RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9 Months Ended

Feb. 28, 2022

Accounting Changes and Error Corrections [Abstract]

RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As previously disclosed on Form 8-K filed on September 20, 2022, the Company determined that the Company’s previously issued condensed consolidated financial statements for the period ended February 28, 2022 should no longer be relied upon due to errors in such condensed consolidated financial statements related to certain liabilities and expenses incurred that the Company failed to accrue for within the proper reporting periods, resulting primarily in the exclusion of certain general and administrative expenses from the statement of operations in the condensed consolidated financial statements.

The following errors were identified as part of the restatement:

The Company discovered expenses and liabilities incurred during the three- and nine- month period ended February 28, 2022, that it failed to accrue for properly. The additional expenses are primarily related to unpaid and unrecorded utility charges, professional fees and other operating expenses.

The Company discovered that it did not properly record approximately $72,000 in leasehold security deposits that it acquired from Ample Hills in the Transactions in fiscal year ended May 31, 2021. The Company determined that the error was immaterial to the prior year and has recorded this transaction as of August 31, 2021 as an out of period adjustment.

The following reflects the restatement adjustments recorded in connection with the Company’s restatement of its condensed consolidated financial statements:


Balance Sheet	As of February 28, 2022
	As previously reported			Total Adjustments			As Restated			Reference
ASSETS
Current Assets
Cash and cash equivalents	$	1,999,241		$	—		$	1,999,241
Accounts receivable, net		936,809			—			936,809
Inventories, net		2,191,844			5,712			2,197,556		A
Prepaid expenses		30,867			859			31,726		A
Income tax receivable		17,730			(1,350	)		16,380		A
Total current assets		5,176,491			5,221			5,181,712		A
Leasehold assets		11,423,035			—			11,423,035
Property and equipment, net		2,248,500			63,440			2,311,940		A
Property and equipment held for sale, net		433,410			—			433,410
Leasehold, utilities, and ERP deposits		829,001			72,128			901,129		B
Other assets
Intangible assets, net		242,088			—			242,088
Total Assets	$	20,352,525		$	140,789		$	20,493,314		A, B

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	555,974		$	(9,263	)	$	546,711		A
Accrued commissions		59,208			(3,658	)		55,550		A
Accrued payroll liabilities		505,248			—			505,248
Accrued liabilities		329,492			(498	)		328,994		A
Customer deposits and prepayments		112,791			—			112,791
Other accrued liabilities		424,799			592,119			1,016,918		A
Current portion of long-term lease liabilities		1,417,386			—			1,417,386
Current portion of long-term debt		472,431			—			472,431
Total current liabilities		3,877,329			578,700			4,456,029		A
Long-term debt, net of current portion		1,527,569			—			1,527,569
Long-term leasehold liabilities, net of current portion		10,833,399			—			10,833,399
Total liabilities		16,238,297			578,700			16,816,997		A
Total stockholders' equity
Common stock, no par value, 20,000,000 shares authorized, 4,236,821 and 3,818,770 shares issued and outstanding at February 28, 2022, respectively		12,318,375			—			12,318,375
Accumulated deficit		(8,204,147	)		(437,911	)		(8,642,058	)	A,B
Total stockholders' equity		4,114,228			(437,911	)		3,676,317		A,B
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	20,352,525		$	140,789		$	20,493,314		A,B


Statement of Operations		For the three months ended February 28, 2022
		As previously reported			Total Adjustments			As Restated		Reference
Net sales	$	1,848,913		$	—		$	1,848,913
Cost of revenue		912,076			117,145			1,029,221		A
Gross profit		936,837			(117,145	)		819,692		A
Selling, general and administrative		3,312,388			40,441			3,352,829		A
Research and development		10,771			2,500			13,271		A
Total operating expenses		3,323,159			42,941			3,366,100		A
Operating loss		(2,386,322	)		(160,086	)		(2,546,408	)	A
Forgiveness of PPP loans		1,471,292			—			1,471,292
Interest expense		(8,232	)		—			(8,232	)
Other income, net		38,286			—			38,286		A
Loss before income taxes		(884,976	)		(160,086	)		(1,045,062	)	A
Income tax provision from continuing operations		8,268			—			8,268
Net loss	$	(893,244	)	$	(160,086	)	$	(1,053,330	)	A
Net loss per common share:
Basic	$	(0.24	)	$	(0.04	)	$	(0.28	)	A
Weighted average number of common shares, basic		3,788,315			—			3,788,315
Diluted	$	(0.24	)	$	(0.04	)	$	(0.28	)	A
Weighted average number of common shares, diluted		3,788,315			—			3,788,315


		For the nine months ended February 28, 2022
		As previously reported			Total Adjustments			As Restated		Reference
Net Sales	$	8,570,053		$	—		$	8,570,053
Cost of revenue		3,618,925			220,726			3,839,651		A
Gross profit		4,951,128			(220,726	)		4,730,402		A
Selling, general and administrative		11,604,964			285,562			11,890,526		A
Research and development		25,616			2,500			28,116		A
Total operating expenses		11,630,580			288,062			11,918,642		A
Operating loss		(6,679,452	)		(508,788	)		(7,188,240	)	A
Gain on sale of property and equipment		4,598,095			—			4,598,095
Forgiveness of PPP loans		2,059,826			—			2,059,826
Interest expense		(37,811	)		—			(37,811	)
Other income, net		323,589			72,127			395,716		B
Income (loss) before income taxes		264,247			(436,661	)		(172,414	)	A, B
Income tax provision from continuing operations		14,618			1,250			15,868		A
Net income (loss)	$	249,629		$	(437,911	)	$	(188,282	)	A, B
Net income (loss) per common share
Basic	$	0.07		$	(0.12	)	$	(0.05	)	A, B
Weighted average number of common shares, basic		3,790,022			—			3,790,022
Diluted	$	0.07		$	(0.12	)	$	(0.05	)	A, B
Weighted average number of common shares, diluted		3,813,675			—			3,813,675


Statement of Cash Flows		For the nine months ended February 28, 2022
		As previously reported			Total Adjustments			As Restated		Reference
Cash flows relating to operating activities
Net income (loss)	$	249,629		$	(437,911	)	$	(188,282	)	A, B
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Forgiveness of PPP Loan		(2,059,826	)		—			(2,059,826	)
Depreciation and amortization		401,448			—			401,448
Gain on disposal of property and equipment		(4,598,095	)		—			(4,598,095	)
Stock-based compensation		95,016			—			95,016
Non-cash lease costs		92,042			—			92,042
(Increase) decrease in:
Accounts receivable, net		217,836			—			217,836
Inventories, net		(638,534	)		(5,712	)		(644,246	)	A
Prepaid expenses		167,478			(859	)		166,619		A
Rent, Utility Deposits, & ERP Deposits		(397,193	)		(72,128	)		(469,321	)	A, B
(Increase) decrease in:
Accounts payable		(27,776	)		(9,263	)		(37,039	)	A
Accrued liabilities and customer deposits		(409,187	)		589,313			180,126		A
Net cash used in operating activities	$	(6,907,162	)	$	63,440		$	(6,843,722	)	A, B
Cash flows relating to investing activities
Purchases of property and equipment	$	(188,687	)	$	(63,440	)	$	(252,127	)	A
Proceeds from the sale of property and equipment		4,797,924			—			4,797,924
Net cash provided by investing activities	$	4,609,237		$	(63,440	)	$	4,545,797		A
Cash flows relating to financing activities
Proceeds from Paycheck Protection Program	$	264,476		$	—		$	264,476
Net cash provided by financing activities	$	264,476		$	—		$	264,476
Decrease in cash and cash equivalents	$	(2,033,449	)	$	—		$	(2,033,449	)
Cash and cash equivalents, beginning of period		4,032,690			—			4,032,690
Cash and cash equivalents, end of period	$	1,999,241		$	—		$	1,999,241
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes	$	19,200		$	—		$	19,200
Cash paid during the period for interest	$	63		$	—		$	63


Segment Information-Ice Cream		For the three months ended February 28, 2022
		As previously reported			Total Adjustments			As Restated		Reference
Revenue, net	$	972,920		$	—		$	972,920
Gross Margin	$	389,710		$	(76,317	)	$	313,393		A
Gross Margin %		40.1	%		(7.8	%)		32.2	%	A
Operating loss	$	(1,837,593	)	$	(152,414	)	$	(1,990,007	)	A
Depreciation expense	$	70,761		$	—		$	70,761
Amortization expense	$	5,734		$	—		$	5,734
Capital expenditures	$	10,200		$	48,932		$	59,132		A


		For the nine months ended February 28, 2022
		As previously reported			Total Adjustments			As Restated		Reference
Revenue, net	$	5,908,291		$	—		$	5,908,291
Gross Margin	$	3,527,555		$	(173,840	)	$	3,353,715		A
Gross Margin %		59.7	%		(2.9	%)		56.8	%	A
Operating loss	$	(4,975,684	)	$	(374,742	)	$	(5,350,426	)	A
Depreciation expense	$	285,400		$	—		$	285,400
Amortization expense	$	17,200		$	—		$	17,200
Capital expenditures	$	188,687		$	61,653		$	250,340		A


Segment Information-Measurement		For the three months ended February 28, 2022
		As previously reported			Total Adjustments			As Restated		Reference
Revenue, net	$	875,993		$	—		$	875,993
Gross Margin	$	547,127		$	(40,828	)	$	506,299		A
Gross Margin %		62.5	%		(4.7	%)		57.8	%	A
Operating loss	$	(548,729	)	$	(7,672	)	$	(556,401	)	A
Depreciation expense	$	4,211		$	—		$	4,211
Amortization expense	$	26,145		$	—		$	26,145
Capital expenditures	$	—		$	1,787		$	1,787		A


		For the nine months ended February 28, 2022
		As previously reported			Total Adjustments			As Restated		Reference
Revenue, net	$	2,661,762		$	—		$	2,661,762
Gross Margin	$	1,423,573		$	(46,886	)	$	1,376,687		A
Gross Margin %		53.5	%		(1.8	%)		51.7	%	A
Operating loss	$	(1,703,768	)	$	(134,046	)	$	(1,837,814	)	A
Depreciation expense	$	20,411		$	—		$	20,411
Amortization expense	$	78,437		$	—		$	78,437
Capital expenditures	$	—		$	1,787		$	1,787		A

Segment Information- Assets		As of February 28, 2022
		As previously reported		Total Adjustments		As Restated	Reference
Ice Cream Segment	$	7,911,579	$	139,493	$	8,051,072	A, B
Measurement Segment		2,521,490		1,296		2,522,786	A
Corporate assets		9,919,456		—		9,919,456
Total Assets	$	20,352,525	$	140,789	$	20,493,314	A, B

SCHMITT INDUSTRIES INC 10-Q/A