UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended May 31, 2021
Commission File Number: 001-38964
SCHMITT INDUSTRIES, INC.
| Oregon | 93-1151989 | |
| State of Incorporation | IRS Employer Identification Number | |
| 2765 N.W. Nicolai Street | ||
| Portland, Oregon 97210-1818 | (503) 227-7908 | |
| Address, including zip code, of principal executive offices | Registrant's telephone number, including area code |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, no par value | SMIT | NASDAQ Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☑ | Smaller reporting company | ☑ |
| Emerging growth company | ☐ |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of the last day of the second fiscal quarter of 2021, the aggregate market value of registrant's common stock held by non-affiliates of the registrant was $20,469,471 based upon the closing price of $5.71 reported for such date on the NASDAQ Capital Market.
As of August 31, 2021, shares of our common stock were outstanding.
EXPLANATORY NOTE
Schmitt Industries, Inc. (“Schmitt Industries”, “we”, “us” or “our”) is filing this Amendment No. 1 (this “Amendment”) to our Annual Report on Form 10-K for the fiscal year ended May 31, 2021, originally filed with the Securities and Exchange Commission (the “SEC”) on August 31, 2021 (the “Original Filing”), to include information previously omitted in reliance on General Instruction G to Form 10-K, which provides that registrants may incorporate by reference certain information from a definitive proxy statement prepared in connection with the election of directors. The Company has determined to include such Part III information by amendment of the Original Filing rather than incorporation by reference to the proxy statement. Accordingly, Part III of the Original Filing is hereby amended and restated as set forth below. We are also filing as exhibits to this Amendment the certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and amending Item 15 of Part IV to include such certifications. Because no financial statements are contained in this Amendment, we are not including certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Except as described above, this Amendment does not modify or update the disclosures presented in, or as exhibits to, the Original Filing in any way. This Amendment speaks as of the date of the Original Filing and does not reflect events occurring after the filing of the Original Filing. Among other things, we have not revised forward-looking statements made in the Original Filing to reflect events that occurred or facts that became known to us after the filing of the Original Filing. Therefore, you should read this Amendment in conjunction with any other documents we filed with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) subsequent to the Original Filing. Capitalized terms used but not otherwise defined herein have the meanings ascribed to such terms in the Original Filing.
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| TABLE OF CONTENTS | ||
| PART III | ||
| Item 10. | Directors, Executive Officers and Corporate Governance | 1 |
| Item 11. | Executive Compensation | 4 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 7 |
| Item 13. | Certain Relationships and Related Transactions and Director Independence | 9 |
| Item 14. | Principal Accountant Fees and Services | 10 |
| PART IV | ||
| Item 15. | Exhibits and Financial Statement Schedules | 11 |
| Signatures | ||
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PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The following table and paragraphs set forth information regarding our executive officers and directors, including the business experience for the past five years (and, in some instances, for prior years) of each such executive officer and director.
| Name | Age | Position |
| Michael R. Zapata(1) | 43 | President, Chief Executive Officer and Chairman of the Board of Directors |
| Philip Bosco(2) | 52 | Chief Financial Officer and Treasurer |
| Charles Davidson | 62 | Director and Chairman of the Audit Committee |
| Andrew P. Hines | 81 | Director and Chairman of the Compensation Committee |
| Steven Strom | 59 | Director and Chairman of the Nominating and Governance Committee |
| Lilian Tung | 38 | Director |
| (1) | Mr. Zapata was appointed Executive Chairman and President, effective December 1, 2018. |
| (2) | Mr. Bosco was appointed Chief Financial Officer and Treasurer, effective December 1, 2020. |
Executive Officers
Michael R. Zapata has served as a director since October 2018, as the Company’s Executive Chairman and President since December 2018, and as Chief Executive Officer since July 2019. Mr. Zapata is the founder and Managing Member of Sententia Capital Management, LLC (“Sententia”), a value investing focused investment management firm. Since inception in 2012, the firm has invested in deep value public equities in a concentrated portfolio. Prior to Sententia, Mr. Zapata served nearly 10 years in the U.S. Navy. During his service from 2001 to 2010, he held various leadership roles during the Global War on Terror. Deploying to locations including Iraq, Afghanistan, Africa, the Middle East and the Arabian Peninsula, he brings valuable insight and expertise in intelligence fusion, operational execution, strategic planning and risk mitigation. He received his B.S. from Texas A&M University, where he was recognized as a Dougherty Award Recipient. He received his M.B.A. from Columbia University as a student in the Heilbrunn Center for Value Investing. He is a director of Communication Systems, Inc. He also serves as a director of Tip of the Spear Foundation, a non-profit dedicated to supporting Elite Operators and their families during times of need.
Philip Bosco was appointed as Chief Financial Officer and Treasurer, effective December 1, 2020. Philip Bosco has a wide range of financial experience across a diverse set of industries and companies, including start-ups, turnaround situations, and established organizations. Prior to joining Schmitt, Mr. Bosco served as CFO Americas for Intega Group Limited, a publicly held company, with the Americas division generating $200M of revenue and including 1,100 staff and over 50 offices. Prior to that, Mr. Bosco worked for Shell Oil Company in a variety of global and regional roles, both financial and commercial, across the chemicals, refining, and distribution businesses. Mr. Bosco also served as CFO for a start-up biofuels joint venture seeking to commercialize its core technology. Mr. Bosco received a Bachelor of Science in Accounting from Marquette University and his Master of Business Administration from the University of Houston. He is a Certified Public Accountant licensed in the State of Texas.
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Non-Employee Directors
Charles Davidson has served as a director since May 2016. Mr. Davidson has served as Chief Executive Officer of Attensa Corporation, an enterprise software provider, since August 2014. He was the CEO of Attensa’s predecessor company Leeward, Inc. from 2009 until 2014, when it was merged into Attensa Corporation, and was Chief Executive Officer of Attensa, Inc. from 2007 until 2009. From 2000 to 2003, Mr. Davidson was Chief Executive Officer and President of StatiaFX, a developer of software solutions for financial advisory services. When StatiaFX was acquired in 2003 by Financial Profiles, a business unit of Hanover Insurance Group, Mr. Davidson became Vice President for Strategy and Business Development of Financial Profiles and served in that function until 2006 when the business was sold. From 1994 to 1999, Mr. Davidson was Chief Operating Officer and a member of the Board of Directors of the Crabbe Huson Group. In 1993, he co-founded Co-Operations, Inc. and served as its Chairman until 2000. Mr. Davidson holds a B.S. degree in Business from the University of Oregon and a J.D. magna cum laude from Northwestern School of Law, Portland. He is a member (inactive) of the bar associations of Oregon and Washington.
Andrew P. Hines is the Principal of Hines & Associates, a financial management consulting firm which he has led since 2006. From October 2015 to November 2016, he acted as Executive Vice President/Chief Financial Officer of Natural Markets Foods Group, a chain of organic food markets. He had been Executive Vice President/Chief Financial Officer of Sonar Entertainment between June 2011 and June 2014. The company develops, produces and distributes original made-for-television movies and miniseries. From September 2009 to June 2010, Mr. Hines served as Executive Vice President/Chief Financial Officer of World Color Press Inc. (formerly, Quebecor World), a company which provided high-value and comprehensive print, digital and related services to businesses worldwide. From October 2005 to September 2006, he served as Vice President and Chief Financial Officer of GenTek, Inc., a manufacturer of industrial components and performance chemicals. Earlier experience included senior finance positions with Adidas, Woolworth and RJR Nabisco. Mr. Hines was a director of Tronox LLC, Inertmap Tech, C&D Technologies and Superior Essex, Inc. and served as Chairman of those company’s Audit Committees. Mr. Hines brings to the board in-depth financial experience and highly valued senior leadership experience including public company director experience. He is a C.P.A. and member of the American Institute and New York Society of Certified Public Accountants and The Turnaround Management Association. Mr. Hines received his BBA from St. John's University and attended Harvard University Management Corporate Control courses. He served with the United States Marines.
Steven Strom has served as a director since June 2019. He is the founder of Odinbrook Global Advisors and has more than thirty years of investment banking and restructuring experience. Mr. Strom is also a member of the board of directors of Dayco LLC. From 2016 to early 2018 Mr. Strom was CEO of Blackhill Partners, an investment bank based in Dallas, Texas. Previously, he was a Managing Director in the Restructuring Group at Jefferies where he joined in 2006 and was Global Head of Restructuring from 2008 to 2014. Prior to Jefferies, Mr. Strom was a Managing Director in the Restructuring Group at CIBC World Markets (2002-2006) and a Managing Director at Chanin Capital Partners (1997-2002), a Research Analyst/Trader at Commodities Corporation (1993-1996) and a Vice President in the M&A Group at Chemical Bank (1986-1993). Mr. Strom has an MBA with a concentration in Finance from the University of Michigan (1986) and a bachelor’s degree in Business (Finance) from Arizona State University (1984) where he had a Regent’s Academic Scholarship and was awarded the Outstanding Finance Student by the Financial Analysts Society.
Lillian Tung has served as a director since October 2020. Ms. Tung is the co-founder of Fur and has more than a decade of experience in marketing and entrepreneurship. Prior to starting Fur, Ms. Tung worked at L’Oréal USA on the Maybelline Global Marketing team from 2011 to 2015. Prior to L’Oréal, Ms. Tung served in the Consumer Marketing division of Time Inc. from 2007 – 2008, and as an analyst for JPMorgan Chase Inc. in the Financial Sponsors Group from 2005 to 2007. She currently serves on the board of the Horace Mann School Alumni Council. Ms. Tung has an MBA with a concentration in Management and Marketing from Columbia Business School (2011) and a bachelor’s degree in East Asian Languages and Civilizations from Harvard University (2005) where she was on the dean’s list for three years.
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Family Relationships
There are no family relationships among our executive officers and directors.
Legal Proceedings
None of our directors or executive officers have been involved in any legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Code of Business Conduct and Ethics
We have adopted a Code of Ethics and Business Conduct (the “Code of Ethics”) that applies to all employees, officers and directors of the Company. A copy of the Code of Ethics is publicly available on our website at http://investor.schmitt-ind.com/corporate-governance. Amendments to the Code of Ethics or any grant of a waiver from a provision of the Code of Ethics requiring disclosure under applicable SEC rules will also be disclosed on our website.
Board Committees
Our Board has the standing committees described below to assist it with its responsibilities. The charter for each committee is posted on our website at http://investor.schmitt-ind.com/corporate-governance/committee-composition.
Audit Committee
The primary purpose of the Audit Committee is to oversee the accounting and financial reporting processes of the Company and the audits of the consolidated financial statements of the Company. The Audit Committee is also charged with the review and approval of all related party transactions involving the Company. The current members of the Audit Committee are Ms. Tung and Messrs. Davidson, and Strom. Mr. Davidson currently serves as Chairman of the Audit Committee. The Board has determined that all members of the Audit Committee are audit committee financial experts, as defined by the SEC rules, based on their past business experience and financial certifications.
Compensation Committee
The duties and responsibilities of the Compensation Committee include, among other things, reviewing and approving the Company’s general compensation policies, setting compensation levels for the Company’s executive officers, setting the terms of and grants of awards under share-based incentive plans and retaining and terminating executive compensation consultants. The current members of the Compensation Committee are Ms. Tung and Messrs. Hines and Strom. Mr. Hines currently serves as Chairman of the Compensation Committee.
Nomination and Corporate Governance Committee
The duties and responsibilities of the Nomination and Corporate Governance Committee include, among other things, assisting the Board in identifying individuals qualified to become Board members and recommending director nominees for the next annual meeting of shareholders, and taking a leadership role in shaping the corporate governance of the Company. The current members of the Nomination and Corporate Governance Committee are Ms. Tung and Messrs. Strom and Davidson. Mr. Strom currently serves as Chairman of the Nomination and Corporate Governance Committee.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors, executive officers and holders of more than 10% of our Common Stock to file with the SEC initial reports of ownership and reports of changes in the ownership of Common Stock and other equity securities of the Company. Such persons are required to furnish us with copies of all Section 16(a) filings.
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Based upon a review of the copies of the forms furnished to us, we believe that our directors, officers and holders of more than 10% of our Common Stock complied with all applicable filing requirements during the 2021 fiscal year other than the following Company Form 4 filings: (i) Ms. Tung on November 6, 2020, (ii) Mr. Zapata, Mr. Bosco, Mr. Schmidt (our former Chief Financial Officer), Mr. Davidson and Mr. Strom on November 30, 2020, (iii) Mr. Hines on December 2, 2020, (iv) Ms. Tung, Mr. Hines and Mr. Strom on January 19, 2021, (v) Ms. Tung and Mr. Strom on April 21, 2021, (vi) Mr. Hines on April 22, 2021 and (vii) Mr. Hines on April 26, 2021 and May 6, 2021. The Form 4 filings primarily relate to the grant or vesting of restricted stock units of which the Company had data entry problems that resulted in delayed filings on behalf of named directors.
| ITEM 11. | EXECUTIVE COMPENSATION |
Summary Compensation Table
The following table presents the dollar amounts of various forms of compensation earned by our named executive officers (“NEOs”) during the years noted:
| Name and | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total | ||||||||||||||||||||||
| Principal Position | Year | ($) | ($) | ($)(1) | ($)(2) | ($) | ($) | |||||||||||||||||||||
| Michael R. Zapata(3) | 2021 | $ | 222,667 | $ | — | $ | 57,543 | — | $ | 18,000 | $ | 298,210 | ||||||||||||||||
| Chairman, President and CEO | 2020 | 140,000 | 152,408 | 137,012 | — | — | 429,420 | |||||||||||||||||||||
| Philip Bosco(4) | 2021 | 121,875 | — | — | — | — | 121,875 | |||||||||||||||||||||
| CFO and Treasurer | 2020 | — | — | — | — | — | — | |||||||||||||||||||||
| Jamie Schmidt(5) | 2021 | 95,756 | — | 127,024 | — | — | 223,780 | |||||||||||||||||||||
| Former CFO and Treasurer | 2020 | 59,292 | 92,500 | 31,215 | — | 82,000 | 265,007 | |||||||||||||||||||||
| (1) | The fair value of these stock awards was computed in accordance with methods allowed under FASB ASC Topic 718 "Compensation - Stock Compensation." |
| (2) | Value of stock options awards was calculated using Black Scholes pricing model with assumptions discussed in Note 7 to the Company’s financial statements as of and for the year ended May 31, 2021. |
| (3) | Mr. Zapata was appointed Executive Chairman and President, effective December 1, 2018. Mr. Zapata was appointed Chief Executive Officer, effective July 30, 2019. |
| (4) | Mr. Bosco was appointed Chief Financial Officer, effective December 1, 2020. |
| (5) | Mr. Schmidt transitioned from Chief Financial Officer of the Company, effective December 1, 2020. |
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Employment Agreements
Michael R. Zapata
Mr. Zapata is the founding member of Sententia Capital Management, LLC, a value-based investment firm, of which he has served as general partner since its inception in 2012. The Company entered into a consulting agreement with Sententia, pursuant to which Sententia has agreed to provide executive management services to the Company, which shall be performed by Mr. Zapata. As contemplated by the terms of the agreement, the Company pays $14,000 directly to Sententia per month during the term of the agreement, which was defined as July 30, 2019 through July 31, 2020. Effective August 1, 2020, the Company extended this agreement on a month-to-month basis under similar terms. In addition, pursuant to the consulting agreement, Mr. Zapata was granted 17,777 restricted stock units on August 6, 2019 that vested on such date, and Mr. Zapata may receive a performance-based bonus to be paid in additional restricted stock units with a maximum cash value equivalent of $168,000.
On October 2, 2020, the Company entered into a Chief Executive Officer Agreement with Michael Zapata, which was effective as of September 30, 2020. Pursuant to the terms of his agreement, Mr. Zapata became an employee of the Company. In recognition of his services, Mr. Zapata is entitled to receive (i) an annualized salary of $250,000, and (ii) upon achieving certain performance-based objectives determined by the Board of Directors or its Compensation Committee, a bonus of up to 50% of his annual salary, payable half in cash and half in stock. Such performance-based objectives will be established by the Board as soon as reasonably practicable and reevaluated on an annual basis by mutual agreement of Mr. Zapata and the Board of Directors or its Compensation Committee.
Philip Bosco
Mr. Bosco was named the Company’s Chief Financial Officer and Treasurer effective December 1, 2020. The Company entered into an employment agreement with Mr. Bosco as of November 16, 2020. As contemplated by the terms of the agreement, the Company will pay to Mr. Bosco an annual salary of $225,000. Mr. Bosco was granted 9,222 shares of restricted stock upon the execution of his agreement. The employment agreement allows for a performance-based bonus to be paid in additional restricted stock units with a maximum cash value equivalent of $67,500.
Outstanding Equity Awards at Fiscal Year End
The following table presents information regarding our NEOs’ unexercised option and other equity incentive plan awards to purchase our Common Stock as of May 31, 2021:
| Option Awards | Other Equity Incentive Plan Awards | |||||
| Equity Incentive | ||||||
| Equity Incentive | Plan Awards: | |||||
| Number of | Number of | Plan Awards: | Market or Payout | |||
| Securities | Securities | Number of | Value of Unearned | |||
| Underlying | Underlying | Unearned Shares, | Shares, Units or | |||
| Unexercised | Unexercised | Option | Option | Units or Other | Other Rights That | |
| Options (#) | Options (#) | Exercise Price | Expiration | Rights That Have | Have Not Vested ($) | |
| Name | Exercisable | Unexercisable | ($) | Date | Not Vested (#) | (4) |
| Michael R. Zapata(1) | — | — | — | — | — | — |
| Philip Bosco(2) | — | — | — | — | 9,222 | $49,799 |
| Jamie Schmidt(3) | — | — | — | — | — | — |
| (1) | Mr. Zapata was appointed Executive Chairman and President, effective December 1, 2018. |
| (2) | Mr. Bosco was appointed Chief Financial Officer, effective December 1, 2020. |
| (3) | Mr. Schmidt transitioned from Chief Financial Officer of the Company, effective December 1, 2020. |
| (4) | The market value of the unearned shares is based on the closing price on May 28, 2021 of $5.40. |
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Compensation of Non-Employee Directors
In July 2019, the Board simplified the director compensation structure. Directors are expected to attend, at a minimum, each quarterly meeting, and to be available to provide insight and guidance of the strategy of the Company, as needed throughout the year.
Under this current policy, independent directors are paid a $20,000 annual retainer, and the Chairman will receive a $30,000 annual retainer, paid quarterly. These retainers will be paid in restricted stock units until the director has reached the minimum share ownership guidelines of three times their annual retainer amount.
Further, the chairman and members of the Audit Committee will receive an annual fee of $5,000 and $2,000, respectively, paid quarterly; the chairman and members of the Compensation Committee will receive an annual fee of $2,000 and $1,000, respectively, paid quarterly; and the chairman and members of the Nominating and Corporate Governance Committee will receive an annual fee of $1,000 and $500, respectively, paid quarterly. Directors may receive their committee fees in cash regardless of their Company stock ownership level.
The Company also reimburses travel and lodging expenses incurred in connection with attending meetings of the Board and its committees.
The following table presents information regarding cash compensation paid to non-employee directors of the Company for fiscal year 2021 (“Fiscal 2021”):
| Name | Cash | Equity(1) | Total | |||||||||
| Current Directors: | ||||||||||||
| Charles Davidson | $ | 26,000 | $ | 26,520 | $ | 52,520 | ||||||
| Andrew Hines | — | 49,726 | (2) | 166,523 | ||||||||
| Steven Strom | 1,980 | 21,983 | 23,963 | |||||||||
| Lillian Tung(3) | 12,847 | 19,285 | 32,132 | |||||||||
_______________
| (1) | The value of restricted stock units is granted to each applicable director have been determined in accordance with United States generally accepted accounting principles |
| (2) | Does not include certain compensation paid to the Mr. Hines’ spouse in connection to services to the Company. See Item 13 “Certain Relationships and Related Transactions and Director Independence”. |
| (3) | Ms. Tung became a director of the Company in October 2020. |
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The Compensation Committee periodically awards our non-employee directors with equity-based compensation. The following table presents information regarding our non-employee directors’ unexercised equity incentive plan awards to purchase our Common Stock as of May 31, 2021:
| Stock Awards | ||||||||
| Equity Incentive Plan | ||||||||
| Name | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | ||||||
| Charles Davidson | — | — | ||||||
| Andrew P. Hines | — | — | ||||||
| Steven Strom | — | — | ||||||
| Lillian Tung | — | — | ||||||
| (1) | The market value of the unvested units is based on the closing price on May 28, 2021 of $5.40. |
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Security Ownership of Certain Beneficial Owners and Management
The following table presents information with respect to the beneficial ownership of our Common Stock as of August 31, 2021, by:
| • | each person, or group of affiliated persons, known to us to beneficially own more than 5% of the outstanding Common Stock; |
| • | each of our directors and NEOs; and |
| • | all of our directors and executive officers as a group. |
The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. The information relating to our 5% beneficial owners is based on information we received from such holders. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power, which includes the power to vote or direct the voting of a security, or investment power, which includes the power to dispose of or to direct the disposition of a security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest. The percentage of beneficial ownership is based on 3,800,479 shares of Common Stock outstanding as of August 31, 2021.
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Except as otherwise noted below, the address of persons listed in the following table is:
c/o Schmitt Industries, Inc.
2765 N.W. Nicolai Street
Portland, Oregon 97210
| Number of | Percentage of Outstanding | |||||||
Common Stock Shares | Common Stock Shares | |||||||
| Persons known to beneficially own more than 5% | ||||||||
| GAMCO Investors, Inc.(1) | 610,000 | 16.1 | % | |||||
| Sententia Capital Management LLC(2) | 474,235 | 12.5 | % | |||||
| Directors and NEOs | ||||||||
| Michael R. Zapata(2)(3) | 536,102 | 14.1 | % | |||||
| Philip Bosco(4) | 0 | * | ||||||
| Charles Davidson(5) | 41,967 | 1.1 | % | |||||
| Andrew P. Hines(6) | 65,220 | 1.7 | % | |||||
| Steven Strom(7) | 25,358 | * | ||||||
| Lillian Tung(8) | 3,559 | * | ||||||
| Jamie Schmidt(9) | 0 | * | ||||||
| All executive officers and directors as a group (6 persons)(10) | 672,206 | 17.7 | % | |||||
* Represents holdings of less than 1% of shares outstanding.
| (1) | The address of GAMCO Investors, Inc. is One Corporate Center, Rye, NY 10580. This disclosure is based on information contained in a Schedule 13D/A filed by GAMCO Investors, Inc. with the SEC on August 27, 2020. |
| (2) | Michael R. Zapata, as the managing member of Sententia Capital Management, LLC, general partner of Sententia Group, LP, and as the managing member of Sententia Capital Management, LLC, may be deemed to beneficially own the shares of Common Stock beneficially owned by Sententia Capital Management LLC. Mr. Zapata disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest therein. This disclosure is based on information contained in a Schedule 13D/A filed by Sententia Capital Management LLC with the SEC on December 20, 2019 and a Form 4 filed by Michael Zapata with the SEC on November 30, 2020. |
| (3) | Includes 49,867 shares of Common Stock held directly by Mr. Zapata and 12,000 shares of Common Stock issuable upon exercise of restricted stock units, all of which were vested as of August 31, 2021. |
| (4) | Includes 0 shares of Common Stock held as of August 31, 2021. |
| (5) | Includes 26,967 shares of Common Stock held as of August 31, 2021, options to purchase15,000 shares of Common Stock at a strike price of $1.70 all of which were vested as of August 31, 2021. |
| (6) | Includes 45,086 shares of Common Stock held as of August 31, 2020, and 20,134 shares of Common Stock held by Mr. Hines’ spouse. |
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| (7) | Includes 25,358 shares of Common Stock held as of August 31, 2021. |
| (8) | Includes 3,559 shares of Common Stock held as of August 31, 2021. |
| (9) | Jamie Schmidt transitioned as the Company’s Chief Financial Officer as of December 1, 2020. |
| (10) | Consists of 657,206 shares held as of August 31, 2021, 15,000 shares of Common Stock issuable upon exercise of options with a strike price of $1.70. Excludes shares beneficially owned by Mr. Schmidt, who, as of December 1, 2020, is no longer an executive officer of the Company. |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes information about our equity compensation plans as of May 31, 2021:
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | |||||||||
| Equity compensation plans approved by security holders(1) | 15,000 | 1.70 | 359,477 | |||||||||
| Equity compensation plans not approved by security holders | 0 | 0 | 0 | |||||||||
| Total | 15,000 | 1.70 | 359,477 | |||||||||
| (1) | These equity compensation plans consist of our 2014 Equity Incentive Plan and our 2004 Stock Option Plan. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
Certain Relationships and Related Transactions
Mr. Zapata is the founding member of Sententia, and Mr. Schmidt, our former CFO and Treasurer, is a former employee of Sententia, which is one of the Company’s significant shareholders. The Company entered into a consulting agreement with Sententia, pursuant to which Sententia has agreed to provide executive management services to the Company, which shall be performed by Mr. Zapata. As contemplated by the terms of the agreement, the Company pays $14,000 directly to Sententia per month during the term of the agreement, which was defined as July 30, 2019 through July 31, 2020. Effective August 1, 2020, the Company extended this agreement on a month-to-month basis under similar terms. In addition, pursuant to the consulting agreement, Mr. Zapata was granted 17,777 restricted stock units on August 6, 2019 that vested on such date, and Mr. Zapata may receive a performance-based bonus to be paid in additional restricted stock units with a maximum cash value equivalent of $168,000.
Before becoming the Company’s Chief Financial Officer, Mr. Schmidt entered into an independent contractor agreement with the Company, which was effective February 1, 2019 through his appointment as Chief Financial Officer in January 2020. Pursuant to Mr. Schmidt’s independent agreement, Mr. Schmidt provided corporate development services, including the establishment and management of client data rooms and documents for discussions with strategic partners, to the Company, and he was paid $6,500 per month for such services. Mr. Schmidt also received a $92,500 closing bonus in connection with services provided to the Company related to the closing of its November 22, 2019 sale of its Schmitt Dynamic Balance Systems business line to Tosei Engineering Corp. and Tosei America, Inc.
Sherry Hines, the wife of Director Andrew Hines, was engaged in an independent contractor agreement with the Company, effective July 4, 2020, to provide human resource services for Ample Hills Creamery. She was granted 10,000 restricted stock units for her initial term. The Company entered into a subsequent agreement, effective October 4, 2020, whereby she would be granted additional stock each quarter for continued services, with total compensation not exceeding $120,000. Due to Ms. Hines’ compensation. Mr. Hines was no longer considered an independent director for the Audit Committee and stepped down from his position on the Audit Committee.
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Director Independence
The Board has determined that, except for Messrs. Zapata and Hines, all of our current non-employee directors are independent within the meaning of SEC and NASDAQ rules. The Board has also determined that all directors serving on the Audit Committee, Nominating and Governance Committee and Compensation Committee are independent within the meaning of SEC and NASDAQ rules.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Audit Committee Policies and Procedures
The Audit Committee pre-approves all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services as allowed by law or regulation. Pre-approval is generally provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specifically approved amount. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Audit Committee, or one of its members to whom authority has been delegated by the Audit Committee, may also pre-approve particular services on a case-by- case basis. The Audit Committee, or one of its members to whom authority had been delegated, pre-approved all of the Company’s audit fees, audit-related fees, tax fees, and all other fees for services by the independent auditors during Fiscal 2021 and Fiscal 2020.
Fees Billed for the 2021 and 2020 Fiscal Years
Audit Fees and Audit-Related Fees
For the fiscal years ended May 31, 2021 and May 31, 2020, Moss Adams LLP and their affiliates billed, or have estimated they will bill, a total of $314,747 and $204,495, respectively, for their audits, and fees reasonably related to the performance of the audits of the Company’s annual consolidated financial statements for those fiscal years; review of financial statements contained in the Company’s Forms 10-Q in those fiscal years; and services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements for those fiscal years.
For the fiscal years ended May 31, 2021 and May 31, 2020 UHY LLP and their affiliates billed, or have estimated they will bill, a total of $92,250 and $0, respectively.
Tax Fees
For the fiscal years ended May 31, 2021 and May 31, 2020, Moss Adams LLP and their affiliates billed, or have estimated they will bill, the Company $0 and $0, respectively, for preparation of subsidiary tax return.
All Other Fees
In the fiscal years ended May 31, 2021 and May 31, 2020, Moss Adams LLP and their affiliates billed the Company $71,878 and $0, respectively, for services other than those already disclosed above.
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PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Exhibits
The following documents are filed as part of this Amendment, and they supplement the exhibits filed and furnished with the Original Filing:
| Exhibit Number | Description |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SCHMITT INDUSTRIES, INC. | ||
| Date: September 28, 2021 | By: | /s/ Philip Bosco |
| Philip Bosco | ||
| (Chief Financial Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
| Name | Title | Date | ||
| /s/ Michael R. Zapata | President, Chief Executive Officer and | |||
| Michael R. Zapata | Chairman of the Board | September 28, 2021 | ||
| (Principal Executive Officer) | ||||
| /s/ Philip Bosco | Chief Financial Officer | |||
| Philip Bosco | (Principal Financial and Accounting Officer) | September 28, 2021 | ||
| /s/ Charles Davidson | Director | |||
| Charles Davidson | September 28, 2021 | |||
| Director | ||||
| Andrew P. Hines | September 28, 2021 | |||
| /s/ Steven Strom | Director | |||
| Steven Strom | September 28, 2021 | |||
| /s/ Lillian Tung | Director | |||
| Lillian Tung | September 28, 2021 |