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.
|
21 | |
Item 3.
|
35
|
|
Item 4.
|
35
|
|
PART II – OTHER INFORMATION
|
||
Item 1.
|
36
|
|
Item 1A.
|
36
|
|
Item 5.
|
36 |
|
Item 6.
|
37
|
|
38
|
Item 1. |
Financial Statements
|
December 31, 2020
(unaudited)
|
June 30, 2020
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
16,690,105
|
$
|
13,993,032
|
||||
Restricted cash
|
182,958
|
624,202
|
||||||
Accounts receivable, net
|
3,059,842
|
670,718
|
||||||
Inventory, net
|
12,072,929
|
7,443,257
|
||||||
Prepaid expenses and other assets
|
1,342,956
|
1,177,860
|
||||||
Total current assets
|
33,348,790
|
23,909,069
|
||||||
Long-term assets:
|
||||||||
Inventory, net
|
16,593,187
|
23,190,702
|
||||||
Property and equipment, net
|
975,989
|
999,061
|
||||||
Intangible assets, net
|
193,388
|
170,151
|
||||||
Operating lease right-of-use assets
|
366,083
|
584,143
|
||||||
Other assets
|
42,330
|
51,461
|
||||||
Total long-term assets
|
18,170,977
|
24,995,518
|
||||||
TOTAL ASSETS
|
$
|
51,519,767
|
$
|
48,904,587
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
2,932,576
|
$
|
3,748,235
|
||||
Operating lease liabilities
|
527,761
|
622,493
|
||||||
Current maturity of long-term debt
|
579,000
|
193,000
|
||||||
Accrued expenses and other liabilities
|
1,946,283
|
1,922,332
|
||||||
Total current liabilities
|
5,985,620
|
6,486,060
|
||||||
Long-term liabilities:
|
||||||||
Long-term debt, net
|
386,000
|
772,000
|
||||||
Noncurrent operating lease liabilities
|
-
|
203,003
|
||||||
Accrued income taxes
|
8,935
|
7,947
|
||||||
Total long-term liabilities
|
394,935
|
982,950
|
||||||
Total liabilities
|
6,380,555
|
7,469,010
|
||||||
Commitments and contingencies (Note 9)
|
||||||||
Shareholders’ equity:
|
||||||||
Common stock, no par value; 50,000,000 shares authorized; 29,092,326 and 28,949,410 shares issued and outstanding at December 31, 2020 and June 30, 2020, respectively
|
54,520,189
|
54,342,864
|
||||||
Additional paid-in capital
|
26,013,132
|
25,880,165
|
||||||
Accumulated deficit
|
(35,394,109
|
)
|
(38,787,452
|
)
|
||||
Total shareholders’ equity
|
45,139,212
|
41,435,577
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
51,519,767
|
$
|
48,904,587
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Net sales
|
$
|
12,146,790
|
$
|
10,659,090
|
$
|
20,073,083
|
$
|
18,267,511
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
6,167,708
|
5,530,514
|
10,363,763
|
9,407,138
|
||||||||||||
Sales and marketing
|
2,480,571
|
3,160,965
|
4,128,503
|
5,390,556
|
||||||||||||
General and administrative
|
977,528
|
1,203,686
|
2,185,564
|
2,553,187
|
||||||||||||
Total costs and expenses
|
9,625,807
|
9,895,165
|
16,677,830
|
17,350,881
|
||||||||||||
Income from operations
|
2,520,983
|
763,925
|
3,395,253
|
916,630
|
||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
1,126
|
45,379
|
4,586
|
106,758
|
||||||||||||
Interest expense
|
(2,466
|
)
|
(277
|
)
|
(4,905
|
)
|
(419
|
)
|
||||||||
Loss on foreign currency exchange
|
(72
|
)
|
(314
|
)
|
(603
|
)
|
(853
|
)
|
||||||||
Total other (expense) income, net
|
(1,412
|
)
|
44,788
|
(922
|
)
|
105,486
|
||||||||||
Income before income taxes
|
2,519,571
|
808,713
|
3,394,331
|
1,022,116
|
||||||||||||
Income tax (expense) benefit
|
(494
|
)
|
5,337
|
(988
|
)
|
(747
|
)
|
|||||||||
Net income
|
$
|
2,519,077
|
$
|
814,050
|
$
|
3,393,343
|
$
|
1,021,369
|
||||||||
Net income per common share:
|
||||||||||||||||
Basic
|
$
|
0.09
|
$
|
0.03
|
$
|
0.12
|
$
|
0.04
|
||||||||
Diluted
|
0.09
|
0.03
|
0.12
|
0.03
|
||||||||||||
Weighted average number of shares used in computing net income per common share:
|
||||||||||||||||
Basic
|
28,804,265
|
28,656,910
|
28,795,424
|
28,610,299
|
||||||||||||
Diluted
|
29,262,702
|
29,246,571
|
28,980,009
|
29,199,876
|
Six Months Ended December 31, 2020
|
||||||||||||||||||||
Common Stock
|
||||||||||||||||||||
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
Shareholders’
Equity
|
||||||||||||||||
Balance at June 30, 2020
|
28,949,410
|
$
|
54,342,864
|
$
|
25,880,165
|
$
|
(38,787,452
|
)
|
$
|
41,435,577
|
||||||||||
Stock-based compensation
|
-
|
-
|
107,355
|
-
|
107,355
|
|||||||||||||||
Issuance of restricted stock
|
178,750
|
-
|
-
|
-
|
-
|
|||||||||||||||
Retirement of restricted stock
|
(162,500
|
)
|
-
|
-
|
-
|
-
|
||||||||||||||
Net income
|
-
|
-
|
-
|
874,266
|
874,266
|
|||||||||||||||
Balance at September 30, 2020
|
28,965,660
|
$
|
54,342,864
|
$
|
25,987,520
|
$
|
(37,913,186
|
)
|
$
|
42,417,198
|
||||||||||
Stock-based compensation
|
-
|
-
|
87,938
|
-
|
87,938
|
|||||||||||||||
Stock option exercises
|
126,666
|
177,325
|
(62,326
|
)
|
-
|
114,999
|
||||||||||||||
Net income
|
-
|
-
|
-
|
2,519,077
|
2,519,077
|
|||||||||||||||
Balance at December 31, 2020
|
29,092,326
|
$
|
54,520,189
|
$
|
26,013,132
|
$
|
(35,394,109
|
)
|
$
|
45,139,212
|
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,
|
||||||||
2020
|
2019
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$
|
3,393,343
|
$
|
1,021,369
|
||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
||||||||
Depreciation and amortization
|
271,061
|
234,303
|
||||||
Stock-based compensation
|
195,293
|
359,105
|
||||||
Provision for (Recovery of) uncollectible accounts
|
5,514
|
(10,000
|
)
|
|||||
Provision for sales returns
|
662,000
|
299,000
|
||||||
Inventory write-off
|
105,000
|
149,000
|
||||||
Provision for accounts receivable discounts
|
9,581
|
39,706
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(3,066,219
|
)
|
(1,454,318
|
)
|
||||
Inventory
|
1,862,843
|
(2,207,214
|
)
|
|||||
Prepaid expenses and other assets, net
|
62,095
|
(196,764
|
)
|
|||||
Accounts payable
|
(815,659
|
)
|
1,403,677
|
|||||
Accrued income taxes
|
988
|
747
|
||||||
Accrued expenses and other liabilities
|
(273,784
|
)
|
123,752
|
|||||
Net cash provided by (used in) operating activities
|
2,412,056
|
(237,637
|
)
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(244,688
|
)
|
(319,728
|
)
|
||||
Payments for intangible assets
|
(26,538
|
)
|
(36,797
|
)
|
||||
Net cash used in investing activities
|
(271,226
|
)
|
(356,525
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Issuance of common stock, net of offering costs
|
-
|
932,480
|
||||||
Stock option exercises
|
114,999
|
-
|
||||||
Net cash provided by financing activities
|
114,999
|
932,480
|
||||||
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
|
2,255,829
|
338,318
|
||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD
|
14,617,234
|
13,006,545
|
||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD
|
$
|
16,873,063
|
$
|
13,344,863
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for interest
|
$
|
-
|
$
|
277
|
||||
Cash paid during the period for income taxes
|
$
|
8,961
|
$
|
2,050
|
1. |
DESCRIPTION OF BUSINESS
|
2. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
December 31,
2020
|
June 30,
2020
|
|||||||
Cash and cash equivalents
|
$
|
16,690,105
|
$
|
13,993,032
|
||||
Restricted cash
|
182,958
|
624,202
|
||||||
Total cash, cash equivalents, and restricted cash
|
$
|
16,873,063
|
$
|
14,617,234
|
3. |
SEGMENT INFORMATION AND GEOGRAPHIC DATA
|
Three Months Ended December 31, 2020
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
6,588,338
|
$
|
1,676,859
|
$
|
8,265,197
|
||||||
Loose jewels
|
997,939
|
2,883,654
|
3,881,593
|
|||||||||
Total
|
$
|
7,586,277
|
$
|
4,560,513
|
$
|
12,146,790
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
2,863,733
|
$
|
1,138,413
|
$
|
4,002,146
|
||||||
Loose jewels
|
388,426
|
1,417,177
|
1,805,603
|
|||||||||
Total
|
$
|
3,252,159
|
$
|
2,555,590
|
$
|
5,807,749
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
3,724,605
|
$
|
538,446
|
$
|
4,263,051
|
||||||
Loose jewels
|
609,513
|
1,466,477
|
2,075,990
|
|||||||||
Total
|
$
|
4,334,118
|
$
|
2,004,923
|
$
|
6,339,041
|
||||||
Operating income
|
$
|
1,494,448
|
$
|
1,026,535
|
$
|
2,520,983
|
||||||
Depreciation and amortization
|
$
|
59,221
|
$
|
79,384
|
$
|
138,605
|
||||||
Capital expenditures
|
$
|
90,852
|
$
|
52,350
|
$
|
143,202
|
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
|
Six Months Ended December 31, 2020
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
10,211,799
|
$
|
2,388,735
|
$
|
12,600,534
|
||||||
Loose jewels
|
1,839,772
|
5,632,777
|
7,472,549
|
|||||||||
Total
|
$
|
12,051,571
|
$
|
8,021,512
|
$
|
20,073,083
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
4,197,115
|
$
|
1,559,320
|
$
|
5,756,435
|
||||||
Loose jewels
|
701,115
|
2,848,410
|
3,549,525
|
|||||||||
Total
|
$
|
4,898,230
|
$
|
4,407,730
|
$
|
9,305,960
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
6,014,684
|
$
|
829,415
|
$
|
6,844,099
|
||||||
Loose jewels
|
1,138,657
|
2,784,367
|
3,923,024
|
|||||||||
Total
|
$
|
7,153,341
|
$
|
3,613,782
|
$
|
10,767,123
|
||||||
Operating income
|
$
|
2,269,113
|
$
|
1,126,140
|
$
|
3,395,253
|
||||||
Depreciation and amortization
|
$
|
113,573
|
$
|
157,488
|
$
|
271,061
|
||||||
Capital expenditures
|
$
|
150,129
|
$
|
94,559
|
$
|
244,688
|
||||||
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
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Product line cost of goods sold
|
$
|
5,807,749
|
$
|
5,045,768
|
$
|
9,305,960
|
$
|
8,548,130
|
||||||||
Non-capitalized manufacturing and production control expenses
|
395,237
|
427,643
|
724,641
|
817,519
|
||||||||||||
Freight out
|
316,542
|
141,233
|
491,881
|
272,352
|
||||||||||||
Inventory write-off
|
25,000
|
126,000
|
105,000
|
149,000
|
||||||||||||
Other inventory adjustments
|
(376,820
|
)
|
(210,130
|
)
|
(263,719
|
)
|
(379,863
|
)
|
||||||||
Cost of goods sold
|
$
|
6,167,708
|
$
|
5,530,514
|
$
|
10,363,763
|
$
|
9,407,138
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Net sales
|
||||||||||||||||
United States
|
$
|
11,388,680
|
$
|
9,643,311
|
$
|
18,888,399
|
$
|
16,407,187
|
||||||||
International
|
758,110
|
1,015,779
|
1,184,684
|
1,860,324
|
||||||||||||
Total
|
$
|
12,146,790
|
$
|
10,659,090
|
$
|
20,073,083
|
$
|
18,267,511
|
4. |
FAIR VALUE MEASUREMENTS
|
5. |
INVENTORIES
|
December 31,
2020
|
June 30,
2020
|
|||||||
Finished jewelry:
|
||||||||
Raw materials
|
$
|
1,095,023
|
$
|
821,536
|
||||
Work-in-process
|
925,022
|
602,390
|
||||||
Finished goods
|
7,019,742
|
6,019,985
|
||||||
Finished goods on consignment
|
1,964,458
|
2,297,907
|
||||||
Total finished jewelry
|
$
|
11,004,245
|
$
|
9,741,818
|
||||
Loose jewels:
|
||||||||
Raw materials
|
$
|
2,056,183
|
$
|
3,526,399
|
||||
Work-in-process
|
9,673,337
|
10,453,586
|
||||||
Finished goods
|
5,659,166
|
6,619,487
|
||||||
Finished goods on consignment
|
167,781
|
204,635
|
||||||
Total loose jewels
|
17,556,467
|
20,804,107
|
||||||
Total supplies inventory
|
105,404
|
88,034
|
||||||
Total inventory
|
$
|
28,666,116
|
$
|
30,633,959
|
December 31,
2020
|
June 30,
2020
|
|||||||
Short-term portion
|
$
|
12,072,929
|
$
|
7,443,257
|
||||
Long-term portion
|
16,593,187
|
23,190,702
|
||||||
Total
|
$
|
28,666,116
|
$
|
30,633,959
|
6. |
RETURNS ASSET AND REFUND LIABILITIES
|
7. |
ACCRUED EXPENSES AND OTHER LIABILITIES
|
December 31,
2020
|
June 30,
2020
|
|||||||
Deferred revenue
|
$
|
619,677
|
$
|
794,740
|
||||
Accrued compensation and related benefits
|
508,008
|
395,006
|
||||||
Accrued sales tax
|
497,609
|
295,651
|
||||||
Accrued severance
|
128,269
|
338,355
|
||||||
Accrued cooperative advertising
|
192,719
|
89,517
|
||||||
Other
|
1
|
9,063
|
||||||
Total accrued expenses and other liabilities
|
$
|
1,946,283
|
$
|
1,922,332
|
8. |
INCOME TAXES
|
9. |
COMMITMENTS AND CONTINGENCIES
|
Operating Leases:
|
||||
Noncurrent operating lease ROU assets
|
$
|
366,083
|
||
|
||||
Current operating lease liabilities
|
$
|
527,761
|
||
Noncurrent operating lease liabilities
|
-
|
|||
Total operating lease liabilities
|
$
|
527,761
|
2021
|
$
|
322,234
|
||
2022
|
219,723
|
|||
Total lease payments
|
541,957
|
|||
Less: imputed interest
|
(14,196
|
)
|
||
Present value of lease payments
|
527,761
|
|||
Less: current lease obligations
|
527,761
|
|||
Total long-term lease obligations
|
$
|
-
|
10. |
DEBT
|
December 31, 2020
|
June 30,
2020
|
|||||||
Current maturity of long-term debt
|
$
|
579,000
|
$
|
193,000
|
||||
Long-term debt, net
|
386,000
|
772,000
|
||||||
Total long-term debt
|
$
|
965,000
|
$ |
965,000
|
11. |
SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
|
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Employee stock options
|
$
|
50,176
|
$
|
48,189
|
$
|
141,216
|
$
|
112,064
|
||||||||
Restricted stock awards
|
37,762
|
98,536
|
54,077
|
247,041
|
||||||||||||
Totals
|
$
|
87,938
|
$
|
146,725
|
$
|
195,293
|
$
|
359,105
|
Shares
|
Weighted Average Exercise Price
|
|||||||
Outstanding, June 30, 2020
|
2,809,095
|
$
|
1.19
|
|||||
Granted
|
358,033
|
$
|
0.93
|
|||||
Exercised
|
(126,666
|
)
|
$
|
0.91
|
||||
Expired
|
(56,000
|
)
|
$
|
1.90
|
||||
Outstanding, December 31, 2020
|
2,984,462
|
$
|
1.16
|
Options Outstanding
|
Options Exercisable
|
Options Vested or Expected to Vest
|
||||||||||||||||||||||||||||||||
Balance
as of
12/31/2020
|
Weighted
Average Remaining
Contractual Life
(Years)
|
Weighted
Average Exercise
Price
|
Balance
as of
12/31/2020
|
Weighted
Average Remaining
Contractual Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2020
|
Weighted
Average Remaining
Contractual Life
(Years)
|
Weighted
Average Exercise
Price
|
||||||||||||||||||||||||||
2,984,462
|
6.03
|
$
|
1.16
|
2,423,679
|
5.23
|
$
|
1.22
|
2,900,315
|
5.94
|
$
|
1.16
|
Shares
|
Weighted Average Grant Date Fair Value
|
|||||||
Unvested, June 30, 2020
|
162,500
|
$
|
1.57
|
|||||
Granted
|
178,750
|
$
|
0.72
|
|||||
Canceled
|
(162,500
|
)
|
$
|
1.57
|
||||
Unvested, December 31, 2020
|
178,750
|
$
|
0.72
|
12. |
NET INCOME PER COMMON SHARE
|
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income
|
$
|
2,519,077
|
$
|
814,050
|
$
|
3,393,343
|
$
|
1,021,369
|
||||||||
Denominator:
|
||||||||||||||||
Weighted average common shares outstanding:
|
||||||||||||||||
Basic
|
28,804,265
|
28,656,910
|
28,795,424
|
28,610,299
|
||||||||||||
Effect of dilutive securities
|
458,437
|
589,661
|
184,585
|
589,577
|
||||||||||||
Diluted
|
29,262,702
|
29,246,571
|
28,980,009
|
29,199,876
|
||||||||||||
Net income per common share:
|
||||||||||||||||
Basic
|
$
|
0.09
|
$
|
0.03
|
$
|
0.12
|
$
|
0.04
|
||||||||
Diluted
|
$
|
0.09
|
$
|
0.03
|
$
|
0.12
|
$
|
0.03
|
13. |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
|
December 31,
2020
|
June 30,
2020
|
|||||||
Customer A
|
26
|
%
|
26
|
%
|
||||
Customer B
|
17
|
%
|
*
|
%
|
||||
Customer C
|
** |
%
|
14
|
%
|
||||
Customer D
|
** |
%
|
13
|
%
|
Three Months Ended December 31,
|
Six Months Ended December
31,
|
|||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Customer A
|
14
|
%
|
13
|
%
|
12
|
%
|
13
|
%
|
||||||||
Customer C
|
*
|
%
|
13
|
%
|
10
|
%
|
13
|
%
|
14. |
SUBSEQUENT EVENT
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
1. |
Our business, financial condition and results of operations could continue to be adversely affected by an ongoing COVID-19 pandemic and related global economic conditions;
|
2. |
Our future financial performance depends upon increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives;
|
3. |
The execution of our business plans could significantly impact our liquidity;
|
4. |
Our business and our results of operations could be materially adversely affected as a result of general and economic conditions;
|
5. |
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;
|
6. |
We face intense competition in the worldwide gemstone and jewelry industry;
|
7. |
We are subject to certain risks due to our international operations, distribution channels and vendors;
|
8. |
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;
|
9. |
We are currently dependent on a limited number of distributor and retail partners in our Traditional segment for the sale of our products;
|
10. |
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;
|
11. |
We may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation;
|
12. |
Seasonality of our business may adversely affect our net sales and operating income;
|
13. |
Our operations could be disrupted by natural disasters;
|
14. |
Our loan, pursuant to the Paycheck Protection Program, or the PPP Loan, under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, as administered by the U.S. Small Business
Administration, or the SBA, may not be forgiven or may subject us to challenges and investigations regarding qualification for the loan;
|
15. |
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;
|
16. |
Negative or inaccurate information on social media could adversely impact our brand and reputation;
|
17. |
Sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control;
|
18. |
Our current customers may potentially perceive us as a competitor in the finished jewelry business;
|
19. |
Our failure to maintain compliance with The Nasdaq Stock Market’s continued listing requirements could result in the delisting of our common stock;
|
20. |
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;
|
21. |
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;
|
22. |
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;
|
23. |
If we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer;
|
24. |
Governmental regulation and oversight might adversely impact our operations; and
|
25. |
Some anti-takeover provisions of our charter documents may delay or prevent a takeover of our company.
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Net sales
|
$
|
12,146,790
|
$
|
10,659,090
|
$
|
20,073,083
|
$
|
18,267,511
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
6,167,708
|
5,530,514
|
10,363,763
|
9,407,138
|
||||||||||||
Sales and marketing
|
2,480,571
|
3,160,965
|
4,128,503
|
5,390,556
|
||||||||||||
General and administrative
|
977,528
|
1,203,686
|
2,185,564
|
2,553,187
|
||||||||||||
Total costs and expenses
|
9,625,807
|
9,895,165
|
16,677,830
|
17,350,881
|
||||||||||||
Income from operations
|
2,520,983
|
763,925
|
3,395,253
|
916,630
|
||||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
1,126
|
45,379
|
4,586
|
106,758
|
||||||||||||
Interest expense
|
(2,466
|
)
|
(277
|
)
|
(4,905
|
)
|
(419
|
)
|
||||||||
Loss on foreign currency exchange
|
(72
|
)
|
(314
|
)
|
(603
|
)
|
(853
|
)
|
||||||||
Total other (expense) income, net
|
(1,412
|
)
|
44,788
|
(922
|
)
|
105,486
|
||||||||||
Income before income taxes
|
2,519,571
|
808,713
|
3,394,331
|
1,022,116
|
||||||||||||
Income tax (expense) benefit
|
(494
|
)
|
5,337
|
(988
|
)
|
(747
|
)
|
|||||||||
Net income
|
$
|
2,519,077
|
$
|
814,050
|
$
|
3,393,343
|
$
|
1,021,369
|
Three Months Ended December 31,
|
Change
|
Six Months Ended December 31,
|
Change
|
|||||||||||||||||||||||||||||
2020
|
2019
|
Dollars
|
Percent
|
2020
|
2019
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Finished jewelry
|
$
|
8,265,197
|
$
|
6,438,347
|
$
|
1,826,850
|
28
|
%
|
$
|
12,600,534
|
$
|
10,296,342
|
$
|
2,304,192
|
22
|
%
|
||||||||||||||||
Loose jewels
|
3,881,593
|
4,220,743
|
(339,150
|
)
|
-8
|
%
|
7,472,549
|
7,971,169
|
(498,620
|
)
|
-6
|
%
|
||||||||||||||||||||
Total consolidated net sales
|
$
|
12,146,790
|
$
|
10,659,090
|
$
|
1,487,700
|
14
|
%
|
$
|
20,073,083
|
$
|
18,267,511
|
$
|
1,805,572
|
10
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2020
|
2019
|
Dollars
|
Percent
|
2020
|
2019
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Product line cost of goods sold:
|
||||||||||||||||||||||||||||||||
Finished jewelry
|
$
|
4,002,146
|
$
|
2,964,114
|
$
|
1,038,032
|
35
|
%
|
$
|
5,756,435
|
$
|
4,667,024
|
$
|
1,089,411
|
23
|
%
|
||||||||||||||||
Loose jewels
|
1,805,603
|
2,081,654
|
(276,051
|
)
|
-13
|
%
|
3,549,525
|
3,881,106
|
(331,581
|
)
|
-9
|
%
|
||||||||||||||||||||
Total product line cost of goods sold
|
5,807,749
|
5,045,768
|
761,981
|
15
|
%
|
9,305,960
|
8,548,130
|
757,830
|
9
|
%
|
||||||||||||||||||||||
Non-product line cost of goods sold
|
359,959
|
484,746
|
(124,787
|
)
|
-26
|
%
|
1,057,803
|
859,008
|
198,795
|
23
|
%
|
|||||||||||||||||||||
Total cost of goods sold
|
$
|
6,167,708
|
$
|
5,530,514
|
$
|
637,194
|
12
|
%
|
$
|
10,363,763
|
$
|
9,407,138
|
$
|
956,625
|
10
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2020
|
2019
|
Dollars
|
Percent
|
2020
|
2019
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Sales and marketing
|
$
|
2,480,571
|
$
|
3,160,965
|
$
|
(680,394
|
)
|
-22
|
%
|
$
|
4,128,503
|
$
|
5,390,556
|
$
|
(1,262,053
|
)
|
-23
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2020
|
2019
|
Dollars
|
Percent
|
2020
|
2019
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
General and administrative
|
$
|
977,528
|
$
|
1,203,686
|
$
|
(226,158
|
)
|
-19
|
%
|
$
|
2,185,564
|
$
|
2,553,187
|
$
|
(367,623
|
)
|
-14
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2020
|
2019
|
Dollars
|
Percent
|
2020
|
2019
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Interest income
|
$
|
1,126
|
$
|
45,379
|
$
|
(44,253
|
)
|
-98
|
%
|
$
|
4,586
|
$
|
106,758
|
$
|
(102,172
|
)
|
-96
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2020
|
2019
|
Dollars
|
Percent
|
2020
|
2019
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Interest expense
|
$
|
2,466
|
$
|
277
|
$
|
2,189
|
790
|
%
|
$
|
4,905
|
$
|
419
|
$
|
4,486
|
1,071
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2020
|
2019
|
Dollars
|
Percent
|
2020
|
2019
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Loss on foreign currency exchange
|
$
|
72
|
$
|
314
|
$
|
(242
|
)
|
-77
|
%
|
$
|
603
|
$
|
853
|
$
|
(250
|
)
|
-29
|
%
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4. |
Controls and Procedures
|
Item 1. |
Item 1A. |
Item 6. |
Exhibit No.
|
Description
|
Letter Agreement, effective March 22, 2010, between Charles & Colvard, Ltd. and Cree, Inc.**
|
|
Amendment to Letter Agreement, effective February 8, 2013, between Charles & Colvard, Ltd. and Cree, Inc.**
|
|
Second Amendment to Letter Agreement, effective September 5, 2013, between Charles & Colvard, Ltd. and Cree, Inc.**
|
|
Exclusive Supply Agreement, effective as of December 12, 2014 by and between Charles & Colvard, Ltd. and Cree, Inc., and, solely for purposes of Section 6(c) of the
Exclusive Supply Agreement, Charles & Colvard Direct, LLC, and Moissanite.com, LLC**
|
|
Third Amendment to Lease Agreement, dated January [00], 2021, between Charles & Colvard, Ltd. and SBP Office Owner, L.P., successor to Southport Business Park Limited Partnership
|
|
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 quarterly period ended December 31, 2020 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 Flow; and (v) Notes
to Condensed Consolidated Financial Statements.
|
**
|
Asterisks located within the exhibit denote information which has been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both not material and would cause in all likelihood competitive harm
to us if publicly disclosed.
|
CHARLES & COLVARD, LTD.
|
||
By:
|
/s/ Don O’Connell
|
|
February 4, 2021
|
Don O’Connell
|
|
President and Chief Executive Officer
|
||
By:
|
/s/ Clint J. Pete
|
|
February 4, 2021
|
Clint J. Pete
|
|
Chief Financial Officer
|
||
(Principal Financial Officer and Chief Accounting Officer)
|
Randy N. McCullough
|
Stephen D. Kelley
|
CEO
|
Chief Operating Officer
|
Charles & Colvard, Ltd.
|
Cree, Inc.
|
300 Perimeter Park, Suite A
|
4600 Silicon Drive
|
Morrisville, North Carolina 27560
|
Durham, North Carolina 27703
|
1. |
Cree and C&C agree that C&C is obligated to purchase [***] kilograms of SiC production crystals previously manufactured by Cree for C&C pursuant the Letter Agreement at a price of $[***] per gram for grade 10 and $[***] per
gram for grade 20. This material was previously graded and approved by C&C as “usable material” in accordance with the applicable specifications (Reference: Attachment A).
|
2. |
Notwithstanding any contrary language in the Letter Agreement, Cree and C&C agree that on or before March 31, 2010, and each calendar month thereafter, C&C will purchase at least [***] kilograms of this previously manufactured
SiC production crystals until the full amount (i.e., [***] kilograms) of the material identified in Paragraph 1 has been purchased by C&C.
|
3. |
Notwithstanding any contrary language in the Supply Agreement, the following new provisions shall apply to purchase orders for SiC Materials (other than those orders contemplated by Paragraph 2 above) placed on or after the date of this
Agreement (each a “New Order”):
|
(a) |
Lead time for each New Order shall be [***] months. For example, for delivery of newly manufactured SiC Materials in [***], a New Order must be placed by C&C in [***]. When [***], Cree will advise C&C of any reduction in the
applicable lead time for subsequent orders; and
|
(b) |
The minimum order quantity for each New Order placed by C&C in accordance with the terms defined by the Supply Agreement shall be [***] kilograms.
|
4. |
Planning: On or before the first day of each calendar quarter during the Term of this Agreement, starting with the calendar quarter beginning on October 1, 2010, C&C will submit to Cree via facsimile or e-mail a rolling forecast of
its projected requirements for SiC Materials to be purchased from Cree during the next four (4) calendar quarters in a format to be agreed upon by the parties. Although such forecasts are for planning purposes only and do not represent a
commitment by C&C to purchase or Cree to sell any SiC Materials, C&C will endeavor to submit timely and accurate forecasts to ensure that Cree has the most current information available to anticipate and plan its production
schedule.
|
5. |
When the rolling forecast first indicates that newly manufactured SiC Materials are needed by C&C in [***] months, Cree and C&C will begin proactive discussions on the specifications and prices that will be applicable to such
materials, including any necessary changes in the crystal diameter and grading process due to interim changes in Cree’s manufacturing process. Consistent with past practices, the parties shall agree in writing on prices, quarterly
quantities, and any necessary modifications to the specifications prior to the resumption of New Orders; provided however, this provision does not alter the rights and duties of the parties under the Supply Agreement.
|
6. |
To the parties’ knowledge, as of the effective date of this Agreement there are no existing defaults under the Supply Agreement nor events which have occurred that, with the giving of notice or the passing of time, will become a default
under the Supply Agreement.
|
7. |
The contents of this Agreement shall be considered “Confidential Information” of each party subject to the provisions of Section 5 of the Supply Agreement.
|
CHARLES & COLVARD, LTD.
|
CREE, INC.
|
|
|
By: /s/ Randy N. McCullough
|
By: /s/ John T. Kurtzweil
|
Randy N. McCullough
|
John T. Kurtzweil
|
Chief Executive Officer
|
Chief Financial Officer
|
|
|
Date: March 24, 2010
|
Date: March 23, 2010
|
A. |
Material will be graded according to the specifications defined below.
|
B. |
Grams of usable material will be calculated on a crystal-by-crystal basis according to the following equation: (usable mm) as a percent of total length of the crystal in mm multiplied by the actual weight of the crystal in grams.
“Usable mm” means millimeters of usable material as defined in Attachment A.
|
C. |
Crystals shipped to C&C must contain at least [***] grams of usable material for the 2" crystals, [***] grams for 2.25" crystals, [***] grams for 2.40” crystals or [***] grams for 3" crystals. This usable area must be
contiguous. Crystal diameter to be shipped will be 2", 2.25", 2.40" or 3", as determined by Cree.
|
ID
|
D-Type
|
|
|
1
|
[***]
|
|
Reduce
|
2
|
[***]
|
|
Reduce
|
3
|
[***]
|
|
Reduce
|
4
|
[***]
|
|
No reduction
|
5
|
[***]
|
|
Reduce
|
6
|
[***]
|
|
Reduce
|
7
|
[***]
|
|
No reduction
|
8
|
[***]
|
|
Reduce
|
9
|
[***]
|
|
Reduce
|
1 |
CH0257R 17.4mm tone/color 20 (lightest 20), new gray boules that are lighter than this will grade as 10, CE0269R 9.5mm tone/color 30 (lightest 30), new gray boules that are lighter than this will grade as 20
|
2 |
Micropipe grading will be performed according to the Cree document identified as the CCG – 948 Rev C, Dense Fine Pipe Grading procedure (Revision 8/17/06). The area determined according to this procedure multiplied by 1.2, (“20%
adder”), defines the area of non-usable material for micropipes.
|
|
1) |
Timeline for the Reestablishment of Manufacturing Capability, Production of Sample Material and Fulfillment of Initial New Order.
|
|
(a)
|
By way of background, under the terms of the Letter Agreement, the parties agreed that a lead time of [****] months for the fulfillment of each New Order for SiC Materials was reasonable, based upon the time required for Cree to
reestablish its manufacturing capability. The parties further agreed that once [****], the lead time required for subsequent orders could be reduced by Cree in its discretion.
|
(b)
|
Notwithstanding the foregoing agreements and understandings, upon its receipt of an initial New Order consisting of SiC Materials requirements amounting to no less than $4 million to be delivered by [****], Cree will use best efforts
to reestablish the necessary manufacturing capability and begin producing a limited quantity of sample material as soon as reasonably possible, with the goal of submitting such sample material to C&C for review within [****] from the
date of Cree’s receipt of such order.
|
(c)
|
C&C acknowledges and agrees that in no event will Cree commence the mass manufacture of SiC Materials in fulfillment of the volume of SiC Materials required under the initial New Order until such sample material demonstrates to the
reasonable satisfaction of the parties that such materials satisfy the specifications agreed to herein in all material respects. Upon receipt of the sample material, C&C will promptly verify whether the sample material meets the
applicable specifications. Following confirmation from C&C, Cree will ramp up production and will commence weekly deliveries as SiC Materials meeting the specifications are produced until the total initial New Order quantity is
produced and delivered. C&C agrees to accept such deliveries when made notwithstanding the due date set forth in the initial New Order. It is anticipated that with both parties acting reasonably, the requested volume of SiC Materials
set forth under the initial New Order will be delivered no later than [****].
|
2) |
New Order Requirements. In recognition of the redeployment of personnel and capital expenditure necessary to reestablish the manufacturing capability
to fulfill the requirements under the initial New Order, C&C agrees to (a) issue a non-cancellable New Order for the supply of SiC Materials to be delivered in the [****] quarter of [****] upon delivery of $[****] of SiC Materials
pursuant to the initial New Order; and (b) issue non-cancellable New Orders for SiC Materials for delivery in each consecutive calendar quarter thereafter during the remainder of the term of the Supply Agreement. The minimum order quantity
for each New Order after the initial New Order shall be [****] kilograms for delivery in the [****] quarter of [****], [****] kilograms for delivery in the [****] quarter of [****], [****] kilograms for delivery in [****] quarter of [****],
and [****] kilograms for delivery in the [****] quarters of [****] and for each quarter shall request weekly delivery in nearly equal quantities per week.
|
3) |
Specifications. Notwithstanding anything to the contrary in the Supply Agreement, Cree agrees to provide C&C with crystals of a quality and grade
that is similar in all materials respects with the requirements set forth under Attachment A of the Letter Agreement. The parties acknowledge and agree that any changes to the foregoing specifications must be mutually agreed upon by
the parties in writing and could impact Cree’s manufacturing process, leading to changes in the price or delivery of SiC Materials hereunder.
|
4) |
Price. $[****]/gram for grade 10; $[****]/gram for grade 20. The parties agree that the foregoing pricing shall be subject to change from time to time based upon improvements made by Cree
to the specifications of the SiC Materials.
|
5) |
Exclusivity. Exclusivity shall remain in effect as provided in the Supply Agreement.
|
Regards,
|
AGREED AND ACCEPTED BY:
|
CHARLES & COLVARD, LTD.
|
|
|
|
/s/ David T. Emerson
|
By /s/ Randy N. McCullough
|
David T. Emerson
|
Name Randy N. McCullough
|
Vice President – Chips and Materials
|
Title Chief Executive Officer
|
Date 2/8/13
|
1. |
Cree will supply SiC production crystals to C&C, and C&C will purchase SiC production crystals from Cree, according to the terms stated in the Letter Agreement, as modified herein.
|
2. |
Cree will provide 1.5” SiC production crystals for sale to C&C for $$[****]/gram for Grade 10 and $[****]/gram for Grade 20. Cree may fulfill C&C’s outstanding purchase orders [****] as agreed. All delivered orders [****] will be
applied toward C&C’s outstanding purchase orders [****] and its New Order requirements in paragraph 2 of the First Amendment. The quantity of "usable material" in 1.5” crystals delivered to C&C pursuant to the Letter Agreement will
be graded according to the specifications in Attachment A of the 2010 Agreement.
|
Regards,
|
AGREED AND ACCEPTED BY:
|
|
CHARLES & COLVARD, LTD.
|
/s/ David T. Emerson
|
|
||
David T. Emerson
|
By:
|
/s/ Randy N. McCullough
|
|
Vice President – Chips and Materials
|
Randy N. McCullough, CEO
|
(1) |
the Agreement shall be in effect at the time the Option Notice is received by Cree and on the last day of the Initial Term;
|
(2) |
C&C shall not be in material default beyond any applicable grace or cure period under any provisions of this Agreement at the time the Option Notice is given and on the last day of the Initial Term, and C&C shall not have failed
to timely cure any material default during the Initial Term (whether or not Cree sought to enforce any remedy or consequences against C&C for such default); and
|
(3) |
C&C shall have timely paid all amounts due to Cree under this Agreement and any Sales Agreement created hereunder. C&C will not be considered in violation of this condition if no more than [****] payments are past due during
any [****]-month period and such past due amounts are paid within [****] days after written or verbal notice from Cree that the amounts are past due.
|
(i) |
If C&C orders Products for delivery in a particular Fiscal Quarter and Cree proposes delivery of any of the requested quantities in a later Fiscal Quarter, as provided in Paragraph 4, and any quantity of any deferred Products is
needed in order for C&C to meet its Minimum Purchase Commitment for the Fiscal Quarter in which such Products were originally requested by C&C to be shipped, the needed quantity of deferred Products will be [****] in the Fiscal
Quarter [****] to be shipped (rather than in the Fiscal Quarter [****]) solely for the purpose of determining whether the Minimum Purchase Commitment has been met, provided that C&C’s orders do not request delivery during the Fiscal
Quarter for an aggregate quantity of Products in excess of the quantity to be delivered during the preceding Fiscal Quarter, [****] a commercially reasonable [****] not to exceed [****]; and
|
(ii) |
If Products ordered by C&C are not shipped by Cree in the Fiscal Quarter for which they were originally confirmed to be shipped by Cree, as provided in Paragraph 4, and the quantity of any delayed Products is needed in order for
C&C to meet its Minimum Purchase Commitment for the Fiscal Quarter in which such Products were originally confirmed by Cree to be shipped, the needed quantity of delayed Products will be [****] in the Fiscal Quarter [****] to be shipped
(rather than in the Fiscal Quarter [****]) solely for the purpose of determining whether the Minimum Purchase Commitment has been met, provided that shipment of such Products is not delayed to the Fiscal Quarter in which the delayed
Products are later shipped due to any cause reasonably and directly attributable to C&C; and
|
(iii) |
If C&C purchases more that its Minimum Purchase Commitment in any Fiscal Quarter, it may apply the excess toward its Minimum Purchase Commitment in the [****], but only up to the amount needed to achieve the Minimum Purchase
Commitment (i.e., application of the excess amount may not create a new excess).
|
i. |
it is duly organized and validly existing under the laws of its jurisdiction of organization, and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof
|
ii. |
it is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder, and the person or persons executing this Agreement on its behalf has been duly authorized to do so by all requisite corporate action;
|
iii. |
this Agreement is legally binding upon it and enforceable in accordance with its terms. The execution, delivery and performance of this Agreement by it does not conflict with any agreement, instrument or understanding, oral or written,
to which it is a party or by which it may be bound, nor violate any law or regulation of any governmental authority having jurisdiction over it;
|
iv. |
it is aware of no action, suit or inquiry or investigation instituted by any governmental agency or other third party that questions or threatens the validity of this Agreement; and
|
v. |
all necessary consents, approvals and authorizations of all governmental authorities and third parties required to be obtained by such Party to enter into this Agreement and to perform under and pursuant to this Agreement have been
obtained (provided, however, that the foregoing shall not be construed as a representation or warranty concerning non-infringement of intellectual property rights of Third Parties).
|
(i) |
If the other Party materially breaches this Agreement and fails to cure that breach within [****] days after receiving notice of the breach from the non-breaching Party; or
|
(ii) |
If the other Party becomes insolvent, or any voluntary or involuntary petition for bankruptcy or for reorganization is filed by or against the other Party, or a receiver is appointed with respect to all or any substantial portion of the
assets of the other Party, or a liquidation proceeding is commenced by or against the other Party; provided that, in the case of any involuntary petition or proceeding filed or commenced against a Party, the same is not dismissed within
sixty (60) days.
|
(1) |
[****];
|
(2) |
[****];
|
(4) |
[****];
|
(5) |
[****];
|
(6) |
[****];
|
(7) |
[****];
|
(8) |
[****]; and
|
(9) |
[****].
|
CREE, INC.
|
CHARLES & COLVARD, LTD.
|
By:
|
/s/ David Emerson
|
|
By:
|
/s/ Randy N. McCullough
|
|
|
|
|
|
|
David Emerson
|
|
|
Randy N. McCullough
|
|
|
|
|
|
Title:
|
Vice President - Chips & Materials
|
|
Title:
|
President and CEO
|
|
|
|
|
|
Date:
|
12/4/14
|
|
Date:
|
12/12/14
|
Address for Notices
|
Address for Notices
|
|
|
Cree, Inc.
|
Charles & Colvard, Ltd.
|
4600 Silicon Drive
|
170 Southport Drive
|
Durham, North Carolina 27703
|
Morrisville, North Carolina 27560
|
Attn: David Emerson
|
Attn: Randy N. McCullough
|
Email: [****]
|
Email: [****]
|
Fax No.: 919-[****]
|
Fax No.: 919-[****]
|
|
|
With copy of any notices
|
With copy of any notices
|
of a legal nature to:
|
of a legal nature to:
|
|
|
Cree, Inc.
|
Wyrick Robbins Yates & Ponton LLP
|
Attn: General Counsel
|
Attn: Jason Wood
|
4600 Silicon Dr.
|
4101 Lake Boone Trail
|
Durham, North Carolina 27703
|
Raleigh, NC 27607
|
Email: [****]
|
Email: [****]
|
Fax No.: 919-[****]
|
Fax No.: 919-[****]
|
|
|
|
For purposes of Section 6(c):
|
|
CHARLES & COLVARD DIRECT, LLC
|
|
By:
|
/s/ Kyle S. Macemore
|
|
Kyle S. Macemore, Manager
|
|
MOISSANITE.COM, LLC
|
|
By:
|
/s/ Kyle S. Macemore
|
|
Kyle S. Macemore, Manager
|
Tiered Pricing Schedule
|
||||||||||||
Volume kg/ Qtr
|
[****]” Boule
|
[****]” Boule
|
Larger Diameters
([****]”,[****]”[****]”)
|
|||||||||
Up to [****] kg
|
$
|
[
|
****]
|
$
|
[
|
****]
|
[
|
****]
|
||||
Next [****] kg
|
$
|
[
|
****]
|
$
|
[
|
****]
|
[
|
****]
|
||||
Next [****] kg
|
$
|
[
|
****]
|
$
|
[
|
****]
|
[
|
****]
|
||||
Next [****] kg
|
$
|
[
|
****]
|
$
|
[
|
****]
|
[
|
****]
|
||||
Next [****] kg
|
$
|
[
|
****]
|
$
|
[
|
****]
|
[
|
****]
|
||||
Next [****] kg
|
$
|
[
|
****]
|
$
|
[
|
****]
|
[
|
****]
|
||||
Additional Volume
|
[
|
****]
|
[
|
****]
|
[
|
****]
|
Volume
|
Quantity in kg
|
Applicable price per kg
(assuming all [****]” boules)
|
Extended Cost
|
|||||||||
Initial Volume Component 1
|
[
|
****]
|
$
|
[
|
****]
|
$
|
[
|
****]
|
||||
Incremental Volume Component 2
|
[
|
****]
|
$
|
[
|
****]
|
$
|
[
|
****]
|
||||
Incremental Volume Component 3
|
[
|
****]
|
$
|
[
|
****]
|
$
|
[
|
****]
|
||||
Total
|
[
|
****]
|
$
|
[
|
****]
|
A. |
Grams of usable material will be calculated on a crystal-by-crystal basis according to the following equation: [****]. “[****]” means [****] as defined in section A under “Defects” (below).
|
B. |
Crystals shipped to C&C must contain at least [****] grams of usable material for the [****]" crystals and [****] grams of usable material for the [****]" crystals. The usable material for the [****]” crystals will be determined and
mutually agreed upon in writing at a later date. This usable area must be contiguous.
|
(A) |
Material volume of acceptable color will be reduced by the percentage of the defects listed in the table below. C&C shall set the acceptable standards for the quality of both the color and defects of all material purchased pursuant
to this Agreement. Unless otherwise mutually agreed by the parties in writing, however, the grading of the material by both Cree and C&C will adhere to those standards and methods identified in Notes 1 & 2 below, or otherwise
mutually agreed in writing by the Parties, applied on a consistent basis.
|
ID
|
|
D-Type
|
|
|
1
|
|
[****]
|
|
Reduce
|
2
|
|
[****]
|
|
Reduce
|
3
|
|
[****]
|
|
Reduce
|
4
|
|
[****]
|
|
No reduction
|
5
|
|
[****]
|
|
Reduce
|
6
|
|
[****]
|
|
Reduce
|
7
|
|
[****]
|
|
No reduction
|
8
|
|
[****]
|
|
Reduce
|
9
|
|
[****]
|
|
Reduce
|
(B) |
Within a given color band ([****] or [****]) grade depth across the height of the boule, when the concentration of reduced defects in aggregate as noted above exceeds [****]% cross sectional area (concentrated or dispersed), the discount
on the affected band shall be [****].
|
(C) |
Within a given color band grade ([****] or [****]) depth across the height of the boule, if the reduced defect percent in aggregate is greater than [****]%, but less than [****]% and is [****] as per diagram below, the slab shall be
priced at [****].
|
1) |
Dome: Top of boule shall be [****]. Boules [****] shall not exceed [****]. For boules delivered with [****] exceeding [****], the total usable length will be calculated based on the [****].
|
2) |
Perpendicularity of bottom to side (as measured at sides and/or at windows): With boule resting on [****], largest allowable [****] shall be [****]. If boule does not meet this standard, it will be rejected and Cree will have the option
to rework the boule to meet this standard.
|
1 |
Master Boule [****]: new boules as [****] this will grade as [****]. Master Boule [****]: new boules as [****] this (but [****] Master Boule [****]) will grade as [****]. Unless otherwise mutually agreed, any boules darker than grade
[****] will not be purchased by C&C.
|
2 |
Micropipe grading will be performed according to the Cree document identified as the [****]. The area determined according to this procedure multiplied by [****], defines the area of non-usable material for micropipes.
|
Lease Period
|
Minimum Rent Per Rentable
Square Foot of the Premises
Per Annum
|
Monthly Installment
|
|||
11/1/21 – 10/31/22*
|
$23.50
|
$71,173.67
|
|||
11/1/22 – 10/31/23
|
$24.15
|
||||
11/1/23 – 10/31/24
|
$24.81
|
$75,142.04
|
|||
11/1/24 – 10/31/25
|
$25.49
|
$77,208.45
|
|||
11/1/25 – 10/31/26
|
$26.19
|
$79,331.68
|
LANDLORD:
|
||
SBP OFFICE OWNER, L.P.,
|
||
a Delaware limited partnership
|
||
By:
|
SBP Office Owner GP, L.L.C.,
|
|
a Delaware limited liability company,
|
||
its general partner
|
By:
|
/s/ Andres Panza
|
|||
Name:
|
Andres Panza
|
|||
Title:
|
Authorized Signatory
|
|||
Date:
|
1/29/2021
|
TENANT:
|
||||
CHARLES & COLVARD, LTD.,
|
||||
a North Carolina corporation
|
||||
By:
|
/s/ Don O’Connell
|
|||
Name:
|
Don O’Connell
|
|||
Title:
|
President & CEO
|
|||
Date:
|
1/29/2021
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2020 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/ Don O’Connell
|
February 4, 2021
|
|
Don O’Connell
|
|
|
President and Chief Executive Officer
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2020 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 4, 2021
|
|
Clint J. Pete
|
|
|
Chief Financial Officer
|
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Jan. 29, 2021 |
|
Cover [Abstract] | ||
Entity Registrant Name | CHARLES & COLVARD LTD | |
Entity Central Index Key | 0001015155 | |
Current Fiscal Year End Date | --06-30 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Dec. 31, 2020 | |
Document Fiscal Year Focus | 2021 | |
Document Fiscal Period Focus | Q2 | |
Entity Address, State or Province | NC | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 29,202,785 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2020 |
Jun. 30, 2020 |
---|---|---|
Shareholders' equity | ||
Common stock, par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized (in shares) | 50,000,000 | 50,000,000 |
Common stock, shares issued (in shares) | 29,092,326 | 28,949,410 |
Common stock, shares outstanding (in shares) | 29,092,326 | 28,949,410 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract] | ||||
Net sales | $ 12,146,790 | $ 10,659,090 | $ 20,073,083 | $ 18,267,511 |
Costs and expenses: | ||||
Cost of goods sold | 6,167,708 | 5,530,514 | 10,363,763 | 9,407,138 |
Sales and marketing | 2,480,571 | 3,160,965 | 4,128,503 | 5,390,556 |
General and administrative | 977,528 | 1,203,686 | 2,185,564 | 2,553,187 |
Total costs and expenses | 9,625,807 | 9,895,165 | 16,677,830 | 17,350,881 |
Income from operations | 2,520,983 | 763,925 | 3,395,253 | 916,630 |
Other income (expense): | ||||
Interest income | 1,126 | 45,379 | 4,586 | 106,758 |
Interest expense | (2,466) | (277) | (4,905) | (419) |
Loss on foreign currency exchange | (72) | (314) | (603) | (853) |
Total other (expense) income, net | (1,412) | 44,788 | (922) | 105,486 |
Income before income taxes | 2,519,571 | 808,713 | 3,394,331 | 1,022,116 |
Income tax (expense) benefit | (494) | 5,337 | (988) | (747) |
Net income | $ 2,519,077 | $ 814,050 | $ 3,393,343 | $ 1,021,369 |
Net income per common share: | ||||
Basic (in dollars per share) | $ 0.09 | $ 0.03 | $ 0.12 | $ 0.04 |
Diluted (in dollars per share) | $ 0.09 | $ 0.03 | $ 0.12 | $ 0.03 |
Weighted average number of shares used in computing net income per common share: | ||||
Basic (in shares) | 28,804,265 | 28,656,910 | 28,795,424 | 28,610,299 |
Diluted (in shares) | 29,262,702 | 29,246,571 | 28,980,009 | 29,199,876 |
DESCRIPTION OF BUSINESS |
6 Months Ended | ||
---|---|---|---|
Dec. 31, 2020 | |||
DESCRIPTION OF BUSINESS [Abstract] | |||
DESCRIPTION OF BUSINESS |
Charles & Colvard, Ltd. (the “Company”), a North Carolina corporation, was founded in 1995. The Company manufactures, markets, and distributes Charles & Colvard Created Moissanite® (hereinafter referred to as moissanite or moissanite jewels) and finished jewelry featuring moissanite, including Forever One™, our premium moissanite gemstone brand, for sale in the worldwide fine jewelry market. The Company also markets and distributes Caydia™ lab grown diamonds and finished jewelry featuring lab grown diamonds for sale in the worldwide fine jewelry market. Moissanite, also known by its chemical name silicon carbide (“SiC”), is a rare mineral first discovered in a meteorite crater. Because naturally occurring SiC crystals are too small for commercial use, larger crystals must be grown in a laboratory. Lab grown diamonds are also grown using technology that replicates the natural diamond growing process. The only differentiation between that of a lab grown diamond and a mined diamond is its origin. The result is a man-made diamond that is chemically, physically, and optically the same as those grown beneath the earth’s surface. The Company sells loose moissanite jewels, loose lab grown diamonds, and finished jewelry featuring both moissanite and lab grown diamonds at wholesale prices to distributors, manufacturers, retailers, and designers, including some of the largest distributors and jewelry manufacturers in the world. The Company’s finished jewelry and loose moissanite jewels and lab grown diamonds that are mounted into fine jewelry by other manufacturers are sold at retail outlets and via the Internet. The Company sells at retail prices to end-consumers through its wholly owned operating subsidiary, charlesandcolvard.com, LLC, third-party online marketplaces, drop-ship, and other pure-play, exclusively e-commerce outlets. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||
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 condensed consolidated financial 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, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2021. The condensed consolidated financial statements as of and for the three and six months ended December 31, 2020 and 2019 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of June 30, 2020 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 contained in Item 8 of the Company’s Annual Report on Form 10-K (the “2020 Annual Report”) for the fiscal year ended June 30, 2020 filed with the SEC on September 4, 2020. The accompanying condensed consolidated financial statements as of and for the three and six months ended December 31, 2020 and 2019, and as of the fiscal year ended June 30, 2020, 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 entered into dormancy as of September 30, 2020 following its re-activation in December 2017. Charles & Colvard Direct, LLC, had no operating activity during the six-month periods ended December 31, 2020 or 2019. 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, 2020, are consistent with those used for the fiscal year ended June 30, 2020. Accordingly, please refer to Note 2 to the Consolidated Financial Statements in the 2020 Annual Report for the Company’s significant accounting policies. Reclassifications – Certain amounts in the Company’s condensed consolidated financial statements for the six months ended December 31, 2019 have been reclassified to conform to current presentation related to certain customer credit balances that were reclassified from accounts payable to accrued expenses and other liabilities in the amount of approximately $48,000. These reclassifications had no impact on the Company’s condensed consolidated financial position or condensed consolidated results of operations as of or for the periods ended December 31, 2020 and 2019. 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. As future events and their effects, including the impact of the COVID-19 pandemic and the related responses, cannot be fully determined with precision, actual results of operations, cash flow, and financial position could differ significantly from estimates. 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, and revenue recognition. Changes in estimates are reflected in the condensed consolidated financial statements in the period in which the change in estimate occurs. 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, “Debt.” 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:
Recently Adopted/Issued Accounting Pronouncements – Effective July 1, 2020, the Company adopted the new accounting standard related to the measurement and disclosure of credit losses on financial instruments. The new guidance includes a current expected credit loss (“CECL”) model that requires an entity to estimate credit losses expected over the life of an exposure or pool of exposures based on historical information, current conditions, and supportable forecasts at the time the asset is recognized and is measured at each reporting period. The new guidance principally aligns the Company’s accounting for its trade accounts receivable with the economics of extending credit and improves its financial reporting by requiring timelier recording of related credit losses. The adoption of the new accounting standard did not have a material impact on the Company’s financial position or results of operations and the Company did not record a cumulative-effect adjustment to retained earnings. The Company amended its allowance for credit losses policy, as set forth below, for the implementation of the new accounting standard. The Company records an allowance for credit losses, which includes a provision for expected losses based on historical write-offs, adjusted for current conditions as deemed necessary, and a specific reserve for accounts deemed at risk. The allowance is the Company’s estimate for accounts receivable as of the balance sheet date that ultimately will not be collected. Any changes in the allowance are reflected in the results of operations in the period in which the change occurs. The Company writes-off accounts receivable when it becomes probable, based upon customer facts and circumstances, that such amounts will not be collected. Effective July 1, 2020, the Company also adopted the new accounting standard in connection with accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The new standard provides guidance to determine the accounting for fees paid in connection with a cloud computing arrangement that may include a software license. The adoption of this new accounting standard did not have a material impact on the Company’s financial position or results of operations. In December 2019, the FASB issued guidance on simplifying the accounting for income taxes that is intended to reduce the complexity while maintaining or improving the usefulness of tax disclosure information in financial statements. The new guidance is effective for fiscal years beginning after December 15, 2020. The Company does not expect the impact of the new guidance to have a material impact to the Company’s financial statements. In March 2020, as amended in January 2021, in response to concerns about structural risks of interbank offered rates (“IBORs”), and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), the FASB issued new guidance to ease the burden in accounting for or recognizing the effects of referenced interest rate reform on financial reporting. The new guidance is effective as of March 12, 2020 through December 31, 2022. As described in more detail in Note 10, “Debt”, borrowings under the Company’s line of credit are based on a rate equal to the one-month LIBOR. As of December 31, 2020, the Company had not borrowed against its line of credit, and therefore, is not subject to recognizing or disclosing any effect of referenced rate reform as of its quarterly period ended December 31, 2020. |
SEGMENT INFORMATION AND GEOGRAPHIC DATA |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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 2020 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 write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods. 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 for the periods presented 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. 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. The following presents net sales by geographic area:
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FAIR VALUE MEASUREMENTS |
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FAIR VALUE MEASUREMENTS [Abstract] | |||
FAIR VALUE MEASUREMENTS |
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy consists of three levels based on the reliability of inputs, as follows: Level 1. Quoted prices in active markets for identical assets and liabilities; Level 2. Inputs other than Level 1 quoted prices that are directly or indirectly observable; and Level 3. Unobservable inputs that are not corroborated by market data. The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by management of the Company. The financial instruments identified as subject to fair value measurements on a recurring basis are cash and cash equivalents, trade accounts receivable, and trade accounts payable. All financial instruments are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these financial instruments. Assets that are measured at fair value on a non-recurring basis include property and equipment, leasehold improvements, and intangible assets comprising patents, license rights, and trademarks. These items are recognized at fair value when they are considered to be impaired. For the six months ended December 31, 2020 and 2019, no impairment was recorded. |
INVENTORIES |
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INVENTORIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES |
The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:
As of the dates presented, the Company’s total inventories, net of reserves, are classified as follows:
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, 2020 and June 30, 2020, work-in-process inventories issued to active production jobs approximated $1.61 million and $1.34 million, respectively. The Company’s moissanite and lab grown diamond 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 and lab grown diamonds. Relative to loose moissanite jewels and lab grown diamonds, 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 and lab grown diamonds 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 inventories are stated at the lower of cost or net realizable value on an average cost basis. Each accounting period the Company evaluates the valuation and classification of inventories including the need for potential adjustments to inventory-related reserves, which also include significant estimates by management. 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. |
RETURNS ASSET AND REFUND LIABILITIES |
6 Months Ended | ||
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Dec. 31, 2020 | |||
RETURNS ASSET AND REFUND LIABILITIES [Abstract] | |||
RETURNS ASSET AND REFUND LIABILITIES |
In connection with its revenue recognition accounting policy, the Company provides for a returns asset account and a refund liabilities account to record the effects of its estimated product returns and sales returns allowance. The Company’s returns asset and refund liabilities are updated at the end of each financial reporting period and the effect of such changes are accounted for in the period in which such changes occur. The Company estimates anticipated product returns in the form of a refund liability based on historical return percentages and current period sales levels. The Company also accrues a related returns asset for goods expected to be returned in salable condition, less any expected costs to recover such goods, including return shipping costs that the Company may incur. As of December 31, 2020 and June 30, 2020, the Company’s refund liabilities balances were $1.37 million and $704,000, respectively, and are included as allowances for sales returns within accounts receivable, net, in the accompanying condensed consolidated balance sheets. As of December 31, 2020 and June 30, 2020, the Company’s returns asset balances were $578,000 and $289,000, respectively, and are included within prepaid expenses and other assets in the accompanying condensed consolidated balance sheets. |
ACCRUED EXPENSES AND OTHER LIABILITIES |
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ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED EXPENSES AND OTHER LIABILITIES |
Accrued expenses and other liabilities, current, consist of the following as of the dates presented:
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INCOME TAXES |
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Dec. 31, 2020 | |||
INCOME TAXES [Abstract] | |||
INCOME TAXES |
The Company recognized an income tax net expense of approximately $500 and an income tax net benefit of approximately $5,000, respectively, related to estimated taxes, penalties, and interest associated with uncertain tax positions for the three months ended December 31, 2020 and 2019, and an income tax net expense of approximately $1,000 and $1,000, respectively, also related to estimated taxes, penalties, and interest associated with uncertain tax positions for the six months ended December 31, 2020 and 2019. As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax assets. As of December 31, 2020 and June 30, 2020, management determined that sufficient negative evidence continued to exist to conclude it was uncertain that the Company would have sufficient future taxable income to utilize its deferred tax assets. Therefore, the Company continued to maintain a full valuation allowance against its deferred tax assets as of December 31, 2020 and June 30, 2020. |
COMMITMENTS AND CONTINGENCIES |
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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 expiration date of the base term of the Lease Agreement in effect as of December 31, 2020 is October 31, 2021 and the terms of the Lease Agreement contain no early termination provisions. Provided there is no outstanding uncured event of default under this 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 current lease accounting standard. 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, 2020, the Company’s balance sheet classifications of its leases are as follows:
The Company’s total operating lease cost was approximately $128,000 and $117,000 for the three months ended December 31, 2020 and 2019, respectively. The Company’s total operating lease cost was approximately $260,000 and $235,000 for the six months ended December 31, 2020 and 2019, respectively. As of December 31, 2020, 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 0.83 years. As of December 31, 2020, 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 months ended December 31, 2020 and 2019, cash paid for operating leases was approximately $170,000 and $164,000, respectively. During the six months ended December 31, 2020 and 2019, cash paid for operating leases was approximately $340,000 and $328,000, respectively. Except for the ROU assets recorded upon adoption of the current lease accounting standard as of July 1, 2019, the Company has no new ROU assets obtained in exchange for new operating lease liabilities. See Note 14, “Subsequent Event”, for details in connection with the Third Amendment (the “Lease Amendment”) to the Company’s Lease Agreement that was executed on January 29, 2021. The Lease Amendment includes, among other things, an extension of the base term of the lease to October 31, 2026; changes to the monthly minimum rent, including a specified rent abatement, during the extension period of the base term of the lease; an allowance by the landlord to reimburse the Company for certain direct costs incurred by the Company for improvements to the leased real property; and under certain conditions, an option to extend the term of the Lease Agreement beyond October 31, 2026 for one additional five-year period. 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. Effective June 30, 2020, the Supply Agreement was further amended to extend the expiration date to June 29, 2025, which may be extended again by mutual agreement of the parties. The Supply Agreement was also amended to, among other things, (i) spread the Company’s total purchase commitment under the Supply Agreement in the amount of approximately $52.95 million over the term of the Supply Agreement, as amended; (ii) establish a process by which Cree has agreed to accept purchase orders in excess of the agreed-upon minimum purchase commitment, subject to certain conditions; and (iii) permit the Company to purchase revised amounts of SiC materials from third parties under limited conditions. The Company’s total purchase commitment under the Supply Agreement, as amended, until June 2025 is approximately $52.95 million, of which approximately $35.57 remains to be purchased as of December 31, 2020. Over the life of the Supply Agreement, as amended, the Company’s future minimum annual purchase commitments of SiC crystals range from approximately $4 million to $10 million each year. During the six months ended December 31, 2020, the Company purchased approximately $1.03 million of SiC crystals from Cree pursuant to the terms of the Supply Agreement, as amended. During the six months ended December 31, 2019, the Company purchased approximately $4.98 million of SiC crystals from Cree. COVID-19 Update The global outbreak of the coronavirus disease 2019, or COVID-19, was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has since negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to “shelter-in-place” and quarantine restrictions, and created significant disruption of the financial markets. Certain countries and jurisdictions, including some geographic areas of the U.S., have begun to return to significantly more stringent social, business, and travel-related restrictions due to the dramatic increase in new and variant strains of COVID-19 cases. Even in the absence of legal restrictions, businesses and individuals may voluntarily continue to limit in-person interactions and practice social distancing, and such behaviors may continue beyond the formal end of the pandemic. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location. The Company’s management has taken measures to protect the health and safety of the Company’s employees, work with the Company’s customers and suppliers to minimize disruptions, reduce the Company’s expenses, and support its community in addressing the challenges posed by this ongoing COVID-19 pandemic. The pandemic continues to present unprecedented business challenges and the Company has experienced impacts on its business related to the COVID-19 pandemic, primarily in increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, access to some customer locations, the effects to net revenue related to reduced demand and store closures, and the impacts of remote work and adjusted work schedules. The impact of the COVID-19 pandemic on the global and domestic economy is currently not fully known. The Company’s operations have, to date, been operating under applicable governmental orders that have restricted activities in an effort to prevent further outbreak of COVID-19. As such, the Company is conducting business with certain modifications, including having non-operational personnel working remotely where applicable; limiting site access to necessary employees and critical third parties; enhancing the cleaning and disinfection of equipment and common areas, including engaging third-party specialists to disinfect personal workspaces; and issuing a quarantine policy regarding employees with COVID-19 symptoms or potential exposure, among other things. The Company’s management continues to actively monitor the situation and may take further actions that alter the Company’s business operations including any that may be required by federal, state or local authorities or that management determines are in the best interests of the Company’s employees, customers, suppliers, vendors, communities and other stakeholders. Despite these challenges, the Company’s efforts, especially with regard to product fulfillment and supply chain management, helped to partially mitigate the disruptions caused by the COVID-19 pandemic on the Company’s operations in the second quarter of its fiscal year ending June 30, 2021, or Fiscal 2021. However, the ultimate impact of the COVID-19 pandemic on the Company’s operations and financial performance in Fiscal 2021, and future periods, including management’s ability to execute its business plan and strategic initiatives in the expected timeframe, remains uncertain and will depend on future developments, including the duration and spread of the coronavirus disease and related actions taken by the U.S. Government, state and local government officials, and international governments to prevent and manage disease spread, including the global roll-out of COVID-19 vaccines, all of which are uncertain and cannot be predicted. The long-term impacts of the COVID-19 pandemic on global consumer buying behaviors, which impacts demand for our products and services, are also difficult to predict. The Company also intends to take advantage of COVID-19 related tax credits for required paid leave provided by the Company. These eligible tax credits are determined by qualified emergency paid sick and expanded family and medical leave wages pursuant to the Families First Coronavirus Response Act (“FFCRA”). Under FFCRA, the Company has provided employees with paid federal sick and expanded family and medical leave benefits for which it may be reimbursed by the government through payroll tax credits. Qualifying wages for tax credit purposes under FFCRA are those paid to an employee who takes leave under FFCRA for a qualifying reason, up to the applicable per diem and aggregate payment caps. Applicable tax credits also extend to the employer’s share of amounts paid or incurred to maintain a group health plan. The Consolidated Appropriations Act, 2021 (the “Act”), which is the latest federal stimulus relief bill for the COVID-19 pandemic, was signed into law on December 27, 2020. Notably, this legislation provides that employers who received a PPP loan may also qualify for the Employee Retention Credit (the “ERC”), once certain shutdown-related gross receipts decline eligibility hurdles are met. Previously, pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), taxpayers that received a PPP loan were not eligible for the ERC and this change is retroactive to March 27, 2020. While the Company has had minimal and partial short-term shutdowns related to the COVID-19 pandemic such that it has not utilized this aid, if future shutdowns are mandated and more extensive, the Company may be eligible to claim the ERC. Finally, as permitted by the NC COVID-19 Relief Act, the Company expects to receive a tax credit towards its contributions to the North Carolina Unemployment Insurance Fund. |
DEBT |
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DEBT [Abstract] | |||||||||||||||||||||||||||||||||||||||
DEBT |
Paycheck Protection Program Loan The Company received a loan pursuant to the Paycheck Protection Program under the CARES Act, as administered by the U.S. Small Business Administration (the “SBA”). The loan in the principal amount of $965,000 (the “PPP Loan”) was disbursed by Newtek Small Business Finance, LLC, (the “Lender”), a nationally licensed lender under the SBA, on June 18, 2020 pursuant to a promissory note issued by the Company (the “Promissory Note”) on June 15, 2020. The Company accounted for the Promissory Note as debt within the accompanying consolidated financial statements. The Promissory Note matures June 18, 2022 and may be extended with the consent of the Lender under the provisions of the CARES Act. The Promissory Note bears interest at a fixed rate of 1% per annum. Pursuant to the terms of the Promissory Note, monthly principal and interest payments in the amount of approximately $41,000 will commence on April 1, 2021. For financial reporting purposes, as of December 31, 2020, the classification of the current maturity of long-term debt assumes there will be no principal forgiveness, as allowed under certain conditions by the agreement, and principal repayment for the full outstanding principal amount of the PPP Loan is assumed to be spread in equal monthly installments over the period from April 1, 2021 through the maturity date of the Promissory Note. As of the dates presented, the Company’s total long-term debt is classified as follows:
Line of Credit On July 13, 2018, the Company and its wholly-owned subsidiary, charlesandcolvard.com, LLC (collectively, the “Borrowers”), obtained a $5.00 million asset-based revolving credit facility (the “White Oak Credit Facility”) from White Oak. The White Oak Credit Facility may be used for general corporate and working capital purposes, including permitted acquisitions. The White Oak Credit Facility, which matures on July 13, 2021, is guaranteed by Charles & Colvard Direct, LLC, a wholly-owned subsidiary of the Company. Under the terms of the White Oak Credit Facility, the Borrowers must maintain at least $500,000 in excess availability at all times. The White Oak Credit Facility contains no other financial covenants. Advances under the White Oak Credit Facility may be either revolving or non-revolving. During the first year of the term of the White Oak Credit Facility, revolving advances accrued interest at a rate equal to one-month LIBOR (reset monthly, and subject to a 1.25% floor) plus 3.75%, and non-revolving advances accrued interest at such LIBOR rate plus 4.75%. Thereafter, the interest margins will reduce upon the Company’s achievement of a specified fixed charge coverage ratio. However, advances are in all cases subject to a minimum interest rate of 5.50%. Interest is calculated on an actual/360 basis and payable monthly in arrears. Principal outstanding during an event of default accrues interest at a rate 2% in excess of the rate otherwise applicable. As of December 31, 2020, the Company had not borrowed against the White Oak Credit Facility. |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION |
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SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS' EQUITY |
Shelf Registration Statement The Company has an effective shelf registration statement on Form S-3 on file with the U.S. Securities and Exchange Commission (the “SEC”) which allows it to periodically offer and sell, individually or in any combination, shares of common stock, shares of preferred stock, warrants to purchase shares of common stock or preferred stock, and units consisting of any combination of the foregoing types of securities, up to a total of $25.00 million, of which approximately $13.99 million remains available after giving effect to the Company’s June 2019 public offering, including the impact of the partial exercise of the underwriters’ over-allotment option. However, the Company may offer and sell no more than one-third of its public float (which is the aggregate market value of the Company’s outstanding common stock held by non-affiliates) in any 12-month period. The Company’s ability to issue equity securities under its effective shelf registration statement is subject to market conditions, which are in turn, subject to, among other things, the disruption and volatility caused by the COVID-19 pandemic. Dividends The Company has paid no cash dividends during the current fiscal year through December 31, 2020. |
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STOCK-BASED COMPENSATION | Stock-Based Compensation The following table summarizes the components of the Company’s stock-based compensation included in net income for the periods presented:
No stock-based compensation was capitalized as a cost of inventory during the three and six months ended December 31, 2020 and 2019. Stock Options The following is a summary of the stock option activity for the six months ended December 31, 2020:
The total fair value of stock options that vested during the six months ended December 31, 2020 was approximately $613,000. The following table summarizes information about stock options outstanding at December 31, 2020:
As of December 31, 2020, the unrecognized stock-based compensation expense related to unvested stock options was approximately $230,000, which is expected to be recognized over a weighted average period of approximately 18 months. The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at December 31, 2020 was approximately $805,000. This amount is before applicable income taxes and represents the closing market price of the Company’s common stock at December 31, 2020 less the grant price, multiplied by the number of stock options that had a grant price that is less than the closing market price. This amount represents the amount that would have been received by the optionees had these stock options been exercised on that date. The aggregate intrinsic value of stock options exercised during the six months ended December 31, 2020, was approximately $48,000. No stock options were exercised during the six months ended December 31, 2019. Restricted Stock The following is a summary of the restricted stock activity for the six months ended December 31, 2020:
The unvested restricted shares as of December 31, 2020 are all performance-based restricted shares that are scheduled to vest, subject to achievement of the underlying performance goals, in July 2021. As of December 31, 2020, the estimated unrecognized stock-based compensation expense related to unvested restricted shares subject to achievement of performance goals was approximately $74,000, all of which is expected to be recognized over a weighted average period of approximately seven months. |
NET INCOME PER COMMON SHARE |
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NET INCOME PER COMMON SHARE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET INCOME PER COMMON SHARE |
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods. Diluted net income per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options and unvested restricted shares that are computed using the treasury stock method. Anti-dilutive stock awards consist of stock options that would have been anti-dilutive in the application of the treasury stock method. The following table reconciles the differences between the basic and diluted net income per share presentations:
For the three and six months ended December 31, 2020 stock options to purchase approximately 2.53 million and 2.80 million shares, respectively, and for each of the three and six months ended December 31, 2019, stock options to purchase approximately 2.13 million shares were excluded from the computation of diluted net income per common share for each period presented herein. These shares are excluded from the computations of diluted net income per common share because the exercise price of the stock options for each of the periods presented was greater than the average market price of the common shares or the effect of inclusion of such amounts would be anti-dilutive to net income per common share. Approximately 179,000 and 325,000 shares of unvested restricted stock are excluded from the computation of diluted net income per common share as of December 31, 2020 and 2019, respectively, because the shares are performance-based and the underlying conditions have not been met as of the periods presented. |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
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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. Non-interest-bearing amounts on deposit in excess of FDIC insurable limits at December 31, 2020 and June 30, 2020 approximated $5.71 million and $2.01 million, respectively. Interest-bearing amounts on deposit in excess of FDIC insurable limits at December 31, 2020 and June 30, 2020 approximated $10.64 million and $11.64 million, respectively. 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. For additional information regarding the Company’s measurement and disclosure of credit losses on financial assets, including trade accounts receivable, see Note 4, “Fair Value Measurements.” 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 10% or more of total net sales for the periods presented:
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SUBSEQUENT EVENT |
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SUBSEQUENT EVENT [Abstract] | |||
SUBSEQUENT EVENT |
Effective January 29, 2021, the Company entered into a third amendment (the “Lease Amendment”) to the Company’s Lease Agreement. The Lease Amendment, among other things, (i) extends the base term of the Lease Agreement from November 1, 2021 through October 31, 2026 (the “Extension Period”); (ii) sets forth the minimum monthly rents, including a specified rent abatement, during the Extension Period; (iii) provides for an allowance by the landlord to reimburse the Company for certain direct costs incurred for improvements to the leased real property; and (iv) provided there is no outstanding uncured event of default under the Lease Agreement, gives the Company the option to extend the term of the Lease Agreement beyond October 31, 2026 for one additional five-year period, in each case in accordance with the terms and subject to the conditions set forth therein. During the Extension Period, the Company’s minimum monthly rent payments range from approximately $71,000 to $79,000 each month. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||||||||
Basis of Presentation | 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 condensed consolidated financial 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, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2021. The condensed consolidated financial statements as of and for the three and six months ended December 31, 2020 and 2019 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of June 30, 2020 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 contained in Item 8 of the Company’s Annual Report on Form 10-K (the “2020 Annual Report”) for the fiscal year ended June 30, 2020 filed with the SEC on September 4, 2020. |
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Principles of Consolidation | The accompanying condensed consolidated financial statements as of and for the three and six months ended December 31, 2020 and 2019, and as of the fiscal year ended June 30, 2020, 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 entered into dormancy as of September 30, 2020 following its re-activation in December 2017. Charles & Colvard Direct, LLC, had no operating activity during the six-month periods ended December 31, 2020 or 2019. 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. |
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Reclassifications | Reclassifications – Certain amounts in the Company’s condensed consolidated financial statements for the six months ended December 31, 2019 have been reclassified to conform to current presentation related to certain customer credit balances that were reclassified from accounts payable to accrued expenses and other liabilities in the amount of approximately $48,000. These reclassifications had no impact on the Company’s condensed consolidated financial position or condensed consolidated results of operations as of or for the periods ended December 31, 2020 and 2019. |
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Use of Estimates | 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. As future events and their effects, including the impact of the COVID-19 pandemic and the related responses, cannot be fully determined with precision, actual results of operations, cash flow, and financial position could differ significantly from estimates. 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, and revenue recognition. Changes in estimates are reflected in the condensed consolidated financial statements in the period in which the change in estimate occurs. |
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Cash and Cash Equivalents | 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. |
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Restricted Cash | 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, “Debt.” 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:
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Credit Losses on Financial Instruments | Effective July 1, 2020, the Company adopted the new accounting standard related aligns the Company’s accounting for its trade accounts receivable with the economics of extending credit and improves its financial reporting by requiring timelier recording of related credit losses. The adoption of the new accounting standard did not have a material impact on the Company’s financial position or results of operations and the Company did not record a cumulative-effect adjustment to retained earnings. The Company amended its allowance for credit losses policy, as set forth below, for the implementation of the new accounting standard. The Company records an allowance for credit losses, which includes a provision for expected losses based on historical write-offs, adjusted for current conditions as deemed necessary, and a specific reserve for accounts deemed at risk. The allowance is the Company’s estimate for accounts receivable as of the balance sheet date that ultimately will not be collected. Any changes in the allowance are reflected in the results of operations in the period in which the change occurs. The Company writes-off accounts receivable when it becomes probable, based upon customer facts and circumstances, that such amounts will not be collected. |
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Cloud Computing Arrangement Implementation Costs | Effective July 1, 2020, the Company also adopted the new accounting standard in connection with accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The new standard provides guidance to determine the accounting for fees paid in connection with a cloud computing arrangement that may include a software license. The adoption of this new accounting standard did not have a material impact on the Company’s financial position or results of operations. |
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Recently Issued Accounting Pronouncements | In December 2019, the FASB issued guidance on simplifying the accounting for income taxes that is intended to reduce the complexity while maintaining or improving the usefulness of tax disclosure information in financial statements. The new guidance is effective for fiscal years beginning after December 15, 2020. The Company does not expect the impact of the new guidance to have a material impact to the Company’s financial statements. In March 2020, as amended in January 2021, in response to concerns about structural risks of interbank offered rates (“IBORs”), and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), the FASB issued new guidance to ease the burden in accounting for or recognizing the effects of referenced interest rate reform on financial reporting. The new guidance is effective as of March 12, 2020 through December 31, 2022. As described in more detail in Note 10, “Debt”, borrowings under the Company’s line of credit are based on a rate equal to the one-month LIBOR. As of December 31, 2020, the Company had not borrowed against its line of credit, and therefore, is not subject to recognizing or disclosing any effect of referenced rate reform as of its quarterly period ended December 31, 2020. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Cash, Cash Equivalents and Restricted Cash | 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:
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SEGMENT INFORMATION AND GEOGRAPHIC DATA (Tables) |
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Financial Information by Reportable Segment | Summary financial information by reportable segment for the periods presented is as follows:
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Reconciliation of Cost of Goods Sold | 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:
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Net Sales by Geographic Area | The following presents net sales by geographic area:
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INVENTORIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:
As of the dates presented, the Company’s total inventories, net of reserves, are classified as follows:
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ACCRUED EXPENSES AND OTHER LIABILITIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued Expenses and Other Liabilities | Accrued expenses and other liabilities, current, consist of the following as of the dates presented:
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COMMITMENTS AND CONTINGENCIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES [Abstract] | ||||||||||||||||||||||||||||||||||||
Balance Sheet Classifications of Leases | As of December 31, 2020, the Company’s balance sheet classifications of its leases are as follows:
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Remaining Future Payments Under Operating Leases | As of December 31, 2020, the Company’s remaining future payments under operating leases for each fiscal year ending June 30 are as follows:
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DEBT (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||
DEBT [Abstract] | |||||||||||||||||||||||||||||||||||||
Long-Term Debt | As of the dates presented, the Company’s total long-term debt is classified as follows:
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SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | The following table summarizes the components of the Company’s stock-based compensation included in net income for the periods presented:
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Stock Option Activity | The following is a summary of the stock option activity for the six months ended December 31, 2020:
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Stock Options Outstanding | The following table summarizes information about stock options outstanding at December 31, 2020:
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Restricted Stock Activity | The following is a summary of the restricted stock activity for the six months ended December 31, 2020:
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NET INCOME PER COMMON SHARE (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET INCOME PER COMMON SHARE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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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MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Major Customers | 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 10% or more of total net sales for the periods presented:
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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Reclassifications (Details) - USD ($) |
Dec. 31, 2020 |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|---|
Reclassifications [Abstract] | |||
Accounts payable | $ 2,932,576 | $ 3,748,235 | |
Accrued expenses and other liabilities | $ 1,946,283 | $ 1,922,332 | |
Reclassification [Member] | |||
Reclassifications [Abstract] | |||
Accounts payable | $ (48,000) | ||
Accrued expenses and other liabilities | $ 48,000 |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Cash and Cash Equivalents (Details) - USD ($) |
Dec. 31, 2020 |
Jun. 30, 2020 |
Dec. 31, 2019 |
Jun. 30, 2019 |
---|---|---|---|---|
Cash, Cash Equivalents and Restricted Cash [Abstract] | ||||
Cash and cash equivalents | $ 16,690,105 | $ 13,993,032 | ||
Restricted cash | 182,958 | 624,202 | ||
Total cash, cash equivalents, and restricted cash | $ 16,873,063 | $ 14,617,234 | $ 13,344,863 | $ 13,006,545 |
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Reconciliation of Cost of Goods Sold (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Cost of goods sold | $ 6,167,708 | $ 5,530,514 | $ 10,363,763 | $ 9,407,138 |
Inventory write-off | 105,000 | 149,000 | ||
Product Line [Member] | ||||
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Cost of goods sold | 5,807,749 | 5,045,768 | 9,305,960 | 8,548,130 |
Segment Reconciling Item [Member] | ||||
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Non-capitalized manufacturing and production control expenses | 395,237 | 427,643 | 724,641 | 817,519 |
Freight out | 316,542 | 141,233 | 491,881 | 272,352 |
Inventory write-off | 25,000 | 126,000 | 105,000 | 149,000 |
Other inventory adjustments | $ (376,820) | $ (210,130) | $ (263,719) | $ (379,863) |
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Net Sales by Geographic Area (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Net Sales by Geographic Area [Abstract] | ||||
Net sales | $ 12,146,790 | $ 10,659,090 | $ 20,073,083 | $ 18,267,511 |
Reportable Geographical Component [Member] | United States [Member] | ||||
Net Sales by Geographic Area [Abstract] | ||||
Net sales | 11,388,680 | 9,643,311 | 18,888,399 | 16,407,187 |
Reportable Geographical Component [Member] | International [Member] | ||||
Net Sales by Geographic Area [Abstract] | ||||
Net sales | $ 758,110 | $ 1,015,779 | $ 1,184,684 | $ 1,860,324 |
FAIR VALUE MEASUREMENTS (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
FAIR VALUE MEASUREMENTS [Abstract] | ||
Asset impairment | $ 0 | $ 0 |
INVENTORIES (Details) - USD ($) |
Dec. 31, 2020 |
Jun. 30, 2020 |
---|---|---|
Inventories [Abstract] | ||
Total supplies inventory | $ 105,404 | $ 88,034 |
Total inventory | 28,666,116 | 30,633,959 |
Short-term portion | 12,072,929 | 7,443,257 |
Long-term portion | 16,593,187 | 23,190,702 |
Work-in-process inventories issued to active production jobs | 1,610,000 | 1,340,000 |
Finished Jewelry [Member] | ||
Inventories [Abstract] | ||
Raw materials | 1,095,023 | 821,536 |
Work-in-process | 925,022 | 602,390 |
Finished goods | 7,019,742 | 6,019,985 |
Finished goods on consignment | 1,964,458 | 2,297,907 |
Total | 11,004,245 | 9,741,818 |
Loose Jewels [Member] | ||
Inventories [Abstract] | ||
Raw materials | 2,056,183 | 3,526,399 |
Work-in-process | 9,673,337 | 10,453,586 |
Finished goods | 5,659,166 | 6,619,487 |
Finished goods on consignment | 167,781 | 204,635 |
Total | $ 17,556,467 | $ 20,804,107 |
RETURNS ASSET AND REFUND LIABILITIES (Details) - USD ($) |
Dec. 31, 2020 |
Jun. 30, 2020 |
---|---|---|
RETURNS ASSET AND REFUND LIABILITIES [Abstract] | ||
Refund liabilities | $ 1,370,000 | $ 704,000 |
Asset returns | $ 578,000 | $ 289,000 |
ACCRUED EXPENSES AND OTHER LIABILITIES (Details) - USD ($) |
Dec. 31, 2020 |
Jun. 30, 2020 |
---|---|---|
ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract] | ||
Deferred revenue | $ 619,677 | $ 794,740 |
Accrued compensation and related benefits | 508,008 | 395,006 |
Accrued sales tax | 497,609 | 295,651 |
Accrued severance | 128,269 | 338,355 |
Accrued cooperative advertising | 192,719 | 89,517 |
Other | 1 | 9,063 |
Total accrued expenses and other liabilities | $ 1,946,283 | $ 1,922,332 |
INCOME TAXES (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
INCOME TAXES [Abstract] | ||||
Income tax expense (benefit) for estimated tax, penalties, and interest for other uncertain tax positions | $ 500 | $ (5,000) | $ 1,000 | $ 1,000 |
COMMITMENTS AND CONTINGENCIES, Purchase Commitments (Details) - SiC Materials [Member] - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Purchase Commitments [Abstract] | ||
Percentage of materials committed to be purchased | 100.00% | |
Extension period of exclusive supply agreement | 2 years | |
Total purchase commitment | $ 52,950 | |
Remaining purchase commitment | 35,570 | |
Purchases | 1,030 | $ 4,980 |
Minimum [Member] | ||
Purchase Commitments [Abstract] | ||
Future minimum annual purchase commitments | 4,000 | |
Maximum [Member] | ||
Purchase Commitments [Abstract] | ||
Future minimum annual purchase commitments | $ 10,000 |
DEBT, Paycheck Protection Program Loan (Details) - USD ($) |
6 Months Ended | ||
---|---|---|---|
Dec. 31, 2020 |
Jun. 30, 2020 |
Jun. 18, 2020 |
|
Paycheck Protection Program Loan [Abstract] | |||
Current maturity of long-term debt | $ 579,000 | $ 193,000 | |
Long-term debt, net | $ 386,000 | 772,000 | |
PPP Loan [Member] | |||
Paycheck Protection Program Loan [Abstract] | |||
Principal amount | $ 965,000 | ||
Fixed interest rate | 1.00% | ||
Monthly principal and interest payment | $ 41,000 | ||
Current maturity of long-term debt | 579,000 | 193,000 | |
Long-term debt, net | 386,000 | 772,000 | |
Total long-term debt | $ 965,000 | $ 965,000 |
DEBT, Line of Credit (Details) |
6 Months Ended |
---|---|
Dec. 31, 2020
USD ($)
| |
White Oak Credit Facility [Member] | |
Line of Credit [Abstract] | |
Borrowing capacity | $ 5,000,000 |
Maturity date | Jul. 13, 2021 |
Interest rate premium in excess of rate otherwise applicable charged during an event of default | 2.00% |
Credit facility outstanding | $ 0 |
White Oak Credit Facility [Member] | Minimum [Member] | |
Line of Credit [Abstract] | |
Excess availability | $ 500,000 |
Interest rate | 5.50% |
Revolving Advances [Member] | |
Line of Credit [Abstract] | |
Interest rate floor | 1.25% |
Revolving Advances [Member] | LIBOR [Member] | |
Line of Credit [Abstract] | |
Term of variable rate | 1 month |
Basis spread on variable rate | 3.75% |
Non-Revolving Advances [Member] | LIBOR [Member] | |
Line of Credit [Abstract] | |
Basis spread on variable rate | 4.75% |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Shareholders' Equity (Details) |
6 Months Ended |
---|---|
Dec. 31, 2020
USD ($)
| |
Shelf Registration Statement [Abstract] | |
Shelf Registration Statement | $ 25,000,000 |
Available amount under shelf registration statement | 13,990,000 |
Dividends [Abstract] | |
Cash dividends | $ 0 |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Stock-Based Compensation (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Stock-Based Compensation [Abstract] | ||||
Employee stock options | $ 50,176 | $ 48,189 | $ 141,216 | $ 112,064 |
Restricted stock awards | 37,762 | 98,536 | 54,077 | 247,041 |
Total | 87,938 | 146,725 | 195,293 | 359,105 |
Stock-based compensation capitalized as a cost of inventory | $ 0 | $ 0 | $ 0 | $ 0 |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Stock Option Activity (Details) - Stock Options [Member] - USD ($) |
6 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Stock Option Activity [Roll Forward] | ||
Outstanding, beginning balance (in shares) | 2,809,095 | |
Granted (in shares) | 358,033 | |
Exercised (in shares) | (126,666) | 0 |
Expired (in shares) | (56,000) | |
Outstanding, ending balance (in shares) | 2,984,462 | |
Weighted Average Exercise Price [Roll Forward] | ||
Outstanding, beginning balance (in dollars per share) | $ 1.19 | |
Granted (in dollars per share) | 0.93 | |
Exercised (in dollars per share) | 0.91 | |
Expired (in dollars per share) | 1.90 | |
Outstanding, ending balance (in dollars per share) | $ 1.16 | |
Fair Value of Stock Options [Abstract] | ||
Fair value of stock options vested | $ 613,000 |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Restricted Stock Activity (Details) - Restricted Stock [Member] |
6 Months Ended |
---|---|
Dec. 31, 2020
USD ($)
$ / shares
shares
| |
Restricted Stock Activity [Roll Forward] | |
Unvested, beginning balance (in shares) | shares | 162,500 |
Granted (in shares) | shares | 178,750 |
Canceled (in shares) | shares | (162,500) |
Unvested, ending balance (in shares) | shares | 178,750 |
Weighted Average Grant Date Fair Value [Roll Forward] | |
Unvested, beginning balance (in dollars per share) | $ / shares | $ 1.57 |
Granted (in dollars per share) | $ / shares | 0.72 |
Canceled (in dollars per share) | $ / shares | 1.57 |
Unvested, ending balance (in dollars per share) | $ / shares | $ 0.72 |
Unrecognized Stock-Based Compensation Expense [Abstract] | |
Unrecognized stock-based compensation expense | $ | $ 74,000 |
Unrecognized stock-based compensation expense, period for recognition | 7 months |
SUBSEQUENT EVENT (Details) |
6 Months Ended | |
---|---|---|
Jan. 29, 2021
USD ($)
Option
|
Dec. 31, 2020
USD ($)
Option
|
|
Subsequent Event [Abstract] | ||
Number of options to extend lease term | Option | 2 | |
Period of extension on each option | 5 years | |
Future minimum rent payments | $ 541,957 | |
Subsequent Event [Member] | ||
Subsequent Event [Abstract] | ||
Number of options to extend lease term | Option | 1 | |
Period of extension on each option | 5 years | |
Subsequent Event [Member] | Minimum [Member] | ||
Subsequent Event [Abstract] | ||
Future minimum rent payments | $ 71,000 | |
Subsequent Event [Member] | Maximum [Member] | ||
Subsequent Event [Abstract] | ||
Future minimum rent payments | $ 79,000 |
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