it difficult to predict future performance:

Quarterly and annual operating results are likely to fluctuate in the future due to a variety of factors, some of which are beyond Management’s control. As a result of quarterly operating fluctuations, it is important to realize quarter-to-quarter comparisons of operating results are not necessarily meaningful and should not be relied upon as indicators of future performance.

The Company may not be able to reduce operating costs quickly enough if sales decline:

Operating expenses are generally fixed in nature and largely based on anticipated sales. In the past, Management has responded to declining sales by instituting expense reduction programs that have significantly reduced the break-even sales point. However, should sales decline significantly, there is no guarantee Management could take actions that would further reduce operating expenses in either a timely manner or without seriously impacting the operations of the Company.

The Company maintains a significant investment in inventories in anticipation of future sales:

The Company believes it maintains a competitive advantage in its Balancer product segment by shipping product to its customers more rapidly than its competitors. As a result, the Company has a significant investment in inventories for that segment. These inventories are recorded using the lower-of-cost or market method, which requires Management to make certain estimates. Management evaluates the recorded inventory values based on customer demand, market trends and expected future sales and changes these estimates accordingly. A significant shortfall of sales may result in carrying higher levels of inventories of finished goods and raw materials thereby increasing the risk of inventory obsolescence and corresponding inventory write-downs. As a result, the Company may experience write-downs of inventory quantities in excess of current reserves if future sales were to decrease dramatically.

The lack of a line of credit agreement could impact future liquidity:

The Company does not have a short-term line of credit at this time. While Management believes it could secure credit from another source, there is no guarantee this can be accomplished or, if it is accomplished, the terms may not be as favorable as those under the expired line of credit.

Future success depends in part on attracting and retaining key management and qualified technical and sales personnel:

Future success depends on the efforts and continued services of key management, technical and sales personnel. Significant competition exists for such personnel and there is no assurance key technical and sales personnel can be attracted or retained as required. There is also no guarantee key employees will not leave and subsequently compete against the Company. The inability to retain key personnel could adversely impact the business, financial condition and results of operations.

The Company faces risks from international sales and currency fluctuations:

The Company markets and sells its products worldwide and international sales have accounted for and are expected to continue to account for a significant portion of future revenue. International sales are subject to a number of risks, including: the imposition of governmental controls; trade restrictions; difficulty in collecting receivables; changes in tariffs and taxes; difficulties in staffing and managing international operations; political and economic instability; general economic conditions; and fluctuations in foreign currencies. No assurances can be given these factors will not have a material adverse effect on future international sales and operations and, consequently, on the Company’s business, financial condition and results of operations.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk:

Interest Rate Risk

The Company did not have any derivative financial instruments as of February 28, 2005. However, the Company could be exposed to interest rate risk at any time in the future and therefore, 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 does not have any lines of credit or other debt whose interest rates are based on variable rates that may fluctuate over time based on economic changes in the environment. Therefore, at this time, the Company is not subject to interest rate risk if market interest rates fluctuate and does not expect any change in the interest rates to have a material effect on the Company’s results from operations.

Foreign Currency Risk

The Company operates subsidiaries in the United Kingdom and Germany. Therefore, the Company’s business and financial condition is sensitive to currency exchange rates or any other restrictions imposed on their currencies. For the three-months ended February 28, 2005 and February 29, 2004, results of operations included gains on foreign currency translation of $3,600 and $21,727 respectively, while results of operations for the nNine-months ended February 28, 2005 and February 29, 2004 included gains (losses) on foreign currency translation of $(373) and $86,325 respectively.

Item 4. Controls and Procedures

(a) Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

(b) There have been no changes in our internal controls that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits

	31.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Part I -		FINANCIAL INFORMATION

Item 1 -		Financial Statements:

		Consolidated Balance Sheets:
		– February 28, 2005 (unaduited) and May 31, 2004 (audited)

		Consolidated Statements of Operations:
		– For the Three and Nine Months Ended February 28, 2005 and February 29, 2004 (unaudited)

		Consolidated Statement of Changes in Stockholders’ Equity:
		– For the Nine Months Ended February 28, 2005 (unaudited)

		Consolidated Statements of Cash Flows:
		– For the Nine Months Ended February 28, 2005 and February 29, 2004 (unaudited)

		Notes to Consolidated Interim Financial Statements:
		– Nine Months Ended February 28, 2005 and February 29, 2004

Item 2 -		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3 -		Quantitative and Qualitative Disclosures About Market Risk

Item 4 -		Controls and Procedures

Part II -		OTHER INFORMATION

Item 6 -		Exhibits and Reports on Form 8-K

Signatures -

Certifications

		SCHMITT INDUSTRIES, INC.
		(Registrant)


Date:	4/14/2005	/s/ Wayne A. Case
		Wayne A. Case, President/CEO/Director

Date:	4/14/2005	/s/ Robert C. Thompson
		Robert C. Thompson, Chief Financial Officer