GlobeNewswire Inc | Aug 31, 2020 04:40PM EDT

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

Reconciliation of Adjusted EBITDA:

Three-Months ended, May 31, 2020 2019 Loss before income taxes from continuing $ (706,402 ) $ (407,405 )operationsDepreciation 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 240,233 115,034 feesInventory adjustments - 97,122 Software write-downs (recoveries) (40,468 ) - Income from discontinued product line (2,925 ) - Adjusted EBITDA from continuing $ (442,209 ) $ (64,189 )operations Fiscal year ended, May 31, 2020 2019 Loss before income taxes from continuing $ (1,856,942 ) $ (1,459,649 )operationsDepreciation 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 842,162 752,481 feesInventory adjustments 76,099 213,253 Software write-downs (recoveries) 17,473 - Income from discontinued product line (167,479 ) - Adjusted EBITDA from continuing $ (573,502 ) $ (226,078 )operations

Reconciliation of Adjusted Net Income and Non-GAAP EPS:

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

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 Schmitts business, including the business of its subsidiary, is included in Risk Factors in the Companys 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 Companys business, please refer to Schmitts 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.

Michael R. Zapata, President and CEOFor more information Jamie Schmidt, CFO and Treasurercontact: (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 sharesauthorized, 3,784,554 shares issued and 12,257,306 13,245,439 outstanding at May31, 2020 and 4,032,878shares issued and outstanding at May31, 2019Accumulated 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 487,260 812,113 2,239,376 2,960,680 revenueGross profit 479,818 392,665 1,950,548 1,768,762 Operating expenses:General,administration 1,294,883 797,741 4,061,621 3,180,497 and salesResearch and 36,476 3,929 68,849 56,833 developmentTotaloperating 1,331,359 801,670 4,130,470 3,237,330 expensesOperating (851,541 ) (409,006 ) (2,179,922 ) (1,468,568 )(loss)Other income 145,139 1,601 322,980 8,919 (expense), netLoss before (706,402 ) (407,405 ) (1,856,942 ) (1,459,649 )income taxesProvision forIncome taxes (2,603 ) 2,367 (14,638 ) 8,783 for continuingoperationsNet loss fromcontinuing (703,799 ) (409,772 ) (1,842,304 ) (1,468,432 )operationsIncome fromdiscontinuedoperations, - 141,064 5,722,879 257,442 including gainon sale, netof taxNet income $ (703,799 ) $ (268,708 ) $ 3,880,575 $ (1,210,990 )(loss)Net loss percommon sharefrom continuingoperations:Basic $ (0.18 ) $ (0.10 ) $ (0.47 ) $ (0.37 )Weightedaverage number 3,939,833 4,005,795 3,939,833 4,005,795 of commonshares, basicDiluted $ (0.18 ) $ (0.10 ) $ (0.47 ) $ (0.37 )Weightedaverage numberof common 3,939,833 4,005,795 3,939,833 4,005,795 shares,dilutedNet income percommon sharefrom discontinuedoperations:Basic $ - $ 0.04 $ 1.45 $ 0.06 Weightedaverage number 3,939,833 4,005,795 3,939,833 4,005,795 of commonshares, basicDiluted $ - $ 0.04 $ 1.45 $ 0.06 Weightedaverage numberof common 3,939,833 4,005,795 3,939,833 4,005,795 shares,dilutedNet income(loss) per common share:Basic $ (0.18 ) $ (0.07 ) $ 0.98 $ (0.30 )Weightedaverage number 3,939,833 4,005,795 3,939,833 4,005,795 of commonshares, basicDiluted $ (0.18 ) $ (0.07 ) $ 0.98 $ (0.30 )Weightedaverage numberof common 3,939,833 4,005,795 3,939,833 4,005,795 shares,diluted