Item 3.01. Notice of Delisting or Failure To Satisfy a Continued Listing Rule
or Standard; Transfer of Listing.
On September 14, 2022, Schmitt Industries, Inc. ("we", "us," "our" or the
"Company") received written notice from the Listing Qualifications Department of
The Nasdaq Stock Market LLC ("Nasdaq") notifying us that we did not file our
Annual Report on Form 10-K for the fiscal year ended May 31, 2022 (the "Form
10-K") by September 13, 2022, as required for continued listing on the Nasdaq
Capital Market pursuant to Nasdaq Listing Rule 5250(c)(1). Under Nasdaq rules,
we now have 60 calendar days, or until November 13, 2022, to submit to Nasdaq a
plan to regain compliance with the Nasdaq rules. If Nasdaq accepts the plan, we
will have until February 27, 2023 to regain compliance. We are working towards
finalizing the Form 10-K and intend to file the Form 10-K in October to regain
compliance.
Our common stock will continue to be listed and traded on the Nasdaq Capital
Market during the 60-day grace period, subject to our compliance with the other
continued listing requirements of the Nasdaq Capital Market.
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
The Company has determined that it made certain errors due to the ineffective
application of cut-off procedures resulting primarily in the exclusion of
certain general and administrative expenses from the statement of operations in
the Company's financial statements during the fiscal year ended May 31, 2022.
The Company will therefore restate its previously filed quarterly financial
statements for periods from August 31, 2021 forward, as described further below.
The Company currently estimates that the errors were material on a cumulative
basis resulting in a net $330,203 under-recognition of expenses over the first
three quarters of the fiscal year. Specifically, the Company estimates a Q1
under-recognition of expenses by $559,818, a Q2 over-recognition of expenses by
$353,048, and a Q3 under-recognition of expenses by $123,433.
Specifically, on September 19, 2022, the Audit Committee (the "Audit Committee")
of the Board of Directors of the Company concluded, after discussion with the
Company's management, that the Company's financial statements as of and for the
quarterly periods ended from August 31, 2021 through February 28, 2022
(collectively, the "Non-Reliance Periods") included in the associated Form 10-Qs
for the periods ended August 31, 2021, November 30, 2021 and February 28, 2022,
including the comparative periods, filed with the Securities Exchange Commission
(the "SEC"), (1) should no longer be relied upon due to errors in the treatment
of certain general and administrative expenses that were excluded from the
statement of operations and (2) will require restatement. As a result, the
Company will file amendments to its Form 10-Qs for the periods ended August 31,
2021, November 30, 2021 and February 28, 2022 to restate the previously issued
financial statements including the comparative periods. Similarly, any
previously issued or filed reports, press releases, earnings releases, and
investor presentations or other communications describing the Company's
financial statements and other related financial information
covering the Non-Reliance Periods should no longer be relied upon.
The Company is currently determining the exact amounts and full effect of the
errors in the financial statements covering the Non-Reliance Periods. The
Company's preliminary estimate is that, as of May 31, 2022, the cumulative
effect of these errors is a misstatement of $330,203 in under-recognized
expenses during the first three quarters of its fiscal year; however such amount
is subject to revision as the Company finalizes its analysis. The Company is
working to complete the restatement of its financial statements
for the Non-Reliance Periods. The Company intends to restate the financial
statements for the Non-Reliance Periods as soon as practicable, and will include
therein the correction of any other, immaterial errors. Accordingly, investors
and others should rely only on financial information and other disclosures
regarding the Non-Reliance Periods once the Company restates its financial
statements for the Non-Reliance Periods and not rely on any previously issued or
filed earnings press releases, investor presentations or other communications
related thereto covering the Non-Reliance Periods.
Management is assessing the effect of these restatements on the Company's
internal control over financial reporting and its disclosure controls and
procedures. The Company expects to report at least one material weakness
following completion of its analysis of the cause of these restatements. A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of a company's annual or interim financial
statements will not be prevented or detected on a timely basis. The existence of
one or more material weaknesses precludes a conclusion by management that the
Company's disclosure controls and procedures and internal control over financial
reporting are effective. As a result of the material weakness or material
weaknesses, the Company believes that its internal control over financial
reporting was not effective and its disclosure controls and procedures were not
effective for the Non-Reliance Periods.
The Company's management and the Audit Committee have discussed the matters
disclosed in this Item 4.02 with the Company's independent registered accounting
firm, UHY LLP.
Item 7.01. Regulation FD Disclosure.
A press release, dated September 20, 2022, disclosing the Company's receipt of
the Nasdaq notification letter, the restatement of its financial statements for
the Non-Reliance Periods and the termination of its nonbinding term sheet with
Proton Green, is attached hereto as Exhibit 99.1.
The information furnished in this Item 7.01 of this Form 8-K (including Exhibit
99.1 attached hereto) shall not be deemed "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, and shall not be incorporated
by reference into any filing of Schmitt Industries, Inc. under the Securities
Act of 1933, as amended, except as shall be expressly set forth by specific
reference in such filing.
Special Note Regarding Forward-Looking Statements
This Form 8-K contains forward-looking statements within the meaning of the
federal securities laws, including, without limitation, statements regarding:
the timing of filing our Form 10-K and restatements of our Form 10-Qs for the
Non-Reliance Periods. Forward-looking statements by their nature address matters
that are, to different degrees, uncertain. Forward-looking statements involve a
number of assumptions, risks and uncertainties that could cause actual results
to differ materially. Important factors that could cause actual results to
differ materially from those suggested by the forward-looking statements in this
Form 8-K include, but are not limited to, our ability to complete the accounting
review associated with the Form 10-K to comply with Nasdaq rules and our ability
to complete the accounting review associated with the restatements of our Form
10-Qs for the Non-Reliance Periods. In addition, please refer to the risk
factors contained in our periodic filings with the SEC, including our Annual
Report on Form 10-K for the fiscal year ended May 31, 2021, available at
www.sec.gov, under the caption Risk Factors and elsewhere. We do not undertake
any obligation to update any forward-looking statements to reflect new
information or events or circumstances occurring after the date of this Form
8-K.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit Description
99.1 Press Release of Schmitt Industries, Inc., issued on September 20, 2022.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).
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