SMIT Schmitt Industries Inc

Schmitt Industries, Inc. (NASDAQ: SMIT) (the “Company” or “Schmitt”) today announced its operating results for the third quarter of Fiscal 2019.

Highlights of the three and nine months ended February 28, 2019:

• Total net sales for the Company decreased 4.8% and 0.7% for the three and nine months ended February 28, 2019, respectively, as compared to the three and nine months ended February 28, 2018.
• Gross margin was reduced from 46.1% to 32.8% for the third quarter of fiscal 2019 due to an inventory reserve adjustment of $407,558. This adjustment was the outcome of reorganization efforts to evaluate the types and levels of inventory maintained across the Company’s three product lines.
• Operating expenses increased 12.1% and 0.8% for the three and nine months ended February 28, 2019, respectively, as compared to the three and nine months ended February 28, 2018. These results include non-recurring reorganization, legal and other professional expenses of $292,888 and $637,447 incurred during the three months and nine months ended February 28, 2019, respectively, that were not incurred during the same periods in the prior year.
• Net loss per fully diluted share, or EPS, was $(0.12) and $(0.24) for the three and nine months ended February 28, 2019. 
• Non-GAAP EPS was $0.06 and $0.03 for the three and nine months ended February 28, 2019.

Michael Zapata, Executive Chairman and President, commented, “Since announcing the reorganization on November 27, 2018, the Schmitt team has invested strategically in our people, technology, and client relationships, to continue delivering industry leading quality and service in our SBS®, Xact® and Acuity® business lines. We are beginning to see the impacts of our focus on high return on investment priorities and improved profitability as non-GAAP EPS improved on a year over year basis. We expect GAAP financials to begin to normalize in the fourth quarter of Fiscal 2019 as the team continues to execute across our three product lines and we target underserved markets while continuing to grow alongside our valued customers.”

Summary data for the three months ended February 28, 2019 and 2018:

	Three Months Ended February 28,
	2019				2018					Change ($)			Change (%)
Total net sales	$	3,082,181			$	3,238,858			$	(156,677	)		(4.8	%)
Balancer segment		1,961,636				2,137,811				(176,175	)		(8.2	%)
Measurement segment		1,120,545				1,101,047				19,498			1.8	%
Gross margin		32.8	%			40.8	%
Operating expenses	$	1,527,765			$	1,362,508				165,257			12.1	%
Net income (loss)	$	(475,189	)		$	15,553				(490,742	)
Net income (loss) per fully diluted share	$	(0.12	)		$	0.00

Summary data for the nine months ended February 28, 2019 and 2018:

	Nine Months Ended February 28,
	2019				2018					Change ($)			Change (%)
Total net sales	$	10,026,112			$	10,093,386			$	(67,274	)		(0.7	%)
Balancer segment		6,501,448				6,439,054				62,394			1.0	%
Measurement segment		3,524,664				3,654,332				(129,668	)		(3.5	%)
Gross margin		37.1	%			44.1	%
Operating expenses	$	4,568,784			$	4,532,512				36,272			0.8	%
Net loss	$	(942,278	)		$	(15,297	)			(926,981	)
Net income (loss) per fully diluted share	$	(0.24	)		$	0.00

Reconciliation of Adjusted Net Income and Non-GAAP EPS:

	Three Months Ended February 28, 2019				Nine Months Ended February 28, 2019
Net loss	$	(475,189	)		$	(942,278	)
Adjusted for:
Inventory reserve adjustment		407,558				407,558
Non-recurring reorganization, legal and other professional expenses		292,888				637,447
Adjusted net income (non-GAAP)	$	225,257			$	102,727
Non-GAAP earnings per fully diluted share	$	0.06			$	0.03

“Additionally, in line with our announced reorganization, the board of directors has approved plans to explore options to monetize Schmitt real estate, which may include the sale of Schmitt properties,” Zapata added.

About Schmitt Industries

Schmitt Industries, Inc. (the “Company” or “Schmitt”) designs, manufactures and sells high precision test and measurement products for two main business segments: the Balancer Segment and the Measurement Segment. For the Balancer Segment, the Company designs, manufactures and sells computer-controlled vibration detection, balancing and process control systems for the worldwide machine tool industry, particularly for grinding machines.  The Company also provides sales and service for Europe and Asia through its wholly owned subsidiary, Schmitt Europe Limited (SEL), located in Coventry, England and through its sales representative office located in Shanghai, China. For the Measurement Segment, the Company has two core product lines: the Acuity® product line, which consists of sales of laser and white light sensor distance measurement and dimensional sizing products; and the Xact® product line, which consists of sales of remote tank monitoring products that measure the fill levels of tanks holding propane, diesel and other tank-based liquids and revenues from the related monitoring services associated with the transmission of data from the tanks to a secure web site.

FORWARD-LOOKING STATEMENTS

This document may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. These statements are based upon current expectations, estimates and projections about the Company’s business that are based, in part, on assumptions made by management.  These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.  Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to, general economic conditions and global financial concerns, the volatility of the Company’s primary markets, the ability to develop new products to satisfy changes in consumer demands, the intensity of competition, increased pricing pressure from both competitors and customers, the effect on production time and overall costs of products if any of our primary suppliers are lost or if a primary supplier increases the prices of raw materials or components, the ability to ramp up manufacturing to satisfy increasing demand, maintenance of a significant investment in inventories in anticipation of future sales, existing cash levels which may not be sufficient to fund future growth, fluctuations in quarterly and annual operating results, risks associated with operating a global business including risks from international sales, reduction in demand or loss of significant customers, changes in foreign import tariffs and currency fluctuations including the United Kingdom’s likely exit from the European Union, ability to reduce operating costs if sales decline, attracting and retaining key management and qualified technical and sales personnel, impact resulting from the actions of activist shareholders, changes in effective tax rates, protection of intellectual property rights and the increased costs due to changes in securities laws and regulations.

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

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

For more information contact:

Ann M. Ferguson, CFO and Treasurer(503) 227-7908 or visit our web site at www.schmitt-ind.com

SCHMITT INDUSTRIES, INC.CONSOLIDATED BALANCE SHEETS(UNAUDITED)

	February 28, 2019				May 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	1,168,930			$	2,053,181
Restricted cash		56,835				58,352
Accounts receivable, net		2,078,116				2,047,032
Inventories		5,751,164				5,710,888
Prepaid expenses		193,326				148,924
Income taxes receivable		206				0
Total current assets		9,248,577				10,018,377
Property and equipment, net		863,361				770,915
Other assets
Intangible assets, net		418,331				496,768
TOTAL ASSETS	$	10,530,269			$	11,286,060
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	977,436			$	1,024,256
Accrued commissions		194,943				194,797
Accrued payroll liabilities		192,953				188,568
Other accrued liabilities		437,209				358,790
Income taxes payable		0				3,993
Current portion of long-term liabilities		21,424				0
Total current liabilities		1,823,965				1,770,404
Total current liabilities		35,601				0
Stockholders’ equity
Common stock, no par value, 20,000,000 shares authorized, 4,032,878 shares issued and outstanding at February 28, 2019 and 3,994,545 shares issued and outstanding at May 31, 2018		13,156,496				13,085,652
Accumulated other comprehensive loss		(509,826	)			(536,307	)
Accumulated deficit		(3,975,967	)			(3,033,689	)
Total stockholders’ equity		8,670,703				9,515,656
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	10,530,269			$	11,286,060

SCHMITT INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE AND NINE MONTHS ENDED FEBRUARY 28, 2019 AND 2018(UNAUDITED)

	Three Months Ended February 28,								Nine Months Ended February 28,
	2019				2018				2019				2018
Net sales	$	3,082,181			$	3,238,858			$	10,026,112				10,093,386
Cost of sales		2,069,798				1,916,345				6,310,824				5,645,372
Gross profit		1,012,383				1,322,513				3,715,288				4,448,014
Operating expenses:
General, administration and sales		1,507,233				1,286,718				4,452,091				4,279,505
Research and development		20,532				75,790				116,693				253,007
Total operating expenses		1,527,765				1,362,508				4,568,784				4,532,512
Operating income (loss)		(515,382	)			(39,995	)			(853,496	)			(84,498	)
Other income (expense), net		46,779				61,815				(69,468	)			88,436
Income (loss) before income taxes		(468,603	)			21,820				(922,964	)			3,938
Provision for income taxes		6,586				6,267				19,314				19,235
Net income (loss)	$	(475,189	)		$	15,553			$	(942,278	)		$	(15,297	)
Net loss per common share, basic	$	(0.12	)		$	0.00			$	(0.24	)		$	0.00
Weighted average number of common shares, basic		4,000,990				3,706,050				3,996,970				3,230,022
Net loss per common share, diluted	$	(0.12	)		$	0.00			$	(0.24	)		$	0.00
Weighted average number of common shares, diluted		4,000,990				3,769,814				3,996,970				3,230,022