SCHMITT INDUSTRIES: MANAGEMENT REPORT AND ANALYSIS OF THE FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)
Schmitt Industries Inc.("Schmitt," "Company" or "Registrant" or "we") is a holding company owning subsidiaries engaged in diverse business activities. We purchase companies where we believe we can help operate more effectively to achieves their full potentials. We continually assess strategic opportunities to improve shareholder value. Schmitt's operating businesses include propane tank monitoring solutions, precision measurement solutions and ice cream production and distribution. Our subsidiaries include our Measurement Segment ("SMS") and our Ice Cream Segment, which is comprised of our recent acquisition of Ample Hills. 18 Table of Contents As described in Note 12- Discontinued Operations, the Company sold the Schmitt Dynamic Balance Systems ("SBS") business line on November 22, 2019. After the sale of the SBS business, but prior to the acquisition of Ample Hills, the Company conducted an analysis and determined that, based on the types of products and services sold, and the manner in which the Company reviews and manages operations, that it operated as one segment. Subsequent to the Ample Hillsacquisition, the Company determined that it had two distinct segments: the Measurement Segment and the Ice Cream Segment. On July 9, 2020, Buyer entered into an Asset Purchase Agreement (the "Agreement"), dated as of June 29, 2020, with 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 Ample Hillsentities were debtors-in-possession under title 11 of the United States Code, 11 U.S.C. § 101 etseq. pursuant to voluntary petitions for relief filed under Chapter 11 of the Bankruptcy Code on March 15, 2020in the Bankruptcy Courts. 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. RECENT DEVELOPMENTS Strategic Highlights
As disclosed above, the Company acquired the
Ample Hillsice cream business as of July 9, 2020. Following the Transactions, Ample Hillsbegan reopening retail locations, rehiring Ample Hillsteam members, and reopened the Red Hookice cream factory in Brooklyn, New York. Further, on May 28, 2021, the Company opened a new retail location in Brooklyn, New York, bringing its total retail locations to 11 as noted above. As the Transactions occurred after Fiscal 2020, the results of Ample Hillsare not reflected in the Company's results for Fiscal 2020, but are included in the results for Fiscal 2021 and anticipated to be a significant component of the Company's results in fiscal years subsequent to the acquisition.
SIGNIFICANT ACCOUNTING POLICIES
The analysis of the Company's financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with Generally Accepted Accounting Principles in the
U.S.("GAAP"). In preparing the Consolidated Financial Statements certain estimates and judgments are required that affect the reported amounts within the Consolidated Statement of Operations and Balance Sheet. Note 2 - Summary of Significant Accounting Policies, in the accompanying Notes to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements.
Management affirms that the estimates, assumptions and judgments involved in the accounting policies described in Note 2 – Summary of significant accounting policies have the greatest potential impact on our consolidated financial statements and have deemed them to be our methods and critical accounting estimates.
19 Table of Contents Revenue Recognition The Company generates revenues from the following sources: (i) retail restaurant sales, (ii) factory sales, (iii) measurement product sales, and (iv) remote
tank monitoring services. Retail Restaurant Sales, net The Company's Ice Cream Segment generates revenues from retail restaurant sales to its end-user customers at the time of sale, net of discounts, coupons, employee meals, and complimentary meals and gift cards. Sales tax is collected from customers and remitted to governmental authorities and is presented on a net basis within revenue in our Consolidated Statement of Operations. Factory Sales, net The Company's Ice Cream Segment generates revenues from sales of finished goods from its
Brooklyn, New Yorkfactory, including wholesale, e-commerce, and direct-to-consumer sales. These revenues, net of sales tax paid to states, are recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. The Company also generates revenues by providing manufacturing production services to third parties, and recognizes revenues as services are provided to the customer.
Measurement Product Sales The Company's Measurement Segment determines the amount of revenue it recognizes associated with the transfer of each product. For sales of products 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 meets all of the above criteria, revenue is recognized for the sales of product at the time of shipment. The Company incurs commission expense associated with the sales of certain measurement products. The Company applies the practical expedient allowed under Accounting Standards Codification ("ASC") 340-40-25-4 by recognizing the expense at the time the product is shipped. These amounts are recorded within general, administrative 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.
Remote tank monitoring services
The Company's Measurement Segment revenues associated with the Xact product line include satellite focused remote tank monitoring products and related monitoring services for markets in the Internet of Things environment ("IoT"). The Company determines the amount of revenue it recognizes associated with the transfer of such services. For 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 provide monitoring services meets all of the above criteria, revenue is recognized at the completion of the month in which monitoring services are provided.
Customer deposits and prepayments
The Company defers revenue recognition in cases where consideration is received from customers before the Company fulfills its obligations in exchange for such consideration.
20 Table of Contents Business Combinations
In accordance with ASC 805 - Business Combinations ("ASC 805"), the Company allocates the purchase consideration to the identifiable assets acquired and liabilities assumed in business combinations based on their acquisition-date fair values. The excess of the purchase consideration over the amounts assigned to the identifiable assets and liabilities is recognized as goodwill, or if the fair value of the net assets acquired exceeds the purchase consideration, a bargain purchase gain is recorded. Factors giving rise to goodwill generally include operational synergies that are anticipated as a result of the business combination and growth expected to result in economic benefits from access to new customers and markets. The fair values of identifiable intangible assets acquired in business combinations are generally determined using an income approach, requiring financial forecasts and estimates as well as market participant assumptions. The incremental financial results of the
Ample Hillsacquisition are included in the Company's consolidated financial results from the respective acquisition date. Bargain Purchase Gain In connection with the acquisition of Ample Hillsduring Fiscal 2021, the Company recorded an initial bargain purchase gain of $1,271,615that was recorded as a component of other income on the Consolidated Statement of Operations. As a result of additional information obtained during the measurement period about the facts and circumstances that existed as of the acquisition date, the Company recorded measurement period adjustments during the year, which resulted in a reduction in the bargain purchase gain for Fiscal 2021 to $1,138,808. The adjustments related to additional cure payments made during the year, the discovery of obsolete inventory, and the reduction of the deferred tax liability. The bargain purchase gain amount represents the excess of the estimated fair value of the net assets and intangibles, described below, acquired over the estimated fair value of the consideration transferred to the sellers and their landlords. In accordance with ASC 805, we have estimated the fair value of the net assets acquired as of the acquisition date.
Intangible assets and depreciation
Intangible assets with indefinite useful life
The Company's indefinite-lived assets, included tradenames and trademarks for the Company's Ice Cream Segment. The Company reviews the carrying values of identifiable intangibles annually or whenever events or changes in circumstances indicate that such carrying values may not be recoverable as required by ASC 350, Intangibles -
Goodwilland Other. This guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative analysis. If the carrying value of a reporting unit exceeds its fair value, we measure any intangible impairment losses as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of the intangible allocated to that reporting unit.
Unforeseen events, changes in circumstances, market conditions and material differences in the value of intangible assets due to changes in estimates of future cash flows could negatively affect the fair value of the Company's assets and result in a non-cash impairment charge. Some factors considered important that could trigger an impairment review include the following: significant underperformance relative to expected historical or projected future operating results, significant changes in the manner of the Company's use of acquired assets or the strategy for its overall business and significant negative industry or economic trends. 21 Table of Contents
Intangible assets with finite lives
Amortizable intangible assets include purchased technology and patents for the Company's Measurement Segment and proprietary recipes and the Company's website for its Ice Cream Segment. These assets are amortized over their estimated useful lives ranging from three to fifteen years. The Company reviews finite-lived intangible assets for impairment annually or 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 undiscounted 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 such undiscounted 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, which is determined by discounting future projected cash flows. Inventories, net 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. Lease Accounting - Leases The Company evaluates their leases to determine if they have the right to control the use of an asset, or groups of assets, for a period of time in exchange for consideration. If the determine that they have the right to obtain substantially all of the economic benefits arising from the use of such asset, the recognize a right-of-use asset and lease liability. The Company evaluates each lease to estimate their expected term which includes renewal options that they are reasonably assured that they will exercise and they also evaluate the classification of the lease as either an operating lease or a finance lease. As the Company's leases do not provide an implicit rate, the Company must estimate an incremental borrowing rate based on the information available at the time the lease is commenced or amended. The estimated rate is directly utilized in determining the present value of the lease payments. As the Company does not have any outstanding debt other than the PPP loans discussed in Note 16 - Long-Term Debt, to the extent not forgiven, or committed credit facilities, the Company must estimate the incremental borrowing rate based on prevailing financial market conditions, peer company credit analyses and management judgment. The Company asses their right-of-use assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Changes in assumptions regarding lease renewals and estimated incremental borrowing rates may produce materially different amounts in the initial recognition of right-of-use assets and lease liabilities. Additionally, an inability to perform on the Company's strategic revenue and cash flow growth plans could result in the recognition of impairment losses in future periods and could be material. Income Taxes
The Company accounts for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management continues to review the level of the valuation allowance on a quarterly basis. There can be no assurance that the Company's future operations will produce sufficient earnings to allow for the deferred tax asset to be fully utilized. The Company currently maintains a full valuation allowance against net deferred tax assets. 22 Table of Contents 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.
Discussion of operating results from continuing operations
The Company has previously reported segment information for their two identified reportable segments: Balancer and Measurement. As described in the accompanying Consolidated Financial Statements, the Company sold the SBS business line on
November 22, 2019. This entity composed substantially all of the business activities of the Company's legacy Balancer Segment. Subsequent to this sale, management determined the Company had a single reportable segment (until the acquisition of Ample Hillson July 9, 2020). Subsequent to the acquisition of Ample Hills, the Company determined they have two segments: the Measurement Segment and the Ice Cream Segment. The foregoing information presents the balances and activities of the Measurement Segment for Fiscal 2021 and Fiscal 2020 and the activities of the Ice Cream Segment for Fiscal 2021. COVID-19 Update As of May 31, 2021, all of our manufacturing facilities and retail shops were operational. Throughout the COVID-19 pandemic, the Company has been adhering to mandates and other guidance from local governments and health authorities, including the World Health Organizationand the Centers for Disease Control and Prevention. The Company has taken extraordinary measures and invested significantly in practices to protect employees and reduce the risk of spreading the virus, while continuing to operate where permitted and to the extent possible. These actions include additional cleaning of our facilities, staggering crews, incorporating visual cues to reinforce social distancing, providing face coverings and gloves, as well as implementing daily health validation at our manufacturing and office facilities. We expect to continue to incur costs to maintain these precautionary measures for the foreseeable future. The health and safety of our employees and our communities is our highest priority. Key Leadership Changes
23 Table of Contents RESULTS OF OPERATIONS Fiscal Year Ended May 31, 2021 2020 Ice Cream Segment revenues
$ 4,043,43651.4 % $ - - Measurement Segment revenues 3,820,914 48.6 % 4,189,924 100.0 % Total revenue, net 7,864,350 100.0 % 4,189,924 100.0 % Cost of sales 4,593,588 58.4 % 2,239,376 53.4 % Gross profit 3,270,762 41.6 % 1,950,548 46.6 % General, administrative and sales 12,045,174 153.2 % 4,061,621 96.9 %
Impairment of intangible assets 903,422 11.5 %
- - Transaction costs 125,167 1.6 % - - Research & development 83,130 1.1 % 68,849 1.6 % Total operating expenses 13,156,893 167.3 % 4,130,470 98.6 % Operating loss (9,886,131 ) (125.7 %) (2,179,922 ) (52.0 %) Bargain purchase gain 1,138,808 14.5 % - - Interest expense (19,038 ) (0.2 %) - - Other income, net 273,023 3.5 % 322,980 7.7 % Loss before income taxes (8,493,338 ) (108.0 %) (1,856,942 ) (44.3 %) Income tax benefit (403,666 ) (5.1 %) (14,638 ) (0.3 %) Net loss from continuing operations (8,089,672 ) (102.9 %) (1,842,304 ) (44.0 %) Income from discontinued operations, net of tax - - 5,722,879 136.6 % Net (loss) income
$ (8,089,672 )(102.9 %) $ 3,880,57592.6 %
Consolidated Revenue - Consolidated revenue increased
$3,674,426, or 87.7%, to $7,864,350in Fiscal 2021 from $4,189,924in Fiscal 2020. The increase was driven by the new Ice Cream Segment, which generated $4,043,436in sales during Fiscal 2021, accounting for 51.4% of total revenue for the fiscal year, offset by a decrease in the Measurement Segment sales of $369,010, or 8.8%, to $3,820,914which accounted for 48.6% of total revenue. No revenues for the Ice Cream Segment are included in Fiscal 2020 due to the acquisition occurring subsequent to Fiscal 2020 year end. Ice Cream Segment Revenue - The Ice Cream Segment encompasses the operations of Ample Hillsand focuses on the wholesale and retail sales of their ice cream and related products through a network of 11 individual retail locations located in New York, New Jerseyand California, in addition to sales on the Company's website. Revenues for the Ice Cream Segment for Fiscal 2021 were $4,043,436. Measurement Segment Revenue - The Measurement Segment includes two main product lines: the Acuity product line, which includes laser-based distance measurement and dimensional sizing laser sensor, and the Xact product line, which includes ultrasonic-based remote tank monitoring products and related monitoring revenues for markets in the LoT environment. All activity in the Company's Measurement Segment was conducted in North Americain Fiscal 2021 and substantially all
in Fiscal 2020. Measurement Segment Revenue decreased
$369,010, or 8.8%, to $3,820,914in Fiscal 2021 as compared to $4,189,924in Fiscal 2020. The decrease in Fiscal 2021 is driven by a decrease in Acuity and Xact product revenue of $162,684, or 9.7%, and $216,138, or 26.2%, respectively. Additionally, other revenue decreased $120,845, or 72.2%. These decreases were partially offset by an increase in Xact monitoring revenue of $130,657, or 8.6%, in Fiscal 2021 as the Company's installed base of monitoring devices continues to grow. 24 Table of Contents Revenue by product line for the Measurement Segment for Fiscal 2021 compared to Fiscal 2020 were as follows: Fiscal Year Ended, May 31, Year-Over-Year Change 2021 2020 $ % Acuity $ 1,510,437 $ 1,673,121 $ (162,684 )(9.7 %) Xact - Product 608,976 825,114 (216,138 ) (26.2 %) Xact - Monitoring 1,654,867 1,524,210 130,657 8.6 % Other 46,634 167,479 (120,845 ) (72.2 %) Total Measurement Segment revenue-current product lines $ 3,820,914 $ 4,189,924 $ (369,010 )(8.8 %)
Gross Margin - Consolidated gross margin for Fiscal 2021 decreased 5.0% to 41.6% as compared to 46.6% in Fiscal 2020, primarily due to lower gross margins in the newly acquired Ice Cream Segment and increased material costs for the Measurement Segment due to market effects of the COVID-19 pandemic. Measurement Segment gross margin for Fiscal 2021 decreased 2.6% to 44.0% as compared to 46.6% in Fiscal 2020. The decrease was due to an increase of material costs due to the market effects of the COVID-19 pandemic and a decrease of sales from its discontinued product line, which had no associated cost of sales. Ice Cream Segment gross margin was 39.4% in Fiscal 2021. As the Company continues to manage the day-to-day operations of the business and as capital improvements are placed into service, the Company expects to be able to identify opportunities to drive additional revenue and volume through their factory, which will improve gross margin. Operating Expenses - Consolidated operating expenses increased
$9,026,423, or 218.5% to $13,156,893in Fiscal 2021 compared to $4,130,470in Fiscal 2020. This increase was primarily due to the inclusion of the Ice Cream Segment, which had operating expenses of $9,411,447in Fiscal 2021 and accounted for 71.5% of total operating expenses. Operating expenses for the Measurement Segment decreased $385,024or 9.3%, to $3,745,446in Fiscal 2021 from $4,130,470in Fiscal 2020. Further detail of the increase in operating expenses include the following
items in Fiscal 2021:
Impairment of assets with indefinite duration of
Increased professional fees
Taking into account the 2021 financial year
were not included in fiscal 2020, offset by a decrease in professional fees
within the Measurement Segment.
The increase in operating expenses was partially offset by the following:
The stock-based compensation expense has decreased
2021 compared to
fiscal year 2021 and fiscal year 2020 were due to the issuance and acquisition of the performance
based Restricted Stock Units ("RSUs"). 25 Table of Contents Bargain Purchase Gain - As previously noted above, in connection with acquisition of
Ample Hillsduring Fiscal 2021, the Company recorded a bargain purchase gain of $1,271,615that was recorded as a component of net income. Adjustments of $132,807were recorded to the bargain purchase gain subsequent to the initial recording of the gain that reduced the bargain purchase gain to $1,138,808. The adjustments related to additional cure payments made during the year, the discovery of obsolete inventory, and the reduction of the deferred tax liability. This bargain purchase gain represents the excess of the estimated fair value of the net assets acquired over the estimated fair value of the consideration transferred to the sellers and their landlords. Other Income - Other income primarily consists of rental income, interest income and foreign currency exchange gain (in Fiscal 2020 only) and other income. Other income was $273,023for Fiscal 2021 as compared to $322,980for Fiscal 2020. The decrease in other income was primarily due to the Tosei restricted cash write-off of $219,872that was settled in May of 2021, partially offset by an increase in rental income of $181,495or 96.8% to $369,159in Fiscal 2021 as compared to $187,664in Fiscal 2020 due to rent collected under the lease executed with Tosei in November of 2019. Interest income was $9,661for Fiscal 2021 as compared to $67,129for Fiscal 2020. Interest income was offset by interest expense of $19,038and $2,435for Fiscal 2021 and Fiscal 2020, respectively. Fluctuations in interest income are impacted by the levels of our average cash and investment balances and changes in interest rates.
Benefit from Income Taxes - The effective tax rate in Fiscal 2021 was 4.7%, as compared 1.2% in Fiscal 2020. The effective tax rate on consolidated net (loss) income in Fiscal 2021 and 2020 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. Net loss - Net loss from continuing operations in Fiscal 2021 was
$8,089,672, or $2.15per fully diluted share, and net loss from continuing operations in Fiscal 2020 was $1,842,304, or $0.47per fully diluted share. The increase in net loss for Fiscal 2021 was primarily due to the Ice Cream Segment's operating loss of $6,299,858, the Measurement Segment's operating loss of $1,789,814and an impairment of intangible assets of $903,422, partially offset by the inclusion of a $1,138,808bargain purchase gain in Fiscal 2020 as a result of the acquisition of Ample Hills, which was not present in Fiscal 2021 results. 26 Table of Contents NON-GAAP FINANCIAL MEASURES Adjusted EBITDA - Adjusted EBITDA, which excludes certain reorganization, legal and other professional expense and inventory adjustments, was ( $7,834,723) for Fiscal 2021 as compared to Adjusted EBITDA of ( $573,502) in Fiscal 2020. Reconciliation of EBITDA to Adjusted EBITDA - Adjusted EBITDA for Fiscal 2021 and Fiscal 2020 is calculated as follows on a consolidated basis and by segment: Fiscal Year Ended May 31, 20212020
Loss before taxes on profits from continuing operations
Depreciation and amortization
EBITDA from continuing operations
$ (7,944,115 ) $ (1,695,805 )Adjusted for: Bargain purchase gain (1,138,808 )
Impairment of intangible assets 903,422
Stock-based compensation 266,545
Income from discontinued product line (46,934 ) (167,479 ) Reorganization, legal, and transaction fees 125,167
Inventory valuation adjustments -
Software write-downs -
Adjusted EBITDA from continuing operations
$ (7,834,723 )$
LIQUIDITY AND CAPITAL RESOURCES
The Company’s working capital decreased
Cash and cash equivalents decreased
Fiscal 2021 as compared to
$10,146,531at the end of Fiscal 2020. The decrease in cash in Fiscal 2021 was primarily due to the net loss from
continuation of the activities of
purchase gain of
$1,138,808. In addition, cash and cash equivalents included proceeds from the sale of SBS in Fiscal 2020. 27 Table of Contents
· From the
Increased accounts payable
$267,660at the end of Fiscal 2020.
Payroll charges have increased
2021 compared to
Accrued expenses have increased
$265,349at the end of Fiscal 2020.
Other accrued charges increased
2021 as compared to
$587,492at the end of Fiscal 2020.
The Company had no short-term portion of long-term lease debts at the end of
Fiscal year 2020. After the implementation of the update of accounting standards (“ASU”)
N ° 2016-02, Baux (Subject 842) on
long term rental liabilities. At the end of the 2021 financial year, the Company
related to leases acquired under the
The Company has not received any loans under the PPP in tax matters
2020 and, as such, had no short-term portion of long-term debt. As a result of
COVID-19 relief in fiscal year 2021, the Company recorded the
portion of PPP totaling
$541,691as of the end of Fiscal 2021.
These decreases were partially offset by the following:
Accounts receivable, net, increased
2021 compared to
Prepaid expenses increased
$60,674at the end of Fiscal 2020. Net cash used in operating activities for continuing operations was $6,939,962in Fiscal 2021 as compared to cash used in operating activities of $228,994in Fiscal 2020. The net loss of $8,089,672, a bargain purchase gain of $1,138,808, an increase in accounts receivable of $579,719, an decrease in deferred income taxes of $453,238, an increase in rent, utility deposits and ERP deposits of $206,628, and an increase in prepaid expenses of $84,388were the primary drivers of the overall operating cash usage for Fiscal 2021, offset by an impairment of indefinite-lived intangible assets of $903,422, non-cash lease costs of $735,709, depreciation and amortization of $549,223, stock based compensation expense of $266,545, and an increase in accrued liabilities and customer deposits of $793,082, accounts payable of $316,090and inventories of $138,147. In Fiscal 2020, net income of $3,880,575, depreciation and amortization of $161,137, stock-based compensation of $354,048and an increase in inventories of $181,775, accounts payable of $165,094, accrued liabilities and customer deposits of $328,450and accrued taxes of $265,349, offset by a gain on sale of discontinued operations before income taxes of $5,166,845were the primary drivers of the overall operating cash usage for Fiscal 2020. Net cash used in investing activities for continuing operations was $3,035,184in Fiscal 2021 as compared to net cash provided by investing activities of $10,396,607for Fiscal 2020. The net cash used in investing activities for Fiscal 2021 is driven by the $1,665,854acquisition of Ample Hills, in addition to purchases of property and equipment and upgrades totaling $1,404,830, to increase factory capabilities, establish the Ample Hillscommissary, and renovate retail locations, which includes $438,370for the opening of a new Ample Hillsretail location in Brooklyn, New York. Schmitt's Measurement Segment incurred expenditures associated with the build out of Xact monitoring tool of $110,253in Fiscal 2021. Fiscal 2020 investing activity is related to the sale of the SBS business. See Note 12 - Discontinued Operations, to the financial statements below for further details. 28 Table of Contents
Net cash provided by financing activities was
$3,441,305in Fiscal 2021 as compared to net cash used in financing activities of $1,391,576for Fiscal 2020. The net cash provided by financing activities was primarily due to the proceeds from the Paycheck Protection Program totaling $4,059,556, offset by repayments to the program of $264,476, the repurchase of common stock related to the stock buyback program totaling $234,517and the repurchase of RSUs totaling $65,975. The net cash used in financing activities for Fiscal 2020 was due to the repurchase of shares from a large company stockholder totaling $1,350,681. See the notes to the financial statements for further details on the share repurchase. Management is seeking to sell the assets held for sale, which would be a source of liquidity. Additionally, a stockholder of the Company has committed to providing additional capital up to $1,300,000, to the extent necessary to fund operations.
We believe our existing cash and cash equivalents combined with the cash we anticipate generating from operating and financing activities will be sufficient to meet our working capital requirements for the next twelve months. In the Fiscal Year ended
May 31, 2021, the Company had a significant reduction in its cash and cash equivalents due to planned capital expenditures. The Company's plans for the current Fiscal Year do not require capital investments at the
same level. The Company's primary source of working capital is cash generated through the sale of assets as the company realigns its operating businesses and PPP loans. As of
May 31, 2021, our available funds consisted of $4,032,690in cash and cash equivalents. The Company is seeking to sell real estate used in connection with SBS Business unit which was sold in 2019. The Company may also seek additional financing for working capital purposes or to facilitate accelerating its business plans. Any subsequent financing may have dilutive effects on our current shareholders. Shareholder Sententia Capital Management, LLCwhich is controlled by Michael Zapata, the Company's Chairman and CEO, has committed $1,300,000, to the extent necessary to fund operations through August 31, 2022.
QUARTERLY FINANCIAL DATA – Continuing operations
In thousands, except information per share
Fiscal Quarter of 2020 Ended, 8/31/2019 11 /31/2019 2/28/2020 5/31/2020 Consolidated revenue
$ 1,095 $ 1,033 $ 1,095 $ 967Gross profit $ 477$ 390 $ 604 $ 480Net loss $ (222 ) $ (676 ) $ (240 ) $ (704 )Net loss per share, basic $ (0.06 ) $ (0.17 ) $ (0.06 ) $ (0.18 )
Net loss per share, diluted
$ (0.06 ) $ (0.17 )$ (0.06
$ (0.18 )Fiscal Quarter of 2021 Ended, 8/31/2020 11/30/2020 2/28/2021 5/31/2021 Consolidated revenue $ 1,507 $ 2,030 $ 1,668 $ 2,659Gross profit $ 608 $ 962 $ 831 $ 870Net income (loss) $ 151 $ (2,366 ) $ (2,420 ) $ (3,455 )
Net income (loss) per share, basic
$ 0.04 $ (0.63 ) $ (0.64 ) $ (0.92 )Net income (loss) per share, diluted $ 0.04 $ (0.63 )$
$ (0.92 )
Recently issued accounting guidelines
Refer to Note 3 - Recently Issued Accounting Guidance in the accompanying Notes to the Consolidated Financial Statements for a discussion of recent accounting pronouncements. 29 Table of Contents
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