##### 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
September 28 2002 |  | Commission File Number 0-9318

SHOPSMITH, INC.




(Name of Registrant)


|                                    |  |  |  |                                     
|----------------------------------- |  |  |  | ------------------------------------
|Ohio                                |  |  |  | 31-0811466                          
|                                    |  |  |  |                                     
|(State of Incorporation)            |  |  |  | (IRS Employer Identification Number)
|                                   
|                                   
|                                   
|                                   
|6530 Poe Avenue                     |  |  |  |                                     
|Dayton, Ohio                        |  |  |  | 45414                               
|                                    |  |  |  |                                     
|(Address of
Principal               |  |  |  | (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 October 17,2002.

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

Page 1



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TABLE OF CONTENTS



|                              |                                                                                               |  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              | CONSOLIDATED BALANCE SHEETS                                                                  
|                              | CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS                                   
|                              | CONSOLIDATED STATEMENTS OF CASH FLOW                                                         
|                              | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Quantitative and qualitative disclosures about market risk.                          
|                              | Item 4. Controls and Procedures.                                                             
|PART II. OTHER INFORMATION   
|EX-99.2 Certification        
|EX-99.3 Certification        



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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 28, 2002 and March 30, 2002                                |                                                                                       | 3-4
|                               
|                               
|                               
|                               
|                                |  |         | Statements of Consolidated Operations and                                                         |                                                                                       |    
|                               
|                               
|                               
|                               
|                                |  |         | Retained Earnings  Three Months and Six Months
Ended September 28, 2002 and September 30, 2001   |                                                                                       | 5  
|                               
|                               
|                               
|                               
|                                |  |         | Consolidated Statements of
Cash Flows
Six Months Ended September 28, 2002 and September 30, 2001 |                                                                                       | 6  
|                               
|                               
|                               
|                               
|                                |  |         | Notes to Consolidated Financial Statements                                                        |                                                                                       | 7-8
|                               
|                               
|                               
|                               
|                                |  | Item 2. |                                                                                                   | Managements Discussion and Analysis
of Financial Condition and Results
of Operations |     | 9-10    
|                               
|                               
|                               
|                               
|                                |  | Item 3. |                                                                                                   | Quantitative and qualitative disclosures
about market risk                            |     | 11      
|                               
|                               
|                               
|                               
|                                |  | Item 4. |                                                                                                   | Controls and procedures                                                               |     | 11      
|                               
|                               
|                               
|                               
|Part II.  Other Information     |  | 12     

Page 2



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##### Table of Contents












SHOPSMITH INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


|                                         |                                                                                               |                                                   |           |                      |           |              |           |           |           |  |           | 
|---------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------- | --------- | -------------------- | --------- | ------------ | --------- | --------- | --------- |  | --------- | 
|                                         |                                                                                               |                                                   |           |                      |           | September 28 |           | March 30 
|                                         |                                                                                               |                                                   |           |                      |           | 2002         |           | 2002     
|                                         |                                                                                               |                                                   |           |                      |           |              |           |          
|                                         |                                                                                               |                                                   |           |                      |           | (Unaudited)  |           |           |           | 
|                                         |                                                                                               |                                                   |           | ASSETS               |           |              |           |           |           |  |           | 
|                                        
|                                        
|                                        
|                                        
|Current Assets:                          |                                                                                               |                                                   |           |                      |           |              |           |          
|                                        
|                                        
|                                        
|                                        
|                                         | Cash and equivalents                                                                          |                                                   | $         | 19,396               |           |              | $         | 76,324    |          
|                                        
|                                        
|                                        
|                                        
|                                         | Restricted cash                                                                               |                                                   |           | 25,000               |           |              |           | 151,585   |          
|                                        
|                                        
|                                        
|                                        
|                                         | Accounts receivable:                                                                          |                                                   |           |                      |           |              |           |           |          
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | Trade, less allowance for doubtful accounts:      |           |                      |           |              |           |           |           | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | $871,008 on September 28 and $774,708 on March 30 |           |                      | 1,052,504 |              |           |           | 1,642,366 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Inventories                                                                                   |                                                   |           |                      |           |              |           |           |          
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | Finished
products                                 |           |                      | 1,008,756 |              |           |           | 875,888   | 
|                                        
|                                        
|                                        
|                                        
|                                         |                                                                                               | Raw
materials and work in process                 |           |                      | 1,375,772 |              |           |           | 1,427,369 | 
|                                         |                                                                                               |                                                   |           |                      |           |              |           |          
|                                         |                                                                                               |                                                   |           | Total inventories    |           |              | 2,384,528 |           |           |  | 2,303,257 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Prepaid expenses                                                                              |                                                   |           | 268,567              |           |              |           | 218,660   |          
|                                         |                                                                                               |                                                   |           |                      |           |              |           |          
|                                         |                                                                                               |                                                   |           | Total current assets |           |              | 3,749,995 |           |           |  | 4,392,192 | 
|                                        
|                                        
|                                        
|                                        
|Properties:                              |                                                                                               |                                                   |           |                      |           |              |           |          
|                                        
|                                        
|                                        
|                                        
|                                         | Land, building and improvements                                                               |                                                   |           | 3,148,348            |           |              |           | 3,143,908 |          
|                                        
|                                        
|                                        
|                                        
|                                         | Machinery, equipment and tooling                                                              |                                                   |           | 6,720,721            |           |              |           | 6,714,886 |          
|                                         |                                                                                               |                                                   |           |                      |           |              |           |          
|                                         |                                                                                               |                                                   |           | Total cost           |           |              | 9,869,069 |           |           |  | 9,858,794 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Less accumulated depreciation and amortization                                                |                                                   |           | 7,135,185            |           |              |           | 7,029,128 |          
|                                         |                                                                                               |                                                   |           |                      |           |              |           |          
|                                         |                                                                                               |                                                   |           | Net properties       |           |              | 2,733,884 |           |           |  | 2,829,666 | 
|                                        
|                                        
|                                        
|                                        
|Long term portion of accounts receivable
|                                        
|                                        
|                                        
|                                        
|                                         | Trade, less allowance for doubtful accounts
$164,514 on September 28 and $116,432 on March 30 |                                                   |           | 446,752              |           |              |           | 215,476   |          
|                                        
|                                        
|                                        
|                                        
|Other assets                             |                                                                                               |                                                   | 2,303     |                      |           |              | 2,303     |          
|                                         |                                                                                               |                                                   |           |                      |           |              |           |          
|Total assets                             |                                                                                               | $                                                 | 6,932,934 |                      |           | $            | 7,439,637 |          
|                                         |                                                                                               |                                                   |           |                      |           |              |           |          

Continued

Page 3



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##### Table of Contents



SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                            |                                                                                                                             |                            |                                      |           |              |   |           |           |           |  | 
|------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | --------- | ------------ | - | --------- | --------- | --------- |  | 
|                                            |                                                                                                                             |                            |                                      |           | September 28 |   | March 30 
|                                            |                                                                                                                             |                            |                                      |           | 2002         |   | 2002     
|                                            |                                                                                                                             |                            |                                      |           |              |   |          
|                                            |                                                                                                                             |                            |                                      |           | (Unaudited)  |   |           |           |          
|                                            |                                                                                                                             |                            | LIABILITIES AND SHAREHOLDERS EQUITY |           |              |   |           |           |           |  | 
|                                           
|                                           
|                                           
|                                           
|Current liabilities:                        |                                                                                                                             |                            |                                      |           |              |   |           |          
|                                           
|                                           
|                                           
|                                           
|                                            | Accounts payable                                                                                                            |                            | $                                    | 1,087,233 |              |   | $         | 1,582,636 |          
|                                           
|                                           
|                                           
|                                           
|                                            | Note payable                                                                                                                |                            |                                      | 400,000   |              |   |           | 400,000   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Current portion of long-term debt and capital lease obligation                                                              |                            |                                      | 129,734   |              |   |           | 104,836   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Customer advances                                                                                                           |                            |                                      |           |              |   |           |           |          
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                                                             |                            | 84,756                               |           |              |   | 126,181   |          
|                                           
|                                           
|                                           
|                                           
|Accrued liabilities:                        |                                                                                                                             |                            |                                      |           |              |   |           |          
|                                           
|                                           
|                                           
|                                           
|                                            | Compensation, employee benefits and payroll taxes                                                                           |                            |                                      | 235,739   |              |   |           | 289,559   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Sales taxes payable                                                                                                         |                            |                                      | 82,141    |              |   |           | 80,570    |          
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued recourse liability                                                                                                  |                            |                                      | 131,444   |              |   |           | 147,786   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Accrued expenses                                                                                                            |                            |                                      | 284,956   |              |   |           | 257,544   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Other                                                                                                                       |                            |                                      | 75,153    |              |   |           | 75,470    |          
|                                            |                                                                                                                             |                            |                                      |           |              |   |           |          
|                                            |                                                                                                                             | Total current liabilities  |                                      |           | 2,511,156    |   |           |           | 3,064,582 | 
|                                           
|                                           
|                                           
|                                           
|Long-term debt and capital lease obligation |                                                                                                                             |                            | 2,426,067                            |           |              |   | 2,479,344 |          
|                                            |                                                                                                                             |                            |                                      |           |              |   |           |          
|                                            |                                                                                                                             | Total liabilities          |                                      |           | 4,937,223    |   |           |           | 5,543,926 | 
|                                           
|                                           
|                                           
|                                           
|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 28 and March 30 |                            |                                      | 2,806,482 |              |   |           | 2,806,482 |          
|                                           
|                                           
|                                           
|                                           
|                                            | Retained deficit                                                                                                            |                            |                                      | (810,771  | )            |   |           | (910,771  | )        
|                                            |                                                                                                                             |                            |                                      |           |              |   |           |          
|                                            |                                                                                                                             | Total shareholders equity |                                      |           | 1,995,711    |   |           |           | 1,895,711 | 
|                                            |                                                                                                                             |                            |                                      |           |              |   |           |          
|Total liabilities and shareholders equity  |                                                                                                                             | $                          | 6,932,934                            |           |              | $ | 7,439,637 |          
|                                            |                                                                                                                             |                            |                                      |           |              |   |           |          

See notes to consolidated financial statements.

Page 4



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##### Table of Contents






SHOPSMITH INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS


|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |           |  
|---------------------------------- | ------------------------ | - | ------------------ | --------- | ---------------- | - | ------------ | --------- | ------------ | - | --------- | --------- | - | - | --------- | --------- | -
|                                   |                          |   | Three Months Ended |           | Six Months Ended
|                                   |                          |   |                    |           |                 
|                                   |                          |   | September 28       |           | September 30     |   | September 28 |           | September 30
|                                   |                          |   | 2002               |           | 2001             |   | 2002         |           | 2001        
|                                   |                          |   |                    |           |                  |   |              |           |             
|                                   |                          |   | (Unaudited)        |           | (Unaudited)      |   | (Unaudited)  |           | (Unaudited) 
|                                   |                          |   |                    |           |                  |   |              |           |             
|Net sales                          |                          | $ | 3,206,760          |           |                  | $ | 3,288,636    |           |              | $ | 6,621,772 |           |   | $ | 6,326,141 |          
|                                  
|                                  
|                                  
|                                  
|Cost of products sold              |                          |   | 1,535,284          |           |                  |   | 1,566,627    |           |              |   | 3,153,189 |           |   |   | 2,974,820 |          
|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|Gross margin                       |                          |   | 1,671,476          |           |                  |   | 1,722,009    |           |              |   | 3,468,583 |           |   |   | 3,351,321 |          
|                                  
|                                  
|                                  
|                                  
|Selling expenses                   |                          |   | 1,223,368          |           |                  |   | 1,517,594    |           |              |   | 2,472,780 |           |   |   | 3,067,107 |          
|                                  
|                                  
|                                  
|                                  
|Administrative expenses            |                          |   | 350,750            |           |                  |   | 382,308      |           |              |   | 775,860   |           |   |   | 920,877   |          
|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|                                   | Total operating expenses |   |                    | 1,574,118 |                  |   |              | 1,899,902 |              |   |           | 3,248,640 |   |   |           | 3,987,984 |  
|                                  
|                                  
|                                  
|                                  
|Income (loss) from operations      |                          |   | 97,358             |           |                  |   | (177,893     | )         |              |   | 219,943   |           |   |   | (636,663  | )        
|                                  
|                                  
|                                  
|                                  
|Interest income                    |                          |   | 26,814             |           |                  |   | 14,550       |           |              |   | 50,244    |           |   |   | 33,778    |          
|                                  
|                                  
|                                  
|                                  
|Interest expense                   |                          |   | 87,414             |           |                  |   | 65,069       |           |              |   | 172,817   |           |   |   | 124,266   |          
|                                  
|                                  
|                                  
|                                  
|Other income (expenses), net       |                          |   | (486               | )         |                  |   | 2,876        |           |              |   | 2,630     |           |   |   | 6,755     |          
|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|Income (loss) before taxes         |                          |   | 36,272             |           |                  |   | (225,536     | )         |              |   | 100,000   |           |   |   | (720,396  | )        
|                                  
|                                  
|                                  
|                                  
|Income tax expense                 |                          |   |                   |           |                  |   |             |           |              |   |          |           |   |   |          |          
|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|Net income (loss)                  |                          |   | 36,272             |           |                  |   | (225,536     | )         |              |   | 100,000   |           |   |   | (720,396  | )        
|                                  
|                                  
|                                  
|                                  
|Retained earnings:                 |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|                                  
|                                  
|                                  
|                                  
|                                   | Beginning                |   |                    | (847,043  | )                |   |              | 384,642   |              |   |           | (910,771  | ) |   |           | 879,502   |  
|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|                                   | Ending                   |   | $                  | (810,771  | )                |   | $            | 159,106   |              |   | $         | (810,771  | ) |   | $         | 159,106   |  
|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|Net income (loss) per common share |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|                                  
|                                  
|                                  
|                                  
|(Note 3)                           |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|                                  
|                                  
|                                  
|                                  
|                                   | Basic                    |   | $                  | 0.01      |                  |   | $            | (0.09     | )            |   | $         | 0.04      |   |   | $         | (0.28     | )
|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          
|                                   | Diluted                  |   | $                  | 0.01      |                  |   | $            | (0.09     | )            |   | $         | 0.04      |   |   | $         | (0.28     | )
|                                   |                          |   |                    |           |                  |   |              |           |              |   |           |           |   |   |           |          

See notes to consolidated financial statements

Page 5



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##### Table of Contents






SHOPSMITH
INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW


|                                      |                                                                                        |                                        |         |                  |          |              |          |         |          |  
|------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------------------- | ------- | ---------------- | -------- | ------------ | -------- | ------- | -------- | -
|                                      |                                                                                        |                                        |         | Six Months Ended
|                                      |                                                                                        |                                        |         |                 
|                                      |                                                                                        |                                        |         | September 28     |          | September 30
|                                      |                                                                                        |                                        |         | 2002             |          | 2001        
|                                      |                                                                                        |                                        |         |                  |          |             
|                                      |                                                                                        |                                        |         | (Unaudited)      |          | (Unaudited) 
|                                      |                                                                                        |                                        |         |                  |          |             
|Cash flows from operating activities: |                                                                                        |                                        |         |                  |          |              |          |        
|                                     
|                                     
|                                     
|                                     
|Net income (loss)                     |                                                                                        | $                                      | 100,000 |                  |          | $            | (720,396 | )      
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net income (loss)
to cash provided from operating activities: |                                        |         |                  |          |              |          |         |         
|                                     
|                                     
|                                     
|                                     
|                                      | Depreciation and amortization                                                          |                                        |         | 106,057          |          |              |          | 125,661 |         
|                                     
|                                     
|                                     
|                                     
|                                      | Provision for doubtful accounts                                                        |                                        |         | 101,342          |          |              |          | 134,416 |         
|                                     
|                                     
|                                     
|                                     
|                                      | Cash provided from (required for) changes in assets and liabilities:                   |                                        |         |                  |          |              |          |         |         
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                        | Restricted cash                        |         |                  | 126,585  |              |          |         | 174,718  |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                        | Accounts receivable                    |         |                  | 257,244  |              |          |         | (81,075  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                        | Inventories                            |         |                  | (81,271  | )            |          |         | (12,263  | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                        | Other assets                           |         |                  | (49,907  | )            |          |         | 91,954   |  
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                        | Accounts payable and customer advances |         |                  | (536,828 | )            |          |         | (173,073 | )
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                                        | Other current liabilities              |         |                  | (41,496  | )            |          |         | (130,588 | )
|                                      |                                                                                        |                                        |         |                  |          |              |          |        
|Cash used in operating activities     |                                                                                        |                                        | (18,274 | )                |          |              | (590,646 | )      
|                                     
|                                     
|                                     
|                                     
|Cash flows from investing activities: |                                                                                        |                                        |         |                  |          |              |          |        
|                                     
|                                     
|                                     
|                                     
|                                      | Property additions                                                                     |                                        |         | (10,275          | )        |              |          | (40,619 | )       
|                                      |                                                                                        |                                        |         |                  |          |              |          |        
|Cash used in investing activities     |                                                                                        |                                        | (10,275 | )                |          |              | (40,619  | )      
|                                     
|                                     
|                                     
|                                     
|Cash flows from financing activities: |                                                                                        |                                        |         |                  |          |              |          |        
|                                     
|                                     
|                                     
|                                     
|                                      | Payments on long-term debt and capital lease obligation                                |                                        |         | (28,379          | )        |              |          | (19,040 | )       
|                                      |                                                                                        |                                        |         |                  |          |              |          |        
|Cash used in financing activities     |                                                                                        |                                        | (28,379 | )                |          |              | (19,040  | )      
|                                      |                                                                                        |                                        |         |                  |          |              |          |        
|Net decrease in cash                  |                                                                                        |                                        | (56,928 | )                |          |              | (650,305 | )      
|                                     
|                                     
|                                     
|                                     
|Cash:                                 |                                                                                        |                                        |         |                  |          |              |          |        
|                                     
|                                     
|                                     
|                                     
|                                      | At beginning of period                                                                 |                                        |         | 76,324           |          |              |          | 651,530 |         
|                                      |                                                                                        |                                        |         |                  |          |              |          |        
|                                      | At end of period                                                                       |                                        | $       | 19,396           |          |              | $        | 1,225   |         
|                                      |                                                                                        |                                        |         |                  |          |              |          |        

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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 September 28, 2002 and
September 30, 2001 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 March 30, 2002.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | The provision for income taxes is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                          |  |                    |        |              |  |   |          |  
|----------------------------------------- |  | ------------------ | ------ | ------------ |  | - | -------- | -
|                                          |  | Three Months Ended
|                                          |  | September 28       |        | September 30
|                                          |  | 2002               |        | 2001        
|                                          |  |                    |        |             
|Income (loss) before income taxes         |  | $                  | 36,272 |              |  | $ | (225,536 | )
|                                          |  |                    |        |              |  |   |          |  
|Provision for (recoverable) income taxes: |  |                    |        |              |  |   |          |  
|                                         
|                                         
|                                         
|                                         
|Income tax benefit (expense)              |  | $                  |       |              |  | $ |         |  
|                                          |  |                    |        |              |  |   |          |  



| |    |  | Taxable income for the quarter ended September 28, 2002 was offset by a net
operating loss carry forward (The remaining net operating loss carry forward
asset of $1,383,000 was not shown as an asset because of a valuation
allowance against the Companys ability to realize the tax benefit).                                                                      
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3. |  | Basic income (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the
period. Diluted income (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
|                                |  | September 28       |           | September 30
|                                |  | 2002               |           | 2001        
|                                |  |                    |           |             
|Net income (loss)               |  | $                  | 36,272    |              |  | $ | (225,536  | )
|                                |  |                    |           |              |  |   |           |  
|Weighted average shares         |  |                    | 2,605,233 |              |  |   | 2,605,233 |  
|                               
|                               
|                               
|                               
|Additional dilutive shares      |  |                    |          |              |  |   |          |  
|                                |  |                    |           |              |  |   |           |  
|Total dilutive shares           |  |                    | 2,605,233 |              |  |   | 2,605,233 |  
|                                |  |                    |           |              |  |   |           |  
|Basic income (loss) per share   |  | $                  | 0.01      |              |  | $ | (0.09     | )
|                                |  |                    |           |              |  |   |           |  
|Diluted income (loss) per share |  | $                  | 0.01      |              |  | $ | (0.09     | )
|                                |  |                    |           |              |  |   |           |  



| |  |  | There were no additional dilutive shares included in the computation at
September 28, 2002 and September 30, 2001 because the stock options were
anti-dilutive.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | 4. |  | During fiscal 2002, Shopsmith entered into an arrangement with John R.
Folkerth, the Companys CEO, which allows the Company to borrow up to
$500,000 with interest at twelve percent. The maximum authorized
borrowing was increased to $600,000 in July 2002. Substantially all
personal property except for certain receivables are pledged as
collateral. Interest is due monthly and the note is payable on demand. At
September 28, 2002, there was $400,000 outstanding under this arrangement.
Borrowings from Mr. Folkerth are subject to Mr. Folkerths approval and
are payable upon demand by Mr. Folkerth.
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 5. |  | One customer exceeded the 10% level of consolidated level of sales. A
major retailer represented 25% of sales for the quarter ended September
28, 2002 and 30% of year to date sales.                                                                                                                                                                                                                                                                                                                                                                                                                                  

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

Results of Operations

Shopsmith manufactures and sells woodworking products. Our core product, the
Mark V is sold directly to consumers through demonstration sales events and
indirectly to consumers through distributors, primarily Lowes where Shopsmith
also conducts sales demonstrations, along with smaller amounts through other
efforts. Mark V sales demonstrations are done in shopping malls, at home shows,
and at state fairs. Other woodworking products and accessories are sold through
mail and Internet channels. Shopsmith recognizes revenue for these orders at
the time of product shipment.

Second quarter sales decreased to $3,207,000 or 2.5% from $3,289,000 generated
a year ago. This decrease in volume was primarily in our traveling academy
sales effort, which includes a combined sales and education effort directed at
Mark V owners. Demonstration sales of the Mark V included a higher proportion
of sales at high traffic events, such as state fairs, and fewer Lowes events
than in the first quarter. However on a year to date basis we continued the
shift in location from mall and high-traffic locations to demonstrations done
within Lowes stores. In total, demonstration sales were up slightly. Year to
date sales increased to $6,622,000 or 4.7% from $6,326,000 last year.

Gross margin rates decreased by one quarter of a percentage point compared to
the same quarter last year, and by 0.6% on a year to date basis, reflecting the
lower margin earned on demonstration sales within Lowes stores. Operating
expenses were reduced by $326,000 to $1,574,000 in the second quarter from
$1,900,000 for the last years second quarter. On a year to date basis,
operating expenses dropped by $739,000 to $3,249,000 from $3,988,000 the prior
year. Operating expenses were reduced by improved expense control on Mark V
sales events, as well as through reductions in compensation costs. Employee
benefit costs were reduced $42,000 in the quarter and by $95,000 year to date,
due to proceeds from the Anthem insurance demutualization. Costs were also
reduced by $60,000 in the second quarter as an agreement was reached with a
consumer finance company, Shopsmith had formerly used, on participation rebates
that survived the termination of contract.

For the fiscal year ending March 2003, Shopsmith has implemented a employee
salary reduction plan. As part of this plan, fiscal 2003 pre-tax income above
$100,000 will be used to return the amount of the reduction and to pay an
additional incentive equal to the amount of the reduction, as income permits.
The net effect of this plan, after an accrued expense of $37,000 based on year
to date results exceeding $100,000, was a $15,000 reduction to second quarter
expenses and a reduction of $33,000 to year to date expenses. The next $94,000
of additional earnings in fiscal 2003 would be offset by increases to the
accrual for payment returning the salary reduction and paying the incentive
amounts.

Provisions for recoverable Federal income taxes ($0 in both FY2003 and FY 2002)
are based on estimated annual effective rates, less a valuation reserve. The
zero Federal income tax amount in FY2003 was due to the utilization of the net
loss carryforwards.

Because of the factors above, a net income of $36,000 or $.01 per diluted share
was earned in the quarter ended September 28, 2002 compared to a net loss of
$226,000 or $.09 per diluted share for the same period of last year. For the
year to date, net income was $100,000 or $.04 per diluted share compared to a
net loss of $720,000 or $.28 per diluted share for the same period last year.

Liquidity and Financial
Position

Cash used in operations totaled $18,000 in the current year compared with
$591,000 for the same period of the preceding year. A seasonal reduction in
payables partially offset by decreases in receivables and by the $100,000 in
net income, was the main reason for the cash usage in the current quarter. In
the latter part of the second quarter the Companys demonstration sales event
mix shifts to fewer sales demonstrations in Lowes stores and more sales
demonstrations at fairs. The lower volume of Lowes demonstrations resulted in
the reduction in the quarter-end receivables balance.

The current ratio was 1.49 to 1 at September 28, 2002 compared to 1.43 to 1 at
the beginning of the current fiscal year. The debt to equity ratio decreased
to 2.47 to 1 from 2.92 to 1 at March 30, 2002.

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During fiscal 2002, Shopsmith entered into an arrangement with John R.
Folkerth, the Companys CEO, which allows the Company to borrow up to $500,000
with interest at twelve percent. The maximum authorized borrowing was
increased to $600,000 in July 2002. Substantially all personal property except
for certain receivables are pledged as collateral. Interest is due monthly and
the note is payable on demand. At September 28, 2002, there was $400,000
outstanding under this arrangement. Borrowings from Mr. Folkerth are subject
to Mr. Folkerths approval and are payable upon demand by Mr. Folkerth.

In 1999, the Company purchased the building it had been leasing. The seller
financed the building purchase. The financing agreement provided for a $100,000
down payment and a secured mortgage note for $2,800,000 at an 8.75% interest
rate. The note was payable in monthly installments of $25,785 with the balance
being due and payable in full on January 1, 2003. In March 2002, the agreement
was amended to continue the $25,785 monthly payments of principal and interest
until January 1, 2006 at which time the scheduled balance of approximately
$2,180,000 will become due and payable.

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: (i) the operating
cash flows together with currently available working capital may be inadequate
to finance the operating needs of the Company; (ii) the demand loan extended to
the Company by Mr. John R. Folkerth (as described above) could be called prior
to the Company being in a position to repay or refinance the loan; and (iii)
cancellation by Lowes of the in-store sales program.

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Item 3. Quantitative and qualitative disclosures about market risk.



| |  |  | Not applicable.
| |  |  | ---------------




Item 4. Controls and Procedures.



| |  |  | The Companys Chairman and Chief Executive Officer, John R. Folkerth, and
the Companys Chief Financial Officer, Mark A. May, have evaluated the
Companys internal controls and disclosure controls systems within 90
days of the filing of this report. Messrs. Folkerth and May have
concluded that the Companys disclosure controls systems are functioning
effectively to provide reasonable assurance that the Company can meet its
disclosure obligations. The reporting process is designed to ensure that
information required to be disclosed by the Company in the reports that
it files or submits with the Commission is recorded, processed,
summarized and reported within the time periods specified in the
Commissions rules and forms. Since Messrs. Folkerths and Mays most
recent review of the Companys internal controls systems, there have been
no significant changes in internal controls or in other factors that
could significantly affect these controls.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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PART II. OTHER INFORMATION

Item 4.

The company held its Annual Meeting of Shareholders on July 31, 2002. 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              |     |  | 2,113,935 |  |          |  |           |  |  |  | 127,128 |  |  |        |  | 
|                      
|                      
|                      
|                      
|                       | J. Michael Herr               |     |  | 2,158,366 |  |          |  |           |  |  |  | 82,697  |  |  |        |  | 
|                      
|                      
|                      
|                      
|                       | Edward A. Nicholson           |     |  | 2,137,341 |  |          |  |           |  |  |  | 103,722 |  |  |        |  | 
|                      
|                      
|                      
|                      
|Appointment            |                               |     |  |           |  |          |  |           |  |  |  |         |  |  |        |  
|                      
|                      
|                      
|                      
|                       | Crowe, Chizek and Company LLP |     |  | 2,194,545 |  |          |  | 41,743    |  |  |  | 4,775   |  |  |        |  | 

Item 6.

|                          |      |                                                                   |  | 
|------------------------- | ---- | ----------------------------------------------------------------- |  | 
|(a)  Exhibits:           
|                         
|                         
|                         
|                         
|                          | 99.  | Additional Exhibits                                              
|                         
|                         
|                         
|                         
|                          | 99.2 | Certification of the 10-Q by John R. Folkerth,
the Companys CEO.
|                         
|                         
|                         
|                         
|                          | 99.3 | Certification of the 10-Q by Mark A. May, the
Companys CFO.     
|                         
|                         
|                         
|                         
|(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: |  | November 12, 2002 |  |                                                                                   

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I, John R. Folkerth, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Shopsmith, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statements of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for the periods presented in the
quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

|      |  |                                                                           
|----- |  | --------------------------------------------------------------------------
|Date: |  | November 12, 2002                                                         
|     
|By:   |  | /s/ John R. Folkerth
John R. Folkerth
Chairman and Chief Executive Officer

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##### Table of Contents



I, Mark A. May, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Shopsmith, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statements of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the
period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for the periods presented in the
quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

|      |  |                                                                    
|----- |  | -------------------------------------------------------------------
|Date: |  | November 12, 2002                                                  
|     
|By:   |  | /s/ Mark A. May
Mark A. May
Vice President of Finance and Treasurer

Page 14