Spring has come and the weather is getting warm which means it is now officially ice cream season. While most of the ice cream parlors which were closed for the winter have already re-opened, Ample Hills, which has 12 ice cream parlors, including its factory in Red Hook remains closed indefinitely.
A modest Prospect Heights beginning
Ample Hills was started over ten years ago by a couple who seemed to be following the Ben and Jerry example in opening up a friendly artisan shop on Vanderbilt Avenue.
They excelled in marketing and branding (and making ice cream), and grew the company each year, up to the point that they were able to get multi-million dollar investment funding with which to build their own Red Hook ice cream factory and keep opening new shops all over.
However, that proved to be their downfall, as they couldn’t support the new debt and went belly-up.
Growth, then new owners
Ample Hills was then purchased out of bankruptcy court by Schmitt Industries, a publicly trading company (Nasdaq: SMIT) based in Portland, Oregon.
The acquisition “was a bit of a head-scratcher given that Schmitt’s core business for years — it was founded in the 1980s in British Columbia and incorporated in Oregon in 1995 — was measuring products for industrial uses,” according to Pete Danko of The Business Journals.
But Ample Hills became Schmitt’s dominant revenue generator, and in April 2022 the company said it intended to make ice cream its main focus.
In July of 2022, Schmitt Industries made a big move, announcing a reverse takeover transaction for one of the leading helium and hydrogen production and carbon sequestration hubs in North America. According to their press release, Schmitt would combine with Proton Green, another measuring company, with the ice cream business split off with ownership retained by the existing Schmitt shareholders.
A press release summarized the transaction as follows:
- Under the merger agreement, Proton Green would become a wholly owned subsidiary of Schmitt
- The Company would be renamed “Proton Green Corporation” and the common stock would continue to trade on the Nasdaq under a new symbol
- The transaction would include a Spin-Off of Schmitt’s Ample Hills business to pre-Merger shareholders of Schmitt’s common stock
However, just a few months later, Proton Green, based in Houston, cancelled the merger.
Partnering with the Nets
In the meantime back in New York City, the Brooklyn Nets announced they were partnering with Ample Hills on two news flavors called “Home Court Advantage” and “Away Game” to celebrate the team’s tenth year in Brooklyn.
Without understanding the financial manipulations, things looked great for Schmitt Industries and Ample Hills. Ample Hills product was beginning to be distributed in supermarkets, and the branding started by the original owners, a Brooklyn couple, was still working. In a corporate filing, Schmitt referred to their ice cream company as “beloved.”
But a look at the numbers told a different story.
“Schmitt lost $893,000 on sales of $1.8 million in the quarter which ended Feb. 2022, according to a securities filing,” wrote Danko. “In annual reports, the company stated losses of $8 million in the fiscal year which ended May 31, 2021, following losses of $1.8 million in 2020 and $1.5 million in 2019. Amid those losses, Schmitt sold off assets, including its Schmitt Dynamic Balance Systems business line for $10.5 million in late 2019, their Northwest Portland office for $5.1 million in November 2021, and another Northwest Portland property for $3.5 million in July 2022.
Money woes
It seemed that Schmitt, who acquired the bankrupt Ample Hills at a bargain basement price of $1 million including the Red Hook production plant which alone might be worth $4 million, was now using cash flow from Ample Hills to keep itself going. 2021 revenues from ice cream were double those from the measuring business.
In their 10K SEC report for fiscal year 2022, Schmitt painted a rosy picture for their ice cream prospects:
“The Company sells its ice cream wholesale to a network of resellers, primarily located in the New York metropolitan area and throughout the northeast. The Company is actively expanding its wholesale footprint into other geographic regions. Additionally, customers nationwide can purchase products for home delivery through the Company’s website. These wholesale and e-commerce sales are facilitated through the Company’s Brooklyn, New York production facility and at third party distribution centers located in Harrisburg, Pennsylvania and Reno, Nevada. Additionally, the Company operates a network of retail locations throughout New York, New Jersey and California where customers can purchase the Company’s ice cream and ice cream-related products. In July 2022, the Company opened its twelfth retail ice cream shop, located on the Upper West Side of Manhattan, New York. In September 2022, the Company opened its thirteenth retail ice cream shop, located in Long Island City, Queens, New York. The Company has signed leases for future retail shops at Greenwich Village, New York, and Beverly Hills and Pasadena, California.”
But in October of 2022, a class action lawsuit was filed against Schmitt Industries by Robbins LLP. According to Business Wire, “Defendants failed to disclose that: (1) Schmitt continuously downplayed its serious issues with internal controls; (2) Schmitt’s financial statements from August 31, 2021, to the present included ‘certain errors;’ and (3) as a result, Schmitt would have to restate its previously filed financial statements for certain periods.
“On September 20, 2022, Schmitt announced it would restate its financial statements from August 31, 2021, to the present, and expected to report at least one material weakness. Further, the Company’s financial statements from August 31, 2021, through February 28, 2022, 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. On this news, Schmitt’s stock fell 17 percent to close at $3.12 per share on September 21, 2022.” Shortly afterwards the price was 31 cents.
This January, Schmitt Industries lost its Nasdaq listing.
“The delisting came after a series of notices from Nasdaq about failure to meet exchange requirements, including timely filing of financial reports,” according to Danko of The Business Journals. “Trading of the stock on Nasdaq was suspended on Jan. 17.
“Revenue from the ice cream segment doubled from about $4 million in 2021 to $8 million in 2022. However, operating losses totaled more than $10 million each year.”
The end?
These issues for Schmitt Industries have left Ample Hills in limbo and it’s doubtful they will ever spring to life again, at least under present ownership.
All the stores closed right before Christmas, Schmitt calling it a two-week furlough. In fact, they stopped paying their bills, and by the middle of February 14-day rent demands were posted on the locked doors of every store.
As of May 1, the factory remains shut, as if in suspended animation, with a flyer advertising Christmas promotions still on the front door.
We placed a call to the Portland company, and it was returned by Kianna Yokoi, whose Linked-In profile identifies her as an Accounting Specialist who has worked at Schmitt since March 2020.
“I don’t have any new updates on Ample Hills right now,” she told us.
3 Comments
Nice article, glad someone is shining a light on this. There is something even more insidious/newsworthy here, but first a correction: the standalone ice cream business was not generating cash flows that were helping to stem losses across Schmitt, it itself was burning cash because the factory was too large for the amount of ice cream it could sell. The only option was to grow its way out of trouble, which it couldn’t do fast enough. However, here’s the dirty bit: Schmitt is controlled by an activist hedge fund manager named Mike Zapata, who bought control of the company before it acquired Ample Hills out of bankruptcy (his hedge fund, Sententia Capital, owned ~10% of Schmitt). When it became clear he couldn’t turn around Ample Hills fast enough to stop the bleeding, he made a tiny loan from his hedge fund ($1M) so that he could effectively put Schmitt/Ample Hills back into bankruptcy and take 100% control as the sole creditor (don’t think it’s happened yet, but assuming it’s imminent) wiping out the majority of shareholders. He did this to save his reputation with his hedge fund’s investors, including billionaire Mario Gabelli, at the expense of the Ample Hills brand, the employees, and the other shareholders. Zapata received offers to help finance the business and keep it alive, but it would have cost him control and would’ve wiped out his investment. This is the real story!
Thank you. We are too small a publication, and also I only decided to do this story at the last moment, but even so, I wouldn’t have found this out without a lot more work. I started looking at the SEC filings, and we did place that one call to Schmitt, but I know this story only scratched the surface. My hope is that it will spur a bigger publication to get out the real story, which I suspected had to do with Zapata and stock finagling. If nobody picks up this story before our next issue I will get in touch for more info. Many thanks!
@John — please do share more!