TABLE OF CONTENTS




|                                                                            |                                                                                                |  |  |  |  |  |  | 
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS                
|SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS      
|SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW       
|SHOPSMITH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                                                            | Item 2.  Managements Discussion and Analysis of Financial Condition and Results
of Operations
|                                                                            | Item 3. Quantitative and qualitative disclosures about market risk.                           
|PART II. OTHER INFORMATION                                                 
|EXHIBIT 4.2                                                                
|EXHIBIT 27                                                                 



---



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Quarterly Report Under Section 13 or 15 (d)
Of the Securities Exchange Act of 1934

|                                    |  |  |  |                              
|----------------------------------- |  |  |  | -----------------------------
|For the quarter ended
July 1, 2000 |  |  |  | Commission File Number 0-9318

SHOPSMITH, INC.
(Name of Registrant)

|                                         |  |                                     
|---------------------------------------- |  | ------------------------------------
|Ohio                                     |  | 31-0811466                          
|                                         |  |                                     
|(State of Incorporation)                 |  | (IRS Employer Identification Number)
|                                        
|                                        
|                                        
|                                        
|                                        
|6530 Poe Avenue
Dayton, Ohio             |  | 45414                               
|                                         |  |                                     
|(Address of Principal
Executive Offices) |  | (Zip Code)                          

Registrants Telephone 937-898-6070

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 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 ___

Indicate the number of shares outstanding of each of the registrants classes of
common stock as of July 20,2000.

Common shares, without par value: 2,605,233 shares.

Page 1



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##### Table of Contents



SHOPSMITH, INC. AND SUBSIDIARIES

INDEX

|                               |                                                                                               |                                                                                                                |    |                                                  |      |          |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | -- | ------------------------------------------------ | ---- | -------- | - | 
|                               |                                                                                               |                                                                                                                |    |                                                  |      | Page No.
|                               |                                                                                               |                                                                                                                |    |                                                  |      |         
|Part I. Financial information:
|                              
|                              
|                              
|                              
|                               | Item 1. Financial
Statements                                                                 
|                              
|                              
|                              
|                              
|                               |                                                                                               | Consolidated Balance Sheets
                                                                                 
|                              
|                              
|                              
|                              
|                               |                                                                                               | July 1, 2000 and April 1, 2000                                                                                 |    |                                                  | 3- 4 |         
|                              
|                              
|                              
|                              
|                               |                                                                                               | Statements of Consolidated Operations and
Retained Earnings  Three Months
Ended July 1, 2000 and July 3, 1999 |    |                                                  | 5    |         
|                              
|                              
|                              
|                              
|                               |                                                                                               | Consolidated Statements of
Cash Flows                                                                        
|                              
|                              
|                              
|                              
|                               |                                                                                               |                                                                                                                |    | Three Months Ended July 1, 2000 and
July 3, 1999 |      |          | 6 | 
|                              
|                              
|                              
|                              
|                               |                                                                                               | Notes to Consolidated Financial Statements                                                                     |    |                                                  | 7- 8 |         
|                              
|                              
|                              
|                              
|                               | Item 2. Managements Discussion and Analysis
of Financial Condition and Results
of Operations |                                                                                                                |    | 9                                                |     
|                              
|                              
|                              
|                              
|                               | Item 3. Quantitative and qualitative disclosures
about market risk                            |                                                                                                                |    | 10                                               |     
|                              
|                              
|                              
|                              
|Part II. Other Information     |                                                                                               |                                                                                                                | 11 |                                                 

Page 2



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##### Table of Contents









SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                               |                                                |                                              |                                            |                      |  |             |           |           |  |         |           | 
|------------------------------ | ---------------------------------------------- | -------------------------------------------- | ------------------------------------------ | -------------------- |  | ----------- | --------- | --------- |  | ------- | --------- | 
|                               |                                                |                                              |                                            |                      |  | July 1,     |           | April 1, 
|                               |                                                |                                              |                                            |                      |  | 2000        |           | 2000     
|                               |                                                |                                              |                                            |                      |  |             |           |          
|                               |                                                |                                              |                                            |                      |  | (Unaudited)
|                               |                                                |                                              |                                            | ASSETS              
|                              
|                              
|                              
|                              
|Current Assets:               
|                              
|                              
|                              
|                              
|                               | Cash and equivalents                           |                                              | $                                          | 102,324              |  |             | $         | 1,301,387 | 
|                              
|                              
|                              
|                              
|                               | Restricted cash                                |                                              |                                            | 105,924              |  |             |           | 104,970   | 
|                              
|                              
|                              
|                              
|                               | Accounts receivable:                          
|                              
|                              
|                              
|                              
|                               |                                                | Trade, less allowance for doubtful accounts:
|                              
|                              
|                              
|                              
|                               |                                                |                                              | $709,886 on July 1 and $646,756 on April 1 |                      |  | 577,843     |           |           |  | 622,887 |          
|                              
|                              
|                              
|                              
|                               | Inventories                                    |                                              |                                            | 2,429,982            |  |             |           | 2,523,185 | 
|                              
|                              
|                              
|                              
|                               | Deferred income taxes (Note 2)                 |                                              |                                            | 573,000              |  |             |           | 569,000   | 
|                              
|                              
|                              
|                              
|                               | Prepaid expenses                               |                                              |                                            | 406,190              |  |             |           | 426,214   | 
|                               |                                                |                                              |                                            |                      |  |             |           |          
|                               |                                                |                                              |                                            | Total current assets |  |             | 4,195,263 |           |  |         | 5,547,643 | 
|                               |                                                |                                              |                                            |                      |  |             |           |          
|Properties:                   
|                              
|                              
|                              
|                              
|                               | Land, building and improvements                |                                              |                                            | 3,161,199            |  |             |           | 3,161,199 | 
|                              
|                              
|                              
|                              
|                               | Machinery, equipment and tooling               |                                              |                                            | 6,583,118            |  |             |           | 6,568,403 | 
|                               |                                                |                                              |                                            |                      |  |             |           |          
|                               |                                                |                                              |                                            | Total cost           |  |             | 9,744,317 |           |  |         | 9,729,602 | 
|                              
|                              
|                              
|                              
|                               | Less accumulated depreciation and
amortization |                                              |                                            | 6,574,445            |  |             |           | 6,501,718 | 
|                               |                                                |                                              |                                            |                      |  |             |           |          
|                               |                                                |                                              |                                            | Net properties       |  |             | 3,169,872 |           |  |         | 3,227,884 | 
|                               |                                                |                                              |                                            |                      |  |             |           |          
|Deferred income taxes (Note 2) |                                                |                                              | 753,000                                    |                      |  |             | 757,000   |          
|                               |                                                |                                              |                                            |                      |  |             |           |          
|Other assets                   |                                                |                                              | 5,970                                      |                      |  |             | 20,833    |          
|                               |                                                |                                              |                                            |                      |  |             |           |          
|Total assets                   |                                                | $                                            | 8,124,105                                  |                      |  | $           | 9,553,360 |          
|                               |                                                |                                              |                                            |                      |  |             |           |          

Continued

Page 3



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##### Table of Contents



SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                            |                                                                                                                                                                                                |                                                   |                                      |           |             |           |           |           |         |           | 
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------ | --------- | ----------- | --------- | --------- | --------- | ------- | --------- | 
|                                            |                                                                                                                                                                                                |                                                   |                                      |           | July 1,     |           | April 1, 
|                                            |                                                                                                                                                                                                |                                                   |                                      |           | 2000        |           | 2000     
|                                            |                                                                                                                                                                                                |                                                   |                                      |           |             |           |          
|                                            |                                                                                                                                                                                                |                                                   |                                      |           | (Unaudited)
|                                            |                                                                                                                                                                                                |                                                   | LIABILITIES AND SHAREHOLDERS EQUITY
|                                           
|                                           
|                                           
|                                           
|Current Liabilities:                       
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts payable                                                                                                                                                                               |                                                   | $                                    | 791,000   |             |           | $         | 1,469,298 |        
|                                           
|                                           
|                                           
|                                           
|                                            | Current portion of long-term debt and
capital lease obligation                                                                                                                                 |                                                   |                                      | 189,038   |             |           |           | 189,038   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Customer advances                                                                                                                                                                              |                                                   |                                      | 20,763    |             |           |           | 26,863    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued liabilities:                                                                                                                                                                          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                | Compensation, employee benefits and
payroll taxes |                                      |           | 301,467     |           |           |           | 372,235 |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                | Sales taxes payable                               |                                      |           | 71,474      |           |           |           | 193,162 |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                | Accrued recourse liability                        |                                      |           | 410,946     |           |           |           | 390,369 |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                | Accrued expenses                                  |                                      |           | 281,663     |           |           |           | 298,717 |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                | Other                                             |                                      |           | 205,617     |           |           |           | 260,157 |          
|                                            |                                                                                                                                                                                                |                                                   |                                      |           |             |           |           |          
|                                            |                                                                                                                                                                                                |                                                   | Total current liabilities            |           |             | 2,271,968 |           |           |         | 3,199,839 | 
|                                           
|                                           
|                                           
|                                           
|Long-term debt and capital lease obligation |                                                                                                                                                                                                |                                                   | 2,622,355                            |           |             |           | 2,640,445 |          
|                                            |                                                                                                                                                                                                |                                                   |                                      |           |             |           |           |          
|                                            |                                                                                                                                                                                                |                                                   | Total liabilities                    |           |             | 4,894,323 |           |           |         | 5,840,284 | 
|                                            |                                                                                                                                                                                                |                                                   |                                      |           |             |           |           |          
|Shareholders Equity:                      
|                                           
|                                           
|                                           
|                                           
|                                            | Preferred shares- without par value;
authorized 
500,000; none issued
Common shares- without par value;
authorized 5,000,000; issued and outstanding
2,605,233 shares on July 1 and
on April 1 |                                                   |                                      | 2,806,483 |             |           |           | 2,806,482 |        
|                                           
|                                           
|                                           
|                                           
|Retained earnings                           |                                                                                                                                                                                                |                                                   | 423,299                              |           |             |           | 906,594   |          
|                                            |                                                                                                                                                                                                |                                                   |                                      |           |             |           |           |          
|                                            |                                                                                                                                                                                                |                                                   | Total shareholders equity           |           |             | 3,229,782 |           |           |         | 3,713,076 | 
|                                            |                                                                                                                                                                                                |                                                   |                                      |           |             |           |           |          
|Total Liabilities and Shareholders Equity  |                                                                                                                                                                                                | $                                                 | 8,124,105                            |           |             | $         | 9,553,360 |          
|                                            |                                                                                                                                                                                                |                                                   |                                      |           |             |           |           |          

See notes to consolidated financial statements.

Page 4



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##### Table of Contents









SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                   |                          |   |                    |           |             |   |           |           |  
|---------------------------------- | ------------------------ | - | ------------------ | --------- | ----------- | - | --------- | --------- | -
|                                   |                          |   | Three Months Ended
|                                   |                          |   |                   
|                                   |                          |   | July 1             |           | July 3     
|                                   |                          |   | 2000               |           | 1999       
|                                   |                          |   |                    |           |            
|                                   |                          |   | (Unaudited)        |           | (Unaudited)
|                                   |                          |   |                    |           |            
|Net sales                          |                          | $ | 3,669,355          |           |             | $ | 3,727,046 |          
|                                  
|                                  
|                                  
|                                  
|Cost of products sold              |                          |   | 1,734,043          |           |             |   | 1,696,669 |          
|                                   |                          |   |                    |           |             |   |           |          
|Gross margin                       |                          |   | 1,935,312          |           |             |   | 2,030,377 |          
|                                  
|                                  
|                                  
|                                  
|Selling expenses                   |                          |   | 1,902,515          |           |             |   | 2,020,180 |          
|                                  
|                                  
|                                  
|                                  
|Administrative expenses            |                          |   | 464,536            |           |             |   | 548,055   |          
|                                   |                          |   |                    |           |             |   |           |          
|                                   | Total operating expenses |   |                    | 2,367,051 |             |   |           | 2,568,235 |  
|                                  
|                                  
|                                  
|                                  
|Loss from operations               |                          |   | (431,739           | )         |             |   | (537,858  | )        
|                                  
|                                  
|                                  
|                                  
|Interest income                    |                          |   | 12,377             |           |             |   | 20,155    |          
|                                  
|                                  
|                                  
|                                  
|Interest expense                   |                          |   | (67,435            | )         |             |   | (66,620   | )        
|                                  
|                                  
|                                  
|                                  
|Other income, net                  |                          |   | 3,502              |           |             |   | 4,274     |          
|                                   |                          |   |                    |           |             |   |           |          
|Loss before income taxes           |                          |   | (483,295           | )         |             |   | (580,049  | )        
|                                  
|                                  
|                                  
|                                  
|Income tax benefit                 |                          |   |                   |           |             |   | 196,000   |          
|                                   |                          |   |                    |           |             |   |           |          
|Net Loss                           |                          |   | (483,295           | )         |             |   | (384,049  | )        
|                                  
|                                  
|                                  
|                                  
|Retained earnings:                
|                                  
|                                  
|                                  
|                                  
|                                   | Beginning                |   |                    | 906,594   |             |   |           | 1,586,283 |  
|                                   |                          |   |                    |           |             |   |           |          
|                                   | Ending                   |   | $                  | 423,299   |             |   | $         | 1,202,234 |  
|                                   |                          |   |                    |           |             |   |           |          
|Net Loss per common share
(Note 3)
|                                   | Basic                    |   | $                  | (0.19     | )           |   | $         | (0.15     | )
|                                   |                          |   |                    |           |             |   |           |          
|                                   | Diluted                  |   | $                  | (0.19     | )           |   | $         | (0.15     | )
|                                   |                          |   |                    |           |             |   |           |          

See notes to consolidated financial statements.

Page 5



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##### Table of Contents









SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW

|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |          |           |          |  
|------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------------------------------------------------- | -------- | ------------------ | -------- | ----------- | -------- | --------- | -------- | -
|                                                  |                                                         |                                                                               |                                                                      |          | Three Months Ended
|                                                  |                                                         |                                                                               |                                                                      |          |                   
|                                                  |                                                         |                                                                               |                                                                      |          | July 1             |          | July 3     
|                                                  |                                                         |                                                                               |                                                                      |          | 2000               |          | 1999       
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |            
|                                                  |                                                         |                                                                               |                                                                      |          | (Unaudited)        |          | (Unaudited)
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |            
|Cash flows from operating activities:            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Net Loss                                                |                                                                               | $                                                                    | (483,295 | )                  |          | $           | (384,049 | )        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         | Adjustments to reconcile net loss to
cash provided from operating activities:
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Depreciation and amortization                                        |          |                    | 72,727   |             |          |           | 67,264   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Provision for doubtful accounts                                      |          |                    | 86,891   |             |          |           | 39,392   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Deferred income taxes                                                |          |                    |         |             |          |           | (196,000 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Cash provided from (required for) changes
in assets and liabilities:
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Restricted cash                                                      |          |                    | (954     | )           |          |           | (1,541   | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Accounts receivable                                                  |          |                    | (21,270  | )           |          |           | 271,029  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Inventories                                                          |          |                    | 93,204   |             |          |           | (349,564 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Other assets                                                         |          |                    | 34,887   |             |          |           | (178,100 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Accounts payable and customer advances                               |          |                    | (684,398 | )           |          |           | (404,358 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                               | Other current liabilities                                            |          |                    | (264,050 | )           |          |           | (146,101 | )
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |         
|Cash provided from (used in) operating activities |                                                         |                                                                               | (1,166,258                                                           | )        |                    |          | (1,282,028  | )       
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |         
|Cash flows from investing activities:            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Maturity of short-term investments                      |                                                                               |                                                                      |         |                    |          |             | 491,794  |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Property additions                                      |                                                                               |                                                                      | (14,715  | )                  |          |             | (31,696  | )        
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |         
|Cash provided from (used in) investing activities |                                                         |                                                                               | (14,715                                                              | )        |                    |          | 460,098     |         
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |         
|Cash flows from financing activities:            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Common shares repurchased                               |                                                                               |                                                                      |         |                    |          |             |         |          
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Payments on long-term debt and capital lease obligation |                                                                               |                                                                      | (18,090  | )                  |          |             | (18,178  | )        
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |         
|Cash provided from (used in) financing activities |                                                         |                                                                               | (18,090                                                              | )        |                    |          | (18,178     | )       
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |         
|Net decrease in cash                              |                                                         |                                                                               | (1,199,063                                                           | )        |                    |          | (840,108    | )       
|                                                 
|                                                 
|                                                 
|                                                 
|Cash:                                            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         | At beginning of period                                                        |                                                                      |          | 1,301,387          |          |             |          | 1,005,371 |         
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |         
|                                                  |                                                         | At end of period                                                              |                                                                      | $        | 102,324            |          |             | $        | 165,263   |         
|                                                  |                                                         |                                                                               |                                                                      |          |                    |          |             |         

See notes to consolidated financial statements.

Page 6



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##### Table of Contents









SHOPSMITH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | In the opinion of management, all adjustments (consisting of only normal
and recurring adjustments) have been made as of July 1, 2000 and July 3,
1999 to present the financial statements fairly. However, the results of
operations for the three months then ended are not necessarily indicative
of results for the fiscal year. The financial statements and notes are
presented as permitted by Form 10-Q, and do not contain certain information
included in the annual financial statements. The financial statements
accompanying this report should be read in conjunction with the financial
statements and notes thereto included in the Annual Report to Shareholders
for the year ended April 1, 2000.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | The provision for income taxes is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                             |  |        |          |        |  |   |          |  
|-------------------------------------------- |  | ------ | -------- | ------ |  | - | -------- | -
|                                             |  | July 1 |          | July 3
|                                             |  | 2000   |          | 1999  
|                                             |  |        |          |       
|Loss before income taxes                     |  | $      | (483,295 | )      |  | $ | (580,049 | )
|                                             |  |        |          |        |  |   |          |  
|Provision for (recoverable) income taxes:   
|                                            
|                                            
|                                            
|                                            
|Current                                      |  | $      |         |        |  | $ |         |  
|                                            
|                                            
|                                            
|                                            
|Deferred                                     |  |        | (159,000 | )      |  |   | (196,000 | )
|                                            
|                                            
|                                            
|                                            
|Change in valuation allowance                |  |        | 159,000  |        |  |   |         |  
|                                             |  |        |          |        |  |   |          |  
|Net provision for (recoverable) income taxes |  | $      |         |        |  | $ | (196,000 | )
|                                             |  |        |          |        |  |   |          |  



|   |  | The Company has deferred tax assets amounting to $1,326,000 at July 1, 2000
and April 1, 2000 which reflect the impact of temporary differences between
the amount of assets and liabilities recorded for financial reporting
purposes and such amounts as measured by tax laws and regulations. The
Company believes that it is more likely than not that these assets are
realizable and represent its best estimate based on the available evidence
as prescribed in SFAS 109. For the quarter ended July 1, 2000, the Company
has reduced its provision for recoverable income taxes by a $159,000
valuation allowance because of the uncertainty of realizing its benefit.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflect per share amounts that would have
resulted if stock options had been converted into common stock. The
following reconciles amounts reported in the financial statements:                                                                                                                                                                                                                                                                                                                        

|                                  |                   |   |                    |          |              |   |           |          |  
|--------------------------------- | ----------------- | - | ------------------ | -------- | ------------ | - | --------- | -------- | -
|                                  |                   |   | Three months ended
|                                  |                   |   |                   
|                                  |                   |   | July 1, 2000       |          | July 3, 1999
|                                  |                   |   |                    |          |             
|                                  | Net income (loss) |   | $                  | (483,295 | )            |   | $         | (384,049 | )
|                                  |                   |   |                    |          |              |   |           |         
|Weighted average shares           |                   |   | 2,605,233          |          |              |   | 2,605,233 |         
|                                 
|                                 
|                                 
|                                 
|Additional dilutive shares        |                   |   |                   |          |              |   |          |         
|                                  |                   |   |                    |          |              |   |           |         
|Total dilutive shares             |                   |   | 2,605,233          |          |              |   | 2,605,233 |         
|                                  |                   |   |                    |          |              |   |           |         
|Basic earnings (loss) per share   |                   | $ | (0.19              | )        |              | $ | (0.15     | )       
|                                  |                   |   |                    |          |              |   |           |         
|Diluted earnings (loss) per share |                   | $ | (0.19              | )        |              | $ | (0.15     | )       
|                                  |                   |   |                    |          |              |   |           |         

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|   |  | There were no additional dilutive shares included in the computation at July
1, 2000 and July 3, 1999 because the stock options were anti-dilutive.                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. |  | A revolving credit agreement has been renewed to expire on July 31, 2001.
The agreement provides for maximum short-term borrowing of $500,000 with
interest charged at one percent over the Banks prime rate. The agreement
requires compliance with certain minimum net worth, working capital and
other miscellaneous covenants. Substantially all tangible assets except for
land and building are pledged as collateral.

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Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

First quarter sales declined to $3,669,000 or 1.6% from $3,727,000 generated a
year ago. This decrease in volume is primarily in our demonstration sales
channel.

Gross margin rates declined by one percentage point compared to last year.
Operating expenses were reduced to $2,367,000 in the current fiscal year from
$2,568,000 last year.

Provisions for recoverable Federal income taxes ($0 in FY 2001 and $196,000 in
FY 2000) are based on estimated annual effective rates, less a valuation reserve
in FY2001.

Because of the factors above, a net loss of $483,000 or $.19 per diluted share
was experienced in the quarter ended July 1, 2000 compared to a net loss of
$384,000 or $.15 per diluted share for the same period of last year.

Liquidity and Financial Position

Cash used in operations totaled $1,166,000 in the current year compared with
$1,282,000 for the first quarter of the preceding year. Net losses of $483,000,
together with liquidation of current liabilities, were the main reasons for the
cash usage in the current quarter.

The Companys assets include $1,326,000 of deferred income tax assets at July 1,
2000. Presently, the Company believes that these assets are realizable and
represent managements best estimate based on the weight of available evidence
as prescribed in SFAS 109. For the quarter ended July 1, 2000, the Company has
reduced its provision for recoverable income taxes by a $159,000 valuation
allowance because of the uncertainty of realizing its benefit. Management will
continue to evaluate these assets and the need for additional valuation
allowances based on near-term operating results and longer-term projections. If
the Company is unable to generate sufficient operating income in the future, the
valuation allowance will have to be increased by means of a charge against
operating results.

The current ratio was 1.85 to 1 at July 1, 2000 compared to 1.73 to 1 at the
beginning of the current fiscal year. The debt to equity ratio improved slightly
to 1.52 to 1 from 1.57 to 1 at April 1, 2000.

The Company has now experienced operating losses in the last two fiscal years as
well as the current quarter. Continuation of operating losses will negatively
affect the Companys liquidity both (a) as a result of negative cash flow caused
by the losses, and (b) by putting the Company in the position of failing to
satisfy the conditions applicable to drawing under the Companys line of credit.

Forward Looking Statements

The foregoing discussion and the Companys consolidated financial statements
contain certain forward-looking statements that involve risks and uncertainties,
including but not limited to the following: (a) the adequacy of operating cash
flows together with currently available working capital to finance the operating
needs of the Company and (b) generation of future taxable income to utilize
existing deferred tax assets.

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Item 3. Quantitative and qualitative disclosures about market risk.

Not applicable.

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PART II. OTHER INFORMATION

Item 6.

(a) Exhibits:

(4.12) Ninth Amendment to Loan and Security Agreement dated July 31, 2000
between Huntington National Bank and Shopsmith, Inc.

(27) Financial Data Schedule for the period ended July 1, 2000

(b) Reports on Form 8-K:

None

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

| |  |                                                                                 
| |  | --------------------------------------------------------------------------------
| |  | SHOPSMITH, INC.                                                                 
|
| |  | By /s/ Mark A. May                                                              
| |  |                                                                                 
| |  | Mark A. May                                                                     
| |  | Vice President of Finance (Principal Financial
          and Accounting Officer)
|
|
|

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