TABLE OF CONTENTS




|                               |                                                                                               |  |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. Financial information:
|                               | Item 1. 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 4.13                  



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##### Table of Contents



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 |  | Commission File Number 0-9318 |  | 
|                      
|                      
|                      
|                      
|June 30 2001          

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 20,2001.

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 -             
|                               |                                              | June 30, 2001 and March 31, 2001           |    |          | 3-4 | 
|                              
|                               |                                              | Statements of Consolidated Operations and 
|                               |                                              | Retained Earnings - Three Months          
|                               |                                              | Ended June 30, 2001 and July 1, 2000       |    |          | 5   | 
|                              
|                               |                                              | Consolidated Statements of Cash Flows -   
|                               |                                              | Three Months Ended June 30, 2001 and      
|                               |                                              | July 1, 2000                               |    |          | 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

|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |           |         |  |           | 
|-------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------- | --------- | -------------------- | ------- | ----------- | --------- | --------- | ------- |  | --------- | 
|                                                                                                                                 |                                                |                                                |           |                      |         | June 30,    |           | March 31,
|                                                                                                                                 |                                                |                                                |           |                      |         | 2001        |           | 2001     
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          
|                                                                                                                                 |                                                |                                                |           |                      |         | (Unaudited)
|                                                                                                                                 |                                                |                                                |           | ASSETS              
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Current assets:                                                                                                                 
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Cash and equivalents                           |                                                | $         | 1,225                |         |             | $         | 651,530   |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Restricted cash                                |                                                |           |                     |         |             |           | 174,718   |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Accounts receivable:                          
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 |                                                | Trade, less allowance for doubtful accounts:  
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 |                                                | $1,033,670 on June 30 and $924,250 on March 31 |           |                      | 803,140 |             |           |           | 673,689 | 
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Inventories                                    |                                                |           | 2,366,143            |         |             |           | 2,168,225 |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Deferred income taxes (Note 2)                 |                                                |           | 498,000              |         |             |           | 498,000   |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Prepaid expenses                               |                                                |           | 462,152              |         |             |           | 431,912   |        
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          
|                                                                                                                                 |                                                |                                                |           | Total current assets |         |             | 4,130,660 |           |         |  | 4,598,074 | 
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          
|Properties:                                                                                                                     
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Land, building and improvements                |                                                |           | 3,131,153            |         |             |           | 3,161,199 |        
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Machinery, equipment and tooling               |                                                |           | 6,642,199            |         |             |           | 6,627,918 |        
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          
|                                                                                                                                 |                                                |                                                |           | Total cost           |         |             | 9,773,352 |           |         |  | 9,789,117 | 
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                 | Less accumulated depreciation and
amortization |                                                |           | 6,846,871            |         |             |           | 6,782,561 |        
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          
|                                                                                                                                 |                                                |                                                |           | Net properties       |         |             | 2,926,481 |           |         |  | 3,006,556 | 
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          
|Deferred income taxes (Note 2)                                                                                                   |                                                |                                                | 782,000   |                      |         |             | 782,000   |          
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          
|Long term portion of accounts receivable trade, less allowance for doubtful
accounts $86,177 on June 30, and $70,999 on March 31 |                                                |                                                | 187,631   |                      |         |             | 167,954   |          
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|                                                                                                                                
|Other assets                                                                                                                     |                                                |                                                | 2,303     |                      |         |             | 2,303     |          
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          
|Total assets                                                                                                                     |                                                | $                                              | 8,029,075 |                      |         | $           | 8,556,887 |          
|                                                                                                                                 |                                                |                                                |           |                      |         |             |           |          



Continued



Page 3



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##### Table of Contents



SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                            |                                                                                                                                                                                                 |                                                   |                            |           |             |           |           |           |         |           | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | -------------------------- | --------- | ----------- | --------- | --------- | --------- | ------- | --------- | 
|                                            |                                                                                                                                                                                                 |                                                   |                            |           | June 30,    |           | March 31,
|                                            |                                                                                                                                                                                                 |                                                   |                            |           | 2001        |           | 2001     
|                                            |                                                                                                                                                                                                 |                                                   |                            |           |             |           |          
|                                            |                                                                                                                                                                                                 |                                                   |                            |           | (Unaudited)
|                                            | LIABILITIES AND
SHAREHOLDERS EQUITY                                                                                                                                                           
|                                           
|                                           
|                                           
|                                           
|Current liabilities:                       
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts payable                                                                                                                                                                                |                                                   | $                          | 831,992   |             |           | $         | 1,113,380 |        
|                                           
|                                           
|                                           
|                                           
|                                            | Revolving loan payable                                                                                                                                                                          |                                                   |                            | 237,000   |             |           |           |          |        
|                                           
|                                           
|                                           
|                                           
|                                            | Current portion of long-term debt and
capital lease obligation                                                                                                                                  |                                                   |                            | 84,910    |             |           |           | 84,910    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Customer advances                                                                                                                                                                               |                                                   |                            | 288,295   |             |           |           | 169,003   |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued liabilities:                                                                                                                                                                           
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                 | Compensation, employee benefits and
payroll taxes |                            |           | 238,187     |           |           |           | 278,443 |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                 | Sales taxes payable                               |                            |           | 66,295      |           |           |           | 144,606 |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                 | Accrued recourse liability                        |                            |           | 202,044     |           |           |           | 235,303 |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                 | Accrued expenses                                  |                            |           | 263,799     |           |           |           | 182,804 |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                                                                                                 | Other                                             |                            |           | 76,986      |           |           |           | 93,990  |          
|                                            |                                                                                                                                                                                                 |                                                   |                            |           |             |           |           |          
|                                            |                                                                                                                                                                                                 |                                                   | Total current liabilities  |           |             | 2,289,508 |           |           |         | 2,302,439 | 
|                                           
|                                           
|                                           
|                                           
|Long-term debt and capital lease obligation |                                                                                                                                                                                                 |                                                   | 2,548,443                  |           |             |           | 2,568,464 |          
|                                            |                                                                                                                                                                                                 |                                                   |                            |           |             |           |           |          
|                                            |                                                                                                                                                                                                 |                                                   | Total liabilities          |           |             | 4,837,951 |           |           |         | 4,870,903 | 
|                                            |                                                                                                                                                                                                 |                                                   |                            |           |             |           |           |          
|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 June 30 and
on March 31 |                                                   |                            | 2,806,482 |             |           |           | 2,806,482 |        
|                                           
|                                           
|                                           
|                                           
|Retained earnings                           |                                                                                                                                                                                                 |                                                   | 384,642                    |           |             |           | 879,502   |          
|                                            |                                                                                                                                                                                                 |                                                   |                            |           |             |           |           |          
|                                            |                                                                                                                                                                                                 |                                                   | Total shareholders equity |           |             | 3,191,124 |           |           |         | 3,685,984 | 
|                                            |                                                                                                                                                                                                 |                                                   |                            |           |             |           |           |          
|Total liabilities and shareholders equity  |                                                                                                                                                                                                 | $                                                 | 8,029,075                  |           |             | $         | 8,556,887 |          
|                                            |                                                                                                                                                                                                 |                                                   |                            |           |             |           |           |          

See notes to consolidated financial statements.

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##### Table of Contents



SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

|                                   |                          |   |                    |           |             |   |            |           |  
|---------------------------------- | ------------------------ | - | ------------------ | --------- | ----------- | - | ---------- | --------- | -
|                                   |                          |   | Three Months Ended
|                                   |                          |   |                   
|                                   |                          |   | June 30            |           | July 1     
|                                   |                          |   | 2001               |           | 2000       
|                                   |                          |   |                    |           |            
|                                   |                          |   | (Unaudited)        |           | (Unaudited)
|                                   |                          |   |                    |           |            
|                                   |                          |   |                    |           |             |   | (restated)
|Net sales                          |                          | $ | 3,037,505          |           |             | $ | 3,669,355  |          
|                                  
|                                  
|                                  
|                                  
|Cost of products sold              |                          |   | 1,408,193          |           |             |   | 1,734,043  |          
|                                   |                          |   |                    |           |             |   |            |          
|Gross margin                       |                          |   | 1,629,312          |           |             |   | 1,935,312  |          
|                                  
|                                  
|                                  
|                                  
|Selling expenses                   |                          |   | 1,549,513          |           |             |   | 1,988,348  |          
|                                  
|                                  
|                                  
|                                  
|Administrative expenses            |                          |   | 538,569            |           |             |   | 464,536    |          
|                                   |                          |   |                    |           |             |   |            |          
|                                   | Total operating expenses |   |                    | 2,088,082 |             |   |            | 2,452,884 |  
|                                  
|                                  
|                                  
|                                  
|Loss from operations               |                          |   | (458,770           | )         |             |   | (517,572   | )        
|                                  
|                                  
|                                  
|                                  
|Interest income                    |                          |   | 19,228             |           |             |   | 12,377     |          
|                                  
|                                  
|                                  
|                                  
|Interest expense                   |                          |   | (59,197            | )         |             |   | (67,435    | )        
|                                  
|                                  
|                                  
|                                  
|Other income, net                  |                          |   | 3,879              |           |             |   | 3,502      |          
|                                   |                          |   |                    |           |             |   |            |          
|Loss before income taxes           |                          |   | (494,860           | )         |             |   | (569,128   | )        
|                                  
|                                  
|                                  
|                                  
|Income tax benefit                 |                          |   |                   |           |             |   |           |          
|                                   |                          |   |                    |           |             |   |            |          
|Net Loss                           |                          |   | (494,860           | )         |             |   | (569,128   | )        
|                                  
|                                  
|                                  
|                                  
|Retained earnings:                
|                                  
|                                  
|                                  
|                                  
|                                   | Beginning                |   |                    | 879,502   |             |   |            | 995,594   |  
|                                   |                          |   |                    |           |             |   |            |          
|                                   | Ending                   |   | $                  | 384,642   |             |   | $          | 426,466   |  
|                                   |                          |   |                    |           |             |   |            |          
|Net Loss per common share
(Note 3) |                          |   |                    |           |             |   |            |          
|                                   | Basic                    |   | $                  | (0.19     | )           |   | $          | (0.22     | )
|                                   |                          |   |                    |           |             |   |            |          
|                                   | Diluted                  |   | $                  | (0.19     | )           |   | $          | (0.22     | )
|                                   |                          |   |                    |           |             |   |            |          

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
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                   
|                                                  |                        |                                                         |                                                                               |                                                                      |         | June 30            |            | July 1     
|                                                  |                        |                                                         |                                                                               |                                                                      |         | 2001               |            | 2000       
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|                                                  |                        |                                                         |                                                                               |                                                                      |         | (Unaudited)        |            | (Unaudited)
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |             |         | (restated)
|Cash flows from operating activities:            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Net Loss               |                                                         | $                                                                             | (494,860                                                             | )       |                    | $          | (569,128    | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         | Adjustments to reconcile net
loss to cash provided from operating activities:
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Depreciation and amortization                                        |         |                    | 64,310     |             |         |            | 72,727   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Provision for doubtful accounts                                      |         |                    | 111,979    |             |         |            | 86,891   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Deferred income taxes                                                |         |                    |           |             |         |            |         |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Cash provided from (required for) changes in assets and liabilities:
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Restricted cash                                                      |         |                    | 174,718    |             |         |            | (954     | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Accounts receivable                                                  |         |                    | (261,107   | )           |         |            | (21,270  | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Inventories                                                          |         |                    | (197,918   | )           |         |            | 93,204   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Other assets                                                         |         |                    | (30,240    | )           |         |            | 120,720  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Accounts payable and customer advances                               |         |                    | (162,096   | )           |         |            | (684,398 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        |                                                         |                                                                               | Other current liabilities                                            |         |                    | (87,835    | )           |         |            | (264,050 | )
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|Cash provided from (used in) operating activities |                        |                                                         | (883,049                                                                      | )                                                                    |         |                    | (1,166,258 | )          
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|Cash flows from investing activities:            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        | Maturity of short-term investments                      |                                                                               |                                                                      |        |                    |            |             |        |           
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        | Property additions                                      |                                                                               |                                                                      | (16,156 | )                  |            |             | (14,715 | )         
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        | Proceeds from sale of property                          |                                                                               |                                                                      | 31,921  |                    |            |             |        |           
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|Cash provided from (used in) investing activities |                        |                                                         | 15,765                                                                        |                                                                      |         |                    | (14,715    | )          
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|Cash flows from financing activities:            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        | Increase in revolving loan                              |                                                                               |                                                                      | 237,000 |                    |            |             |        |           
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                        | Payments on long-term debt and capital lease obligation |                                                                               |                                                                      | (20,021 | )                  |            |             | (18,090 | )         
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|Cash provided from (used in) financing activities |                        |                                                         | 216,979                                                                       |                                                                      |         |                    | (18,090    | )          
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|Net decrease in cash                              |                        |                                                         | (650,305                                                                      | )                                                                    |         |                    | (1,199,063 | )          
|                                                 
|                                                 
|                                                 
|                                                 
|Cash:                                            
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | At beginning of period |                                                         |                                                                               | 651,530                                                              |         |                    |            | 1,301,387   |        
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            
|                                                  | At end of period       |                                                         | $                                                                             | 1,225                                                                |         |                    | $          | 102,324     |        
|                                                  |                        |                                                         |                                                                               |                                                                      |         |                    |            |            

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 June 30, 2001 and July 1,
2000 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 March 31, 2001.
|  
|  
|  
|  
|  
|2. |  | The provision for income taxes is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                             |  |         |          |        |  |   |          |  
|-------------------------------------------- |  | ------- | -------- | ------ |  | - | -------- | -
|                                             |  | June 30 |          | July 1
|                                             |  | 2001    |          | 2000  
|                                             |  |         |          |       
|Loss before income taxes                     |  | $       | (494,860 | )      |  | $ | (569,128 | )
|                                             |  |         |          |        |  |   |          |  
|Provision for (recoverable) income taxes:   
|                                            
|                                            
|                                            
|                                            
|Current                                      |  | $       |         |        |  | $ |         |  
|                                            
|                                            
|                                            
|                                            
|Deferred                                     |  |         | (164,000 | )      |  |   | (199,000 | )
|                                            
|                                            
|                                            
|                                            
|Change in valuation allowance                |  |         | 164,000  |        |  |   | 199,000  |  
|                                             |  |         |          |        |  |   |          |  
|Net provision for (recoverable) income taxes |  | $       |         |        |  | $ |         |  
|                                             |  |         |          |        |  |   |          |  

|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | The Company has deferred tax assets amounting to $1,280,000 at June 30,
2001 and March 31, 2001 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 June
30, 2001, the Company has reduced its provision for recoverable income
taxes by a $164,000 valuation allowance because of the uncertainty of
realizing its benefit.
|  
|  
|  
|  
|  
|3. |  | Basic loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. Diluted loss
per share reflects 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
|                           |  |                   
|                           |  | June 30, 2001      |           | July 1, 2000
|                           |  |                    |           |             
|Net loss                   |  | $                  | (494,860  | )            |  | $ | (569,128  | )
|                           |  |                    |           |              |  |   |           |  
|Weighted average shares    |  |                    | 2,605,233 |              |  |   | 2,605,233 |  
|                          
|                          
|                          
|                          
|Additional dilutive shares |  |                    |          |              |  |   |          |  
|                           |  |                    |           |              |  |   |           |  
|Total dilutive shares      |  |                    | 2,605,233 |              |  |   | 2,605,233 |  
|                           |  |                    |           |              |  |   |           |  
|Basic loss per share       |  | $                  | (0.19     | )            |  | $ | (0.22     | )
|                           |  |                    |           |              |  |   |           |  
|Diluted loss per share     |  | $                  | (0.19     | )            |  | $ | (0.22     | )
|                           |  |                    |           |              |  |   |           |  

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|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | There were no additional dilutive shares included in the computation at
June 30, 2001 and July 1, 2000 because the stock options were
anti-dilutive.                                                                                                                                                                                                                                                                                        
|  
|  
|  
|  
|  
|4. |  | A revolving credit agreement has been renewed and will now expire on
January 31, 2002. The agreement provides for maximum short-term borrowing
of $500,000 with interest charged at three 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 $3,038,000 or 17.2% from $3,669,000 generated a
year ago. This decrease in volume is primarily in our demonstration sales
channel.

Gross margin rates increased by one percentage point compared to last year.
Operating expenses were reduced to $2,088,000 in the current fiscal year from
$2,453,000 last year.

Provisions for recoverable Federal income taxes ($0 in both FY2002 and FY 2001)
are based on estimated annual effective rates, less a valuation reserve.

Because of the factors above, a net loss of $495,000 or $.19 per diluted share
was experienced in the quarter ended June 30, 2001 compared to a restated net
loss of $569,000 or $.22 per diluted share for the same period of last year.

Liquidity and Financial Position

Cash used in operations totaled $883,000 in the current year compared with
$1,166,000 for the first quarter of the preceding year. Net losses of $495,000,
together with increases in receivables and inventory, were the main reasons for
the cash usage in the current quarter.

Shopsmith has concluded arrangements with Lowes to do Mark V sales
demonstration events within Lowes stores. If this venture goes as anticipated
(with an October commencement time), it will result in additional cash
requirements for both receivables and for startup costs.

Our bank, Huntington National has informed the Company that it is terminating
our relationship. They have given the Company six months to transition to
another bank. As of August 8, 2001, the Company had drawn $365,000 on the
$500,000 line of credit presently provided by the bank.

The Companys assets include $1,280,000 of deferred income tax assets at June
30, 2001. 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 June 30, 2001, the Company has
reduced its provision for recoverable income taxes by a $164,000 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 1.80 to 1 at June 30, 2001 compared to 2.00 to 1 at the
beginning of the current fiscal year. The debt to equity ratio increased to 1.52
to 1 from 1.32 to 1 at March 31, 2001.

The Company has now experienced operating losses in the last three 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.
The Loan and Security Agreement between the Company and the bank includes among
other financial covenants, the requirement that the Company maintain
shareholders equity of not less than $3,100,00 until December 30, 2001 and
$3,200,00 thereafter.

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:

(4.13) Tenth Amendment to Loan and Security Agreement dated July 31, 2001
between Huntington National Bank and Shopsmith, Inc.

(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)



Date: August 10, 2001



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