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Press Release

Schmitt Announces Fiscal 2020 Operating Results

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Aug 31, 2020

PORTLAND, Ore., Aug. 31, 2020 (GLOBE NEWSWIRE) -- Schmitt Industries, Inc. (NASDAQ: SMIT) (the “Company” or “Schmitt”) today announced its operating results for the fiscal year ended May 31, 2020.

For the year ended May 31, 2020 (“Fiscal 2020”), the Company reported revenue from continuing operations of $4,189,924, a decline of 11.4% from $4,729,442 in Fiscal 2019. The decrease in revenue was caused by a decline in product sales at Acuity and XACT of 21.4% and 31.5%, respectively. The decline was partially offset by an increase in Xact monitoring services in the “Internet of Things” industry of 11.5%.

Gross margin increased to 46.6% for Fiscal 2020 from 37.4% in Fiscal 2019. The increase was primarily due to a product mix shift towards higher-margin Xact monitoring revenue and $167,479 in revenue from a discontinued product line with no associated cost of sales.

Operating expenses for Fiscal 2020 increased to $4,130,470, as compared to $3,237,330 for Fiscal 2019. The increase was primarily due to professional and legal fees and stock-based compensation recognized as a result of vesting of market-based Restricted Stock Units. These results also included transaction and turnaround costs of $842,162 incurred during Fiscal 2020 as compared to $752,481 in Fiscal 2019.

Net loss from continuing operations was $(1,842,304), or $(0.47) per fully diluted share, for Fiscal 2020 as compared to a net loss of $(1,468,432), or $(0.37) per fully diluted share, for 2019. Excluding reorganization, legal, and transaction fees and inventory adjustments, non-GAAP EPS from continuing operations for Fiscal 2020 was $(0.25) per fully diluted share.

The Company finished the year ended May 31, 2020 with $10,566,531 of cash, compared to $1,467,435 for the year ended May 31, 2019.

Michael Zapata, Chairman and CEO, commented, “Fiscal year 2020 has been a transformational year for Schmitt due to the SBS transaction in the second quarter. The timing proved fortunate as our strong balance sheet has enabled us to invest in our Xact and Acuity business lines, better weather the COVID-19 environment, and execute on the acquisition of Ample Hills.”

“Operationally, the Schmitt team has continued building the foundation, including transitioning from a dated ERP system to a modern platform. The new ERP system will improve reporting and visibility on margins, inventory, and vendor management. We have also made key hires to improve our product development and cost saving initiatives in our business lines.”

“Despite the pandemic and a more restricted environment, our team has performed well and has continued to generate key customer wins that have helped mitigate revenue declines. We are actively creating a stronger foundation that will allow Schmitt’s businesses to capitalize on a healthier environment once we emerge from COVID-19.”

Ample Hills Acquisition

On July 9th, Schmitt acquired the assets of Ample Hills Creamery, Inc. and its subsidiaries (collectively, “Ample Hills”), a beloved Brooklyn, NY-based ice cream manufacturer and retailer, for approximately $2 million, inclusive of cure costs and deal expenses. Since the acquisition, Ample Hills has reopened its iconic Brooklyn ice cream factory and nine ice cream parlors. Ample Hills has also secured agreements for two additional locations, including Prospect Park, Brooklyn, NY and Long Beach, California.

“Ample Hills is a fantastic company and we are fortunate to be in a position to invest and grow this beloved, Brooklyn based ice cream company.  I am thrilled to welcome back the Amployees and all the Ample Hills fans. In the short period since emerging from bankruptcy, the Ample Hills and Schmitt teams have done an incredible job reopening our nine locations and serving scoops. We look forward to sharing a strategic update at our annual meeting later this year,” Zapata added.

Section 382 Rights Agreement

On July 1, 2019, the Company entered into a Section 382 Rights Agreement with Broadridge Corporate Issuer Solutions, Inc., as Rights Agent (the “Rights Agreement”) in an effort to protect stockholder value by diminishing the risk that the Company’s ability to use its net operating losses (“NOLs”) to reduce U.S. taxable income and tax liabilities in future taxable periods may become substantially limited.

On August 26, 2020, the Board noted that the Rights Agreement had served its purpose in protecting the NOLs, and the Board expects to terminate the Rights Agreement following the Company’s filings of the Ample Hills financials. Due to the difficulty in gathering certain information relating to Ample Hills, the Company will file Ample Hills financial statements at some point subsequent to the due date of September 24,2020.

“The Board was prudent in implementing the rights agreement in the summer of 2019, ahead of the potential SBS transaction. As the Agreement has served its purpose by reducing cash taxes on the SBS sale proceeds, the Board has approved the removal of the Agreement following our Ample Hills financial filings in the coming months.”

Summary data for the three months and Fiscal year ended May 31, 2020 and 2019:

    Three-Months ended, May 31,   Change
      2020       2019     $   %
Total Net Revenue   $ 967,078     $ 1,204,778     (237,700 )   -19.7 %
Gross Margin     49.6 %     32.6 %        
Operating Expenses     1,331,359       801,670     529,689     66.1 %
Net Loss from continuing operations     (703,799 )     (409,772 )   (294,027 )   71.8 %
Net Loss per common share, diluted   $ (0.18 )   $ (0.10 )   (0.08 )   74.2 %
                 
                 
    Fiscal year ended, May 31,   Change
      2020       2019     $   %
Total Net Revenue   $ 4,189,924     $ 4,729,442     (539,518 )   -11.4 %
Gross Margin     46.6 %     37.4 %        
Operating Expenses     4,130,470       3,237,330     893,140     27.6 %
Net Loss from continuing operations     (1,842,304 )     (1,468,432 )   (373,872 )   25.5 %
Net Loss per common share, diluted   $ (0.47 )   $ (0.37 )   (0.10 )   27.3 %
                 

Reconciliation of Adjusted EBITDA:

    Three-Months ended, May 31,
      2020       2019  
Loss before income taxes from continuing operations   $ (706,402 )   $ (407,405 )
Depreciation and amortization     40,031       42,118  
EBITDA from continuing operations   $ (666,371 )   $ (365,287 )
Adjusted for:        
Stock-based compensation     27,323       88,942  
Reorganization, legal, and transaction fees     240,233       115,034  
Inventory adjustments     -       97,122  
Software write-downs (recoveries)     (40,468 )     -  
Income from discontinued product line     (2,925 )     -  
Adjusted EBITDA from continuing operations   $ (442,209 )   $ (64,189 )
         
         
    Fiscal year ended, May 31,
      2020       2019  
Loss before income taxes from continuing operations   $ (1,856,942 )   $ (1,459,649 )
Depreciation and amortization     161,137       173,216  
EBITDA from continuing operations   $ (1,695,805 )   $ (1,286,433 )
Adjusted for:        
Stock-based compensation     354,048       94,621  
Reorganization, legal, and transaction fees     842,162       752,481  
Inventory adjustments     76,099       213,253  
Software write-downs (recoveries)     17,473       -  
Income from discontinued product line     (167,479 )     -  
Adjusted EBITDA from continuing operations   $ (573,502 )   $ (226,078 )
         

Reconciliation of Adjusted Net Income and Non-GAAP EPS:

    Three-Months ended, May 31,   Fiscal year ended, May 31,
        2020           2020    
Net loss from continuing operations     $ (703,799 )       $ (1,842,304 )  
Adjusted for:        
Stock-based compensation       27,323           354,048    
Reorganization, legal, and transaction fees       240,233           842,162    
Inventory adjustments       -           76,099    
Software write-downs (recoveries)       (40,468 )         17,473    
Income from discontinued product line       (2,925 )         (167,479 )  
Tax effects of adjustments       (56,041 )         (280,576 )  
Adjusted net loss from continuing operations (Non-GAAP)     $ (535,678 )       $ (1,000,577 )  
Non-GAAP loss per fully diluted share     $ (0.14 )       $ (0.25 )  
         

About Schmitt Industries

Schmitt Industries, Inc., founded in 1987, designs, manufactures and sells high precision test and measurement products, solutions and services through its Acuity® and Xact® product lines. Acuity provides laser and white light sensor distance measurement and dimensional sizing products, and our Xact line provides ultrasonic-based remote tank monitoring products and related monitoring revenues for markets in the Internet of Things environment. The Company also owns and operates Ample Hills Creamery, a beloved ice cream manufacturer and retailer based in Brooklyn, NY.

FORWARD-LOOKING STATEMENTS

This document may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors. A complete discussion of the risks and uncertainties that may affect Schmitt’s business, including the business of its subsidiary, is included in “Risk Factors” in the Company’s most recent Annual Report on Form 10-K as filed by the Company with the Securities and Exchange Commission.

For further information regarding risks and uncertainties associated with the Company’s business, please refer to Schmitt’s SEC filings, including, but not limited to, its Forms 10-K, 10-Q and 8-K.

The forward-looking statements in this release speak only as of the date on which they were made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release, or for changes to this document made by wire services or internet service providers.


For more information contact: Michael R. Zapata, President and CEO
Jamie Schmidt, CFO and Treasurer
(503) 227-7908 or visit our web site at www.schmitt-ind.com
   
   



SCHMITT INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS 

    Fiscal year ended May 31,
      2020       2019  
ASSETS        
Current assets                
Cash and cash equivalents   $ 10,146,531     $ 1,467,435  
Restricted cash     420,000       -  
Accounts receivable, net     574,926       631,126  
Inventories     1,059,357       1,241,132  
Prepaid expenses     60,674       101,617  
Current assets held for sale     -       5,192,384  
Total current assets     12,261,488       8,633,694  
Property and equipment, net     652,136       753,407  
Other assets        
Intangible assets, net     287,602       392,185  
Noncurrent assets held for sale     -       85,967  
TOTAL ASSETS   $ 13,201,226     $ 9,865,253  
LIABILITIES & STOCKHOLDERS’ EQUITY        
Current liabilities        
Accounts payable   $ 267,660     $ 102,566  
Accrued commissions     41,450       71,663  
Accrued payroll liabilities     86,372       112,351  
Accrued liabilities     265,349       -  
Customer deposits and prepayments     12,239       78,376  
Other accrued liabilities     587,492       128,353  
Income taxes payable     47,462       491  
Current portion of long-term liabilities     -       20,828  
Current liabilities held for sale     -       849,149  
Total current liabilities     1,308,024       1,363,777  
Long-term liabilities     -       28,543  
         
Total liabilities     1,308,024       1,392,320  
Stockholders’ equity        
Common stock, no par value, 20,000,000 shares authorized, 3,784,554 shares issued and outstanding at May 31, 2020 and 4,032,878 shares issued and outstanding at May 31, 2019     12,257,306       13,245,439  
Accumulated other comprehensive loss     -       (527,827 )
Accumulated deficit     (364,104 )     (4,244,679 )
Total stockholders’ equity     11,893,202       8,472,933  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 13,201,226     $ 9,865,253  
         



SCHMITT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

.                                
                         
    Three-Months ended May 31,   Fiscal year ended May 31,
      2020       2019       2020       2019  
Net Sales    $ 967,078     1,204,778     4,189,924      $ 4,729,442  
Cost of revenue     487,260       812,113       2,239,376       2,960,680  
Gross profit     479,818       392,665       1,950,548       1,768,762  
Operating expenses:                        
General, administration and sales     1,294,883       797,741       4,061,621       3,180,497  
Research and development     36,476       3,929       68,849       56,833  
Total operating expenses     1,331,359       801,670       4,130,470       3,237,330  
Operating (loss)     (851,541 )     (409,006 )     (2,179,922 )     (1,468,568 )
Other income (expense), net     145,139       1,601       322,980       8,919  
Loss before income taxes     (706,402 )     (407,405 )     (1,856,942 )     (1,459,649 )
Provision for Income taxes for continuing operations     (2,603 )     2,367       (14,638 )     8,783  
Net loss from continuing operations     (703,799 )     (409,772 )     (1,842,304 )     (1,468,432 )
Income from discontinued operations, including gain on sale, net of tax     -       141,064       5,722,879       257,442  
Net income (loss)   $ (703,799 )   $ (268,708 )   $ 3,880,575     $ (1,210,990 )
Net loss per common share from continuing operations:                        
Basic   $ (0.18 )   $ (0.10 )   $ (0.47 )   $ (0.37 )
Weighted average number of common shares, basic     3,939,833       4,005,795       3,939,833       4,005,795  
Diluted   $ (0.18 )   $ (0.10 )   $ (0.47 )   $ (0.37 )
Weighted average number of common shares, diluted     3,939,833       4,005,795       3,939,833       4,005,795  
Net income per common share from discontinued operations:                        
Basic   $ -     $ 0.04     $ 1.45     $ 0.06  
Weighted average number of common shares, basic     3,939,833       4,005,795       3,939,833       4,005,795  
Diluted   $ -     $ 0.04     $ 1.45     $ 0.06  
Weighted average number of common shares, diluted     3,939,833       4,005,795       3,939,833       4,005,795  
Net income (loss) per common share:                        
Basic   $ (0.18 )   $ (0.07 )   $ 0.98     $ (0.30 )
Weighted average number of common shares, basic     3,939,833       4,005,795       3,939,833       4,005,795  
Diluted   $ (0.18 )   $ (0.07 )   $ 0.98     $ (0.30 )
Weighted average number of common shares, diluted     3,939,833       4,005,795       3,939,833       4,005,795  
                         

 

 


Schmitt Industries, Inc.

Source: Schmitt Industries, Inc.