TABLE OF CONTENTS




|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I. Financial Information
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and qualitative disclosures about market risk.                          
|Exhibit 27                   



---



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Quarterly Report Under Section 13 or 15 (d)



|                       |  |                              
|---------------------- |  | -----------------------------
|For the quarter ended |  | Commission File Number 0-9318
|September 30, 2000     |  |                              

SHOPSMITH, INC.






|                         |  |                                     
|------------------------ |  | ------------------------------------
|Ohio                     |  | 31-0811466                          
|                         |  |                                     
|(State of Incorporation) |  | (IRS Employer Identification Number)

|                      |  |           
|--------------------- |  | ----------
|6530 Poe Avenue       |  |           
|Dayton, Ohio          |  | 45414     
|                      |  |           
|(Address of Principal |  | (Zip Code)
|Executive Offices)    |  |           

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
September 30, 2000.

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

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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-September 30, 2000 and
        April 1, 2000                                                                        |    |    | 3-4 | 
|                             
|                              |                                                                                                       | Statements of Consolidated Operations and Retained
        Earnings  Three and Six Months Ended
        September 30, 2000 and October 2, 1999 |    |    | 5   | 
|                             
|                              |                                                                                                       | Consolidated Statements of Cash Flows-Six Months Ended
        September 30, 2000 and October 2, 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 |   

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##### Table of Contents






SHOPSMITH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


|                               |                                                |                                                                                                       |                      |           |         |           |           |           |         |           | 
|------------------------------ | ---------------------------------------------- | ----------------------------------------------------------------------------------------------------- | -------------------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | 
|                               |                                                | September 30,                                                                                         |                      | April 1, 
|                               |                                                | 2000                                                                                                  |                      | 2000     
|                               |                                                |                                                                                                       |                      |          
|                               |                                                | (Unaudited)                                                                                           |                      |          
|ASSETS                         |                                                |                                                                                                       |                      |           |         |           |           |          
|                               |                                                |                                                                                                       |                      |           |         |           |           |          
|Current Assets:                |                                                |                                                                                                       |                      |           |         |           |           |          
|                               | Cash and equivalents                           |                                                                                                       | $                    | 197,263   |         |           | $         | 1,301,387 |        
|                               | Restricted cash                                |                                                                                                       |                      | 171,099   |         |           |           | 104,970   |        
|                              
|                              
|                              
|                              
|                               | Accounts receivable:                           |                                                                                                       |                      |           |         |           |           |           |        
|                               |                                                | Trade, less allowance for doubtful accounts:
        $748,268 on September 30 and $646,756 on April 1 |                      |           | 624,390 |           |           |           | 622,887 |          
|                               | Inventories                                    |                                                                                                       |                      | 2,354,313 |         |           |           | 2,523,185 |        
|                               | Deferred income taxes (Note 2)                 |                                                                                                       |                      | 563,000   |         |           |           | 569,000   |        
|                               | Prepaid expenses                               |                                                                                                       |                      | 384,540   |         |           |           | 426,214   |        
|                               |                                                |                                                                                                       |                      |           |         |           |           |          
|                               |                                                |                                                                                                       | Total current assets |           |         | 4,294,605 |           |           |         | 5,547,643 | 
|                               |                                                |                                                                                                       |                      |           |         |           |           |          
|Properties:                    |                                                |                                                                                                       |                      |           |         |           |           |          
|                               | Land, building and improvements                |                                                                                                       |                      | 3,161,199 |         |           |           | 3,161,199 |        
|                               | Machinery, equipment and tooling               |                                                                                                       |                      | 6,605,455 |         |           |           | 6,568,403 |        
|                               |                                                |                                                                                                       |                      |           |         |           |           |          
|                               |                                                |                                                                                                       | Total cost           |           |         | 9,766,654 |           |           |         | 9,729,602 | 
|                               | Less accumulated depreciation and amortization |                                                                                                       |                      | 6,647,929 |         |           |           | 6,501,718 |        
|                               |                                                |                                                                                                       |                      |           |         |           |           |          
|                               |                                                |                                                                                                       | Net properties       |           |         | 3,118,725 |           |           |         | 3,227,884 | 
|                               |                                                |                                                                                                       |                      |           |         |           |           |          
|Deferred income taxes (Note 2) |                                                |                                                                                                       | 763,000              |           |         |           | 757,000   |          
|                               |                                                |                                                                                                       |                      |           |         |           |           |          
|Other assets                   |                                                |                                                                                                       | 5,970                |           |         |           | 20,833    |          
|                               |                                                |                                                                                                       |                      |           |         |           |           |          
|Total assets                   |                                                | $                                                                                                     | 8,182,300            |           |         | $         | 9,553,360 |          
|                               |                                                |                                                                                                       |                      |           |         |           |           |          

Continued

Page 3



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##### Table of Contents



SHOPSMITH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


|                                            |                                                                                                                                                 |                                                   |                            |           |         |           |           |           |         |           | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | -------------------------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | 
|                                            |                                                                                                                                                 | September 30,                                     |                            | April 1, 
|                                            |                                                                                                                                                 | 2000                                              |                            | 2000     
|                                            |                                                                                                                                                 |                                                   |                            |          
|                                            |                                                                                                                                                 | (Unaudited)                                       |                            |          
|LIABILITIES AND SHAREHOLDERS EQUITY        |                                                                                                                                                 |                                                   |                            |           |         |           |           |          
|                                            |                                                                                                                                                 |                                                   |                            |           |         |           |           |          
|Current Liabilities:                        |                                                                                                                                                 |                                                   |                            |           |         |           |           |          
|                                            | Accounts payable                                                                                                                                |                                                   | $                          | 997,238   |         |           | $         | 1,469,298 |        
|                                            | Current portion of long-term debt and capital lease obligation                                                                                  |                                                   |                            | 78,121    |         |           |           | 189,038   |        
|                                            | Customer advances                                                                                                                               |                                                   |                            | 10,564    |         |           |           | 26,863    |        
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued liabilities:                                                                                                                            |                                                   |                            |           |         |           |           |           |        
|                                            |                                                                                                                                                 | Compensation, employee benefits and payroll taxes |                            |           | 230,193 |           |           |           | 372,235 |          
|                                            |                                                                                                                                                 | Sales taxes payable                               |                            |           | 110,910 |           |           |           | 193,162 |          
|                                            |                                                                                                                                                 | Accrued recourse liability                        |                            |           | 379,297 |           |           |           | 390,369 |          
|                                            |                                                                                                                                                 | Accrued expenses                                  |                            |           | 240,328 |           |           |           | 298,717 |          
|                                            |                                                                                                                                                 | Other                                             |                            |           | 219,601 |           |           |           | 260,157 |          
|                                            |                                                                                                                                                 |                                                   |                            |           |         |           |           |          
|                                            |                                                                                                                                                 |                                                   | Total current liabilities  |           |         | 2,266,252 |           |           |         | 3,199,839 | 
|                                           
|Long-term debt and capital lease obligation |                                                                                                                                                 |                                                   | 2,614,962                  |           |         |           | 2,640,445 |          
|                                            |                                                                                                                                                 |                                                   |                            |           |         |           |           |          
|                                            |                                                                                                                                                 |                                                   | Total liabilities          |           |         | 4,881,214 |           |           |         | 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
        September 30 and on April 1 |                                                   |                            | 2,806,482 |         |           |           | 2,806,482 |        
|                                            | Retained earnings                                                                                                                               |                                                   |                            | 494,604   |         |           |           | 906,594   |        
|                                            |                                                                                                                                                 |                                                   |                            |           |         |           |           |          
|                                            |                                                                                                                                                 |                                                   | Total shareholders equity |           |         | 3,301,086 |           |           |         | 3,713,076 | 
|                                            |                                                                                                                                                 |                                                   |                            |           |         |           |           |          
|Total Liabilities and Shareholders Equity  |                                                                                                                                                 | $                                                 | 8,182,300                  |           |         | $         | 9,553,360 |          
|                                            |                                                                                                                                                 |                                                   |                            |           |         |           |           |          

See notes to consolidated financial statements.

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##### Table of Contents



SHOPSMITH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |           |           | 
|------------------------------------------- | --------- | ------------------------ | --------- | ---------------- | --------- | ----------- | --------- | ----------- | --------- | - | --------- | ------- | --------- | - | --------- | --------- | --------- | 
|                                            |           |                          |           |                 
|                                            |           | Three Months Ended       |           | Six Months Ended
|                                            |           |                          |           |                 
|                                            |           | Sept 30                  |           | Oct 2            |           | Sept 30     |           | Oct 2      
|                                            |           | 2000                     |           | 1999             |           | 2000        |           | 1999       
|                                            |           |                          |           |                  |           |             |           |            
|                                            |           | (Unaudited)              |           | (Unaudited)      |           | (Unaudited) |           | (Unaudited)
|                                            |           |                          |           |                  |           |             |           |            
|Net sales                                   |           | $                        | 4,001,309 |                  |           | $           | 4,036,953 |             |           | $ | 7,670,664 |         |           | $ | 7,763,999 |          
|Cost of products sold                       |           |                          | 1,900,401 |                  |           |             | 1,835,698 |             |           |   | 3,634,444 |         |           |   | 3,532,367 |          
|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|Gross margin                                |           |                          | 2,100,908 |                  |           |             | 2,201,255 |             |           |   | 4,036,220 |         |           |   | 4,231,632 |          
|                                           
|Selling expenses                            |           |                          | 1,610,753 |                  |           |             | 1,844,804 |             |           |   | 3,513,268 |         |           |   | 3,864,984 |          
|Administrative expenses                     |           |                          | 398,650   |                  |           |             | 452,193   |             |           |   | 863,186   |         |           |   | 1,000,248 |          
|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|                                            |           | Total operating expenses |           |                  | 2,009,403 |             |           |             | 2,296,997 |   |           |         | 4,376,454 |   |           |           | 4,865,232 | 
|                                           
|Income (Loss) from operations               |           |                          | 91,505    |                  |           |             | (95,742   | )           |           |   | (340,234  | )       |           |   | (633,600  | )        
|Interest income                             |           |                          | 6,305     |                  |           |             | 5,970     |             |           |   | 18,682    |         |           |   | 26,125    |          
|Interest expense                            |           |                          | (27,804   | )                |           |             | (68,130   | )           |           |   | (95,239   | )       |           |   | (134,750  | )        
|Other income, net                           |           |                          | 1,299     |                  |           |             | 2,748     |             |           |   | 4,801     |         |           |   | 7,022     |          
|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|Income (Loss) before income taxes           |           |                          | 71,305    |                  |           |             | (155,154  | )           |           |   | (411,990  | )       |           |   | (735,203  | )        
|Income tax benefit                          |           |                          |          |                  |           |             | 40,000    |             |           |   |          |         |           |   | 236,000   |          
|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|Net Income (Loss)                           |           |                          | 71,305    |                  |           |             | (115,154  | )           |           |   | (411,990  | )       |           |   | (499,203  | )        
|                                           
|                                           
|                                           
|                                           
|                                           
|Retained earnings:                          |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|                                            | Beginning |                          |           | 423,299          |           |             |           | 1,202,234   |           |   |           | 906,594 |           |   |           | 1,586,283 |          
|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|                                            | Ending    |                          | $         | 494,604          |           |             | $         | 1,087,080   |           |   | $         | 494,604 |           |   | $         | 1,087,080 |          
|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|Net Income (Loss) per common share (Note 3) |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|                                            | Basic     |                          | $         | 0.03             |           |             | $         | (0.04       | )         |   | $         | (0.16   | )         |   | $         | (0.19     | )        
|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          
|                                            | Diluted   |                          | $         | 0.03             |           |             | $         | (0.04       | )         |   | $         | (0.16   | )         |   | $         | (0.19     | )        
|                                            |           |                          |           |                  |           |             |           |             |           |   |           |         |           |   |           |          

See notes to consolidated financial statements.

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##### Table of Contents



SHOPSMITH INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW


|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |           |   |          |          |  
|------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | -------------------------------------- | - | ------- | ---------- | --------- | - | -------- | -------- | -
|                                                  |                                                         |                                                                                      
|                                                  |                                                         | Six Months Ended                                                                     
|                                                  |                                                         |                                                                                      
|                                                  |                                                         | September 30                                                                          |                                                                              | October 2                             
|                                                  |                                                         | 2000                                                                                  |                                                                              | 1999                                  
|                                                  |                                                         |                                                                                       |                                                                              |                                       
|                                                  |                                                         | (Unaudited)                                                                           |                                                                              | (Unaudited)                           
|                                                  |                                                         |                                                                                       |                                                                              |                                       
|Cash flows from operating activities:             |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|                                                  | Net Loss                                                |                                                                                       | $                                                                            | (411,990                               | ) |         | $          | (499,203  | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         | Adjustments to reconcile net loss to cash provided from
        operating activities: |                                                                              |                                        |   |         |            |           |   |         
|                                                  |                                                         |                                                                                       | Depreciation and amortization                                                |                                        |   | 146,211 |            |           |   | 133,749  |         
|                                                  |                                                         |                                                                                       | Provision for doubtful accounts                                              |                                        |   | 150,196 |            |           |   | 79,069   |         
|                                                  |                                                         |                                                                                       | Deferred income taxes                                                        |                                        |   |        |            |           |   | (236,000 | )       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                         |                                                                                       | Cash provided from (required for) changes in assets and
        liabilities: |                                        |   |         |            |           |   |          |         
|                                                  |                                                         |                                                                                       |                                                                              | Restricted cash                        |   |         | (66,129    | )         |   |          | (2,940   | )
|                                                  |                                                         |                                                                                       |                                                                              | Accounts receivable                    |   |         | (162,771   | )         |   |          | 222,443  |  
|                                                  |                                                         |                                                                                       |                                                                              | Inventories                            |   |         | 168,872    |           |   |          | (133,873 | )
|                                                  |                                                         |                                                                                       |                                                                              | Other assets                           |   |         | 56,537     |           |   |          | (307,637 | )
|                                                  |                                                         |                                                                                       |                                                                              | Accounts payable and customer advances |   |         | (488,359   | )         |   |          | (603,564 | )
|                                                  |                                                         |                                                                                       |                                                                              | Other current liabilities              |   |         | (323,239   | )         |   |          | (188,620 | )
|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|Cash provided from (used in) operating activities |                                                         |                                                                                       | (930,672                                                                     | )                                      |   |         | (1,536,576 | )        
|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|Cash flows from investing activities:             |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|                                                  | Maturity of short-term investments                      |                                                                                       |                                                                              |                                       |   |         |            | 989,122   |  
|                                                  | Property additions                                      |                                                                                       |                                                                              | (37,052                                | ) |         |            | (75,710   | )
|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|Cash provided from (used in) investing activities |                                                         |                                                                                       | (37,052                                                                      | )                                      |   |         | 913,412    |          
|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|Cash flows from financing activities:             |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|                                                  | Common shares repurchased                               |                                                                                       |                                                                              |                                       |   |         |            |          |  
|                                                  | Payments on long-term debt and capital lease obligation |                                                                                       |                                                                              | (136,400                               | ) |         |            | (35,124   | )
|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|Cash provided from (used in) financing activities |                                                         |                                                                                       | (136,400                                                                     | )                                      |   |         | (35,124    | )        
|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|Net decrease in cash                              |                                                         |                                                                                       | (1,104,124                                                                   | )                                      |   |         | (658,288   | )        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                 
|Cash:                                             |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|                                                  | At beginning of period                                  |                                                                                       |                                                                              | 1,301,387                              |   |         |            | 1,005,371 |  
|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          
|                                                  | At end of period                                        |                                                                                       | $                                                                            | 197,263                                |   |         | $          | 347,083   |  
|                                                  |                                                         |                                                                                       |                                                                              |                                        |   |         |            |          

See notes to consolidated financial statements.

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SHOPSMITH, INC. AND SUBSIDIARIES





|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | In the opinion of management, all adjustments (consisting of
        only normal and recurring adjustments) have been made as of
        September 30, 2000 and October 2, 1999 to present the
        financial statements fairly. However, the results of operations
        for the six 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                             |  |                    |         |                  |  |              |          |           |  |   |          |   |  |   |          |  
|-------------------------------------------- |  | ------------------ | ------- | ---------------- |  | ------------ | -------- | --------- |  | - | -------- | - |  | - | -------- | -
|                                             |  |                    |         |                 
|                                             |  | Three Months Ended |         | Six Months Ended
|                                             |  | September 30       |         | October 2        |  | September 30 |          | October 2
|                                             |  | 2000               |         | 1999             |  | 2000         |          | 1999     
|                                             |  |                    |         |                  |  |              |          |          
|Income (Loss) before income taxes            |  | $                  | 71,305  |                  |  | $            | (115,154 | )         |  | $ | (411,990 | ) |  | $ | (499,203 | )
|                                             |  |                    |         |                  |  |              |          |           |  |   |          |   |  |   |          |  
|Provision for (recoverable) income taxes:    |  |                    |         |                  |  |              |          |           |  |   |          |   |  |   |          |  
|Current                                      |  | $                  |        |                  |  | $            |         |           |  | $ |         |   |  | $ |         |  
|Deferred                                     |  |                    | 31,000  |                  |  |              | (40,000  | )         |  |   | (128,000 | ) |  |   | (236,000 | )
|Change in valuation allowance                |  |                    | (31,000 | )                |  |              |         |           |  |   | 128,000  |   |  |   |         |  
|                                             |  |                    |         |                  |  |              |          |           |  |   |          |   |  |   |          |  
|Net provision for (recoverable) income taxes |  | $                  |        |                  |  | $            | (40,000  | )         |  | $ |         |   |  | $ | (236,000 | )
|                                             |  |                    |         |                  |  |              |          |           |  |   |          |   |  |   |          |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has deferred tax assets amounting to $1,326,000 at
        September 30, 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 six months
        ended September 30, 2000, the Company has reduced its
        provision for recoverable income taxes by a $128,000 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 |           | Six months ended
|                                  |  | September 30, 2000 |           | October 2, 1999  |  | September 30, 2000 |           | October 2, 1999
|                                  |  |                    |           |                  |  |                    |           |                
|Net income (loss)                 |  | $                  | 71,305    |                  |  | $                  | (115,154  | )               |  | $ | (411,990  | ) |  | $ | (499,203  | )
|                                  |  |                    |           |                  |  |                    |           |                 |  |   |           |   |  |   |           |  
|Weighted average shares           |  |                    | 2,605,233 |                  |  |                    | 2,605,233 |                 |  |   | 2,605,233 |   |  |   | 2,605,233 |  
|                                 
|                                 
|                                 
|                                 
|Additional dilutive shares        |  |                    |          |                  |  |                    |          |                 |  |   |          |   |  |   |          |  
|                                  |  |                    |           |                  |  |                    |           |                 |  |   |           |   |  |   |           |  
|Total dilutive shares             |  |                    | 2,605,233 |                  |  |                    | 2,605,233 |                 |  |   | 2,605,233 |   |  |   | 2,605,233 |  
|                                  |  |                    |           |                  |  |                    |           |                 |  |   |           |   |  |   |           |  
|Basic earnings (loss) per share   |  | $                  | 0.03      |                  |  | $                  | (0.04     | )               |  | $ | (0.16     | ) |  | $ | (0.19     | )
|                                  |  |                    |           |                  |  |                    |           |                 |  |   |           |   |  |   |           |  
|Diluted earnings (loss) per share |  | $                  | 0.03      |                  |  | $                  | (0.04     | )               |  | $ | (0.16     | ) |  | $ | (0.19     | )
|                                  |  |                    |           |                  |  |                    |           |                 |  |   |           |   |  |   |           |  

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| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | There were no additional dilutive shares included in the
        computation at September 30, 2000 and October 2, 1999
        because the stock options were anti-dilutive.



|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | A revolving credit agreement has been renewed and will now
        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

Second quarter sales declined to $4,001,000 or 0.9% from
$4,037,000 generated a year ago. On a year-to-date basis sales
have declined by $93,000 or 1.2% to $7,671,000. Decreases in our
demonstration sales channel have more than offset increases in
other channels.

Gross margin rates declined by 2.0% compared to the same quarter
last year and by 1.8% for the year-to-date.

Through tighter control on expenditures and the deferral of some
longer term programs, total operating expenses were reduced by
$288,000 to $2,009,000 in the current quarter and by $489,000 to
$4,376,000 for the six month period.

Provisions for income taxes ($0 in FY 2001 and $40,000 in FY
2000) are based on estimated annual effective rates and changes
in the valuation reserve in FY2001.

With the reduction in operating expenses, a net income of
$71,000 or $.03 per diluted share was experienced in the quarter
ended September 30, 2000 compared to a net loss of $115,000
or $.04 per diluted share for the same period of last year. Year
to date a loss of $412,000 or $.16 per diluted share was
incurred, compared to a loss of $499,000 or $.19 per diluted
share for the year before.

Liquidity and Financial Position

Cash used in operations for the first six months of the current
fiscal year totaled $931,000 compared with $1,537,000 last year.
Net losses of $412,000, together with liquidation of current
liabilities, were the main reasons for the cash usage in the six
months ended September 30, 2000.

The Companys assets include $1,326,000 of deferred income
tax assets at September 30, 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 current year through
September 30, 2000, the Company has reduced its provision
for recoverable income taxes by a $128,000 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 1.90 to 1 at September 30, 2000
compared to 1.73 to 1 at the beginning of the current fiscal
year. The debt to equity ratio improved slightly to 1.48 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 for the year to date through the first
two quarters of the current fiscal year. 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 4.

The company held its Annual Meeting of Shareholders on
July 26, 2000. At the meeting, shareholders
(a) elected messrs. John R. Folkerth, J. Michael Herr, and
Edward A. Nicholson as directors of the Company and
(b) approved the appointment of Crowe, Chizek and Company
LLP as independent public accountants for the Company. Votes
were tabulated as follows:

|                       |                                |     |  |           |  |          |  |           |  |  |  |         |  |  |  |   | 
|---------------------- | ------------------------------ | --- |  | --------- |  | -------- |  | --------- |  |  |  | ------- |  |  |  | - | 
|                       |                                |     |  |           |  |          |  | Broker   
|Issue                  |                                | For |  | Against   |  | Withheld |  | Non votes
|                      
|                      
|                      
|                      
|Election of Directors: |                                |     |  |           |  |          |  |           |  |  |  |         |  |  |  |  
|                       | John R. Folkerth               |     |  | 2,214,951 |  |          |  |           |  |  |  | 161,712 |  |  |  | 0 | 
|                       | J. Michael Herr                |     |  | 2,253,715 |  |          |  |           |  |  |  | 122,948 |  |  |  | 0 | 
|                       | Edward A. Nicholson            |     |  | 2,253,255 |  |          |  |           |  |  |  | 123,408 |  |  |  | 0 | 
|                      
|                      
|                      
|                      
|Appointment:           |                                |     |  |           |  |          |  |           |  |  |  |         |  |  |  |  
|                       | Crowe, Chizek, and Company LLP |     |  | 2,341,577 |  |          |  | 27,229    |  |  |  | 7,857   |  |  |  | 0 | 

Directors continuing in office were Robert L. Folkerth and Brady
L. Skinner.

Item 6.

(a)  Exhibits:

(27)  Financial Data Schedule for the period ended
September 30, 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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