Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
May 31, 2020 | Jul. 31, 2020 | Nov. 30, 2019 | |
Cover [Abstract] | |||
Document Type | 10-K | ||
Amendment Flag | false | ||
Document Period End Date | May 31, 2020 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2020 | ||
Current Fiscal Year End Date | --05-31 | ||
Entity File Number | 001-38964 | ||
Entity Registrant Name | SCHMITT INDUSTRIES INC | ||
Entity Central Index Key | 0000922612 | ||
Entity Incorporation, State or Country Code | OR | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Interactive Data Current | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Small Business | true | ||
Entity Emerging Growth Company | false | ||
Entity Shell Company | false | ||
Entity Public Float | $ 8,802,684 | ||
Entity Common Stock, Shares Outstanding | 3,712,927 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | May 31, 2020 | May 31, 2019 |
Current assets | ||
Cash and cash equivalents | $ 10,146,531 | $ 1,467,435 |
Restricted cash | 420,000 | 0 |
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 | 0 | 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 | 0 | 85,967 |
Total assets | 13,201,226 | 9,865,253 |
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 | 0 |
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 | 0 | 20,828 |
Current liabilities held for sale | 0 | 849,149 |
Total current liabilities | 1,308,024 | 1,363,777 |
Long-term liabilities | 0 | 28,543 |
Total liabilities | 1,308,024 | 1,392,320 |
Commitments and contingencies (Note 4) | ||
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 | 0 | (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 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | May 31, 2020 | May 31, 2019 |
Statement of Financial Position [Abstract] | ||
Common stock, par value | $ .00 | $ .00 |
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, shares issued | 3,784,554 | 4,032,878 |
Common stock, shares outstanding | 3,784,554 | 4,032,878 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Income Statement [Abstract] | ||
Net sales | $ 4,189,924 | $ 4,729,442 |
Cost of revenue | 2,239,376 | 2,960,680 |
Gross profit | 1,950,548 | 1,768,762 |
Operating expenses | ||
General, administration and sales | 4,061,621 | 3,180,497 |
Research and development | 68,849 | 56,833 |
Total operating expenses | 4,130,470 | 3,237,330 |
Operating (loss) | (2,179,922) | (1,468,568) |
Other income (expense), net | 322,980 | 8,919 |
Loss before income taxes | (1,856,942) | (1,459,649) |
Income tax provision (benefit) from continuing operations | (14,638) | 8,783 |
Net loss from continuing operations | (1,842,304) | (1,468,432) |
Income from discontinued operations, including gain on sale, net of tax | 5,722,879 | 257,442 |
Net income (loss) | $ 3,880,575 | $ (1,210,990) |
Net loss per common share from continuing operations, basic | $ (.47) | $ (0.37) |
Net loss per common share from continuing operations, diluted | (0.47) | (0.37) |
Net income per common share from discontinued operations, basic | 1.45 | 0.06 |
Net income per common share from discontinued operations, diluted | 1.45 | 0.06 |
Net income (loss) per common share, basic | 0.98 | (0.30) |
Net income (loss) per common share, diluted | $ 0.98 | $ (0.30) |
Weighted average number of common shares, basic | 3,939,833 | 4,005,795 |
Weighted average number of common shares, diluted | 3,939,833 | 4,005,795 |
Comprehensive income (loss) | ||
Net income (loss) | $ 3,880,575 | $ (1,210,990) |
Foreign currency translation adjustment | 0 | 8,480 |
Total comprehensive income (loss) | $ 3,880,575 | $ (1,202,510) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Cash flows relating to operating activities | ||
Net income (loss) | $ 3,880,575 | $ (1,210,990) |
Pre-tax earnings from discontinued operations | (616,711) | (275,107) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||
Depreciation and amortization | 161,137 | 173,216 |
Loss on disposal of property and equipment | 74,020 | 0 |
Stock based compensation | 354,048 | 94,621 |
Reserve for excess or obsolete inventories | 0 | 116,131 |
Gain on sale of discontinued operations before income taxes | (5,166,845) | 0 |
(Increase) decrease in: | ||
Accounts receivable | 56,200 | (145,238) |
Inventories | 181,775 | (14,156) |
Prepaid expenses | 40,943 | (21,244) |
Increase (decrease) in: | ||
Accounts payable | 165,094 | (109,714) |
Accrued liabilities and customer deposits | 328,450 | 17,405 |
Accrued taxes | 265,349 | 0 |
Income taxes payable | 46,971 | (4,098) |
Net cash provided by (used in) operating activities - continuing operations | (228,994) | (1,379,175) |
Net cash provided by operating activities - discontinued operations | 257,735 | 681,522 |
Net cash provided by (used in) operating activities - total | 28,741 | (697,653) |
Cash flows relating to investing activities | ||
Purchases of property and equipment | (32,982) | (4,673) |
Proceeds from sale of property and equipment | 3,000 | 0 |
Proceeds from sale of net assets of discontinued operations | 10,426,589 | 0 |
Net cash provided by (used in) investing activities - continuing operations | 10,396,607 | (4,673) |
Net cash provided by (used in) investing activities - discontined operations | (6,649) | 0 |
Net cash provided by (used in) investing activities - total | 10,389,958 | (4,673) |
Cash flows relating to financing activities | ||
Payments on current and long-term liabilities | (49,395) | (15,424) |
Common stock issued through exercise of options | 8,500 | 65,166 |
Repurchase of equity | (1,350,681) | 0 |
Net cash provided by (used in) financing activities | (1,391,576) | 49,742 |
Effect of foreign exchange translation on cash | 71,973 | 8,485 |
Increase (decrease) in cash, cash equivalents and restricted cash | 9,099,096 | (644,098) |
Cash, cash equivalents and restricted cash, beginning of period | 1,467,435 | 2,111,533 |
Cash, cash equivalents and restricted cash, end of period | 10,566,531 | 1,467,435 |
Supplemental disclosure of cash flow information | ||
Cash paid during the year for income taxes | 4,289 | 29,940 |
Cash paid during the year for interest | 2,435 | 12,160 |
Supplemental disclosure of non-cash investing and financing activities | ||
Acquisition of property and equipment through financed payables | $ 0 | $ 145,784 |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Equity - USD ($) | Common Stock | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total |
Beginning balance, shares at May. 31, 2018 | 3,994,545 | |||
Beginning balance at May. 31, 2018 | $ 13,085,652 | $ (536,307) | $ (3,033,689) | $ 9,515,656 |
Exercise of stock options, shares | 38,333 | 38,333 | ||
Exercise of stock options | $ 65,166 | $ 65,166 | ||
Stock-based compensation | 94,621 | 94,621 | ||
Net income (loss) | (1,210,990) | (1,210,990) | ||
Other comprehensive income | 8,480 | 8,480 | ||
Ending balance, shares at May. 31, 2019 | 4,032,878 | |||
Ending balance at May. 31, 2019 | $ 13,245,439 | (527,827) | (4,244,679) | 8,472,933 |
Stock compensation expense for restricted stock units granted to employees and directors | $ 354,048 | 354,048 | ||
Repurchase of common stock, shares | (418,051) | |||
Repurchase of common stock | $ (1,350,681) | (1,350,681) | ||
Exercise of stock options, shares | 33,166 | |||
Exercise of stock options | $ 8,500 | 8,500 | ||
Restricted stock units exercised, shares | 136,561 | |||
Restricted stock units exercised | 0 | |||
Net income (loss) | 3,880,575 | 3,880,575 | ||
Other comprehensive income | 527,827 | 527,827 | ||
Ending balance, shares at May. 31, 2020 | 3,784,554 | |||
Ending balance at May. 31, 2020 | $ 12,257,306 | $ 0 | $ (364,104) | $ 11,893,202 |
The Company
The Company | 12 Months Ended |
May 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
The Company | Schmitt Industries is a world leader in providing highly precise test and measurement products and services that help customers save money, increase production efficiency and improve product quality. After the sale of the SBS business, based on the types of products and services sold, and an analysis of how the Company reviews and manages operations, the Company determined that it operates as one segment. Through its wholly owned subsidiary, Schmitt Measurement Systems, Inc., the Measurement segment manufacturers and sells products in two core product lines, Acuity Lasers and Xact Tank Monitoring. · Acuity™ was acquired in June of 2000 and manufacturers and markets dimensional and distance measurement lasers. These laser products utilize both triangulation and time-of-flight measurement principles and are known for their speed and accuracy. The Acuity products are used in a wide variety of industrial, commercial and research applications. · Xact™ was acquired in 2007 and offers ultrasonic measurement technology for the remote monitoring of the fill levels of propane and other liquid tanks. Together with the Xact gauge reader, the satellite-focused Xact systems can detect and communicate fill levels, along with other information such as tank size and configuration, to customers through the “Internet of Things” ecosystem using our satellite provider and a secure website. Typical users of Xact systems are bulk propane, diesel, jet fuel suppliers and ammonia users and distributors. Additionally, as discussed further in Note 11, the Company now operates Ample Hills Creamery following the July 9, 2020 successful asset purchase of, among other things, Ample Hills’ equipment, inventory, and all intellectual property, including the names and marks of “AMPLE HILLS” and “AMPLE HILLS CREAMERY” and all derivatives thereof. |
Significant Accounting Policies
Significant Accounting Policies | 12 Months Ended |
May 31, 2020 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | Principles of Consolidation These Consolidated Financial Statements include those of the Company and its wholly owned subsidiaries: Schmitt Measurement Systems, Inc. and Schmitt Industries (Canada) Limited. All significant intercompany accounts and transactions have been eliminated in the preparation of the Consolidated Financial Statements. Reclassification Certain amounts in the prior period consolidated balance sheet have been reclassified to conform to the presentation of the current period. These reclassifications had no effect on previously recorded net income. Revenue Recognition The Company determines the amount of revenue it recognizes associated with the transfer of each product or service. For sale of products or delivery of monitoring services to all 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, which are recognized at the time of shipment as a component of net revenues, were $29,707 and $33,929 for the year ended May 31, 2020 and May 31, 2019, respectively. Cash, Cash Equivalents and Restricted Cash The Company generally invests its excess cash in money market funds. The Company’s investment policy also allows for cash to be invested in investment grade highly liquid securities, and the Company considers securities that are highly liquid, readily convertible into cash and have original maturities of less than three months when purchased to be cash equivalents. The Company’s cash consists of demand deposits in large financial institutions and money market funds. At times, balances may exceed federally insured limits. Restricted cash consists of an amount held in escrow related to the sale of the balancer business segment, as described in notes to the financial statements. Once certain events are complete, the restrictions on this cash payment will be released. The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported within the Consolidated Balance Sheets as of May 31, 2020 and 2019 to the sum of the same such amounts as shown in the Consolidated Statement of Cash Flows for the respective years then ended: Years ended May 31, 2020 2019 Cash and cash equivalents $ 10,146,531 $ 1,467,435 Restricted cash 420,000 - Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows $ 10,566,531 $ 1,467,435 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 aging reports, other operating trends and relevant business conditions, including general economic factors, as they relate to each of the Company’s domestic and international customers. In the event there is doubt about whether a customer account is collectible, a reserve is provided. If these analyses lead management to the conclusion that a customer account is uncollectible, the balance will be directly charged to bad debt expense. The allowance for doubtful accounts was $103,029 and $36,826 as of May 31, 2020 and 2019, 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. Inventory balances as of May 31, 2020 and 2019, respectively, consisted of: Fiscal Year ended, May 31, 2020 2019 Raw materials $ 154,293 $ 347,095 Work-in-process 525,615 376,375 Finished goods 379,449 517,662 Total Inventory $ 1,059,357 $ 1,241,132 Property and Equipment Property and equipment are stated at cost, less 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. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense for the year ended May 31, 2020 and 2019 was $56,554 and $68,633, respectively. Net property, plant and equipment balances as of May 31, 2020 and 2019, respectively, consisted of: Fiscal Year ended, May 31, 2020 2019 Land $ 299,000 $ 299,000 Buildings and improvements 1,847,505 1,814,524 Furniture, fixtures and equipment 396,264 498,476 2,542,769 2,612,000 Less accumulated depreciation (1,890,633 ) (1,858,593 ) $ 652,136 $ 753,407 Lease Accounting The Company determines if an arrangement is a lease or a service contract at inception. Where an arrangement is a lease the Company determines if it is an operating lease or a finance lease. Subsequently, if the arrangement is modified the Company reevaluates the classification. Buildings leased to others under operating leases are included in property, plant and equipment. On November 22, 2019, the Company entered in a commercial lease agreement, which has been accounted for pursuant to (ASU) No. 2016-02, “Leases (Topic 842)”. The Company elected the practical expedient to not separate lease and non-lease components and will present property revenues as other income, combined based upon the lease being determined to be the predominant component. The lessor commercial agreement contains a 10-year term with a renewal option to extend, which will be considered a new, separate contract and will be recognized at the time the option is exercised on a straight-line basis over the renewal period, and early termination options based on established terms specific to the individual agreement. Minimum future lease payments receivable are as follows: Years ending May 31, 2021 $ 283,578 2022 291,906 2023 300,666 2024 309,870 2025 319,164 Thereafter 1,557,600 Total undiscounted cash flow $ 3,062,784 Intangible Assets and Impairment Amortizable intangible assets, which include purchased technology and patents, are amortized over their estimated useful lives ranging from five to seventeen years. As of May 31, 2020 and May 31, 2019, amortizable intangible assets were $2,085,362 and $2,200,883, and accumulated amortization was $1,797,760 and $1,808,698, respectively. Amortization expense for the year ended May 31, 2020 and May 31, 2019 was $104,583. Amortization expense for each of the following years ending May 31 is expected to be as follows; Years ending May 31, 2021 $ 104,583 2022 104,583 2023 78,436 2024 - 2025 - Thereafter - $ 287,602 Intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Recoverability is determined by comparing the forecasted future net cash flows from the operations to which the assets relate, based on management's best estimates using the appropriate assumptions and projections at the time, to the carrying amount of the assets. If the carrying value is determined to be in excess of future operating cash flows, the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets. As of May 31, 2020, no impairment existed. Customer deposits and prepayments Customer deposits and prepayments consists of amounts received from customers as prepayments for orders that have been received and have been produced but have not yet shipped, credit balances for items returned by customers for which refunds have not yet been provided and deposits made by customers in advance of production. Other accrued liabilities As of May 31, 2020, other accrued liabilities included $237,633 of accrued professional and legal expenses related to transaction and turn-around costs, $121,959 in costs related to Xact Monitoring services provided to clients for Fiscal Year 2020, and $82,811 of customer deposits due to SBS Accretech. It also included an accrual for warranty reserve and sales return reserve, recurring professional expenses for consulting relationships, legal fees related to business planning expenses, amounts financed on a short-term arrangement for the purchase of the Company’s new enterprise resource planning software and amounts owing under various professional fee contracts for which invoices have not yet been received. Foreign Currency Financial statements for the Company’s subsidiaries outside the United States are translated into U.S. dollars at year-end exchange rates for assets and liabilities and weighted average exchange rates for income and expenses. The resulting translation adjustments are included as a separate component of stockholders’ equity titled “Accumulated Other Comprehensive Loss.” Transaction gains and losses are included in net income (loss). Advertising Advertising costs included in general, administration and sales, are expensed when the advertising first takes place. Advertising expense was $7,767 and $22,018 for the years ended May 31, 2020 and 2019, respectively. Research and Development Costs Research and development costs, predominately internal labor costs and costs of materials, are charged to expense when incurred. Warranty Reserve Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty reserve accruals, included in other accrued liabilities, are reviewed periodically and updated based on warranty trends. Stock-Based Compensation Stock-based compensation includes expense charges for all stock-based awards to employees and directors granted under the Company’s stock option plan. The Company requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options based on estimated fair values. Stock-based compensation recognized during the period is based on the value of the portion of the stock-based award that will vest during the period, adjusted for expected forfeitures. Compensation cost for all stock-based awards is recognized using the straight-line method. Income Taxes Each year the Company files income tax returns in the various taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the taxing authorities. Positions challenged by the taxing authorities may be settled or appealed by the Company. As a result, there is an uncertainty in income taxes recognized in the Company’s financial statements in accordance with ASC Topic 740. The Company applies this guidance by defining criteria that an individual income tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and provides guidance on measurement, de-recognition, classification, accounting for interest and penalties, accounting in interim periods, disclosure, and transition. The Company applies the asset and liability method in recording income taxes, under which deferred income tax assets and liabilities are determined, based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws. Additionally, deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Management continues to review the level of the valuation allowance on a quarterly basis. Accrued Liabilities In Q4 of Fiscal 2020, the Company determined that it was more likely than not that the Company had a pre-existing tax liability related to prior periods. The Company has analyzed the liability and estimated it to be $265,349 as of May 31, 2020. Accordingly, the Company recognized $265,349 in operating expenses in Q4 of Fiscal 2020 to accrue for the liability. Earnings (Loss) Per Share Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed using the weighted average number of common shares outstanding, adjusted for dilutive incremental shares attributed to outstanding options to purchase common stock. Common stock equivalents for stock options are computed using the treasury stock method. In periods in which a net loss is incurred, no common stock equivalents are included since they are antidilutive and as such all stock options outstanding are excluded from the computation of diluted net loss in those periods. There were 8,888 and 43,751 potentially dilutive common shares from outstanding stock options have been excluded from diluted earnings (loss) per share for the years ended May 31, 2020 and 2019, respectively. Concentration of Credit Risk Financial instruments that potentially expose the Company to concentration of credit risk are trade accounts receivable. Credit terms generally require an invoice to be paid within 30 to 60 days or include a discount of up to 1.5% if the invoice is paid within ten days, with the net amount payable in 30 days. Terms are set for each account depending on the customer’s credit standing with the Company. Financial Instruments The carrying value of all other financial instruments potentially subject to valuation risk (principally consisting of cash and cash equivalents, accounts receivable, accounts payable and the current portion of long-term liability) approximates fair value because of their short-term maturities. Shipping and Handling The Company incurs costs related to shipping and handling of its manufactured products. These costs are expensed as incurred as a component of cost of sales. Shipping and handling charges related to the receipt of raw materials are also incurred, which are recorded as a cost of the related inventory. Use of Estimates The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates. Recent Accounting Pronouncements In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard on leasing. The new standard requires companies to record most leased assets and liabilities on the balance sheet, and also proposed a dual model for recognizing expense. The Company adopted the standard as of June 1, 2019, with retroactive reporting for prior periods (the comparative option). Adoption of these accounting changes did not have a material impact on the Consolidated Financial Statements. In January 2017, the FASB issued a new accounting standard which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance was effective for the Company beginning in 2019. Adoption of these accounting changes did not have a material impact on the Consolidated Financial Statements. In May 2017, the FASB issued a new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance was effective for the Company beginning in 2019. Adoption of these accounting changes did not have a material impact on the Consolidated Financial Statements. In June 2018, the FASB issued a new accounting standard which provides guidance that expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This guidance was effective for the Company beginning in 2019, with early adoption permitted. Adoption of these accounting changes did not have a material impact on the Consolidated Financial Statements. |
Income Taxes
Income Taxes | 12 Months Ended |
May 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code by reducing the U.S. federal corporate tax rate from 34 percent to 21 percent, requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, creating a new limitation on deductible interest expense and changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. The SEC staff subsequently issued Staff Accounting Bulletin 118 (“SAB 118”), which provides a one-year measurement for companies to complete the accounting for the effects of the Tax Act. In accordance with SAB 118, where accounting is complete, a company must reflect the income tax effects of those aspects, but to the extent that a company’s accounting is incomplete but a reasonable estimate may be made, a provisional estimate should be recorded in the financial statements. Where a company is unable to determine a provisional estimate, SAB 118 permits application of the tax laws that were in effect immediately before the enactment. Effective Tax Rate The effective tax rate for the three months ended May 31, 2020 was 1.2%. The effective tax rate on consolidated net income for the year ended May 31, 2020 and 2019 differs from the federal statutory tax rate primarily due to changes in the deferred tax valuation allowance and the impact of certain expenses not being deductible for income tax reporting purposes. Management believes the effective tax rate for Fiscal 2020 will be approximately 1.2% due to the items noted above. The provision for income taxes is as follows: Year ended May 31, 2020 2019 Current provision for continued operations (14,368 ) 8,783 Current provision for discontinued operations 60,677 17,655 Deferred provision 999,420 329,035 Change in valuation allowance (999,420 ) (329,035 ) Total provision for income taxes $ 46,039 $ 26,438 Deferred tax assets are comprised of the following components: 2020 2019 Basis difference for assets $ 162,853 $ 182,654 Inventory related items 75,500 169,585 Other reserves and liabilities 112,829 74,694 Net operating loss carryforward 624,650 1,507,141 General business and other credit carry forward 455,841 489,327 Other deferred items, net - 7,692 Gross deferred tax assets 1,431,673 2,431,093 Deferred tax asset valuation allowance (1,431,673 ) (2,431,093 ) Net deferred tax assets $ - $ - Deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company has recorded a substantial deferred tax asset related to temporary differences between book and tax basis of assets and liabilities and net operating loss carryforwards. During the year ended May 31, 2020, the Company decreased its valuation allowance by $999,420 which was due to the use of net operating losses carryforwards used against the gain on the sale. The year ended May 31, 2019, the Company increased its valuation allowance $329,035 as a result of the increase in the Company’s deferred tax assets most of which was due to the increase in net operating losses carryforwards generated by the Fiscal 2019 results. The Company has provided a full valuation allowance against all of its deferred tax assets as the recent losses from continuing operations have been given more weight than projected future income when determining the need for a valuation allowance. The Company has federal net operating loss carryforwards of approximately $2,230,773 which begin to expire in 2037 along with the federal general business and other credit carryforwards. The Company has state net operating loss carryforwards of approximately $2,690,375 million which begin to expire in 2031. The provision for income taxes differs from the amount of income taxes determined by applying the U.S. statutory federal tax rate to pre-tax loss due to the following: 2020 2019 Statutory Federal Rate 21.0 % 21.0 % State Taxes, net of federal benefit 5.3 % 5.3 % Change in deferred tax valuation allowance -27.1 % -25.7 % Impact of Tax Act 0 % 0.0 % Stock-based compensation 0 % -1.8 % R&E tax credits 0.2 % 1.8 % Effect of foreign income tax rates -0.1 % -3.4 % Deferred tax true-up 0.0 % 4.1 % State minimum taxes 1.7 % -1.0 % Permanent and other differences 0.2 % -2.5 % Effective Tax Rate 1.2 % -2.2 % Interest and penalties associated with uncertain tax positions are recognized as components of the Provision for income taxes. The liability for payment of interest and penalties was $0 as of May 31, 2020 and 2019. Several tax years are subject to examination by major tax jurisdictions. In the United States, federal tax years for the years ended May 31, 2017 and after are subject to examination. In the United Kingdom, tax year for the year ended May 31, 2019 is subject to examination. |
Commitments and Contingencies
Commitments and Contingencies | 12 Months Ended |
May 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | In a transaction related to the acquisition of Schmitt Measurement Systems, Inc., formerly TMA Technologies, Inc. (“TMA”), the Company established a royalty pool and vested in each shareholder and debt holder of the acquired company an interest in the royalty pool equal to the amount invested or loaned including interest payable through March 1995. The royalty pool is funded at 5% of net revenues (defined as gross sales less returns, allowances and sales commissions) of the Company’s surface measurement products and future derivative products developed by Schmitt Industries, Inc., which utilize these technologies. As part of the royalty pool agreement, each former shareholder and debt holder released TMA from any claims with regard to the acquisition except their rights to future royalties. Royalty expense applicable to the years ended May 31, 2020 and 2019 amounted to $29,965 and $1,126, respectively. |
Stockholder Rights Agreement
Stockholder Rights Agreement | 12 Months Ended |
May 31, 2020 | |
STOCKHOLDER RIGHTS AGREEMENT [Abstract] | |
Stockholder 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 attempting to diminish 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. The Rights Agreement is intended to act as a deterrent to any person acquiring beneficial ownership of 4.9% or more of the Company’s outstanding common stock, no par value (“Common Stock”) without the approval of the Company’s Board of Directors (the “Board”). Stockholders who beneficially own 4.9% or more of the outstanding Common Stock as of the close of business on July 1, 2019 will not trigger the Rights Agreement so long as they do not acquire beneficial ownership of additional shares of Common Stock representing 0.5% or more of the outstanding Common Stock (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding shares of Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock) at a time when they still beneficially own 4.9% or more of the outstanding Common Stock. In addition, the Board retains the sole discretion to exempt any person or group from the penalties imposed by the Rights Agreement. The Board remains open to all alternatives to maximize stockholder value, and may in its sole discretion, exempt a proposed acquisition of Common Stock from the Rights Agreement, including if it determines that the acquisition is in the Company’s best interests, or if it will not jeopardize the Tax Benefits. The Rights Agreement is not expected to interfere with any merger or other business combination approved by the Board. The Board authorized the issuance of one right (a “Right”) for each outstanding share of Common Stock payable to stockholders of record as of the close of business on July 19, 2019 (the “Record Date”). One Right will also be issued together with each share of the Company’s Common Stock issued after the Record Date but before the Distribution Date (as defined below) and, in certain circumstances, after the Distribution Date. Subject to the terms, provisions and conditions of the Rights Agreement, if the Rights become exercisable, each Right would initially represent the right to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, no par value, of the Company (the “Series A Preferred Stock”) for a purchase price of $11.25 (the “Purchase Price”). If issued, each one-thousandth of a share of Series A Preferred Stock would give the stockholder approximately the same dividend, voting and liquidation rights as does one share of Common Stock. However, prior to exercise, a Right does not give its holder any rights as a stockholder of the Company, including, without limitation, any dividend, voting or liquidation rights. The Rights will not be exercisable until the earlier of (i) ten business days after a public announcement that a person has become an “Acquiring Person” by acquiring beneficial ownership of 4.9% or more of outstanding Common Stock (or, in the case of a person that had beneficial ownership of 4.9% or more of the outstanding Common Stock as of the close of business on July 1, 2019, by obtaining beneficial ownership of any additional shares of Common Stock representing 0.5% or more of the shares of Common Stock then outstanding (other than pursuant to a dividend or distribution paid or made by the Company on the outstanding shares of the Common Stock or pursuant to a split or subdivision of the outstanding shares of Common Stock) at a time such person still beneficially owns 4.9% or more of the outstanding Common Stock), and (ii) ten business days (or such later date as may be specified by the Board prior to such time as any person becomes an Acquiring Person) after the commencement of a tender or exchange offer by or on behalf of a person that, if completed, would result in such person becoming an Acquiring Person (the “Distribution Date”). Until the Distribution Date, Common Stock certificates or the ownership statements issued with respect to uncertificated shares of Common Stock will evidence the Rights. Any transfer of shares of Common Stock prior to the Distribution Date will also constitute a transfer of the associated Rights. After the Distribution Date, separate rights certificates will be issued and the Rights may be transferred other than in connection with the transfer of the underlying shares of Common Stock unless and until the Board has determined to effect an exchange pursuant to the Rights Agreement (as described below). In the event that a person becomes an Acquiring Person, each holder of a Right, other than Rights that are or, under certain circumstances, were beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right and payment of the Purchase Price, a number of shares of the Company’s Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a market value equal to two times the Purchase Price. However, Rights are subject to redemption and exchange at the option of the Company. In the event that, at any time following a person becoming an Acquiring Person, (i) the Company engages in a merger or other business combination transaction in which the Company is not the surviving corporation; (ii) the Company engages in a merger or other business combination transaction in which the Company is the surviving corporation and the Common Stock is changed or exchanged; or (iii) 70% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights which have previously been voided as set forth below) shall thereafter have the right to receive, upon exercise of the Right, common stock of the acquiring company having a value equal to two times the Purchase Price. At any time until the earlier of July 1, 2022, and ten calendar days following the first date of public announcement that a person has become an Acquiring Person or that discloses information which reveals the existence of an Acquiring Person or such earlier date as a majority of the Board becomes aware of the existence of an Acquiring Person, the Board may redeem the Rights in whole, but not in part, at a price of $0.001 per Right (the “Redemption Price”). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. At any time after a person becomes an Acquiring Person, the Board may, at its option, exchange the Rights (other than Rights that have become void), in whole or in part, at an exchange ratio of one share of Common Stock, or a fractional share of Series A Preferred Stock (or of a share of a similar class or series of the Company’s preferred stock having similar rights, preferences and privileges) of equivalent value, per Right (subject to adjustment). Immediately upon an exchange of any Rights, the right to exercise such Rights will terminate and the only right of the holders of Rights will be to receive the number of shares of Common Stock (or fractional share of Series A Preferred Stock or of a share of a similar class or series of the Company’s preferred stock having similar rights, preferences and privileges) equal to the number of such Rights held by such holder multiplied by the exchange ratio. Each one one-thousandth of a share of Series A Preferred Stock, if issued: (i) will be junior to any other series of preferred stock the Company may issue (unless otherwise provided in the terms of such other series), (ii) will entitle holders to preferential cumulative quarterly dividends in an amount per share of Series A Preferred Stock equal to the greater of (a) $1 or (b) 1,000 times the aggregate the dividends, if any, declared on one share of the Company’s Common Stock, (iii) will entitle holders upon liquidation (voluntary or otherwise) to receive $1,000 per share of Series A Preferred Stock plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, (iv) will have the same voting power as one share of Common Stock, and (v) will entitle holders to a per share payment equal to the payment made on one share of the Company’s Common Stock, if shares of the Common Stock are exchanged via merger, consolidation, or a similar transaction. Because of the nature of the Series A Preferred Stock’s dividend, liquidation and voting rights, the value of one one-thousandth of a share of Series A Preferred Stock purchasable upon exercise of each Right should approximate the value of one share of Common Stock. The Rights and the Rights Agreement will expire on the earliest of (i) July 1, 2022, (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement, (iii) the time at which the Rights are exchanged in full pursuant to the Rights Agreement, (iv) the date that the Board determines that the Rights Agreement is no longer necessary for the preservation of material valuable Tax Benefits, (v) the beginning of a taxable year of the Company to which the Board determines that no tax benefits may be carried forward, and (vi) a determination by the Board, prior to the time any Person becomes an Acquiring Person, that the Rights Agreement and the Rights are no longer in the best interests of the Company and its stockholders. The Board may adjust the Purchase Price, the number of shares of Series A Preferred Stock or other securities or assets issuable and the number of outstanding Rights to prevent dilution that may occur as a result of certain events, including among others, a stock dividend, a stock split or a reclassification of the Series A Preferred Stock or Common Stock. With certain exceptions, no adjustments to the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. For so long as the Rights are redeemable, the Board may supplement or amend any provision of the Rights Agreement in any respect without the approval of the holders of the Rights. From and after the time the Rights are no longer redeemable, the Board may supplement or amend the Rights Agreement only to cure an ambiguity, to alter time period provisions, to correct inconsistent provisions, or to make any additional changes to the Rights Agreement which the Company may deem necessary or desirable, but only to the extent that those changes do not impair or adversely affect any Rights holder (other than an Acquiring Person or any Affiliate or Associate of an Acquiring Person or certain of their transferees) and do not result in the Rights again becoming redeemable or the Rights Agreement again becoming amendable other than in accordance with this sentence. |
Stock Based Compensation
Stock Based Compensation | 12 Months Ended |
May 31, 2020 | |
Share-based Payment Arrangement [Abstract] | |
Stock Based Compensation | Stock-based compensation includes expense charges for all stock-based awards to employees and directors granted under the Company’s stock option plan. Stock-based compensation recognized during the period is based on the portion of the grant date fair value of the stock-based award that will vest during the period, adjusted for expected forfeitures. Compensation cost for all stock-based awards is recognized using the straight-line method. Stock Options The Company uses the Black-Scholes option pricing model as its method of valuation for stock-based awards. The Black-Scholes option pricing model requires the input of highly subjective assumptions, and other reasonable assumptions could provide differing results. These variables include, but are not limited to: · Risk-Free Interest Rate. · Expected Life. · Expected Volatility. · Expected Dividend Yield. · Expected Forfeitures. The Company has computed, to determine stock-based compensation expense recognized for the years ended May 31, 2020 and 2019, the value of all stock options granted using the Black-Schol Year Ended May 31, 2020 2019 Average risk-free interest rate N/A 3.1% Expected life N/A 6.0 years Expected volatility N/A 46.3% There were no options granted during the year ended May 31, 2020 and the Company had outstanding stock options to purchase 22,500 shares of Common Stock as of May 31, 2020. All outstanding options are fully vested and exercisable with a weighted average exercise price of $1.70. As all options outstanding as of May 31, 2020 were fully vested, the Company did not record any additional stock-based compensation expense during the year ending May 31, 2020. Outstanding Options Exercisable Options Number of Weighted Weighted Weighted 22,500 $ 1.70 6.9 $ 1.70 Options granted, exercised, canceled and expired under the Company’s stock-based compensation plans during the years ended May 31, 2020 and 2019 are summarized as follows: Number of Weighted Weighted Aggregate Options outstanding and exercisable - May 31, 2018 318,332 $ 2.36 6.8 $ 751,264 Options granted 15,000 2.45 Options exercised (38,333 ) 1.70 Options forfeited/canceled (40,833 ) 2.66 Options outstanding and exercisable - May 31, 2019 254,166 $ 2.41 5.8 $ 612,540 Options granted - Options exercised (69,166 ) 1.82 Options forfeited/canceled (162,500 ) 2.77 Options outstanding and exercisable - May 31, 2020 22,500 $ 1.70 6.9 $ 38,250 Restricted Stock Units Service-based and market-based restricted stock units are granted to key employees and members of the Company’s Board of Directors. Service-based restricted stock units are valued at the stock price at date of grant and amortized on a straight-line over the vesting period. Service-based restricted stock units generally fully vest on the first anniversary date of the award. Market-based restricted stock units are contingent on continued service and vest based on the 15-day average closing price of the Company’s Common Stock equal or exceeding certain targets established by the Compensation Committee of the Board of Directors. The lattice model utilizes multiple input variables that determine the probability of satisfying the market conditions stipulated in the award and calculates the fair value of the market-based restricted stock units. The Company used the following assumptions in determining the fair value of market based restricted stock units: Year Ended May 31, 2020 2019 Expected stock price volatility 54.1% 50.1% - 57.5% Expected dividend yield 0% 0% Average risk-free interest rate 2.3% 2.55% - 2.98% The expected stock price volatility for each grant is based on the historical volatility of the Company’s stock for a period equivalent to the derived service period of each grant. The expected dividend yield is based on annual expected dividend payments. The average risk-free interest rate is based on the treasury yield rates as of the date of grant for a period equivalent to the derived service period of each grant. The fair value of each restricted stock unit is amortized over the requisite or derived service period, which is up to five years. The restricted stock units granted during the year ended May 31, 2020 have a grant date fair value of $218,379. For the year ended May 31, 2020, six tranches, consisting of 18,000 units, of market-based restricted stock units were granted. The fair value of the on the grant date of the units was $27,900. The following table summarizes the vesting terms for the market-based restricted stock units granted in Fiscal 2020: Number of restricted stock units Target Price 3,000 $ 4.00 3,000 $ 4.20 3,000 $ 4.40 3,000 $ 4.60 3,000 $ 4.80 3,000 $ 5.00 For the year ended May 31, 2020, there were 69,478 service-based restricted stock units granted, in addition to the 18,000 market-based restricted stock units that were granted. The total fair value of the restricted stock units, service and market based, at grant date was $261,559. Of the service-based units outstanding, 113,561 units vested, and 16,770 units canceled. Restricted stock unit activity under the Company’s stock-based compensation plans during the year ended May 31, 2020 is summarized as follows: Number of Weighted Aggregate Non-vested restricted stock units - May 31, 2019 98,000 $ 2.94 $ 288,120 Restricted stock units granted 87,478 2.99 261,559 Restricted stock units vested (113,561 ) 2.83 (321,378 ) Restricted stock units forfeited (16,770 ) 2.79 (46,788 ) Non-vested restricted stock units - May 31, 2020 55,147 $ 3.28 $ 180,882 For the year ended May 31, 2020, total restricted stock unit compensation expense recognized was $354,048 and has been recorded as general, administration and sales expense in the Consolidated Statements of Operations and the company will realize $70,533 of expenses in future periods on RSUs granted prior to May 31, 2020. |
Weighted Average Shares and Rec
Weighted Average Shares and Reconciliation | 12 Months Ended |
May 31, 2020 | |
Earnings Per Share [Abstract] | |
Weighted Average Shares and Reconciliation | The following table is a reconciliation of the numerators and denominators of the basic and diluted per share computations for loss from continuing operations for fiscal years ended May 31, 2020 and 2019, respectively: Net Weighted Avg Per Share Income/(loss) Shares Amount Year ended May 31, 2020 Basic earnings per share from continuing operations $ (0.47 ) Loss available to stockholders $ (1,842,304 ) 3,939,833 Effect of dilutive securities stock options - - Diluted earnings per share Loss available to common stockholders $ (1,842,304 ) $ 3,939,833 $ (0.47 ) Year ended May 31, 2019 Basic earnings per share from continuing operations $ (0.37 ) Loss available to stockholders $ (1,468,432 ) 4,005,795 Effect of dilutive securities stock options - - Diluted earnings per share Loss available to common stockholders $ (1,468,432 ) $ 4,005,795 $ (0.37 ) Basic net loss from continuing operations per share is computed using the weighted average number of shares of Common Stock outstanding. Diluted net loss per share is computed using the weighted average number of shares of Common Stock outstanding, adjusted for dilutive incremental shares attributed to outstanding options to purchase Common Stock and restricted stock units vested but not issued. Common stock equivalents for stock options are computed using the treasury stock method. In periods in which a net loss is incurred, no common stock equivalents are included since they are antidilutive and as such all stock options outstanding are excluded from the computation of diluted net loss in those periods. For the year ended May 31, 2020, potentially dilutive securities consisted of options of 22,500 shares of Common Stock at $1.70 per share. Of these potentially dilutive securities, none of the shares of Common Stock underlying the options are included in the computation of diluted earnings per share because the Company incurred a net loss from continuing operations. In periods when a net loss is incurred in continuing operations, no Common Stock equivalents are included in the calculation of diluted net income or loss from discontinued operations or overall Company net income or loss since they are antidilutive. As such, all stock options outstanding are excluded from the computation of diluted net income in those periods. On December 3, 2019, the Company announced that its Board of Directors authorized a share repurchase plan to buy up to $2 million of its Common Stock. The Company intends to purchase shares from time to time through open market and private transactions in accordance with Securities and Exchange Commission rules. The plan is authorized through December 16, 2020. For the year ended May 31, 2020, the Company has repurchased 418,051 Shares, at an average price of $3.23 per share, under its previously announced $2 million share repurchase plan, which was done in accordance with a 10b5-1 plan. On December 17, 2019, the Company acquired 365,490 shares of Common Stock (the “Shares”) at $3.25 per share from Walter Brown Pistor. On January 31, 2020, the Company entered into an agreement with former director David Hudson to initiate a cashless exercise for 64,166 of his options, whereby the Company purchased 36,000 shares for $3.25 per share from Mr. Hudson to fund the exercise of his remaining 28,166 shares. |
Employee Benefit Plans
Employee Benefit Plans | 12 Months Ended |
May 31, 2020 | |
Postemployment Benefits [Abstract] | |
Employee Benefit Plans | The Company adopted the Schmitt Industries, Inc. 401(k) Profit Sharing Plan & Trust effective June 1, 1996. Employees must meet certain age and service requirements to be eligible. Participants may contribute up to 15% of their eligible compensation which may be partially matched by the Company. The Company may make further contributions in the form of a profit-sharing contribution or a discretionary contribution. The Company made matching contributions in conjunction with employee contributions to the plan totaling $5,710 and $40,336 during the years ended May 31, 2020 and 2019, respectively. |
Major Customers
Major Customers | 12 Months Ended |
May 31, 2020 | |
Revenue from Contract with Customer [Abstract] | |
Major Customers | The Company had one customer whose revenue individually represented 33.8% and 31.7% of the Company’s total net revenues for the years ended May 31, 2020 and 2019, respectively. The same customer accounted for 34.1% of accounts receivable as of May 31, 2020. Additionally, in 2019 there was an additional customer, who accounted for greater than 10% of total revenue, accounting for 11.9% of sales of the continuing operations. |
Discontinued Operations
Discontinued Operations | 12 Months Ended |
May 31, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued Operations | On October 10, 2019, the Company entered into an agreement (“Purchase Agreement”) to sell the Schmitt Dynamic Balance Systems (“SBS”) business line to Tosei Engineering Corp. and Tosei America, Inc. (collectively “Tosei” or Buyer) for a purchase price of $10,500,000 in cash. The transaction closed on November 22, 2019 and included certain assets held by the U.S. parent company and all the outstanding stock of the UK subsidiary, Schmitt Europe Limited. As a result, the financial position, results of operations, and cash flows relating to our SBS business line are reported as discontinued operations in the accompanying financial statements. The consideration included $9,940,000 in unrestricted cash from the Buyer at closing, plus $420,000 to be placed into an escrow account, net of $140,000 in minimum cash settled via the funds flow at closing. Remaining escrow funds become unrestricted after certain events are completed and after one year from closing. The Purchase Agreement requires an adjustment to purchase price after closing based on the difference between (a) the calculated amount of working capital at closing and (b) the target working capital of $4,200,000. The closing working capital calculation resulted in $107,000 in net proceeds paid from Buyer to Seller in February 2020. In connection with the Purchase Agreement, the Company entered into a Transition Service Agreement (“TSA”) with the Buyer during the transition of certain accounting and treasury processes. The Company has collected approximately $80,000 of cash belonging to the buyer via the TSA that is included in the cash and cash equivalents, accounts receivable, and other accrued liabilities at May 31, 2020. The following table summarizes the consideration and gain recognized in the year ended May 31, 2020 associated with the sale of the SBS Business: Purchase Price $ 10,500,000 Cash in SEL 69,157 Less: Net assets sold $ 4,460,177 Minimum cash 140,000 Transaction fees 453,287 Release of cumulative translation adjustment from OCI 455,848 Plus or minus: Closing adjustments 107,000 Pre-tax gain on sale $ 5,166,845 Income taxes 62,100 Gain on sale, net of income taxes $ 5,104,745 The following are the carrying amounts of assets and liabilities classified as held for sale and included as a part of discontinued operations: 2020 2019 Accounts receivable, net $ - $ 1,365,114 Inventories - 3,777,913 Prepaid expenses - 49,357 Current assets held for sale $ - $ 5,192,384 Property and equipment, net - 85,967 Noncurrent assets held for sale $ - $ 85,967 Accounts payable $ - $ 393,773 Accrued commissions - 128,453 Accrued payroll liabilities - 127,124 Customer deposits and prepayments - 109,860 Other accrued liabilities - 89,939 Current liabilities held for sale $ - $ 849,149 Net assets held for sale $ - $ 4,429,202 The following is a composition of the line items constituting income from discontinued operations: Fiscal year ended, May 31, 2020 2019 Net Sales $ 4,343,008 $ 9,080,717 Cost of revenue 2,374,251 5,876,176 Gross profit 1,968,757 3,204,541 Operating expenses: General, administration and sales 1,252,222 2,771,254 Research and development 35,920 72,208 Total operating expenses 1,288,142 2,843,462 Operating income 680,615 361,079 Other income (expense), net (63,904 ) (85,972 ) Income before Taxes 616,711 275,107 Provision for Income taxes (1,423 ) 17,665 Net income from discontinued operations $ 618,134 $ 257,442 |
Subsequent Events
Subsequent Events | 12 Months Ended |
May 31, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | Ample Hills On July 9, 2020, Ample Hills Acquisition LLC (“Buyer”), a New York limited liability company and wholly owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “Agreement”), dated as of June 29, 2020, with Ample Hills Holdings, Inc., a Delaware corporation, Ample Hills Creamery, Inc., a New York corporation, and their subsidiaries (collectively, “Ample Hills”). The transactions contemplated by the Agreement (the “Transactions”) closed on July 9, 2020, the day after a sale order approving the Transactions was entered by the Bankruptcy Court (defined below). The Agreement provided that, upon the terms and subject to the conditions set forth therein, Ample Hills sold, transferred and assigned to Buyer, or one or more of its affiliates, the Acquired Assets (as defined in the Agreement) and Buyer, or one or more of its affiliates, assumed the Assumed Liabilities (as defined in the Agreement) for a purchase of $1.0 million. The Asset Acquisition includes the following assets, among other things, Ample Hills’ equipment, inventory, and all intellectual property, including the names and marks of “AMPLE HILLS” and “AMPLE HILLS CREAMERY” and all derivatives thereof. Pursuant to the Agreement, Buyer also paid an additional approximately $1.0 million to certain landlords of Ample Hills in exchange for the right to assume leases with such landlords. The Transactions were funded by the Company with cash on hand and will be accounted from in accordance with ASC 805 – Business Combinations. The Ample Hills entities are debtors-in-possession under title 11 of the United States Code, 11 U.S.C. § 101 et seq. pursuant to voluntary petitions for relief filed under chapter 11 of the Bankruptcy Code on March 15, 2020 in the United States Bankruptcy Court for the Eastern District of New York (the “Bankruptcy Court”). The Transactions were conducted through a Bankruptcy Court-supervised process, subject to Bankruptcy Court-approved bidding procedures, approval of the Transactions by the Bankruptcy Court, and the satisfaction of certain closing conditions. The Agreement contained certain customary representations and warranties made by each party. Buyer and Ample Hills agreed to various customary covenants, including, among others, covenants regarding the conduct of the Ample Hills businesses prior to the closing of the Transactions and covenants requiring Buyer and Ample Hills to use commercially reasonable efforts to obtain certain third-party and governmental consents, approvals or other authorizations required in connection with the Transactions. Tender Offer On July 21, 2020 – Schmitt Industries, Inc. announced the final results of its previously announced cash tender offer to purchase up to $2.5 million of Schmitt’s common stock at a price per share not less than $3.00 and not greater than $3.25 (the “Offer”). Based on the final count by Broadridge Corporate Issuer Solutions, Inc., the depositary for the Offer, the Company has accepted for purchase 72,159 shares of Schmitt’s common stock, for an aggregate cost of approximately $234,516, excluding fees and expenses relating to the Offer. Since the Offer was not fully subscribed, no proration was required and all shares validly tendered and not withdrawn were accepted for purchase. The depositary will promptly issue payment for the shares purchased. The shares purchased represent approximately 1.9% of the Company’s common stock issued and outstanding as of July 20, 2020. Following consummation of the Offer, the Company has 3,784,554 shares of common stock outstanding. Paycheck Protection Program Loan On August 3, 2020, Schmitt Industries received loan proceeds in the amount of $584,534 and returned $264,476 of the funds received and Ample Hills received $1,471,022, as part of the Paycheck Protection Program (“PPP”). The loan was granted as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), and provides qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks, as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The PPP loan transactions will be accounted for in accordance with ASC 470. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds will meet the conditions for forgiveness of the loan, we cannot assure you that we will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part. |
Significant Accounting Polici_2
Significant Accounting Policies (Policies) | 12 Months Ended |
May 31, 2020 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | These Consolidated Financial Statements include those of the Company and its wholly owned subsidiaries: Schmitt Measurement Systems, Inc. and Schmitt Industries (Canada) Limited. All significant intercompany accounts and transactions have been eliminated in the preparation of the Consolidated Financial Statements. |
Reclassification | Certain amounts in the prior period consolidated balance sheet have been reclassified to conform to the presentation of the current period. These reclassifications had no effect on previously recorded net income. |
Revenue Recognition | The Company determines the amount of revenue it recognizes associated with the transfer of each product or service. For sale of products or delivery of monitoring services to all 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, which are recognized at the time of shipment as a component of net revenues, were $29,707 and $33,929 for the year ended May 31, 2020 and May 31, 2019, respectively. |
Cash, Cash Equivalents and Restricted Cash | The Company generally invests its excess cash in money market funds. The Company’s investment policy also allows for cash to be invested in investment grade highly liquid securities, and the Company considers securities that are highly liquid, readily convertible into cash and have original maturities of less than three months when purchased to be cash equivalents. The Company’s cash consists of demand deposits in large financial institutions and money market funds. At times, balances may exceed federally insured limits. Restricted cash consists of an amount held in escrow related to the sale of the balancer business segment, as described in notes to the financial statements. Once certain events are complete, the restrictions on this cash payment will be released. The following table provides a reconciliation of cash and cash equivalents and restricted cash as reported within the Consolidated Balance Sheets as of May 31, 2020 and 2019 to the sum of the same such amounts as shown in the Consolidated Statement of Cash Flows for the respective years then ended: Years ended May 31, 2020 2019 Cash and cash equivalents $ 10,146,531 $ 1,467,435 Restricted cash 420,000 - Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows $ 10,566,531 $ 1,467,435 |
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 aging reports, other operating trends and relevant business conditions, including general economic factors, as they relate to each of the Company’s domestic and international customers. In the event there is doubt about whether a customer account is collectible, a reserve is provided. If these analyses lead management to the conclusion that a customer account is uncollectible, the balance will be directly charged to bad debt expense. The allowance for doubtful accounts was $103,029 and $36,826 as of May 31, 2020 and 2019, 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. Inventory balances as of May 31, 2020 and 2019, respectively, consisted of: Fiscal Year ended, May 31, 2020 2019 Raw materials $ 154,293 $ 347,095 Work-in-process 525,615 376,375 Finished goods 379,449 517,662 Total Inventory $ 1,059,357 $ 1,241,132 |
Property and Equipment | Property and equipment are stated at cost, less 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. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense for the year ended May 31, 2020 and 2019 was $56,554 and $68,633, respectively. Net property, plant and equipment balances as of May 31, 2020 and 2019, respectively, consisted of: Fiscal Year ended, May 31, 2020 2019 Land $ 299,000 $ 299,000 Buildings and improvements 1,847,505 1,814,524 Furniture, fixtures and equipment 396,264 498,476 2,542,769 2,612,000 Less accumulated depreciation (1,890,633 ) (1,858,593 ) $ 652,136 $ 753,407 |
Lease Accounting | The Company determines if an arrangement is a lease or a service contract at inception. Where an arrangement is a lease the Company determines if it is an operating lease or a finance lease. Subsequently, if the arrangement is modified the Company reevaluates the classification. Buildings leased to others under operating leases are included in property, plant and equipment. On November 22, 2019, the Company entered in a commercial lease agreement, which has been accounted for pursuant to (ASU) No. 2016-02, “Leases (Topic 842)”. The Company elected the practical expedient to not separate lease and non-lease components and will present property revenues as other income, combined based upon the lease being determined to be the predominant component. The lessor commercial agreement contains a 10-year term with a renewal option to extend, which will be considered a new, separate contract and will be recognized at the time the option is exercised on a straight-line basis over the renewal period, and early termination options based on established terms specific to the individual agreement. Minimum future lease payments receivable are as follows: Years ending May 31, 2021 $ 283,578 2022 291,906 2023 300,666 2024 309,870 2025 319,164 Thereafter 1,557,600 Total undiscounted cash flow $ 3,062,784 |
Intangible Assets and Impairment | Amortizable intangible assets, which include purchased technology and patents, are amortized over their estimated useful lives ranging from five to seventeen years. As of May 31, 2020 and May 31, 2019, amortizable intangible assets were $2,085,362 and $2,200,883, and accumulated amortization was $1,797,760 and $1,808,698, respectively. Amortization expense for the year ended May 31, 2020 and May 31, 2019 was $104,583. Amortization expense for each of the following years ending May 31 is expected to be as follows; Years ending May 31, 2021 $ 104,583 2022 104,583 2023 78,436 2024 - 2025 - Thereafter - $ 287,602 Intangible and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Recoverability is determined by comparing the forecasted future net cash flows from the operations to which the assets relate, based on management's best estimates using the appropriate assumptions and projections at the time, to the carrying amount of the assets. If the carrying value is determined to be in excess of future operating cash flows, the asset is considered impaired and a loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the assets. As of May 31, 2020, no impairment existed. |
Customer Deposits and Prepayments | Customer deposits and prepayments consists of amounts received from customers as prepayments for orders that have been received and have been produced but have not yet shipped, credit balances for items returned by customers for which refunds have not yet been provided and deposits made by customers in advance of production. |
Other Accrued Liabilities | As of May 31, 2020, other accrued liabilities included $237,633 of accrued professional and legal expenses related to transaction and turn-around costs, $121,959 in costs related to Xact Monitoring services provided to clients for Fiscal Year 2020, and $82,811 of customer deposits due to SBS Accretech. It also included an accrual for warranty reserve and sales return reserve, recurring professional expenses for consulting relationships, legal fees related to business planning expenses, amounts financed on a short-term arrangement for the purchase of the Company’s new enterprise resource planning software and amounts owing under various professional fee contracts for which invoices have not yet been received. |
Foreign Currency | Financial statements for the Company’s subsidiaries outside the United States are translated into U.S. dollars at year-end exchange rates for assets and liabilities and weighted average exchange rates for income and expenses. The resulting translation adjustments are included as a separate component of stockholders’ equity titled “Accumulated Other Comprehensive Loss.” Transaction gains and losses are included in net income (loss). |
Advertising | Advertising costs included in general, administration and sales, are expensed when the advertising first takes place. Advertising expense was $7,767 and $22,018 for the years ended May 31, 2020 and 2019, respectively. |
Research and Development Costs | Research and development costs, predominately internal labor costs and costs of materials, are charged to expense when incurred. |
Warranty Reserve | Warranty costs are estimated and charged to operations to cover a defined warranty period. The estimated warranty cost is based on the history of warranty claims for each particular product type. For new product types without a warranty history, preliminary estimates are based on historical information for similar product types. The warranty reserve accruals, included in other accrued liabilities, are reviewed periodically and updated based on warranty trends. |
Stock-Based Compensation | Stock-based compensation includes expense charges for all stock-based awards to employees and directors granted under the Company’s stock option plan. The Company requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options based on estimated fair values. Stock-based compensation recognized during the period is based on the value of the portion of the stock-based award that will vest during the period, adjusted for expected forfeitures. Compensation cost for all stock-based awards is recognized using the straight-line method. |
Income Taxes | Each year the Company files income tax returns in the various taxing jurisdictions in which it operates. These tax returns are subject to examination and possible challenge by the taxing authorities. Positions challenged by the taxing authorities may be settled or appealed by the Company. As a result, there is an uncertainty in income taxes recognized in the Company’s financial statements in accordance with ASC Topic 740. The Company applies this guidance by defining criteria that an individual income tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements and provides guidance on measurement, de-recognition, classification, accounting for interest and penalties, accounting in interim periods, disclosure, and transition. The Company applies the asset and liability method in recording income taxes, under which deferred income tax assets and liabilities are determined, based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using currently enacted tax rates and laws. Additionally, deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. Management continues to review the level of the valuation allowance on a quarterly basis. |
Accrued Liabilties | In Q4 of Fiscal 2020, the Company determined that it was more likely than not that the Company had a pre-existing tax liability related to prior periods. The Company has analyzed the liability and estimated it to be $265,349 as of May 31, 2020. Accordingly, the Company recognized $265,349 in operating expenses in Q4 of Fiscal 2020 to accrue for the liability. |
Earnings (Loss) Per Share | Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed using the weighted average number of common shares outstanding, adjusted for dilutive incremental shares attributed to outstanding options to purchase common stock. Common stock equivalents for stock options are computed using the treasury stock method. In periods in which a net loss is incurred, no common stock equivalents are included since they are antidilutive and as such all stock options outstanding are excluded from the computation of diluted net loss in those periods. There were 8,888 and 43,751 potentially dilutive common shares from outstanding stock options have been excluded from diluted earnings (loss) per share for the years ended May 31, 2020 and 2019, respectively. |
Concentration of Credit Risk | Financial instruments that potentially expose the Company to concentration of credit risk are trade accounts receivable. Credit terms generally require an invoice to be paid within 30 to 60 days or include a discount of up to 1.5% if the invoice is paid within ten days, with the net amount payable in 30 days. Terms are set for each account depending on the customer’s credit standing with the Company. |
Financial Instruments | The carrying value of all other financial instruments potentially subject to valuation risk (principally consisting of cash and cash equivalents, accounts receivable, accounts payable and the current portion of long-term liability) approximates fair value because of their short-term maturities. |
Shipping and Handling | The Company incurs costs related to shipping and handling of its manufactured products. These costs are expensed as incurred as a component of cost of sales. Shipping and handling charges related to the receipt of raw materials are also incurred, which are recorded as a cost of the related inventory. |
Use of Estimates | The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results could differ from those estimates. |
Recent Accounting Pronouncements | In February 2016, the Financial Accounting Standards Board (“FASB”) issued a new accounting standard on leasing. The new standard requires companies to record most leased assets and liabilities on the balance sheet, and also proposed a dual model for recognizing expense. The Company adopted the standard as of June 1, 2019, with retroactive reporting for prior periods (the comparative option). Adoption of these accounting changes did not have a material impact on the Consolidated Financial Statements. In January 2017, the FASB issued a new accounting standard which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance was effective for the Company beginning in 2019. Adoption of these accounting changes did not have a material impact on the Consolidated Financial Statements. In May 2017, the FASB issued a new accounting standard which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC Topic 718. Under the guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. This guidance was effective for the Company beginning in 2019. Adoption of these accounting changes did not have a material impact on the Consolidated Financial Statements. In June 2018, the FASB issued a new accounting standard which provides guidance that expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This guidance was effective for the Company beginning in 2019, with early adoption permitted. Adoption of these accounting changes did not have a material impact on the Consolidated Financial Statements. |
Significant Accounting Polici_3
Significant Accounting Policies (Tables) | 12 Months Ended |
May 31, 2020 | |
Accounting Policies [Abstract] | |
Reconciliation of cash and cash equivalents and restricted cash | Years ended May 31, 2020 2019 Cash and cash equivalents $ 10,146,531 $ 1,467,435 Restricted cash 420,000 - Total cash, cash equivalents and restricted cash shown in the Consolidated Statement of Cash Flows $ 10,566,531 $ 1,467,435 |
Inventories | Fiscal Year ended, May 31, 2020 2019 Raw materials $ 154,293 $ 347,095 Work-in-process 525,615 376,375 Finished goods 379,449 517,662 Total Inventory $ 1,059,357 $ 1,241,132 |
Property and equipment | Fiscal Year ended, May 31, 2020 2019 Land $ 299,000 $ 299,000 Buildings and improvements 1,847,505 1,814,524 Furniture, fixtures and equipment 396,264 498,476 2,542,769 2,612,000 Less accumulated depreciation (1,890,633 ) (1,858,593 ) $ 652,136 $ 753,407 |
Minimum future lease payments receivable | Years ending May 31, 2021 $ 283,578 2022 291,906 2023 300,666 2024 309,870 2025 319,164 Thereafter 1,557,600 Total undiscounted cash flow $ 3,062,784 |
Intangible asset amortization expense | Years ending May 31, 2021 $ 104,583 2022 104,583 2023 78,436 2024 - 2025 - Thereafter - $ 287,602 |
Income Taxes (Tables)
Income Taxes (Tables) | 12 Months Ended |
May 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Provision for income taxes | Year ended May 31, 2020 2019 Current provision for continued operations (14,368 ) 8,783 Current provision for discontinued operations 60,677 17,655 Deferred provision 999,420 329,035 Change in valuation allowance (999,420 ) (329,035 ) Total provision for income taxes $ 46,039 $ 26,438 |
Deferred tax assets | 2020 2019 Basis difference for assets $ 162,853 $ 182,654 Inventory related items 75,500 169,585 Other reserves and liabilities 112,829 74,694 Net operating loss carryforward 624,650 1,507,141 General business and other credit carry forward 455,841 489,327 Other deferred items, net - 7,692 Gross deferred tax assets 1,431,673 2,431,093 Deferred tax asset valuation allowance (1,431,673 ) (2,431,093 ) Net deferred tax assets $ - $ - |
Effective income tax rate reconciliation | 2020 2019 Statutory Federal Rate 21.0 % 21.0 % State Taxes, net of federal benefit 5.3 % 5.3 % Change in deferred tax valuation allowance -27.1 % -25.7 % Impact of Tax Act 0 % 0.0 % Stock-based compensation 0 % -1.8 % R&E tax credits 0.2 % 1.8 % Effect of foreign income tax rates -0.1 % -3.4 % Deferred tax true-up 0.0 % 4.1 % State minimum taxes 1.7 % -1.0 % Permanent and other differences 0.2 % -2.5 % Effective Tax Rate 1.2 % -2.2 % |
Stock Based Compensation (Table
Stock Based Compensation (Tables) | 12 Months Ended |
May 31, 2020 | |
Fair value of stock options/restricted stock units granted | Year Ended May 31, 2020 2019 Average risk-free interest rate N/A 3.1% Expected life N/A 6.0 years Expected volatility N/A 46.3% |
Stock options outstanding | Outstanding Options Exercisable Options Number of Weighted Weighted Weighted 22,500 $ 1.70 6.9 $ 1.70 |
Stock option activity | Number of Weighted Weighted Aggregate Options outstanding and exercisable - May 31, 2018 318,332 $ 2.36 6.8 $ 751,264 Options granted 15,000 2.45 Options exercised (38,333 ) 1.70 Options forfeited/canceled (40,833 ) 2.66 Options outstanding and exercisable - May 31, 2019 254,166 $ 2.41 5.8 $ 612,540 Options granted - Options exercised (69,166 ) 1.82 Options forfeited/canceled (162,500 ) 2.77 Options outstanding and exercisable - May 31, 2020 22,500 $ 1.70 6.9 $ 38,250 |
Restricted Stock Units | |
Fair value of stock options/restricted stock units granted | Year Ended May 31, 2020 2019 Expected stock price volatility 54.1% 50.1% - 57.5% Expected dividend yield 0% 0% Average risk-free interest rate 2.3% 2.55% - 2.98% |
Restricted stock units granted | Number of restricted stock units Target Price 3,000 $ 4.00 3,000 $ 4.20 3,000 $ 4.40 3,000 $ 4.60 3,000 $ 4.80 3,000 $ 5.00 |
Non-vested restricted stock unit activity | Number of Weighted Aggregate Non-vested restricted stock units - May 31, 2019 98,000 $ 2.94 $ 288,120 Restricted stock units granted 87,478 2.99 261,559 Restricted stock units vested (113,561 ) 2.83 (321,378 ) Restricted stock units forfeited (16,770 ) 2.79 (46,788 ) Non-vested restricted stock units - May 31, 2020 55,147 $ 3.28 $ 180,882 |
Weighted Average Shares and R_2
Weighted Average Shares and Reconciliation (Tables) | 12 Months Ended |
May 31, 2020 | |
Earnings Per Share [Abstract] | |
Earnings per share | Net Weighted Avg Per Share Income/(loss) Shares Amount Year ended May 31, 2020 Basic earnings per share from continuing operations $ (0.47 ) Loss available to stockholders $ (1,842,304 ) 3,939,833 Effect of dilutive securities stock options - - Diluted earnings per share Loss available to common stockholders $ (1,842,304 ) $ 3,939,833 $ (0.47 ) Year ended May 31, 2019 Basic earnings per share from continuing operations $ (0.37 ) Loss available to stockholders $ (1,468,432 ) 4,005,795 Effect of dilutive securities stock options - - Diluted earnings per share Loss available to common stockholders $ (1,468,432 ) $ 4,005,795 $ (0.37 ) |
Discontinued Operations (Tables
Discontinued Operations (Tables) | 12 Months Ended |
May 31, 2020 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Discontinued operations | The following table summarizes the consideration and gain recognized in the year ended May 31, 2020 associated with the sale of the SBS Business: Purchase Price $ 10,500,000 Cash in SEL 69,157 Less: Net assets sold $ 4,460,177 Minimum cash 140,000 Transaction fees 453,287 Release of cumulative translation adjustment from OCI 455,848 Plus or minus: Closing adjustments 107,000 Pre-tax gain on sale $ 5,166,845 Income taxes 62,100 Gain on sale, net of income taxes $ 5,104,745 The following are the carrying amounts of assets and liabilities classified as held for sale and included as a part of discontinued operations: 2020 2019 Accounts receivable, net $ - $ 1,365,114 Inventories - 3,777,913 Prepaid expenses - 49,357 Current assets held for sale $ - $ 5,192,384 Property and equipment, net - 85,967 Noncurrent assets held for sale $ - $ 85,967 Accounts payable $ - $ 393,773 Accrued commissions - 128,453 Accrued payroll liabilities - 127,124 Customer deposits and prepayments - 109,860 Other accrued liabilities - 89,939 Current liabilities held for sale $ - $ 849,149 Net assets held for sale $ - $ 4,429,202 The following is a composition of the line items constituting income from discontinued operations: Fiscal year ended, May 31, 2020 2019 Net Sales $ 4,343,008 $ 9,080,717 Cost of revenue 2,374,251 5,876,176 Gross profit 1,968,757 3,204,541 Operating expenses: General, administration and sales 1,252,222 2,771,254 Research and development 35,920 72,208 Total operating expenses 1,288,142 2,843,462 Operating income 680,615 361,079 Other income (expense), net (63,904 ) (85,972 ) Income before Taxes 616,711 275,107 Provision for Income taxes (1,423 ) 17,665 Net income from discontinued operations $ 618,134 $ 257,442 |
The Company (Details Narrative)
The Company (Details Narrative) - Segments | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Number of business segments | 2 | 2 |
Significant Accounting Polici_4
Significant Accounting Policies (Details) - USD ($) | May 31, 2020 | May 31, 2019 | May 31, 2018 |
Accounting Policies [Abstract] | |||
Cash and cash equivalents | $ 10,146,531 | $ 1,467,435 | |
Restricted cash | 420,000 | 0 | |
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statement of Cash Flows | $ 10,566,531 | $ 1,467,435 | $ 2,111,533 |
Significant Accounting Polici_5
Significant Accounting Policies (Details 1) - USD ($) | May 31, 2020 | May 31, 2019 |
Accounting Policies [Abstract] | ||
Raw materials | $ 154,293 | $ 347,095 |
Work-in-process | 525,615 | 376,375 |
Finished goods | 379,449 | 517,662 |
Inventories | $ 1,059,357 | $ 1,241,132 |
Significant Accounting Polici_6
Significant Accounting Policies (Details 2) - USD ($) | May 31, 2020 | May 31, 2019 |
Property, plant and equipment, gross | $ 2,542,769 | $ 2,612,000 |
Less accumulated depreciation | (1,890,633) | (1,858,593) |
Property, plant and equipment, net | 652,136 | 753,407 |
Land | ||
Property, plant and equipment, gross | 299,000 | 299,000 |
Buildings and Improvements | ||
Property, plant and equipment, gross | 1,847,505 | 1,814,524 |
Furniture, Fixtures and Equipment | ||
Property, plant and equipment, gross | $ 396,264 | $ 498,476 |
Significant Accounting Polici_7
Significant Accounting Policies (Details 3) | May 31, 2020USD ($) |
Accounting Policies [Abstract] | |
2021 | $ 283,578 |
2022 | 291,906 |
2023 | 300,666 |
2024 | 309,870 |
2025 | 319,164 |
Thereafter | 1,557,600 |
Total undiscounted cash flow | $ 3,062,784 |
Significant Accounting Polici_8
Significant Accounting Policies (Details 4) - USD ($) | May 31, 2020 | May 31, 2019 |
Accounting Policies [Abstract] | ||
2021 | $ 104,583 | |
2022 | 104,583 | |
2023 | 78,436 | |
2024 | 0 | |
2025 | 0 | |
Thereafter | 0 | |
Total | $ 287,602 | $ 392,185 |
Significant Accounting Polici_9
Significant Accounting Policies (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Allowance for doubtful accounts | $ 103,029 | $ 36,826 |
Depreciation expense | 56,554 | 68,633 |
Amortizable intangible assets | 2,085,362 | 2,200,883 |
Accumulated amortization of intangible assets | 1,797,760 | 1,808,698 |
Amortization expense | 104,583 | 104,583 |
Impairment of intangible assets | 0 | 0 |
Advertising expense | $ 7,767 | $ 22,018 |
Stock options excluded from computation of earnings per share | 8,888 | 43,751 |
Minimum | ||
Intangible assets useful life | 5 years | |
Maximum | ||
Intangible assets useful life | 17 years | |
Furniture, Fixtures and Equipment | Minimum | ||
Property and equipment useful life | 3 years | |
Furniture, Fixtures and Equipment | Maximum | ||
Property and equipment useful life | 7 years | |
Vehicles | ||
Property and equipment useful life | 3 years | |
Buildings and Improvements | ||
Property and equipment useful life | 25 years | |
Shipping and Handling | ||
Revenues | $ 29,707 | $ 33,929 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Income Tax Disclosure [Abstract] | ||
Current provision for continued operations | $ (14,638) | $ 8,783 |
Current provision for discontinued operations | 60,677 | 17,655 |
Deferred provision | 999,420 | 329,035 |
Change in valuation allowance | (999,420) | (329,035) |
Total provision for income taxes | $ 46,039 | $ 26,438 |
Income Taxes (Details 1)
Income Taxes (Details 1) - USD ($) | May 31, 2020 | May 31, 2019 |
Income Tax Disclosure [Abstract] | ||
Basis difference of assets | $ 162,853 | $ 182,654 |
Inventory related items | 75,500 | 169,585 |
Other reserves and liabilities | 112,829 | 74,694 |
Net operating loss carryforward | 624,650 | 1,507,141 |
General business and other credit carryforward | 455,841 | 489,327 |
Other deferred items, net | 0 | 7,692 |
Gross deferred tax assets | 1,431,673 | 2,431,093 |
Deferred tax asset valuation allowance | (1,431,673) | (2,431,093) |
Net deferred tax assets | $ 0 | $ 0 |
Income Taxes (Details 2)
Income Taxes (Details 2) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Income Tax Disclosure [Abstract] | ||
Statutory federal rate | 21.00% | 21.00% |
State taxes, net of federal benefit | 5.30% | 5.30% |
Change in deferred tax valuation allowance | (27.10%) | (25.70%) |
Impact of Tax Act | 0.00% | 0.00% |
Stock-based compensation | 0.00% | (1.80%) |
R&E tax credits | 0.20% | 1.80% |
Effect of foreign income tax rates | (0.10%) | (3.40%) |
Deferred tax true-up | 0.00% | 4.10% |
State minimum taxes | 1.70% | (1.00%) |
Permanent and other differences | 0.20% | (2.50%) |
Effective tax rate | 1.20% | (2.20%) |
Income Taxes (Details Narrative
Income Taxes (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Change in valuation allowance | $ (999,420) | $ (329,035) |
Liability for payment of interest and penalties | 0 | $ 0 |
Federal | ||
Net operating loss carryforwards | $ 2,230,773 | |
Net operating loss carryforwards expiration date | May 31, 2037 | |
State | ||
Net operating loss carryforwards | $ 2,690,375 | |
Net operating loss carryforwards expiration date | May 31, 2031 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Royalty expense | $ 29,965 | $ 1,126 |
Stock Based Compensation (Detai
Stock Based Compensation (Details) - Stock Options | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Average risk-free interest rate | 0.00% | 3.10% |
Expected life | 0 years | 6 years |
Expected volatility | 0.00% | 46.30% |
Stock Based Compensation (Det_2
Stock Based Compensation (Details 1) - $ / shares | 12 Months Ended | ||
May 31, 2020 | May 31, 2019 | May 31, 2018 | |
Share-based Payment Arrangement [Abstract] | |||
Outstanding options | 22,500 | 254,166 | 318,332 |
Weighted average exercise price, outstanding options | $ 1.70 | $ 2.41 | $ 2.36 |
Weighted average remaining contractual term (years), exercisable options | 6 years 10 months 24 days | ||
Weighted average exercise price, exercisable options | $ 1.70 |
Stock Based Compensation (Det_3
Stock Based Compensation (Details 2) - USD ($) | 12 Months Ended | ||
May 31, 2020 | May 31, 2019 | May 31, 2018 | |
Share-based Payment Arrangement [Abstract] | |||
Options outstanding, beginning | 254,166 | 318,332 | |
Options granted | 0 | 15,000 | |
Options exercised | (69,166) | (38,333) | |
Options forfeited/cancelled | (162,500) | (40,833) | |
Options outstanding, ending | 22,500 | 254,166 | 318,332 |
Weighted average exercise price outstanding, beginning | $ 2.41 | $ 2.36 | |
Weighted average exercise price granted | .00 | 2.45 | |
Weighted average exercise price exercised | 1.82 | 1.70 | |
Weighted average exercise price forfeited/cancelled | 2.77 | 2.66 | |
Weighted average exercise price outstanding, ending | $ 1.70 | $ 2.41 | $ 2.36 |
Weighted average remaining contractual term (years) | 6 years 10 months 24 days | 5 years 9 months 18 days | 6 years 9 months 18 days |
Aggregate intrinsic value | $ 38,250 | $ 612,540 | $ 751,264 |
Stock Based Compensation (Det_4
Stock Based Compensation (Details 3) - Restricted Stock Units | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Expected stock price volatility | 54.10% | |
Expected stock price volatility, minimum | 50.10% | |
Expected stock price volatility, maximum | 57.50% | |
Expected dividend yield | 0.00% | 0.00% |
Average risk-free interest rate | 2.30% | |
Average risk-free interest rate, minimum | 2.55% | |
Average risk-free interest rate, maximum | 2.98% |
Stock Based Compensation (Det_5
Stock Based Compensation (Details 4) | 12 Months Ended |
May 31, 2020$ / sharesshares | |
Number of restricted stock units | shares | 87,478 |
Target price | $ / shares | $ 2.99 |
Restricted Stock Units One | |
Number of restricted stock units | shares | 3,000 |
Target price | $ / shares | $ 4 |
Restricted Stock Units Two | |
Number of restricted stock units | shares | 3,000 |
Target price | $ / shares | $ 4.20 |
Restricted Stock Units Three | |
Number of restricted stock units | shares | 3,000 |
Target price | $ / shares | $ 4.40 |
Restricted Stock Units Four | |
Number of restricted stock units | shares | 3,000 |
Target price | $ / shares | $ 4.60 |
Restricted Stock Units Five | |
Number of restricted stock units | shares | 3,000 |
Target price | $ / shares | $ 4.80 |
Restricted Stock Units Six | |
Number of restricted stock units | shares | 3,000 |
Target price | $ / shares | $ 5 |
Stock Based Compensation (Det_6
Stock Based Compensation (Details 5) | 12 Months Ended |
May 31, 2020USD ($)$ / sharesshares | |
Share-based Payment Arrangement [Abstract] | |
Non-vested restricted stock units outstanding, beginning | shares | 98,000 |
Restricted stock units granted | shares | 87,478 |
Restricted stock units vested | shares | (113,561) |
Restricted stock units forfeited | shares | (16,770) |
Non-vested restricted stock units outstanding, ending | shares | 55,147 |
Weighted average exercise price, beginning | $ / shares | $ 2.94 |
Weighted average exercise price granted | $ / shares | 2.99 |
Weighted average exercise price vested | $ / shares | 2.83 |
Weighted average exercise price forfeited | $ / shares | 2.79 |
Weighted average exercise price, ending | $ / shares | $ 3.28 |
Aggregate intrinsic value, beginning | $ | $ 288,120 |
Aggregate intrinsic value granted | $ | 261,559 |
Aggregate intrinsic value vested | $ | (321,378) |
Aggregate intrinsic value forfeited | $ | (46,788) |
Aggregate intrinsic value, ending | $ | $ 180,882 |
Stock Based Compensation (Det_7
Stock Based Compensation (Details Narrative) - USD ($) | 12 Months Ended | ||
May 31, 2020 | May 31, 2019 | May 31, 2018 | |
Share-based Payment Arrangement [Abstract] | |||
Outstanding options | 22,500 | 254,166 | 318,332 |
Weighted average exercise price, outstanding options | $ 1.70 | $ 2.41 | $ 2.36 |
Restricted stock units granted | 87,478 | ||
Restricted stock units grant date fair value | $ 261,559 | ||
Restricted stock units vested | (113,561) | ||
Restricted stock units forfeited | (16,770) | ||
Restricted stock unit compensation expense | $ 354,048 |
Weighted Average Shares and R_3
Weighted Average Shares and Reconciliation (Details) - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Basic earnings per share from continuing operations | ||
Loss available to stockholders, basic | $ (1,842,304) | $ (1,468,432) |
Weighted average shares, basic | 3,939,833 | 4,005,795 |
Per share amount, basic | $ (.47) | $ (0.37) |
Effect of dilutive securities stock options, amount | $ 0 | $ 0 |
Effect of dilutive securities stock options | 0 | 0 |
Diluted earnings per share | ||
Income (loss) available to common stockholders, diluted | $ (1,842,304) | $ (1,468,432) |
Weighted average shares, diluted | 3,939,833 | 4,005,795 |
Per share amount, diluted | $ (0.47) | $ (0.37) |
Employee Benefit Plans (Details
Employee Benefit Plans (Details Narrative) - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Postemployment Benefits [Abstract] | ||
Participants contribution percentage | 15.00% | 15.00% |
Matching contributions in conjunction with employee contributions to plan | $ 5,710 | $ 40,336 |
Major Customers (Details Narrat
Major Customers (Details Narrative) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Customer One | Revenue | ||
Concentration risk percentage | 33.80% | 31.70% |
Customer One | Accounts Receivable | ||
Concentration risk percentage | 34.10% | |
Customer Two | Revenue | ||
Concentration risk percentage | 11.90% |
Discontinued Operations (Detail
Discontinued Operations (Details) | 12 Months Ended |
May 31, 2020USD ($) | |
Discontinued Operations and Disposal Groups [Abstract] | |
Purchase price | $ 10,500,000 |
Cash in SEL | 69,157 |
Less: net assets sold | 4,460,177 |
Less: minimum cash | 140,000 |
Less: transaction fees | 453,287 |
Less: release of cumulative translation adjustment from OCI | 455,848 |
Plus or minus: closing adjustments | 107,000 |
Pre-tax gain on sale | 5,166,845 |
Income taxes | 62,100 |
Gain on sale, net of income taxes | $ 5,104,745 |
Discontinued Operations (Deta_2
Discontinued Operations (Details 1) - USD ($) | May 31, 2020 | May 31, 2019 |
Discontinued Operations and Disposal Groups [Abstract] | ||
Accounts receivable, net | $ 0 | $ 1,365,114 |
Inventories | 0 | 3,777,913 |
Prepaid expenses | 0 | 49,357 |
Current assets held for sale | 0 | 5,192,384 |
Property and equipment, net | 0 | 85,967 |
Noncurrent assets held for sale | 0 | 85,967 |
Accounts payable | 0 | 393,773 |
Accrued commissions | 0 | 128,453 |
Accrued payroll liabilities | 0 | 127,124 |
Customer deposits and prepayments | 0 | 109,860 |
Other accrued liabilities | 0 | 89,939 |
Current liabilities held for sale | 0 | 849,149 |
Net assets held for sale | $ 0 | $ 4,429,202 |
Discontinued Operations (Deta_3
Discontinued Operations (Details 2) - USD ($) | 12 Months Ended | |
May 31, 2020 | May 31, 2019 | |
Discontinued Operations and Disposal Groups [Abstract] | ||
Net sales | $ 4,343,008 | $ 9,080,717 |
Cost of revenue | 2,374,251 | 5,876,176 |
Gross profit | 1,968,757 | 3,204,541 |
Operating expenses: | ||
General, administration and sales | 1,252,222 | 2,771,254 |
Research and development | 35,920 | 72,208 |
Total operating expenses | 1,288,142 | 2,843,462 |
Operating income | 680,615 | 361,079 |
Other income (expense), net | (63,904) | (85,972) |
Income before taxes | 616,711 | 275,107 |
Provision for income taxes | (1,423) | 17,665 |
Net income from discontinued operations | $ 618,134 | $ 257,442 |