| Summary of Significant Accounting Policies | NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial information included herein has been
prepared by Schmitt Industries, Inc. (the Company or Schmitt) and
its wholly owned subsidiaries. In the opinion of management, the
accompanying unaudited Consolidated Financial Statements have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission and contain all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly
its financial position as of August 31, 2018 and its results
of operations and its cash flows for the periods presented. The
consolidated balance sheet at May 31, 2018 has been derived
from the Annual Report on Form 10-K 10-K
Revenue Recognition
On June 1, 2018, the Company adopted Accounting Standards
Update (ASU) No. 2014-09,
The Company determines the amount of revenue it recognizes
associated with the transfer of each product or service using the
five-step model provided by Topic 606. For sales of products or
delivery of monitoring services to all customers, including
manufacturing representatives, distributors or their third-party
customers, each transaction is evaluated to determine whether there
is approval and commitment from both the Company and the customer
for the transaction; whether the rights of each party are
specifically identified; whether the transaction has commercial
substance; whether collectability from the customer is probable at
the inception of the contract and whether the transaction amount is
defined. If a transaction to sell products or provide monitoring
services meets all of the above criteria, revenue is recognized for
the sales of product at the time of shipment or for monitoring
services at the completion of the month in which monitoring
services are provided.
The Company incurs commissions associated with the sales of
products, which are accrued and expensed at the time the product is
shipped. These amounts are recorded within general, administration
and sales expense.
The Company also incurs costs related to shipping and handling of
its products, the costs of which are expensed as incurred as a
component of cost of sales. Shipping and handling fees billed to
customers are recognized at the time of shipment as a component of
net sales.
Financial Instruments
The carrying value of all other financial instruments potentially
subject to valuation risk (principally consisting of cash and cash
equivalents, accounts receivable and accounts payable) also
approximates fair value because of their short-term maturities.
Restricted Cash
Restricted cash consists of an amount received from a customer in
December 2017 as part of an on-going
The following table provides a reconciliation of cash and cash
equivalents and restricted cash as reported within the Consolidated
Balance Sheets as of August 31, 2018 and May 31, 2018 to
the sum of the same such amounts as shown in the Consolidated
Statement of Cash Flows for the three months ended August 31,
2018:
August 31, 2018 May 31, 2018
Cash and cash equivalents $ 1,742,786 $ 2,053,181
Restricted cash 58,040 58,352
Total cash, cash equivalents, and restricted cash shown $ 1,800,826 $ 2,111,533
Accounts Receivable
The Company maintains credit limits for all customers based upon
several factors, including but not limited to financial condition
and stability, payment history, published credit reports and use of
credit references. Management performs various analyses to evaluate
accounts receivable balances to ensure recorded amounts reflect
estimated net realizable value. This review includes using accounts
receivable agings, other operating trends and relevant business
conditions, including general economic factors, as they relate to
each of the Company’s domestic and international customers.
If these analyses lead management to the conclusion that potential
significant accounts are uncollectible, a reserve is provided. The
allowance for doubtful accounts was $94,756 and $95,207 as of
August 31, 2018 and May 31, 2018, respectively.
Inventories
Inventories are valued at the lower of cost or net realizable value
with cost determined on the average cost basis. Costs included in
inventories consist of materials, labor and manufacturing overhead,
which are related to the purchase or production of inventories.
Write-downs, when required, are made to reduce excess inventories
to their net realizable values. Such estimates are based on
assumptions regarding future demand and market conditions. If
actual conditions become less favorable than the assumptions used,
an additional inventory write-down may be required. As of
August 31, 2018 and May 31, 2018, inventories consisted
of:
August 31, 2018 May 31, 2018
Raw materials $ 2,806,360 $ 2,796,691
Work-in-process 1,294,974 1,009,424
Finished goods 2,033,293 1,904,773
$ 6,134,627 $ 5,710,888
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over estimated useful lives of three to seven
years for furniture, fixtures and equipment; three years for
vehicles; and twenty-five years for buildings and improvements. As
of August 31, 2018 and May 31, 2018, property and
equipment consisted of:
August 31, 2018 May 31, 2018
Land $ 299,000 $ 299,000
Buildings and improvements 1,814,524 1,814,524
Furniture, fixtures and equipment 1,257,518 1,252,598
Vehicles 44,704 44,704
3,415,746 3,410,826
Less accumulated depreciation (2,660,757 ) (2,639,911 )
$ 754,989 $ 770,915
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02,
The Company is currently evaluating the impact of this guidance,
including reviewing the standard’s provisions and gathering
and analyzing data to support further evaluation of all real estate
and non-real |
