☒ |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
☐ |
Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934
|
North Carolina
|
56-1928817
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
170 Southport Drive
Morrisville, North Carolina
|
27560
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common Stock, no par value per share
|
CTHR
|
The Nasdaq Stock Market LLC
|
Large accelerated filer
|
☐ |
Accelerated filer
|
☐
|
|
Non-accelerated filer
|
☒ |
Smaller reporting company
|
☒ | |
Emerging growth company
|
☐ |
Page
Number
|
||
PART I – FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements
|
|
1
|
||
2
|
||
3
|
||
4
|
||
5
|
||
Item 2.
|
20
|
|
Item 3.
|
32
|
|
Item 4.
|
32
|
|
PART II – OTHER INFORMATION
|
||
Item 1.
|
33
|
|
Item 1A.
|
33
|
|
Item 6.
|
35
|
|
36
|
December 31, 2019
(unaudited)
|
June 30, 2019
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
12,687,976
|
$
|
12,465,483
|
||||
Restricted cash
|
656,887
|
541,062
|
||||||
Accounts receivable, net
|
3,088,083
|
1,962,471
|
||||||
Inventory, net
|
10,695,379
|
11,909,792
|
||||||
Prepaid expenses and other assets
|
1,388,852
|
989,559
|
||||||
Total current assets
|
28,517,177
|
27,868,367
|
||||||
Long-term assets:
|
||||||||
Inventory, net
|
25,096,555
|
21,823,928
|
||||||
Property and equipment, net
|
1,112,612
|
1,026,098
|
||||||
Intangible assets, net
|
133,081
|
97,373
|
||||||
Operating lease right-of-use assets
|
783,935
|
-
|
||||||
Other assets
|
327,879
|
330,615
|
||||||
Total long-term assets
|
27,454,062
|
23,278,014
|
||||||
TOTAL ASSETS
|
$
|
55,971,239
|
$
|
51,146,381
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
4,823,857
|
$
|
3,372,172
|
||||
Operating lease liabilities
|
614,144
|
-
|
||||||
Accrued expenses and other liabilities
|
1,515,729
|
1,325,608
|
||||||
Total current liabilities
|
6,953,730
|
4,697,780
|
||||||
Long-term liabilities:
|
||||||||
Noncurrent operating lease liabilities
|
491,952
|
-
|
||||||
Deferred rent
|
-
|
236,745
|
||||||
Accrued income taxes
|
6,961
|
6,214
|
||||||
Total long-term liabilities
|
498,913
|
242,959
|
||||||
Total liabilities
|
7,452,643
|
4,940,739
|
||||||
Commitments and contingencies (Note 9)
|
||||||||
Shareholders’ equity:
|
||||||||
Common stock, no par value; 50,000,000 shares authorized; 28,981,910 and 28,027,569 shares issued and outstanding at December 31, 2019 and June 30, 2019, respectively
|
54,342,864
|
54,342,864
|
||||||
Additional paid-in capital
|
25,779,732
|
24,488,147
|
||||||
Accumulated deficit
|
(31,604,000
|
)
|
(32,625,369
|
)
|
||||
Total shareholders’ equity
|
48,518,596
|
46,205,642
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
55,971,239
|
$
|
51,146,381
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Net sales
|
$
|
10,659,090
|
$
|
10,139,461
|
$
|
18,267,511
|
$
|
16,734,167
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
5,530,514
|
5,346,207
|
9,407,138
|
8,959,956
|
||||||||||||
Sales and marketing
|
3,160,965
|
2,346,893
|
5,390,556
|
3,988,017
|
||||||||||||
General and administrative
|
1,203,686
|
1,250,181
|
2,553,187
|
2,474,956
|
||||||||||||
Research and development
|
-
|
1,422
|
-
|
1,422
|
||||||||||||
Total costs and expenses
|
9,895,165
|
8,944,703
|
17,530,881
|
15,424,351
|
||||||||||||
Income from operations
|
763,925
|
1,194,758
|
916,630
|
1,309,816
|
||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
45,379
|
-
|
106,758
|
-
|
||||||||||||
Interest expense
|
(277
|
)
|
(352
|
)
|
(419
|
)
|
(698
|
)
|
||||||||
Loss on foreign currency exchange
|
(314
|
)
|
(74
|
)
|
(853
|
)
|
(102
|
)
|
||||||||
Other expense
|
-
|
-
|
-
|
(13
|
)
|
|||||||||||
Total other income (expense), net
|
44,788
|
(426
|
)
|
105,486
|
(813
|
)
|
||||||||||
Income before income taxes
|
808,713
|
1,194,332
|
1,022,116
|
1,309,003
|
||||||||||||
Income tax benefit (expense)
|
5,337
|
(4,767
|
)
|
(747
|
)
|
(9,534
|
)
|
|||||||||
Net income
|
$
|
814,050
|
$
|
1,189,565
|
$
|
1,021,369
|
$
|
1,299,469
|
||||||||
Net income per common share:
|
||||||||||||||||
Basic
|
$
|
0.03
|
$
|
0.06
|
$
|
0.04
|
$
|
0.06
|
||||||||
Diluted
|
0.03
|
0.05
|
0.03
|
0.06
|
||||||||||||
Weighted average number of shares used in computing net income per common share:
|
||||||||||||||||
Basic
|
28,656,910
|
21,468,569
|
28,610,299
|
21,461,773
|
||||||||||||
Diluted
|
29,246,571
|
21,681,484
|
29,199,876
|
21,623,967
|
|
Six Months Ended December 31, 2019
|
Common Stock
|
||||||||||||||||||||
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
Shareholders’
Equity
|
||||||||||||||||
Balance at June 30, 2019
|
28,027,569
|
$
|
54,342,864
|
$
|
24,488,147
|
$
|
(32,625,369
|
)
|
$
|
46,205,642
|
||||||||||
Issuance of common stock, net of offering costs
|
630,500
|
-
|
932,480
|
-
|
932,480
|
|||||||||||||||
Stock-based compensation
|
-
|
-
|
212,380
|
-
|
212,380
|
|||||||||||||||
Issuance of restricted stock
|
325,000
|
-
|
-
|
-
|
-
|
|||||||||||||||
Retirement of restricted stock
|
(1,159
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||
Net income
|
-
|
-
|
-
|
207,319
|
207,319
|
|||||||||||||||
Balance at September 30, 2019
|
28,981,910
|
$
|
54,342,864
|
$
|
25,633,007
|
$
|
(32,418,050
|
)
|
$
|
47,557,821
|
||||||||||
Stock-based compensation
|
-
|
-
|
146,725
|
-
|
146,725
|
|||||||||||||||
Net income
|
-
|
-
|
-
|
814,050
|
814,050
|
|||||||||||||||
Balance at December 31, 2019
|
28,981,910
|
$
|
54,342,864
|
$
|
25,779,732
|
$
|
(31,604,000
|
)
|
$
|
48,518,596
|
|
Six Months Ended December 31, 2018
|
Common Stock
|
||||||||||||||||||||
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
Shareholders’
Equity
|
||||||||||||||||
Balance at June 30, 2018
|
21,705,173
|
$
|
54,243,816
|
$
|
14,962,071
|
$
|
(34,900,836
|
)
|
$
|
34,305,051
|
||||||||||
Stock-based compensation
|
-
|
-
|
71,176
|
-
|
71,176
|
|||||||||||||||
Retirement of restricted stock
|
(109,604
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||
Stock option exercises
|
2,500
|
3,480
|
(1,229
|
)
|
-
|
2,251
|
||||||||||||||
Net income
|
-
|
-
|
-
|
109,904
|
109,904
|
|||||||||||||||
Balance at September 30, 2018
|
21,598,069
|
$
|
54,247,296
|
$
|
15,032,018
|
$
|
(34,790,932
|
)
|
$
|
34,488,382
|
||||||||||
Stock-based compensation
|
-
|
-
|
171,906
|
-
|
171,906
|
|||||||||||||||
Net income
|
-
|
-
|
-
|
1,189,565
|
1,189,565
|
|||||||||||||||
Balance at December 31, 2018
|
21,598,069
|
$
|
54,247,296
|
$
|
15,203,924
|
$
|
(33,601,367
|
)
|
$
|
35,849,853
|
Six Months Ended December 31,
|
||||||||
2019
|
2018
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$
|
1,021,369
|
$
|
1,299,469
|
||||
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
234,303
|
230,013
|
||||||
Stock-based compensation
|
359,105
|
243,082
|
||||||
(Recovery of) Provision for uncollectible accounts
|
(10,000
|
)
|
8,056
|
|||||
Provision for sales returns
|
299,000
|
635,000
|
||||||
Provision for inventory reserves
|
149,000
|
52,000
|
||||||
Provision for accounts receivable discounts
|
39,706
|
38,788
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(1,454,318
|
)
|
(1,888,444
|
)
|
||||
Inventory
|
(2,207,214
|
)
|
(1,016,209
|
)
|
||||
Prepaid expenses and other assets, net
|
(196,764
|
)
|
(386,254
|
)
|
||||
Accounts payable
|
1,451,685
|
296,185
|
||||||
Deferred rent
|
-
|
(77,438
|
)
|
|||||
Accrued income taxes
|
747
|
9,534
|
||||||
Accrued expenses and other liabilities
|
75,744
|
506,536
|
||||||
Net cash used in operating activities
|
(237,637
|
)
|
(49,682
|
)
|
||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(319,728
|
)
|
(285,377
|
)
|
||||
Payments for intangible assets
|
(36,797
|
)
|
(55,676
|
)
|
||||
Net cash used in investing activities
|
(356,525
|
)
|
(341,053
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Issuance of common stock, net of offering costs
|
932,480
|
-
|
||||||
Stock option exercises
|
-
|
2,251
|
||||||
Net cash provided by financing activities
|
932,480
|
2,251
|
||||||
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
|
338,318
|
(388,484
|
)
|
|||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD
|
13,006,545
|
3,393,186
|
||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD
|
$
|
13,344,863
|
$
|
3,004,702
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for interest
|
$
|
277
|
$
|
698
|
||||
Cash paid during the period for income taxes
|
$
|
2,050
|
$
|
5,065
|
1. |
DESCRIPTION OF BUSINESS
|
2. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
December 31,
2019
|
June 30,
2019
|
|||||||
Cash and cash equivalents
|
$
|
12,687,976
|
$
|
12,465,483
|
||||
Restricted cash
|
656,887
|
541,062
|
||||||
Total cash, cash equivalents, and restricted cash
|
$
|
13,344,863
|
$
|
13,006,545
|
3. |
SEGMENT INFORMATION AND GEOGRAPHIC DATA
|
Three Months Ended December 31, 2019
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
5,144,320
|
$
|
1,294,027
|
$
|
6,438,347
|
||||||
Loose jewels
|
940,434
|
3,280,309
|
4,220,743
|
|||||||||
Total
|
$
|
6,084,754
|
$
|
4,574,336
|
$
|
10,659,090
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
2,239,750
|
$
|
724,364
|
$
|
2,964,114
|
||||||
Loose jewels
|
405,869
|
1,675,785
|
2,081,654
|
|||||||||
Total
|
$
|
2,645,619
|
$
|
2,400,149
|
$
|
5,045,768
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
2,904,570
|
$
|
569,663
|
$
|
3,474,233
|
||||||
Loose jewels
|
534,565
|
1,604,524
|
2,139,089
|
|||||||||
Total
|
$
|
3,439,135
|
$
|
2,174,187
|
$
|
5,613,322
|
||||||
Operating income
|
$
|
349,762
|
$
|
414,163
|
$
|
763,925
|
||||||
Depreciation and amortization
|
$
|
32,773
|
$
|
76,892
|
$
|
109,665
|
||||||
Capital expenditures
|
$
|
137,200
|
$
|
71,211
|
$
|
208,411
|
Three Months Ended December 31, 2018
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
4,357,713
|
$
|
839,543
|
$
|
5,197,256
|
||||||
Loose jewels
|
1,098,452
|
3,843,753
|
4,942,205
|
|||||||||
Total
|
$
|
5,456,165
|
$
|
4,683,296
|
$
|
10,139,461
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
1,913,201
|
$
|
558,427
|
$
|
2,471,628
|
||||||
Loose jewels
|
433,749
|
2,036,665
|
2,470,414
|
|||||||||
Total
|
$
|
2,346,950
|
$
|
2,595,092
|
$
|
4,942,042
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
2,444,512
|
$
|
281,116
|
$
|
2,725,628
|
||||||
Loose jewels
|
664,703
|
1,807,088
|
2,471,791
|
|||||||||
Total
|
$
|
3,109,215
|
$
|
2,088,204
|
$
|
5,197,419
|
||||||
Operating income
|
$
|
806,591
|
$
|
388,167
|
$
|
1,194,758
|
||||||
Depreciation and amortization
|
$
|
43,063
|
$
|
78,734
|
$
|
121,797
|
||||||
Capital expenditures
|
$
|
61,600
|
$
|
59,678
|
$
|
121,278
|
Six Months Ended December 31, 2019
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
8,121,667
|
$
|
2,174,675
|
$
|
10,296,342
|
||||||
Loose jewels
|
1,668,716
|
6,302,453
|
7,971,169
|
|||||||||
Total
|
$
|
9,790,383
|
$
|
8,477,128
|
$
|
18,267,511
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
3,452,623
|
$
|
1,214,401
|
$
|
4,667,024
|
||||||
Loose jewels
|
671,063
|
3,210,043
|
3,881,106
|
|||||||||
Total
|
$
|
4,123,686
|
$
|
4,424,444
|
$
|
8,548,130
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
4,669,044
|
$
|
960,274
|
$
|
5,629,318
|
||||||
Loose jewels
|
997,653
|
3,092,410
|
4,090,063
|
|||||||||
Total
|
$
|
5,666,697
|
$
|
4,052,684
|
$
|
9,719,381
|
||||||
Operating income
|
$
|
395,427
|
$
|
521,203
|
$
|
916,630
|
||||||
Depreciation and amortization
|
$
|
82,023
|
$
|
152,280
|
$
|
234,303
|
||||||
Capital expenditures
|
$
|
210,925
|
$
|
108,803
|
$
|
319,728
|
Six Months Ended December 31, 2018
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
6,473,653
|
$
|
1,278,240
|
$
|
7,751,893
|
||||||
Loose jewels
|
2,065,612
|
6,916,662
|
8,982,274
|
|||||||||
Total
|
$
|
8,539,265
|
$
|
8,194,902
|
$
|
16,734,167
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
2,746,591
|
$
|
781,076
|
$
|
3,527,667
|
||||||
Loose jewels
|
922,034
|
3,597,144
|
4,519,178
|
|||||||||
Total
|
$
|
3,668,625
|
$
|
4,378,220
|
$
|
8,046,845
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
3,727,062
|
$
|
497,164
|
$
|
4,224,226
|
||||||
Loose jewels
|
1,143,578
|
3,319,518
|
4,463,096
|
|||||||||
Total
|
$
|
4,870,640
|
$
|
3,816,682
|
$
|
8,687,322
|
||||||
Operating income
|
$
|
890,338
|
$
|
419,478
|
$
|
1,309,816
|
||||||
Depreciation and amortization
|
$
|
71,139
|
$
|
158,874
|
$
|
230,013
|
||||||
Capital expenditures
|
$
|
62,850
|
$
|
222,527
|
$
|
285,377
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Product line cost of goods sold
|
$
|
5,045,768
|
$
|
4,942,042
|
$
|
8,548,130
|
$
|
8,046,845
|
||||||||
Non-capitalized manufacturing and production control expenses
|
427,643
|
307,164
|
817,519
|
653,768
|
||||||||||||
Freight out
|
141,233
|
203,669
|
272,352
|
302,789
|
||||||||||||
Inventory valuation allowances
|
126,000
|
3,000
|
149,000
|
52,000
|
||||||||||||
Other inventory adjustments
|
(210,130
|
)
|
(109,668
|
)
|
(379,863
|
)
|
(95,446
|
)
|
||||||||
Cost of goods sold
|
$
|
5,530,514
|
$
|
5,346,207
|
$
|
9,407,138
|
$
|
8,959,956
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Net sales
|
||||||||||||||||
United States
|
$
|
9,643,311
|
$
|
8,870,317
|
$
|
16,407,187
|
$
|
14,693,186
|
||||||||
International
|
1,015,779
|
1,269,144
|
1,860,324
|
2,040,981
|
||||||||||||
Total
|
$
|
10,659,090
|
$
|
10,139,461
|
$
|
18,267,511
|
$
|
16,734,167
|
4. |
FAIR VALUE MEASUREMENTS
|
5. |
INVENTORIES
|
December 31,
2019
|
June 30,
2019
|
|||||||
Raw materials
|
$
|
4,495,344
|
$
|
4,450,478
|
||||
Work-in-process
|
12,288,209
|
10,871,823
|
||||||
Finished goods
|
18,623,815
|
18,557,224
|
||||||
Finished goods on consignment
|
2,806,980
|
2,086,084
|
||||||
Supplies inventory
|
87,586
|
129,111
|
||||||
Less: inventory reserves
|
(2,510,000
|
)
|
(2,361,000
|
)
|
||||
Total
|
$
|
35,791,934
|
$
|
33,733,720
|
||||
Short-term portion
|
$
|
10,695,379
|
$
|
11,909,792
|
||||
Long-term portion
|
25,096,555
|
21,823,928
|
||||||
Total
|
$
|
35,791,934
|
$
|
33,733,720
|
December 31,
2019
|
June 30,
2019
|
|||||||
Finished jewelry:
|
||||||||
Raw materials
|
$
|
763,789
|
$
|
643,797
|
||||
Work-in-process
|
617,415
|
487,680
|
||||||
Finished goods
|
6,494,177
|
6,332,533
|
||||||
Finished goods on consignment
|
2,564,737
|
1,867,549
|
||||||
Total finished jewelry
|
$
|
10,440,118
|
$
|
9,331,559
|
||||
Loose jewels:
|
||||||||
Raw materials
|
$
|
3,731,555
|
$
|
3,806,681
|
||||
Work-in-process
|
11,670,794
|
10,384,143
|
||||||
Finished goods
|
9,633,638
|
9,878,691
|
||||||
Finished goods on consignment
|
228,243
|
203,535
|
||||||
Total loose jewels
|
25,264,230
|
24,273,050
|
||||||
Total supplies inventory
|
87,586
|
129,111
|
||||||
Total inventory
|
$
|
35,791,934
|
$
|
33,733,720
|
6. |
RETURNS ASSET AND REFUND LIABILITIES
|
7. |
ACCRUED EXPENSES AND OTHER LIABILITIES
|
December 31,
2019
|
June 30,
2019
|
|||||||
Accrued compensation and related benefits
|
$
|
703,360
|
$
|
760,324
|
||||
Accrued sales tax
|
370,953
|
286,864
|
||||||
Deferred rent
|
-
|
156,306
|
||||||
Accrued cooperative advertising
|
348,471
|
73,033
|
||||||
Other
|
92,945
|
49,081
|
||||||
Total accrued expenses and other liabilities
|
$
|
1,515,729
|
$
|
1,325,608
|
8. |
INCOME TAXES
|
9. |
COMMITMENTS AND CONTINGENCIES
|
Operating Leases:
|
||||
Noncurrent operating lease ROU assets
|
$
|
783,935
|
||
|
||||
Current operating lease liabilities
|
$
|
614,144
|
||
Noncurrent operating lease liabilities
|
491,952
|
|||
Total operating lease liabilities
|
$
|
1,106,096
|
2020
|
$
|
313,610
|
||
2021
|
642,997
|
|||
2022
|
219,723
|
|||
Total lease payments
|
1,176,330
|
|||
Less: imputed interest
|
(70,234
|
)
|
||
Present value of lease payments
|
1,106,096
|
|||
Less: current lease obligations
|
614,144
|
|||
Total long-term lease obligations
|
$
|
491,952
|
2020
|
$
|
625,788
|
||
2021
|
642,997
|
|||
2022
|
219,723
|
|||
Total
|
$
|
1,488,508
|
10. |
LINE OF CREDIT
|
11. |
SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
|
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Employee stock options
|
$
|
48,189
|
$
|
56,575
|
$
|
112,064
|
$
|
114,747
|
||||||||
Restricted stock awards
|
98,535
|
115,331
|
247,041
|
128,335
|
||||||||||||
Totals
|
$
|
146,724
|
$
|
171,906
|
$
|
359,105
|
$
|
243,082
|
Shares
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding, June 30, 2019
|
2,523,638
|
$
|
1.39
|
|||||
Granted
|
225,387
|
$
|
1.39
|
|||||
Expired
|
(27,100
|
)
|
$
|
0.46
|
||||
Outstanding, December 31, 2019
|
2,721,925
|
$
|
1.40
|
Options Outstanding
|
Options Exercisable
|
Options Vested or Expected to Vest
|
||||||||||||||||||||||||||||||||
Balance
as of
12/31/2019
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2019
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2019
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||||
2,721,925
|
6.76
|
$
|
1.40
|
2,346,538
|
6.42
|
$
|
1.42
|
2,654,230
|
6.71
|
$
|
1.40
|
Shares
|
Weighted
Average
Grant Date
Fair Value
|
|||||||
Unvested, June 30, 2019
|
129,500
|
$
|
1.07
|
|||||
Granted
|
325,000
|
$
|
1.57
|
|||||
Vested
|
(128,341
|
)
|
$
|
1.07
|
||||
Canceled
|
(1,159
|
)
|
$
|
1.07
|
||||
Unvested, December 31, 2019
|
325,000
|
$
|
1.57
|
12. |
NET INCOME PER COMMON SHARE
|
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income
|
$
|
814,050
|
$
|
1,189,565
|
$
|
1,021,369
|
$
|
1,299,469
|
||||||||
Denominator:
|
||||||||||||||||
Weighted average common shares outstanding:
|
||||||||||||||||
Basic
|
28,656,910
|
21,468,569
|
28,610,299
|
21,461,773
|
||||||||||||
Effect of dilutive securities
|
589,661
|
212,915
|
589,577
|
162,194
|
||||||||||||
Diluted
|
29,246,571
|
21,681,484
|
29,199,876
|
21,623,967
|
||||||||||||
Net income per common share:
|
||||||||||||||||
Basic
|
$
|
0.03
|
$
|
0.06
|
$
|
0.04
|
$
|
0.06
|
||||||||
Diluted
|
$
|
0.03
|
$
|
0.05
|
$
|
0.03
|
$
|
0.06
|
13. |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
|
December 31,
2019
|
June 30,
2019
|
|||||||
Customer A
|
25
|
%
|
13
|
%
|
||||
Customer B
|
16
|
%
|
25
|
%
|
||||
Customer C
|
*
|
%
|
15
|
%
|
||||
* Customer C did not have individual balances that represented 10% or more of total gross accounts receivable as of December 31, 2019.
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Customer A
|
13
|
%
|
13
|
%
|
13
|
%
|
11
|
%
|
||||||||
Customer B
|
13
|
%
|
15
|
%
|
13
|
%
|
14
|
%
|
• |
Our future financial performance depends upon increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives.
|
• |
The execution of our business plans could significantly impact our liquidity.
|
• |
We face intense competition in the worldwide gemstone and jewelry industry.
|
• |
The financial difficulties or insolvency of one or more of our major customers or their lack of willingness and ability to market our products could adversely affect results.
|
• |
We are subject to certain risks due to our international operations, distribution channels and vendors.
|
• | Our business and our results of operations could be materially adversely affected as a result of general economic and market conditions. |
• |
We are currently dependent on a limited number of distributor and retail partners in our Traditional segment for the sale of our products.
|
• |
Our business and our results of operations could be materially adversely affected as a result of our inability to fulfill orders on a timely basis.
|
• |
We depend on an exclusive supply agreement, or the Supply Agreement, with Cree, Inc., or Cree, for substantially all of our silicon carbide, or SiC, crystals, the raw materials we use to produce moissanite
jewels; if our supply of high-quality SiC crystals is interrupted, our business may be materially harmed.
|
• |
We rely on assumptions, estimates, and data to calculate certain of our key metrics and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
|
• |
Our failure to maintain compliance with The Nasdaq Stock Market’s continued listing requirements could result in the delisting of our common stock.
|
• |
We may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation.
|
• |
Seasonality of our business may adversely affect our net sales and operating income.
|
• |
Our operations could be disrupted by natural disasters.
|
• |
Sales of moissanite jewelry could be dependent upon the pricing of precious metals, which is beyond our control.
|
• |
Our current customers may potentially perceive us as a competitor in the finished jewelry business.
|
• |
If the e-commerce opportunity changes dramatically or if e-commerce technology or providers change their models, our results of operations may be adversely affected.
|
• |
A failure of our information technology infrastructure or a failure to protect confidential information of our customers and our network against security breaches could adversely impact our business and
operations.
|
• |
We may not be able to adequately protect our intellectual property, which could harm the value of our products and brands and adversely affect our business.
|
• |
Negative or inaccurate information on social media could adversely affect our brand and reputation.
|
• |
If we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer.
|
• |
Governmental regulation and oversight might adversely impact our operations.
|
• |
Some anti-takeover provisions of our charter documents may delay or prevent a takeover of our company.
|
• |
Expansion of Brand Awareness. We plan to utilize digital advertising channels and other marketing strategies such as influencer marketing programs involving brand advocates to drive messaging to
larger markets by way of large social media followings, and Over-the-Top, or OTT, advertising platforms that include subscription video-on-demand, or SVOD, services like Netflix and Hulu. Through these channels, we believe that we will
find new and compelling ways to engage the target consumer that is not yet familiar with our brand. We plan to expand our brand footprint on a global scale – engaging the consumer everywhere she shops.
|
• |
International Sales Reach. We intend to balance our omni-channel sales strategy with regional-specific marketing programs, online channels growth initiatives, and relationships with select
retail and distribution partners. We believe that expanded product offerings will ensure a variety of goods to meet the demands of today’s discerning consumers. We also plan to deploy distribution channels, marketing programs, and
geographically-aligned curations to attract consumers and drive regional sales. Additionally, we expect cross-border trade promotions to remain a key strategy that we believe will drive global customers to Charles & Colvard’s
corporate transactional site where we can offer the most comprehensive and brand-immersive experience.
|
• |
Product Evolution. We believe being responsive to customer preferences has played a pivotal role in the rise of our Online Channels segment as the high-growth component of our business. We
employ what we believe to be an agile product development philosophy that ensures a swift and fluid stream of new finished jewelry and gemstones that are responsive to customer demand. As we expand our reach to international locations –
and as our Millennial and Gen-Z audiences mature – we plan to listen intently to market demand, measure carefully the costs and opportunities for our business, and strive to deliver the products that are responsive to our audiences’
choices.
|
• |
Enhanced Customer Experience. We plan to evolve our technology platform and services to support a continually-enhanced customer experience. We intend to use analytics to make data-driven
decisions that offer deeper personalization and more immersive shopping experiences. We plan to drive customer engagement, encourage repeat buyers, and grow our customer loyalty program, all of which we believe will support our ability to
deliver an exemplary worldwide customer service experience.
|
• |
Corporate Social Responsibility. We believe that we have the responsibility to be a good corporate citizen, and in practice, to have a business model that helps us be socially accountable to our
stakeholders. During the fiscal year ended June 30, 2019, or Fiscal 2019, we elevated our use of recycled precious metals in approximately 95% of all the finished jewelry we sourced. Going forward, we are working toward utilizing only
recycled precious metals in our production lines. We also plan to carefully measure the environmental impact of our business operations with a goal toward improving our overall environmental footprint. We also want to positively impact
the communities where we work and live – which we intend to continue supporting through philanthropic programs that advocate positive social change. We plan to create a higher level of transparency regarding these corporate social
responsibility practices so that our customers and stakeholders will be able to track our efforts and hold us accountable to be an even better corporate citizen.
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Net sales
|
$
|
10,659,090
|
$
|
10,139,461
|
$
|
18,267,511
|
$
|
16,734,167
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
5,530,514
|
5,346,207
|
9,407,138
|
8,959,956
|
||||||||||||
Sales and marketing
|
3,160,965
|
2,346,893
|
5,390,556
|
3,988,017
|
||||||||||||
General and administrative
|
1,203,686
|
1,250,181
|
2,553,187
|
2,474,956
|
||||||||||||
Research and development
|
-
|
1,422
|
-
|
1,422
|
||||||||||||
Total costs and expenses
|
9,895,165
|
8,944,703
|
17,350,881
|
15,424,351
|
||||||||||||
Income from operations
|
763,925
|
1,194,758
|
916,630
|
1,309,816
|
||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
45,379
|
-
|
106,758
|
-
|
||||||||||||
Interest expense
|
(277
|
)
|
(352
|
)
|
(419
|
)
|
(698
|
)
|
||||||||
Loss on foreign currency exchange
|
(314
|
)
|
(74
|
)
|
(853
|
)
|
(102
|
)
|
||||||||
Other expense
|
-
|
-
|
-
|
(13
|
)
|
|||||||||||
Total other income (expense), net
|
44,788
|
(426
|
)
|
105,486
|
(813
|
)
|
||||||||||
Income before income taxes
|
808,713
|
1,194,332
|
1,022,116
|
1,309,003
|
||||||||||||
Income tax benefit (expense)
|
5,337
|
(4,767
|
)
|
(747
|
)
|
(9,534
|
)
|
|||||||||
Net income
|
$
|
814,050
|
$
|
1,189,565
|
$
|
1,021,369
|
$
|
1,299,469
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2019
|
2018
|
Dollars
|
Percent
|
2019
|
2018
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Finished jewelry
|
$
|
6,438,347
|
$
|
5,197,256
|
$
|
1,241,091
|
24
|
%
|
$
|
10,296,342
|
$
|
7,751,893
|
$
|
2,544,449
|
33
|
%
|
||||||||||||||||
Loose jewels
|
4,220,743
|
4,942,205
|
(721,462
|
)
|
-15
|
%
|
7,971,169
|
8,982,274
|
(1,011,105
|
)
|
-11
|
%
|
||||||||||||||||||||
Total consolidated net sales
|
$
|
10,659,090
|
$
|
10,139,461
|
$
|
519,629
|
5
|
%
|
$
|
18,267,511
|
$
|
16,734,167
|
$
|
1,533,344
|
9
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2019
|
2018
|
Dollars
|
Percent
|
2019
|
2018
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Product line cost of goods sold:
|
||||||||||||||||||||||||||||||||
Finished jewelry
|
$
|
2,964,114
|
$
|
2,471,628
|
$
|
492,486
|
20
|
%
|
$
|
4,667,024
|
$
|
3,527,667
|
$
|
1,139,357
|
32
|
%
|
||||||||||||||||
Loose jewels
|
2,081,654
|
2,470,414
|
(388,760
|
)
|
-16
|
%
|
3,881,106
|
4,519,178
|
(638,072
|
)
|
-14
|
%
|
||||||||||||||||||||
Total product line cost of goods sold
|
5,045,768
|
4,942,042
|
103,726
|
2
|
%
|
8,548,130
|
8,046,845
|
501,285
|
6
|
%
|
||||||||||||||||||||||
Non-product line cost of goods sold
|
484,746
|
404,165
|
80,581
|
20
|
%
|
859,008
|
913,111
|
(54,103
|
)
|
-6
|
%
|
|||||||||||||||||||||
Total cost of goods sold
|
$
|
5,530,514
|
$
|
5,346,207
|
$
|
184,307
|
3
|
%
|
$
|
9,407,138
|
$
|
8,959,956
|
$
|
447,182
|
5
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2019
|
2018
|
Dollars
|
Percent
|
2019
|
2018
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Sales and marketing
|
$
|
3,160,965
|
$
|
2,346,893
|
$
|
814,072
|
35
|
%
|
$
|
5,390,556
|
$
|
3,988,017
|
$
|
1,402,539
|
35
|
%
|
Three Months Ended
December 31, |
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2019
|
2018
|
Dollars
|
Percent
|
2019
|
2018
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
General and administrative
|
$
|
1,203,686
|
$
|
1,250,181
|
$
|
(46,495
|
)
|
-4
|
%
|
$
|
2,553,187
|
$
|
2,474,956
|
$
|
78,231
|
3
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2019
|
2018
|
Dollars
|
Percent
|
2019
|
2018
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Loss on foreign currency exchange
|
$
|
314
|
$
|
74
|
$
|
240
|
*
|
%
|
$
|
853
|
$
|
102
|
$
|
751
|
*
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
||||||||||||||||||||||||||||||
2019
|
2018
|
Dollars
|
Percent
|
2019
|
2018
|
Dollars
|
Percent | ||||||||||||||||||||||||||
Interest income
|
|
$
|
45,379
|
$
|
-
|
$
|
45,379
|
100
|
%
|
$
|
106,758
|
$
|
-
|
$
|
106,758
|
100
|
%
|
• |
the adverse effects on U.S.-based companies operating in foreign markets that might result from war; terrorism; changes in diplomatic, trade, or business relationships
(including labor disputes); or other political, social, religious, or economic instability;
|
• |
an outbreak of a contagious disease, such as coronavirus, which may cause us or our distributors, vendors and/or customers to temporarily suspend our or their respective
operations in the affected city or country;
|
• |
the continuing adverse economic effects of any global financial crisis;
|
• |
unexpected changes in, or impositions of, legislative or regulatory requirements;
|
• |
delays resulting from difficulty in obtaining export licenses;
|
• |
international regulatory requirements, tariffs and other trade barriers and restrictions, including the consequences of U.S. led tariff actions;
|
• |
the burdens of complying with a variety of foreign laws and regulations, including foreign taxation and varying consumer and data protection laws, and other factors beyond our
control, and the risks of non-compliance;
|
• |
longer payment cycles and greater difficulty in collecting accounts receivable;
|
• |
our reliance on third-party carriers for product shipments to our customers;
|
• |
risk of theft of our products during shipment;
|
• |
limited payment, shipping and insurance options for us and our customers;
|
• |
difficulties in obtaining export, import or other business licensing requirements;
|
• |
customs and import processes, costs or restrictions;
|
• |
the potential difficulty of enforcing agreements with foreign customers and suppliers; and
|
• |
the complications related to collecting receivables through a foreign country’s legal or banking system.
|
Exhibit No.
|
Description
|
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
101
|
The following materials from Charles & Colvard, Ltd.’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2019 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i)
Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Changes in Shareholders’ Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to
Condensed Consolidated Financial Statements.
|
CHARLES & COLVARD, LTD.
|
||
By:
|
/s/ Suzanne Miglucci
|
|
February 6, 2020
|
Suzanne Miglucci
|
|
President and Chief Executive Officer
|
||
By:
|
/s/ Clint J. Pete
|
|
February 6, 2020
|
Clint J. Pete
|
|
Chief Financial Officer
|
||
(Principal Financial Officer and Chief Accounting Officer)
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2019 of Charles & Colvard, Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
|
|
By:
|
/s/ Suzanne Miglucci
|
February 6, 2020
|
|
Suzanne Miglucci
|
|
|
President and Chief Executive Officer
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2019 of Charles & Colvard, Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
|
|
By:
|
/s/ Clint J. Pete
|
February 6, 2020
|
|
Clint J. Pete
|
|
|
Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
FAIR VALUE MEASUREMENTS (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
|
FAIR VALUE MEASUREMENTS [Abstract] | ||
Asset impairment | $ 0 | $ 0 |
INCOME TAXES (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
|
INCOME TAXES [Abstract] | ||||
Income tax expense for estimated tax, penalties, and interest for other uncertain tax positions | $ (5,000) | $ 5,000 | $ 1,000 | $ 10,000 |
COMMITMENTS AND CONTINGENCIES |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES |
Lease Arrangements On December 9, 2013, the Company entered into a Lease Agreement, as amended on December 23, 2013 and April 15, 2014 (the “Lease Agreement”), for its corporate headquarters, which occupies approximately 36,350 square feet of office, storage and light manufacturing space and is classified as an operating lease for financial reporting purposes. The base term of the Lease Agreement expires on October 31, 2022 and the terms of the Lease Agreement contain no early termination provisions. Provided there is no outstanding uncured event of default under the Lease Agreement, the Company has two options to extend the lease term for a period of five years under each option. The Company’s option to extend the term of the Lease Agreement must be exercised in writing on or before 270 days prior to expiration of the then-current term. If the options are exercised, the monthly minimum rent for each of the extended terms will be adjusted to the then prevailing fair market rate. The Company took possession of the leased property on May 23, 2014, once certain improvements to the leased space were completed and did not have access to the property before this date. These improvements and other lease related incentives offered by the landlord totaled approximately $623,000, of which approximately $393,000 was unamortized as of July 1, 2019, the effective date upon which the Company adopted the new lease accounting standard as described in more detail in Note 2, “Basis of Presentation and Significant Accounting Policies.” The Company has no other material operating leases and is not party to leases that would qualify for classification as a finance lease, variable lease or short-term lease. As of December 31, 2019, the Company’s balance sheet classifications of its leases are as follows:
The Company’s total operating lease cost was approximately $117,000 and $235,000, respectively, for the three- and six-month periods ended December 31, 2019. The Company’s total rent expense was approximately $128,000 and $256,000, respectively, for the three- and six-month periods ended December 31, 2019. As of December 31, 2019, the Company’s estimated incremental borrowing rate used and assumed discount rate with respect to operating leases was 7.14% and the remaining operating lease term was 1.83 years. As of December 31, 2019, the Company’s remaining future payments under operating leases for each fiscal year ending June 30 are as follows:
The Company makes cash payments for amounts included in the measurement of its lease liabilities. During the three and six months ended December 31, 2019, cash paid for operating leases was approximately $164,000 and $328,000, respectively, and there were no new ROU assets obtained in exchange for new operating lease liabilities. Lease Disclosures for the fiscal year ended June 30, 2019, as reported The Company recognized rent expense on a straight-line basis, having given consideration to the rent holidays and escalations, the lease signing and moving allowance paid to the Company, and the rent abatement. The Company’s total rent expense for operating leases was approximately $528,000 for the fiscal year ended June 30, 2019. The Company also had future minimum payments as of June 30, 2019 under its operating leases for each fiscal year ending June 30 that were as follows:
Purchase Commitments On December 12, 2014, the Company entered into an exclusive supply agreement (the “Supply Agreement”) with Cree, Inc. (“Cree”). Under the Supply Agreement, subject to certain terms and conditions, the Company agreed to exclusively purchase from Cree, and Cree agreed to exclusively supply, 100% of the Company’s required SiC materials in quarterly installments that must equal or exceed a set minimum order quantity. The initial term of the Supply Agreement was scheduled to expire on June 24, 2018, unless extended by the parties. Effective June 22, 2018, the Supply Agreement was amended to extend the expiration date to June 25, 2023. The Supply Agreement was also amended to (i) provide the Company with one option, subject to certain conditions, to unilaterally extend the term of the Supply Agreement for an additional two-year period following expiration of the initial term; (ii) establish a process by which Cree may begin producing alternate SiC material based on the Company’s specifications that will give the Company the flexibility to use the materials in a broader variety of its products; and (iii) permit the Company to purchase certain amounts of SiC materials from third parties under limited conditions. The Company’s total purchase commitment under the Supply Agreement until June 2023 is approximately $52.95 million, of which approximately $39.00 million remains to be purchased as of December 31, 2019. Over the life of the Supply Agreement, as amended, the Company’s future minimum annual purchase commitments of SiC crystals range from approximately $10 million to $12 million each year. During the six months ended December 31, 2019, the Company purchased approximately $4.98 million of SiC crystals from Cree pursuant to the terms of the Supply Agreement, as amended. During the six months ended December 31, 2018, the Company purchased approximately $4.43 million of SiC crystals from Cree. |
INVENTORIES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES |
The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:
The Company’s work-in-process inventories include raw SiC crystals on which processing costs, such as labor and sawing, have been incurred; and components, such as metal castings and finished good moissanite jewels, that have been issued to jobs in the manufacture of finished jewelry. The Company’s moissanite jewel manufacturing process involves the production of intermediary shapes, called “preforms,” that vary depending upon the expected size and shape of the finished jewel. To maximize manufacturing efficiencies, preforms may be made in advance of current finished inventory needs but remain in work-in-process inventories. As of December 31, 2019 and June 30, 2019, work-in-process inventories issued to active production jobs approximated $1.52 million and $1.23 million, respectively. The Company’s jewels do not degrade in quality over time and inventory generally consists of the shapes and sizes most commonly used in the jewelry industry. In addition, the majority of jewel inventory is not mounted in finished jewelry settings and is therefore not subject to fashion trends, and product obsolescence is closely monitored and reviewed by management as of and for each financial reporting period. The Company manufactures finished jewelry featuring moissanite. Relative to loose moissanite jewels, finished jewelry is more fashion-oriented and subject to styling trends that could render certain designs obsolete over time. The majority of the Company’s finished jewelry featuring moissanite is held in inventory for resale and largely consists of such core designs as stud earrings, solitaire and three-stone rings, pendants, and bracelets that tend not to be subject to significant obsolescence risk due to their classic styling. In addition, the Company generally holds smaller quantities of designer-inspired and trend moissanite fashion jewelry that is available for resale through retail companies and through its Online Channels segment. The Company also carries a limited amount of inventory as part of its sample line that is used in the selling process to its customers. The Company’s continuing operating subsidiaries carry no net inventories, and inventory is transferred without intercompany markup from the parent entity as product line cost of goods sold when sold to the end consumer. The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:
Total net finished jewelry inventories at December 31, 2019 and June 30, 2019, including inventory on consignment net of reserves and finished jewelry featuring moissanite manufactured by the Company, were $10.44 million and $9.33 million, respectively. Total net loose jewel inventories at December 31, 2019 and June 30, 2019, including inventory on consignment net of reserves, were $25.26 million and $24.27 million, respectively. As of December 31, 2019 and June 30, 2019, management established an obsolescence reserve of $1.99 million and $1.79 million, respectively. Typically, in the jewelry industry, slow-moving or discontinued lines are sold as closeouts or liquidated in sales channels. Regularly, management reviews the legacy loose jewel inventory for any lower of cost or net realizable value and obsolescence issues. Accordingly, as of December 31, 2019 and June 30, 2019, management identified certain finished jewelry that was obsolete due to damage and other factors that indicate the finished jewelry is unsaleable, and established an obsolescence reserve of $174,000 and $19,000, respectively, for the carrying costs in excess of any estimated scrap values. Likewise, with respect to the Company’s loose jewels inventory, based on current period demand, and ongoing feedback from distribution customers on the value of some of these goods, management identified some of the remaining inventory of these lower quality goods that could not be sold at its current carrying value. Accordingly, as of December 31, 2019, the Company maintained a lower of cost or net realizable value reserve on this remaining inventory of approximately $1.82 million as of December 31, 2019 and $1.77 million as of June 30, 2019. As of December 31, 2019 and June 30, 2019 management established a rework reserve for recut and repairs of loose jewel inventories of $381,000 and $460,000, respectively. As of December 31, 2019 and June 30, 2019 management established a shrinkage reserve of $139,000 and $112,000, respectively. Finished jewelry inventories at December 31, 2019 and June 30, 2019 include shrinkage reserves of $125,000 and $105,000, respectively. The loose jewel inventories at December 31, 2019 and June 30, 2019 include shrinkage reserves of $14,000 and $7,000, respectively. Periodically, the Company ships finished goods inventory to certain Traditional segment customers on consignment terms. Under these terms, the customer assumes the risk of loss and has an absolute right of return for a specified period. Included in the total shrinkage reserve is the shrinkage reserve for finished goods on consignment of $14,000 and $15,000 as of December 31, 2019 and June 30, 2019, respectively, to allow for certain finished jewelry and loose jewels on consignment with certain Traditional segment customers that may not be returned or may be returned in a condition that does not meet the Company’s current grading or quality standards. Finished jewelry inventories on consignment at December 31, 2019 and June 30, 2019 include shrinkage reserves of $13,000 and $14,000, respectively. The loose jewel inventories on consignment at each December 31, 2019 and June 30, 2019 include shrinkage reserves of $1,000. The need for adjustments to inventory-related reserves and valuation allowances is evaluated on a period-by-period basis. Changes to the Company’s inventory reserves and allowances are accounted for in the current accounting period in which a change in such reserves and allowances is observed and deemed appropriate, including changes in management’s estimates used in the process to determine such reserves and valuation allowances. |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and restricted cash and trade accounts receivable. At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurable limits of $250,000 per depositor at each financial institution. The Company has never experienced any losses related to these balances. There were no non-interest-bearing amounts on deposit in excess of FDIC insurable limits at December 31, 2019. Interest-bearing amounts on deposit in excess of FDIC insurable limits at December 31, 2019 approximated $12.31 million. Trade receivables potentially subject the Company to credit risk. Payment terms on trade receivables for the Company’s Traditional segment customers are generally between 30 and 90 days, though it may offer extended terms with specific customers and on significant orders from time to time. The Company extends credit to its customers based upon a number of factors, including an evaluation of the customer’s financial condition and credit history that is verified through trade association reference services, the customer’s payment history with the Company, the customer’s reputation in the trade, and/or an evaluation of the Company’s opportunity to introduce its moissanite jewels or finished jewelry featuring moissanite to new or expanded markets. Collateral is not generally required from customers. The need for an allowance for doubtful accounts is determined based upon factors surrounding the credit risk of specific customers, historical trends, and other information. At times, a portion of the Company’s accounts receivable will be due from customers that have individual balances of 10% or more of the Company’s total gross accounts receivable. The following is a summary of customers that represent 10% or more of total gross accounts receivable as of the dates presented:
A significant portion of sales is derived from certain customer relationships. The following is a summary of customers that represent greater than or equal to 10% of total net sales for the periods presented:
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
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Dec. 31, 2019 |
Dec. 31, 2018 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) [Abstract] | ||||
Net sales | $ 10,659,090 | $ 10,139,461 | $ 18,267,511 | $ 16,734,167 |
Costs and expenses: | ||||
Cost of goods sold | 5,530,514 | 5,346,207 | 9,407,138 | 8,959,956 |
Sales and marketing | 3,160,965 | 2,346,893 | 5,390,556 | 3,988,017 |
General and administrative | 1,203,686 | 1,250,181 | 2,553,187 | 2,474,956 |
Research and development | 0 | 1,422 | 0 | 1,422 |
Total costs and expenses | 9,895,165 | 8,944,703 | 17,530,881 | 15,424,351 |
Income from operations | 763,925 | 1,194,758 | 916,630 | 1,309,816 |
Other income (expense): | ||||
Interest income | 45,379 | 0 | 106,758 | 0 |
Interest expense | (277) | (352) | (419) | (698) |
Loss on foreign currency exchange | (314) | (74) | (853) | (102) |
Other expense | 0 | 0 | 0 | (13) |
Total other income (expense), net | 44,788 | (426) | 105,486 | (813) |
Income before income taxes | 808,713 | 1,194,332 | 1,022,116 | 1,309,003 |
Income tax benefit (expense) | 5,337 | (4,767) | (747) | (9,534) |
Net income | $ 814,050 | $ 1,189,565 | $ 1,021,369 | $ 1,299,469 |
Net income per common share: | ||||
Basic (in dollars per share) | $ 0.03 | $ 0.06 | $ 0.04 | $ 0.06 |
Diluted (in dollars per share) | $ 0.03 | $ 0.05 | $ 0.03 | $ 0.06 |
Weighted average number of shares used in computing net income per common share: | ||||
Basic (in shares) | 28,656,910 | 21,468,569 | 28,610,299 | 21,461,773 |
Diluted (in shares) | 29,246,571 | 21,681,484 | 29,199,876 | 21,623,967 |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
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Dec. 31, 2019 | |||||||||||||||||||||||||||||||||||||||
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||||||||||
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation and Principles of Consolidation – The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. However, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, the unaudited statements in this Quarterly Report on Form 10-Q include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the three and six months ended December 31, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2020. The condensed consolidated financial statements as of and for the three and six months ended December 31, 2019 and 2018 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of June 30, 2019 is derived from the audited financial statements as of that date. The accompanying statements should be read in conjunction with the audited financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K (the “2019 Annual Report”) for the fiscal year ended June 30, 2019 filed with the SEC on September 6, 2019. The accompanying condensed consolidated financial statements as of and for the three and six months ended December 31, 2019 and 2018, and as of the fiscal year ended June 30, 2019, include the accounts of the Company and its wholly owned subsidiaries charlesandcolvard.com, LLC; Charles & Colvard Direct, LLC; and Charles & Colvard (HK) Ltd., the Company’s Hong Kong subsidiary, which was re-activated in December 2017. Charles & Colvard Direct, LLC, had no operating activity during the six-month period ended December 31, 2019 or 2018. Charles & Colvard (HK) Ltd. previously became dormant in the second quarter of 2009 and has had no operating activity since 2008. All intercompany accounts have been eliminated. Significant Accounting Policies – In the opinion of the Company’s management, except as discussed below, the Company’s significant accounting policies used for the three and six months ended December 31, 2019, are consistent with those used for the fiscal year ended June 30, 2019. Accordingly, please refer to Note 2 to the Consolidated Financial Statements in the 2019 Annual Report for the Company’s significant accounting policies. Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates impacting the Company’s condensed consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, deferred tax assets, uncertain tax positions, and revenue recognition. Actual results could differ materially from those estimates. Cash and Cash Equivalents – All highly liquid investments with an original maturity of three months or less from the date of purchase are considered to be cash equivalents. Restricted Cash – In accordance with cash management process requirements relating to the Company’s asset-based revolving credit facility from White Oak Commercial Finance, LLC (“White Oak”), there are access and usage restrictions on certain cash deposit balances for periods of up to two business days during which time such deposits are held by White Oak for the benefit of the Company. During the period these cash deposits are held by White Oak, such amounts are classified as restricted cash for reporting purposes on the Company’s condensed consolidated balance sheets. In the event that the Company has an outstanding balance on its revolving credit facility from White Oak, restricted cash balances held by White Oak would be applied to reduce such outstanding amounts. The Company has full access to its cash balances without restriction following the period of time such cash is held by White Oak. For additional information regarding the Company’s asset-based revolving credit facility, see Note 10, “Line of Credit.” The reconciliation of cash, cash equivalents, and restricted cash, as presented on the Condensed Consolidated Statements of Cash Flows, consists of the following as of the dates presented:
Immaterial Correction of an Error – An immaterial error correction was made within the Company’s Form 10-Q for the quarterly period ended December 31, 2019. During the six months ended December 31, 2019, the Company determined that an accrued income tax liability for uncertain tax positions should have been derecognized in the prior years. Specifically, the Company had a liability of approximately $492,000 relating to uncertain tax positions that should have been derecognized between the fiscal years ended December 31, 2012 and December 31, 2015. The Company evaluated the effect of this error and concluded it was not material to any of its previously issued consolidated financial statements. Upon revision, the Company recorded a reduction to the accrued income tax liability and related accumulated deficit balance of approximately $492,000 which has been reflected in the June 30, 2019 condensed consolidated balance sheet presented in this quarterly report on Form 10-Q for the quarterly period ended December 31, 2019. The impact of this error on the condensed consolidated statement of operations for the three and six months ended December 31, 2019 and 2018 was de minimus and had no impact on the condensed consolidated statements of cash flows for the six months ended December 31, 2019 and 2018. Recently Adopted/Issued Accounting Pronouncements – Effective July 1, 2019, the Company adopted the new lease accounting standard, which requires virtually all leases to be recorded as right-of-use (“ROU”) assets and lease liabilities on the condensed consolidated balance sheet and provides guidance on the recognition of lease expense and income. The new guidance requires the modified retrospective transition approach when applying the new standard to an entity’s leases existing at the date of initial application. The guidance further states that an entity’s date of initial application may be either the effective date upon which it adopts the new standard or the beginning of the earliest comparative period presented in the financial statements during the period in which it adopts the new guidance. The Company used the date of initial application as the effective date, and as such, financial information and disclosures required under the new accounting standard will not be provided for dates and periods prior to July 1, 2019. The new standard provides a number of practical expedients for transition and policy elections for ongoing accounting. The Company elected the “package of practical expedients”, which permits the Company to not reassess its prior conclusions about lease identification, lease classification, and initial direct costs. The standard provides policy election options for recognition exemption for short-term leases and separation of lease and non-lease components. The Company elected the “short-term lease recognition” exemption and elected not to separate lease and non-lease components for all underlying asset classes. The Company determines lease and non-lease components based on observable information, including terms provided by the lessor. The adoption of the new accounting standard resulted in the recognition of ROU assets and lease liabilities of approximately $983,000 and $1.38 million, respectively, for operating leases as of July 1, 2019. Currently, the Company has no other material leases that qualify as finance, variable, or short-term leases. The adoption did not have a material impact on the Company’s condensed consolidated statement of operations or condensed consolidated statement of cash flows. Subsequent to the date of adoption, the Company determines if a contract is or contains a lease at inception of the agreement. Operating leases are recognized as ROU assets and the related obligations are recognized as current or noncurrent liabilities on the Company’s consolidated balance sheet. Leases with an initial lease term of one year or less are not recorded on the balance sheet. ROU assets, which represent the Company’s right to use an underlying asset, and lease liabilities, which represent the Company’s obligation to make lease payments arising from the lease, are recognized based on the present value of the future lease payments over the lease term at the commencement date. The ROU asset also includes any lease payments made at or before the commencement date and any initial direct costs incurred and excludes lease incentives. Certain of the Company’s leases contain renewal and/or termination options. The Company recognizes renewal or termination options as part of its ROU assets and lease liabilities when the Company has the unilateral right to renew or terminate and it is reasonably certain these options will be exercised. The Company determines the present value of lease payments based on the implicit rate, which may be explicitly stated in the lease if available or the Company’s estimated collateralized incremental borrowing rate based on the term of the lease. For operating leases, lease expense is recognized on a straight-line basis over the lease term. Some leases could require the Company to pay non-lease components, which may include taxes, maintenance, insurance and certain other expenses applicable to the leased property, and are primarily considered variable costs. When applicable, such costs are expensed as incurred. For additional information regarding the Company’s accounting for lease arrangements, see Note 9, “Commitments and Contingencies.” In August 2018, the Financial Accounting Standards Board issued additional guidance in connection with accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The updated guidance is effective for fiscal years beginning after December 15, 2019. The Company continues to conduct its analysis, but currently believes the effect of the adoption of this new pronouncement is not expected to be material to the Company’s financial statements. |
NET INCOME PER COMMON SHARE (Tables) |
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NET INCOME PER COMMON SHARE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Basic and Diluted Net Income Per Share | The following table reconciles the differences between the basic and diluted net income per share presentations:
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INVENTORIES (Tables) |
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INVENTORIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory, Net of Reserves | The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:
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Inventories by Product Line Maintained in its Wholesale Distribution Segment | The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:
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SEGMENT INFORMATION AND GEOGRAPHIC DATA |
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SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA |
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making operating decisions and assessing performance as the source of the Company’s operating and reportable segments. The Company manages its business through two operating and reportable segments based on its distribution channels to sell its product lines, loose jewels and finished jewelry: its “Online Channels” segment, which consists of e-commerce outlets including charlesandcolvard.com, third-party online marketplaces, drop-ship retail, and other pure-play, exclusively e-commerce outlets; and its “Traditional” segment, which consists of wholesale and retail customers. The accounting policies of the Online Channels segment and Traditional segment are the same as those described in Note 2, “Basis of Presentation and Significant Accounting Policies” of this Quarterly Report on Form 10-Q and in the Notes to the Consolidated Financial Statements in the 2019 Annual Report. The Company evaluates the financial performance of its segments based on net sales; product line gross profit, or the excess of product line sales over product line cost of goods sold; and operating income. The Company’s product line cost of goods sold is defined as product cost of goods sold, excluding non-capitalized expenses from the Company’s manufacturing and production control departments, comprising personnel costs, depreciation, leases, utilities, and corporate overhead allocations; freight out; inventory valuation allowance adjustments; and other inventory adjustments, comprising costs of quality issues, damaged goods, and inventory write-downs. The Company allocates certain general and administrative expenses between its Online Channels segment and its Traditional segment based on net sales and number of employees to arrive at segment operating income. Unallocated expenses remain in its Traditional segment. Summary financial information by reportable segment is as follows:
The Company does not allocate any assets to the reportable segments, and, therefore, no asset information is reported to the chief operating decision maker or disclosed in the financial information for each segment. A reconciliation of the Company’s product line cost of goods sold to cost of goods sold as reported in the condensed consolidated financial statements is as follows:
The Company recognizes sales by geographic area based on the country in which the customer is based. Sales to international end consumers made through the Company’s transactional website, charlesandcolvard.com, are included in international sales for financial reporting purposes. During periods prior to the quarter ended December 31, 2018, sales to international end consumers made through charlesandcolvard.com were included in U.S. sales because during those prior periods products were shipped and invoiced to a U.S.-based intermediary that assumed all international shipping and credit risks. Currently, sales to international end consumers are made directly by the Company’s own transactional website. A portion of the Company’s Traditional segment sales made to international wholesale distributors represents products sold internationally that may be re-imported to U.S. retailers. All intangible assets, as well as property and equipment, as of December 31, 2019 and June 30, 2019, are held and located in the United States. The following presents net sales by geographic area:
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