<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
(Mark One)

[ X ]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [FEE REQUIRED]
          For the fiscal year ended:  May 31, 1997

                                       or

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
          For the transition period from ______________ to _______________


                        Commission File Number:  0-23996

                            SCHMITT INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

            Oregon                                       91-1151989
(State or other jurisdiction of             (IRS Employer Identification Number)
incorporation or organization)

                            2765 N.W. Nicolai Street
                             Portland, Oregon  97210
               (Address of principal executive offices) (Zip Code)

                                 (503) 227-7908
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

     Title of each class             Name of each exchange on which registered
----------------------------       ---------------------------------------------
            None                                       None

Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock - no par value
                              (Title of each class)

     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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [ X ]

     As of August 8, 1997, the aggregate market value of the registrant's Common
Stock held by nonaffiliates of the registrant was $21,337,313 based on the
closing sales price of the registrant's Common Stock on the Nasdaq National
Market.  On that date, there were 7,081,889 shares of Common Stock outstanding.

     Portions of the registrant's 1997 Annual Report to Shareholders are
incorporated by reference into Parts II and IV hereof, and portions of the
registrant's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.

<PAGE>

                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

     The Company designs, assembles and markets computer-controlled balancing
equipment for use primarily by the machine tool industry.  Through its wholly
owned subsidiary, Schmitt Measurement Systems, Inc. ("SMS"), a Montana
corporation, the Company also designs, manufactures and markets precision laser
measurement systems.

     The Company was incorporated under the laws of British Columbia, Canada in
1984.  The name of the Company was changed to Schmitt Industries Inc. in 1987.
In February 1996, the Company was "continued" from British Columbia to the state
of Wyoming and then merged into its wholly owned subsidiary, Schmitt Industries,
Inc., an Oregon corporation; Schmitt Industries, Inc. was the surviving entity.

     The Company acquired its original balancing equipment technology pursuant
to a series of agreements from 1987 through 1991.  The patented technology has
been substantially enhanced and advanced by the Company in the past decade.

     In May 1995, the Company acquired TMA Technologies Inc. ("TMA"), a
designer, assembler and marketer of innovative industrial measurement systems
based on laser light scatter technologies.  For all of the outstanding shares of
TMA, the Company paid $15,000, assumed approximately $515,000 of TMA debt and
agreed to make royalty payments to TMA's shareholders of 5% on sales of TMA
products and future Company products that utilize TMA's technologies, hardware,
software and existing patents, subject to a maximum royalty of $6 million.  In
June 1995, TMA began operations in Portland and subsequently changed its name to
Schmitt Measurement Systems, Inc. (SMS)

     In June 1996, the Company formed Schmitt Europe, Ltd. under the laws of
Great Britain to market and sell the Company's products in Great Britain.

     In December 1996, the Company completed the acquisition of the assets of
the grinding wheel balancer division of Hofmann Machinenbau GmbH of Germany.
The Company operates this business as Schmitt Hofmann Systems GmbH, a wholly
owned subsidiary of the Company ("SHS").  SHS purchased the assets from Hofmann
Machinenbau GmbH with a $496,000 loan from the Company.

     The Company's executive offices are located at 2765 N.W. Nicolai Street,
Portland, Oregon 97210, and its telephone number is (503) 227-7908.

BALANCING PRODUCTS

     The Company's principal product is the Schmitt Dynamic Balance System (the
"SBS System").  It consists of a computer control unit, sensor, spindle mounting
adapter, and balance head.  It was designed to be an inexpensive, yet highly
accurate, permanent installation on grinding machines.  Today, the SBS System is
beginning to be evaluated by manufacturers for additional applications including
large electric motors, industrial fans, industrial brushing devices, turbines
and similar devices.


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     The SBS System is fully automated and consequently the user does not have
to pre-balance such devices as grinding wheels.  This reduces the setup time of
such operations and ensures a smoother and more efficient operation.

     The SBS System operates on a principle of mass compensation for wheel
imbalance.  The balance head contains two movable eccentric weights, each of
which is driven by electric motors through a precision gear train.  These
weights can be repositioned to offset any imbalance in a grinding wheel or other
application.  Imbalance or vibration is picked up by the sensor.  The signal is
fed to a controller that filters the signal by revolutions per minute.  The
controller then drives the two balance head weights in the direction that
reduces the amplitude of the vibration signal. When the weights are positioned
so the lowest vibration level is reached, the balance cycle is complete.

     Notable features of the SBS System include its ability to fit almost all
machines, ease of installation, compact and modular construction, ability to
balance a wheel while on a machine, elimination of wheel vibration, automatic
monitor of balance, display in both English and metric systems, instrument grade
calibration, short balance process, measurement of both displacement and/or
velocity, and minimal user maintenance.

     Benefits to the system user include improved quality of finished parts,
ease of product adaptation, minimal downtime, complete and ready installation,
elimination of need for static balancing, longer life for wheels, dressings,
diamonds and spindle bearings, the ability to balance within 0.2 microns and its
adaptability to all types of machines.

     The precision grinding industry has a worldwide presence and is established
in all industrialized countries.  In each major industrialized country there are
three major market segments:  the machine tool builders, the rebuilders and
grinding machine users.

     The first major market segment consists of machine tool builders who
actually design and manufacture a variety of cylindrical, surface, and specialty
application grinding machines that are sold at home and also exported to foreign
markets.  SBS System products are distributed to a variety of world markets
through OEM (original equipment manufacturer) accounts, where a special pricing
(20%) discount is offered to the machine builder if the designer incorporates
the SBS System into its machine.

     Examples of some of well-known worldwide machine tool builders who have
offered and/or installed the SBS System include ANCA (Australia), Bryant
Grinders Corporation (U.S.), Blohm Incorporated (U.S.), Blohm GmbH (Germany),
Capco Machinery (U.S.), Cincinnati Milacron (U.S.), Ecotech/SMTW (China/U.S.),
Gold Crown Machinery (U.S.), Gleason Works (U.S.), Litton IAS/Landis Grinding
(U.S.), Mattison Machine (U.S.), Micron Machinery Limited (Japan/U.S.), Normac
Incorporated (U.S.), NTC Toyama America (U.S./Japan), Okomoto (Japan), Okuma
Machine (Japan), Royal Master Grinders (U.S.), Shigiya Machine (Japan), Sumitomo
Heavy Industry (Japan), TOS Hostivar (Czech Republic), TOS Holice (Czech
Republic), Toyoda Machine (Japan) and Weldon Machine Tool (U.S.).

     One successful marketing channel to tool builders is the sale of the SBS
System to users who purchase new machines and thereby experience the benefits of
the SBS System and then purchase additional units for application to their older
machines.

     The second major market segment consists of machine tool rebuilders who are
found in all industrial nations and who develop their business with users by
offering to completely update and refurbish older machine tools.  These
rebuilders typically tear the old machine apart and install new bearings, new
electronics, and new advanced features, such as an SBS Automatic Wheel Balancer.
The Company


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currently sells its product directly to all major machine rebuilders in the U.S.
and to some countries in Western Europe.

     Grinding machine users in industrialized countries are the third major
market segment.  Users become aware of the SBS System through trade shows, trade
magazine advertising, distributors, field representatives, referrals and new
machine suppliers.

     Precision grinding is increasing as a worldwide method of material removal
and material processing.  Therefore, the Company believes that there may be an
increase in market growth and an increase in the need for automatic balancers.
Precision grinding is necessary in all major manufacturing areas such as the
automotive industry (camshafts, crankshafts, valves), bearings (roller and
tapered types), ceramics (precision shaping), electric motors (shafts), pumps
(shafts and turbines), aircraft (engine parts), and general manufacturing.

     The Company's business is conducted with many customers located throughout
the world.  Examples of some of the more well known of these include Black &
Decker, Briggs and Stratton, Caterpillar Inc., Daewoo International Corp., Eaton
Corporation, Ford Motor Company, General Electric Corp., General Motors,
Ingersoll Rand, Sumitomo Heavy Industries, Texas Instruments, The Timken
Company, Torrington, TRW Automotive Components and Westinghouse Electric Corp.

     The acquisition of SHS has added additional balancer designs to the
Company's worldwide product line.  The SHS internal spindle balancers and ring
balancers add to the total balancer package available from the Company.  These
proven designs, along with the original water balancer, allow Schmitt to broaden
its machine applications.  The Company is now developing additional electronic
controllers that will operate all Schmitt, including SHS, balancers from a
single electronic controller.

     In Fiscal 1995, 1996 and 1997, net sales of the Company's balancing
products totaled $4,414,832, $4,801,151 and $6,488,348, respectively.  Net sales
of balancing products accounted for 100% of the Company's revenue in
Fiscal 1995, 68% in Fiscal 1996 and 61% in Fiscal 1997.  See Note 9 to
Consolidated Financial Statements.

     COMPETITION.  Management believes that the SBS System is the only fully
automatic balancing system marketed in the world.  All other competitive
balancing products require special setup and training or calibration to the
specific machine. The Company believes that the SBS System is currently the only
balancing product on the market that fits all machines with wheel sizes from 6
to 48 inches in diameter and spindle rpm of 500 through 7,500.

     Competitive products include European manufacturers building water
balancers and electromechanical balancers similar to the SBS System.  Water
balancers are currently priced at about 1.5 times the level of the SBS System
because of expensive plumbing and water chambers machined into the wheel hub.
The machines are disassembled and parts remachined or replaced within the
spindle assembly, a process that takes from one to two days.  The system is
"tuned" or "calibrated" to the machine by a factory service technician.
Although water systems are unable to balance at low rpm, they work at mid- and
high-speeds when properly monitored by regularly cleaning filters and checking
clearance of water jets.  This technology is the oldest in the market and is
employed in the SHS-installed systems.  After the acquisition of SHS in December
1996, the Company considers European electromechanical balancers to be the its
major competition due to their established base in Europe.

     Electromechanical balancers similar to the SBS System are produced by
several European companies, located primarily in Switzerland, Germany, Spain and
Italy.  These European balancers have


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deficiencies in electronics which render them less effective in solving
essential balancing requirements.  They cannot achieve the consistent low
balance levels obtained by the SBS System and cannot operate effectively at 500
rpm (low speed) or at 7,500 rpm (high speed).  In addition, these balancers have
inferior brush and cable assemblies which cause down time and high maintenance.
None of these companies can compete effectively with the Company in providing
mounting adapters for all grinding machines.

     The SBS System list price is $7,800 worldwide.  Water balancers produced by
German companies other than SHS are priced at $11,000 to $15,000, and the
electromechanical systems are priced at $8,000 to $10,000 worldwide.  Market
surveys by management indicate that customers perceive values of an automatic
balancer to approximately $8,000; therefore, Company pricing is geared to
obtaining a dominant market position and meeting competitive supplier prices.
The market strategy is to establish the SBS System as the dominant product with
the best quality, reliability and performance and superior economic value.


SCHMITT MEASUREMENT SYSTEMS, INC.

     HISTORICAL BACKGROUND.  SMS manufactures and markets a line of laser-based,
precision measurement systems.  In addition, SMS operates a precision light
scatter measurement laboratory which is utilized by third-party equipment
manufacturers and others.

     Light scatter technology involves using lasers, optics and detectors to
throw a beam of light on a material sample and recording its
reflection/transmission.  Analysis of light scatter information can determine
material characteristics such as surface roughness and defects, without
introducing contaminants and causing changes to the tested material.

     In May 1995, the Company relocated TMA (now SMS) assets and equipment to
its Portland, Oregon facility.  Three employees were relocated and three
part-time former TMA employees remained in Montana to assist with sales and
marketing activities.

     SMS PRODUCTS.  The principal products of SMS are laser-based measurement
products and technology that can be applied to both military and industrial
markets.  Historically, TMA (now SMS) did not pursue industrial markets but
instead concentrated on military markets.  The Company believes that this
strategy was a significant contributing factor in the failure of TMA to achieve
profitable operations.


     The Company believes that the patents, patent applications, trademarks and
other proprietary technology acquired with TMA can be successfully refocused
into industrial markets, including electronics, computer disk manufacturers and
flat-panel display manufacturers.

     The Company is developing a product review and marketing plan.  Over the
long term, the Company expects SMS products to add to sales and profitability of
the Company.  During Fiscal 1996, net sales of SMS products totaled $2,278,977
or 32% of the Company's total revenue.  During Fiscal 1997, net sales of SMS
products totaled $4,390,499 or 49% of the Company's total revenue.  See Note 9
to Consolidated Financial Statements.

     SMS operates three businesses: a light-scatter measurement laboratory,
laser-based light-scatter measurement products and other laser alignment
products.   SMS provides a highly advanced, extremely precise measurement
services laboratory to a wide variety of industrial and commercial businesses,
using advanced laser, light scatter technology.


                                        5

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     The laboratory uses three SMS CASI Scatterometers for measuring surface
roughness.  The true value of the laboratory is not only its extremely precise
measurement capability but also that the item being tested is not altered,
touched or destroyed.  Thus, the laboratory is widely used by the semiconductor
and computer hard disk industries, as well as manufacturers of critical optical
components in aerospace and defense systems.  Customers of the laboratory have
included Aerojet, AT&T Bell Labs, Eastman Kodak, General Electric, IBM, NASA and
dozens of other industrial companies, universities and government agencies.

     The three SMS CASI Scatterometers in the laboratory are angle-resolved BRDF
measurement instruments providing customers with precise roughness measurements
of optical surfaces, diffuse materials, semiconductor wafers, magnetic storage
media, precision-machined surfaces, as well as surfaces affecting the cosmetic
appearance of consumer products.  A Scatterometer uses ultraviolet or infrared
laser light as a nondestructive probe to measure surface quality, optical
performance, smoothness, appearance, defects and contamination on a wide variety
of materials.

     The sample is mounted on stages capable of moving bidirectionally and/or in
rotation.  The incident angle can be set anywhere up to an 85DEG.  angle from
surface normal.  The detector sweeps around the sample in the incident plane
measuring scattered and specular light.  During the scan, the computer controls
gain, filter and aperture changes through user-defined parameters.  The
instrument background is measured separately and can be compared with the sample
data.

     The CASI Analysis Software simplifies analysis of scatter data.  BRDF
values are used to calculate total integrated scatter, PSD and RMS roughness.
Annotated results print on the HP PaintJet printer as viewgraphs or
publication-ready figures.

     The laboratory generated approximately 10% of SMS's total revenue during
Fiscal 1996 and 9% during Fiscal 1997.  Total revenue for this business is
expected to rise modestly in the future while representing a smaller percentage
of SMS's business.  Use of the laboratory, leading to orders for SMS's
laser-based light scatter measurement products by its customers, represents the
best marketing channel for SMS's current and future products.  Existing products
(such as the uScan and the Model 2002 alignment laser system) and products
being developed in conjunction with the measurement services laboratory are
being marketed to a variety of industrial customers.

     The uScan System consists of a hand-held control unit, an interchangeable
measurement head and a separate charging unit.  To perform a measurement, the
operator places the measurement head on the objective area and presses the
button.  Each measurement takes less than five seconds.  The results are
displayed and stored in system memory.  The uScan can store 700 measurements in
255 files and provides the capability to program pass/fail criteria.  Software
is available for control, analysis and file conversion.  From a single
measurement, a user can determine RMS surface roughness, reflectance and scatter
light levels (BRDF) on flat or curved surfaces under any lighting conditions.

     The Auto-Collimating Alignment Laser System - Model 2002 is an extremely
accurate laser alignment system.  The incorporation of a solid-state laser diode
provides increased beam stability and eliminates warm-up time.  A new unique TMA
See-Thru target design completely eliminates beam displacement and power loss.
The addition of an operator selectable auto-collimating feature provides one arc
second accuracy over a large angular range.  A microprocessor automates system
configuration.  A new bus interconnect reduces setup time and allows up to seven
operator selectable targets, reducing time required to perform measurements.  A
complete Model 2002 system consists of an auto-collimating laser, power supply,
digital display, See-Thru and end targets, carrying case and cable assemblies.


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     The Company intends to introduce a new product, a Dual Texture Measurement
machine called the DTM-2000, in the first half of Fiscal 1998.  Using the
Company's patented non-contact light scatter process of surface measurement, the
automated DTM-2000 provides for measurements on both sides of computer hard
disks at 1,200 disks per hour at a measurement range of 2 angstroms to
200 angstroms.

BUSINESS AND MARKETING STRATEGY

     MARKETING.  The Company designs, assembles and markets all of its products.
Its operations are divided into a number of different areas.  The production
organization, which is responsible for all assembly, purchasing and production
engineering, is directed by the Vice President of Operations.  The Product
Marketing Division is responsible for the sale of SBS System products.  This
division is managed by the President/CEO and five Marketing Managers.  Four of
the Marketing Managers are responsible for domestic sales.  The fifth Marketing
Manager is responsible for sales in mainland China, Japan and Korea.  The
President/CEO is responsible for sales in both eastern and western Europe and
also oversees the efforts of the five Marketing Managers.  The technical
services division is responsible for providing technical support to customers
and is managed by the Vice President of Operations.  In addition, there is a
research and development group which is supervised directly by the President/CEO
and the Vice President of Operations.

     The Company markets and sells the SBS System in a variety of ways.  First,
the Company uses the conventional channels provided by independent
manufacturer's representatives and distributors.  There are currently 25
individuals and/or organizations in the United States acting in one of these
capacities.  Compensation comes from commissions which are paid only upon
completion of a sale and payment by the customer.  The amount paid to the
selling person or entity varies between 10% (for independent sales agents) and
15% (for distributors) of the sales amount.

     Second, trade shows represent a significant amount of marketing/sales
effort.  These events are held throughout the world and have proven to be
excellent sources of business for the Company.  A representative from the
Company, usually one of the marketing managers and/or Wayne A. Case, attends
these events along with local Company representatives.  These individuals attend
a display booth that features professional products, an SBS System demonstration
stand, product literature, and technical literature.  Representatives from all
facets of the market to which the Company directs its sales efforts attend these
trade shows.

     Third, original equipment manufacturers often include the SBS System on the
machine tools which they produce.  Users thus purchase the SBS System
concurrently with the machine tools.  The SBS Systems are also often installed
by machine builders prior to displaying their own machine tools at various trade
shows.  These samples often become endorsements that prove to be beneficial to
the Company's sales efforts.

     In the United States, most products are shipped directly to customers from
the Company's distribution center in Portland, Oregon.  Where the Company has
distributors, the product is shipped to the distributor, who in turn pays the
Company directly and then delivers and installs the product for the end user.
Western European distribution to customers is handled by shipping the product
directly from the Company's Portland headquarters to the end users.

     The acquisition of SMS (formerly TMA) has resulted in revision of marketing
strategy of both the balancer business and the new measurement products.  The
Company is evaluating all products acquired through the acquisition of TMA and
evaluating existing measurement product and balancing product distributors and
agents to determine the most efficient mix.


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     MANUFACTURING.  The Company does not use any unique sources of supply or
raw materials in its products for either SBS System balancing products or SMS
measurement products.  Essential electronic components used are available in
large quantities from various suppliers.  These electronic components are
assembled into the SBS System and SMS electronic control units to meet the
Company's quality and assembly standards.  Company-owned software and firmware
are coupled with the electronic components to provide the basis of the Company's
various electronic control units.  The Company believes several sources of
supplies exist for all electronic components and assembly work that is used in
its electronic control system.  The Company's primary outside supplier of
electronic assembly is Bell Industries of Portland, Oregon, a custom supplier of
assembled electronic products for several Pacific Northwest companies.  In the
event of supply problems, the Company feels two or three alternatives could be
developed within 30 days to supplement or replace Bell Industries.

     Mechanical parts for the Company's SBS System and SMS products are produced
to the customers' drawings and specifications by local high quality CNC machine
shops.  Several such CNC machine shops exist in the local area, and the Company
is not dependent on any one supplier of mechanical components.  Principal
suppliers of components for the Company's products include MacKay Manufacturing
of Spokane, Washington; OEM Manufacturing of Corvallis, Oregon; Eagle Industries
of Newberg, Oregon; and Forest City Gear of Roscoe, Illinois.

     The Company uses in-house skilled assemblers to construct and test vendor-
supplied components.  Component inventory of finished vendor-supplied parts is
held on the Company property to assure adequate flow of parts to meet customer
order requirements.  Inventory is monitored by a computer control system
designed to assure timely re-ordering of components.

     In-house personnel assemble various products and test all finished
components before placing them in the finished goods inventory.  Finished goods
inventory is maintained via computer to assure timely shipment and service to
customers.  All customer shipments are from the finished goods inventory.

     In November 1996, the Company's Quality Control Program received full
ISO-9001 certification.

     The Company has established an SBS System customer base consisting of over
250 companies.  TMA (now SMS) had over 200 customers, many of whom are also
purchasers of the Company's SBS System balancing products.  The major customers
of TMA have been retained by the Company.

     In Fiscal 1997, approximately 22% of the Company's total revenue was
attributable to a single customer of SMS.  In Fiscal 1997, SMS entered into a
strategic partnership with this entity to distribute systems manufactured by SMS
for an initial term of one year.  No other customer accounted for more than 10%
of the Company's total revenue in Fiscal 1997.

PATENTS AND TRADEMARKS

     SBS SYSTEM PRODUCTS.  The Company manufactures its products under copyright
protection in the U.S. for all electronic board designs which are also further
protected with encapsulation of the finished product to protect the Company's
technologies and software.  U.S. Patent No. 4951526 was issued to the Company in
1990 and covers both the new ring balancer and the existing SBS Balance Heads
that the Company markets to the grinding industries.

     The trademark "SBS" is a registered trademark of the Company and is affixed
to all products and literature created in the Company's balance product line.


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     The Company pays no licenses or royalties on its balancing technologies and
has offered no concessions, labor agreements or royalty agreements on its
balancing product lines.

     SMS PRODUCTS.  The trademark "SMS" is a registered trademark of the Company
and is affixed to all products and literature created in the Company's
measurement product line.

     The following tables include information about patents and trademarks
issued and patents pending with respect to SMS products.

SMS PATENTS ISSUED
--------------------------------------------------------------------------------

5196906     1993           uScan:  surface measurement
5416590     1995           GapMaster:  gap and mismatch
5596403     1997           Pitch, yaw of a single laser beam system and method
                           of measuring angular position
5625451     1997           Methods and apparatus for characterizing a surface

SMS TRADEMARKS
--------------------------------------------------------------------------------

uScan       1992           Surface measurement system
CASI        1993           Surface inspection system
Accunet     1994           Distance measurement NET
FMS         1994           Finished measurement systems
Surf-Map    1995           Surface inspection process
SMS         1995           Schmitt Measurement System

PRODUCT DEVELOPMENT

     Prior to Fiscal 1996, research and development activities of the Company
were focused on the enhancement of the existing product lines for balancers and
on development work toward the new ring balance product.  Since its May 1995
acquisition of TMA, the Company has expended significant efforts evaluating
existing and potential new products for the light-scatter precision measurement
market.

     During Fiscal 1994 and 1995, the Company developed the Ring Balancer, a
dynamic balancer shaped as a "ring" that allows the device to be fitted "around"
a rotating shaft rather than on the end of a shaft where the current Company
products are mounted.  This mounting and configuration will allow the Company to
apply its ring balancers to virtually any rotating device such as fans,
turbines, large motors, centrifuges and other industrial machine tools.

     During the last several years, the Company has developed several new major
offshoot products of its balancing technologies to widen market opportunities.
All costs associated with these developments have been borne directly by the
Company's customers, with minimal development costs to the Company.  Research
and development costs for existing product line enhancements are treated as
product improvements and expenses, including costs toward the new Ring Balancer.

     During Fiscal 1997, the Company continued to develop new balancing products
and expended considerable time and effort in evaluating and developing new
laser-based measurement products.  During Fiscal 1997, the Company developed and
began marketing the TMS-2000W and TMS-3000W.

     During Fiscal 1995, 1996 and 1997, the Company's research and development
expense totaled $15,843, $0 and $55,800, respectively.


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INTERNATIONAL SALES

     The Company's sales in the last three fiscal years have been generated from
the following geographic areas:

                               NORTH AMERICA          EUROPE            ASIA
                             -----------------    --------------    ------------
           Fiscal 1997         $  8,664,819        $  1,601,359      $  275,794
           Fiscal 1996            6,298,170             442,470         339,488
           Fiscal 1995            4,018,498             220,741         175,593

BACKLOG

     The Company does not generally track backlog.  Normally, orders are shipped
within several weeks after receipt unless the customer requests otherwise.

EMPLOYEES

     As of July 15, 1997, the Company employed 47 individuals worldwide on a
full-time basis.  There were no regular part-time employees.  None of the
Company's employees is covered by a collective bargaining agreement.

ITEM 2.   PROPERTIES

     The Company's design and assembly facilities and executive offices are
located in a 7,500-square foot building in Portland, Oregon owned by the
Company; a 33,000-square foot facility, located across the street from the
executive offices and also owned by the Company, houses SMS's operations.
Schmitt Europe Ltd. occupies a 1,893-square foot facility in Coventry, England
pursuant to a five-year lease beginning February 1, 1997 with a basic monthly
rent of L1,708 (approximately $2,785 as of August 1, 1997).  SHS occupies a
5,194-square foot facility in Alsbach, Germany pursuant to a five-year lease
beginning February 1, 1997 with a basic monthly rent of DM 5,442 (approximately
$2,916 as of August 1, 1997).  The Company believes its facilities are adequate
to meet its current needs.

ITEM 3.   LEGAL PROCEEDINGS

     In May 1995, the Company acquired TMA Technologies Inc. ("TMA") which
became a wholly owned subsidiary of the Company and was renamed Schmitt
Measurement Systems, Inc. ("SMS").  During the third quarter of Fiscal 1996, the
Company and SMS filed an action against Robert C. Mathis and Marvin H. Ball,
former officers and directors of TMA, in the U.S. District Court for the
District of Montana.  The lawsuit claims that these individuals violated their
fiduciary duties to TMA, the Company and participants in a TMA royalty pool.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of the security holders of the Company
during the fourth quarter ended May 31, 1997.


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                                     PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Since May 5, 1997, the Company's Common Stock has been traded on the Nasdaq
National Market; prior to that it was traded on the Nasdaq--Small Cap Market.
The Common Stock is traded under the symbol "SMIT."

     The following tables set forth the high and low sales prices of the
Company's Common Stock as reported on the Nasdaq--Small Cap Market and on the
Nasdaq National Market (since May 5, 1997) for the periods indicated.


           YEAR ENDED MAY 31, 1996          HIGH                 LOW
          -------------------------     ------------         -----------

           First Quarter                  $  2.88              $  2.13
           Second Quarter                 $  5.13              $  2.63
           Third Quarter                  $  5.63              $  3.88
           Fourth Quarter                 $ 14.75              $  5.25

          YEAR ENDED MAY 31, 1997           HIGH                  LOW
          -------------------------     ------------         -----------

          First Quarter                   $  13.75              $  8.88
          Second Quarter                  $  11.00              $  7.88
          Third Quarter                   $  11.00              $  7.88
          Fourth Quarter                  $  10.25              $  7.00


     As of July 15, 1997, there were 7,081,889 shares of Common Stock
outstanding held by approximately 130 holders of record.  The number of holders
does not include individual participants in security position listings; the
Company believes that there are more than 2,500 individual holders of shares of
Common Stock.

     The Company has not paid any dividends on its Common Stock since June 1994.
The Company's current policy is to retain earnings to finance the Company's
business.  Future dividends will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
acquisition plans and plans for expansion and any other factors that the
Company's Board of Directors deems relevant.  The Company has no present
intention of paying dividends on its Common Stock in the foreseeable future.

ITEM 6.   SELECTED FINANCIAL DATA

     The information required by this Item is included in the Company's Annual
Report to Shareholders for the fiscal year ended May 31, 1997 under the heading
"Selected Financial Data" and is incorporated herein by reference.


                                       11

<PAGE>

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The information required by this Item is included in the Company's Annual
Report to Shareholders for the fiscal year ended May 31, 1997 under the heading
"Management's Discussion and Analysis" and is incorporated herein by reference.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The report of independent auditors, financial statements and other
information required by this Item are included in the Company's Annual Report to
the Shareholders for the fiscal year ended May 31, 1997 and are incorporated
herein by reference.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE

     In July 1997, the Company replaced its independent accountant, Moss Adams
LLP, with Price Waterhouse LLP.  This decision was made by the Audit Committee
of the Company's Board of Directors.

     Moss Adams LLP's reports for the fiscal years ended May 31, 1996 and
May 31, 1997 did not contain an adverse opinion or disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope or accounting
principles.  During Fiscal 1996 and 1997 and until Moss Adams LLP's dismissal,
there were no disagreements with Moss Adams LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope of
procedure, which disagreements, if not resolved to the satisfaction of Moss
Adams LLP, would have caused it to make reference to the subject matter of the
disagreements in connection with its report.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this item is included in the Company's 
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders under 
the heading "Proposals 2(a)-(b):  Election of Directors" and is incorporated 
herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required by this item is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders under the
heading "Executive Compensation" and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this item is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders under the
heading "Principal Shareholders" and is incorporated herein by reference.


                                       12

<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is included in the Company's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders under the
heading "Certain Transactions" and is incorporated herein by reference.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  Documents filed as part of this report:

          1.   FINANCIAL STATEMENTS:

                                                                 Annual Report
                                                                  Page Number
                                                               -----------------

               A.   Consolidated Balance Sheets as of May 31,
                    1997 and May 31, 1996. . . . . . . . . . .         10

               B.   Consolidated Statements of Income for each of
                    the years ended May 31, 1997, May 31, 1996
                    and May 31, 1995 . . . . . . . . . . . . .         11

               C.   Consolidated Statements of Cash Flows for
                    each of the years ended May 31, 1997,
                    May 31, 1996 and May 31, 1995. . . . . . .         12

               D.   Consolidated Statements of Changes in
                    Stockholders' Equity for each of the years
                    ended May 31, 1997, May 31, 1996 and
                    May 31, 1995 . . . . . . . . . . . . . . .         14

               E.   Notes to Financial Statements. . . . . . .         15

               F.   Independent Auditors' Report . . . . . . .         23

          2.   FINANCIAL STATEMENT SCHEDULES:. . . . . . . . .

               All financial statement schedules are omitted
               either because they are not applicable, not
               required, or the required information is
               included in the financial statements or notes
               thereto.

          3.   EXHIBITS:  See Index to Exhibits on page 15.

     (b)  Reports on Form 8-K:  None.


                                       13

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                        SCHMITT INDUSTRIES, INC.


                                        By:  /s/ Wayne A. Case
                                             -----------------------------------
                                             Wayne A. Case
                                             CHAIRMAN OF THE BOARD, PRESIDENT
                                             AND CHIEF EXECUTIVE OFFICER

                                        Date:  August 27, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on August 27, 1997.

SIGNATURE                                         TITLE
---------                                         -----

/s/ Wayne A. Case                  Chairman of the Board, President and Chief
------------------------------     Executive Officer
Wayne A. Case                      (Principal Executive Officer)

/s/ Annie Windsor
------------------------------     Chief Financial Officer
Annie Windsor                      (Principal Financial and Accounting Officer)

/s/ Maynard E. Brown
------------------------------     Director
Maynard E. Brown

/s/ David M. Hudson
------------------------------     Director
David M. Hudson

/s/ Trevor Nelson
------------------------------     Director
Trevor Nelson

/s/ Dennis T. Pixton
------------------------------     Director
Dennis T. Pixton

/s/ John A. Rupp
------------------------------     Director
John A. Rupp


                                       14

<PAGE>

                                INDEX TO EXHIBITS

 EXHIBITS                               DESCRIPTION
----------  --------------------------------------------------------------------

   3(i)     Restated Articles of Incorporation of Schmitt Industries, Inc. (the
            "Company").  Incorporated by reference to Exhibit 3.1 to the
            Company's Registration Statement on Form S-4, File No. 33-98226,
            as amended.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

   3(ii)    Restated Bylaws of the Company.  Incorporated by reference to
            Exhibit 3.2 to the Company's Registration Statement on Form S-4,
            File No. 33-98226, as amended. . . . . . . . . . . . . . . . . . . .

    10.1    Schmitt Industries, Inc. Stock Option Plan.  Incorporated by
            reference to Exhibit 10.1 to the Company's Annual Report on
            Form 10-K for the fiscal year ended May 31, 1996.. . . . . . . . . .

    10.2    Agreement dated April 21, 1995 between TMA Technologies, Inc. and
            the Company.  Incorporated by reference to Exhibit 10.2 to the
            Company's Annual Report on Form 10-K for the fiscal year ended
            May 31, 1996.. . . . . . . . . . . . . . . . . . . . . . . . . . . .

    10.3    Distribution Agreement dated September 18, 1996 between Sloan
            Technology Inc. and the Company.  Incorporated by reference to
            Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
            the quarterly period ended November 30, 1996.. . . . . . . . . . . .

    10.4    Sales Contract dated November 19, 1996 between Herr Dirk Pfeil,
            receiver of Hofmann Maschinenbau GmbH, and Schmitt Hofmann Systems
            GmbH.  Incorporated by reference to Exhibit 10.1 to the Company's
            Quarterly Report on Form 10-Q for the quarterly period ended
            February 28, 1997. . . . . . . . . . . . . . . . . . . . . . . . . .

   *11.1    Schedule of computation of net income per share. . . . . . . . . . .

   *13.1    Annual Report to Shareholders of Schmitt Industries, Inc. for
            fiscal year ended May 31, 1997.. . . . . . . . . . . . . . . . . . .

   *21.1    Subsidiaries of Schmitt Industries, Inc. . . . . . . . . . . . . . .

   *27.1    Financial Data Schedule. . . . . . . . . . . . . . . . . . . . . . .

------------------------------

* Filed herewith


                                       15