|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
|
|
|
Large accelerated filer
|
☐ |
Accelerated filer
|
☐ | |
|
☒ |
Smaller reporting company
|
||
Emerging growth company
|
Page
Number
|
||
PART I – FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements
|
|
1
|
||
2
|
||
3
|
||
4
|
||
5
|
||
Item 2.
|
20
|
|
Item 3.
|
34
|
|
Item 4.
|
34
|
|
PART II – OTHER INFORMATION
|
||
Item 1.
|
35
|
|
Item 1A.
|
35
|
|
Item 2.
|
37
|
|
Item 6.
|
38
|
|
39
|
Item 1. |
Financial Statements
|
December 31, 2022
(unaudited)
|
June 30, 2022 | |||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
|
$
|
|
||||
Restricted cash
|
|
|
||||||
Accounts receivable, net
|
|
|
||||||
Inventory, net
|
|
|
||||||
Note receivable
|
|
|
||||||
Prepaid expenses and other assets
|
|
|
||||||
Total current assets
|
|
|
||||||
Long-term assets:
|
||||||||
Inventory, net
|
|
|
||||||
Property and equipment, net
|
|
|
||||||
Intangible assets, net
|
|
|
||||||
Operating lease right-of-use assets
|
|
|
||||||
Deferred income taxes, net
|
||||||||
Note receivable
|
||||||||
Other assets
|
|
|
||||||
Total long-term assets
|
|
|
||||||
TOTAL ASSETS
|
$
|
|
$
|
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
|
$
|
|
||||
Operating lease liabilities, current portion
|
|
|
||||||
Accrued expenses and other liabilities
|
|
|
||||||
Total current liabilities
|
|
|
||||||
Long-term liabilities:
|
||||||||
Noncurrent operating lease liabilities
|
|
|
||||||
Total long-term liabilities
|
|
|
||||||
Total liabilities
|
|
|
||||||
Commitments and contingencies (Note 9)
|
||||||||
Shareholders’ equity:
|
||||||||
Common stock,
|
|
|
||||||
Additional paid-in capital
|
|
|
||||||
Treasury stock, at cost,
|
( |
) | ( |
) | ||||
Accumulated deficit
|
(
|
)
|
(
|
)
|
||||
Total shareholders’ equity
|
|
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
|
$
|
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2022
|
2021
|
2022
|
2021
|
|||||||||||||
Net sales
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
|
|
|
|
||||||||||||
Sales and marketing
|
|
|
|
|
||||||||||||
General and administrative
|
|
|
|
|
||||||||||||
Total costs and expenses
|
|
|
|
|
||||||||||||
(Loss) Income from operations
|
(
|
)
|
|
(
|
)
|
|
||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
|
|
|
|
||||||||||||
Loss on foreign currency exchange
|
|
|
|
(
|
)
|
|||||||||||
Total other income (expense), net
|
|
|
|
|
||||||||||||
(Loss) Income before income taxes
|
(
|
)
|
|
(
|
)
|
|
||||||||||
Income tax benefit (expense)
|
|
(
|
)
|
|
(
|
)
|
||||||||||
Net (loss) income
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
Net (loss) income per common share:
|
||||||||||||||||
Basic
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
Diluted
|
$ |
(
|
)
|
$ |
|
$ |
(
|
)
|
$ |
|
||||||
Weighted average number of shares used in computing net (loss) income per common share:
|
||||||||||||||||
Basic
|
|
|
|
|
||||||||||||
Diluted
|
|
|
|
|
Six Months Ended December 31, 2022 | ||||||||||||||||||||||||
Common Stock
|
|
|
||||||||||||||||||||||
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Treasury Stock |
Accumulated
Deficit
|
Total
Shareholders’
Equity
|
|||||||||||||||||||
Balance at June 30, 2022
|
|
$
|
|
$
|
|
$ | ( |
) |
$
|
(
|
)
|
$
|
|
|||||||||||
Stock-based compensation
|
-
|
|
|
|
|
|||||||||||||||||||
Cancellation of restricted stock
|
(
|
)
|
|
|
|
|
||||||||||||||||||
Repurchases of common stock
|
(
|
)
|
|
|
( |
) |
|
(
|
)
|
|||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||
Balance at September 30, 2022
|
|
$
|
|
$
|
|
$ | ( |
) |
$
|
(
|
)
|
$
|
|
|||||||||||
Stock-based compensation
|
-
|
|
|
|
|
|||||||||||||||||||
Issuance of restricted stock
|
|
|
|
|
|
|||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||
Balance at December 31, 2022
|
|
$
|
|
$
|
|
$ | ( |
) |
$
|
(
|
)
|
$
|
|
Six Months Ended December 31, 2021
|
||||||||||||||||||||||||
Common Stock
|
|
|
||||||||||||||||||||||
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Treasury Stock |
Accumulated
Deficit
|
Total Shareholders’
Equity
|
|||||||||||||||||||
Balance at June 30, 2021
|
|
$
|
|
$
|
|
$ |
$
|
(
|
)
|
$
|
|
|||||||||||||
Stock-based compensation
|
-
|
|
|
|
|
|||||||||||||||||||
Issuance of restricted stock
|
|
|
|
|
|
|||||||||||||||||||
Stock option exercises
|
|
|
(
|
)
|
|
|
||||||||||||||||||
Net income
|
-
|
|
|
|
|
|||||||||||||||||||
Balance at September 30, 2021
|
|
$
|
|
$
|
|
$ |
$
|
(
|
)
|
$
|
|
|||||||||||||
Stock-based compensation
|
-
|
|
|
|
|
|||||||||||||||||||
Stock option exercises
|
( |
) | ||||||||||||||||||||||
Net income
|
-
|
|
|
|
|
|||||||||||||||||||
Balance at December 31, 2021
|
|
$
|
|
$
|
|
$ |
$
|
(
|
)
|
$
|
|
Six Months Ended December 31,
|
||||||||
2022
|
2021
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net (loss) income
|
$
|
(
|
)
|
$
|
|
|||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
|
||||||||
Depreciation and amortization
|
|
|
||||||
Stock-based compensation
|
|
|
||||||
Provision for uncollectible accounts
|
|
|
||||||
Provision for sales returns
|
|
|
||||||
Inventory write-downs
|
|
|
||||||
Provision for accounts receivable discounts
|
|
|
||||||
Deferred income taxes
|
( |
) | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(
|
)
|
(
|
)
|
||||
Inventory
|
(
|
)
|
(
|
)
|
||||
Prepaid expenses and other assets, net
|
|
(
|
)
|
|||||
Accounts payable
|
|
|
||||||
Accrued income taxes
|
|
|
||||||
Accrued expenses and other liabilities
|
(
|
)
|
|
|||||
Net cash (used in) provided by operating activities
|
(
|
)
|
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(
|
)
|
(
|
)
|
||||
Payments for intangible assets
|
(
|
)
|
(
|
)
|
||||
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Stock option exercises
|
|
|
||||||
Repurchases of common stock |
( |
) | ||||||
Net cash (used in) provided by financing activities
|
(
|
)
|
|
|||||
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
|
(
|
)
|
(
|
)
|
||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD
|
|
|
||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD
|
$
|
|
$
|
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for income taxes
|
$
|
|
$
|
|
1. |
DESCRIPTION OF BUSINESS
|
2. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
December 31,
2022
|
June 30,
2022
|
|||||||
Cash and cash equivalents
|
$
|
|
$
|
|
||||
Restricted cash
|
|
|
||||||
Total cash, cash equivalents, and restricted cash
|
$
|
|
$
|
|
3. |
SEGMENT INFORMATION AND GEOGRAPHIC DATA
|
Three Months Ended December 31, 2022
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Operating loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
||||||
Capital expenditures
|
$
|
|
$
|
|
$
|
|
Three Months Ended December 31, 2021
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Operating income
|
$
|
|
$
|
|
$
|
|
||||||
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
||||||
Capital expenditures
|
$
|
|
$
|
|
$
|
|
Six Months Ended December 31, 2022
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Operating loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
||||||
Capital expenditures
|
$
|
|
$
|
|
$
|
|
Six Months Ended December 31, 2021
|
||||||||||||
Online
Channels
|
Traditional
|
Total
|
||||||||||
Net sales
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Product line cost of goods sold
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Product line gross profit
|
||||||||||||
Finished jewelry
|
$
|
|
$
|
|
$
|
|
||||||
Loose jewels
|
|
|
|
|||||||||
Total
|
$
|
|
$
|
|
$
|
|
||||||
Operating income
|
$
|
|
$
|
|
$
|
|
||||||
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
||||||
Capital expenditures
|
$
|
|
$
|
|
$
|
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2022
|
2021
|
2022
|
2021
|
|||||||||||||
Product line cost of goods sold
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Non-capitalized manufacturing and production control expenses
|
|
|
|
|
||||||||||||
Freight out
|
|
|
|
|
||||||||||||
Inventory write-downs
|
|
|
|
|
||||||||||||
Other inventory adjustments
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
Cost of goods sold
|
$
|
|
$
|
|
$
|
|
$
|
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2022
|
2021
|
2022
|
2021
|
|||||||||||||
Net sales
|
||||||||||||||||
United States
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
International
|
|
|
|
|
||||||||||||
Total
|
$
|
|
$
|
|
$
|
|
$
|
|
|
4. |
FAIR VALUE MEASUREMENTS
|
5. |
INVENTORIES
|
December 31,
2022
|
June 30,
2022
|
|||||||
Finished jewelry:
|
||||||||
Raw materials
|
$
|
|
$
|
|
||||
Work-in-process
|
|
|
||||||
Finished goods
|
|
|
||||||
Finished goods on consignment
|
|
|
||||||
Total finished jewelry
|
$
|
|
$
|
|
||||
Loose jewels:
|
||||||||
Raw materials
|
$
|
|
$
|
|
||||
Work-in-process
|
|
|
||||||
Finished goods
|
|
|
||||||
Finished goods on consignment
|
|
|
||||||
Total loose jewels
|
|
|
||||||
Total supplies inventory
|
|
|
||||||
Total inventory
|
$
|
|
$
|
|
December 31,
2022
|
June 30,
2022
|
|||||||
Short-term portion
|
$
|
|
$
|
|
||||
Long-term portion
|
|
|
||||||
Total
|
$
|
|
$
|
|
6. |
NOTE RECEIVABLE
|
7. |
ACCRUED EXPENSES AND OTHER LIABILITIES
|
December 31,
2022
|
June 30,
2022
|
|||||||
Accrued compensation and related benefits
|
$
|
|
$
|
|
||||
Deferred revenue
|
|
|
||||||
Accrued sales taxes and franchise taxes
|
|
|
||||||
Accrued cooperative advertising
|
|
|
||||||
Other accrued expenses
|
|
|
||||||
Total accrued expenses and other liabilities
|
$
|
|
$
|
|
8. |
INCOME TAXES
|
9. |
COMMITMENTS AND CONTINGENCIES
|
Operating Leases:
|
||||
Noncurrent operating lease ROU assets
|
$
|
|
||
|
||||
Current operating lease liabilities
|
$
|
|
||
Noncurrent operating lease liabilities
|
|
|||
Total operating lease liabilities
|
$
|
|
2023
|
$
|
|
||
2024
|
|
|||
2025
|
|
|||
2026
|
|
|||
2027
|
|
|||
Total lease payments
|
|
|||
Less: imputed interest
|
|
|||
Present value of lease payments
|
|
|||
Less: current lease obligations
|
|
|||
Total long-term lease obligations
|
$
|
|
10. |
DEBT
|
11. |
SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION
|
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
2022
|
2021
|
2022
|
2021
|
|||||||||||||
Employee stock options
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Restricted stock awards
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Shares
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding, June 30, 2022
|
|
$
|
|
|||||
Granted
|
|
$
|
|
|||||
Forfeited
|
(
|
)
|
$
|
|
||||
Expired
|
(
|
)
|
$
|
|
||||
Outstanding, December 31, 2022
|
|
$
|
|
Options Outstanding
|
Options Exercisable
|
Options Vested or Expected to Vest
|
||||||||||||||||||||||||||||||||
Balance
as of
December 31,
2022
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
December 31,
2022
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
December 31,
2022
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||||
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
Shares
|
Weighted
Average
Grant Date
Fair Value
|
|||||||
Unvested, June 30, 2022
|
|
$
|
|
|||||
Granted
|
|
$
|
|
|||||
Vested
|
( |
) | ||||||
Cancelled
|
( |
) | $ |
|||||
Unvested, December 31, 2022
|
|
$
|
|
12. |
NET (LOSS) INCOME PER COMMON SHARE
|
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
2022
|
2021
|
2022
|
2021
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net (loss)income
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
Denominator:
|
||||||||||||||||
Weighted average common shares outstanding:
|
||||||||||||||||
Basic
|
|
|
|
|
||||||||||||
Effect of dilutive securities
|
|
|
|
|
||||||||||||
Diluted
|
|
|
|
|
||||||||||||
Net (loss) income per common share:
|
||||||||||||||||
Basic
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||
Diluted
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
13. |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
|
December 31,
2022
|
June 30,
2022
|
|||||||
Customer A
|
|
%
|
|
%
|
||||
Customer B
|
|
%
|
% |
|||||
Customer C
|
% |
|
%
|
|||||
Customer D |
% | % |
*
|
|
**
|
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2022
|
2021
|
2022
|
2021
|
|||||||||||||
Customer A
|
% |
|
%
|
|
%
|
|
%
|
|||||||||
Customer C
|
|
% |
|
% |
|
% |
|
%
|
*
|
|
1. |
Our business and our results of operations could be materially adversely affected as a result of general economic and market 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 effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events on our business, operating results, and cash flows are uncertain;
|
4. |
We face intense competition in the worldwide gemstone and jewelry industry;
|
5. |
Our information technology, or IT, infrastructure, and our network may be impacted by a cyber-attack or other security incident as a result of the rise of cybersecurity events;
|
6. |
Constantly evolving privacy regulatory regimes are creating new legal compliance challenges;
|
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 may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation;
|
11. |
Seasonality of our business may adversely affect our net sales and operating income;
|
12. |
Our operations could be disrupted by natural disasters;
|
13. |
Sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control;
|
14. |
Our current customers may potentially perceive us as a competitor in the finished jewelry business;
|
15. |
We depend on a single supplier 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;
|
16. |
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;
|
17. |
Governmental regulation and oversight might adversely impact our operations;
|
18. |
The execution of our business plans could significantly impact our liquidity;
|
19. |
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;
|
20. |
Negative or inaccurate information on social media could adversely impact our brand and reputation;
|
21. |
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;
|
22. |
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;
|
23. |
Environmental, social, and governance matters may impact our business, reputation, financial condition, and results of operations;
|
24. |
If we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer;
|
25. |
Our failure to maintain compliance with The Nasdaq Stock market’s continued listing requirements could result in the delisting of our common stock;
|
26. |
Some anti-takeover provisions of our charter documents may delay or prevent a takeover of our Company; and
|
27. |
We cannot guarantee that our share repurchase program will be utilized to the full value approved, or that it will enhance long-term stockholder value and repurchases we consummate could increase the
volatility of the price of our common stock and could have a negative impact on our available cash balance.
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
2022
|
2021
|
2022
|
2021
|
|||||||||||||
Net sales
|
$
|
10,366,122
|
$
|
13,753,135
|
$
|
17,740,204
|
$
|
24,033,446
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
6,071,775
|
7,033,946
|
10,157,785
|
12,050,496
|
||||||||||||
Sales and marketing
|
4,339,684
|
4,079,035
|
7,447,630
|
6,809,187
|
||||||||||||
General and administrative
|
1,187,955
|
1,189,559
|
2,601,431
|
2,773,835
|
||||||||||||
Total costs and expenses
|
11,599,414
|
12,302,540
|
20,206,846
|
21,633,518
|
||||||||||||
(Loss) Income from operations
|
(1,233,292
|
)
|
1,450,595
|
(2,466,642
|
)
|
2,399,928
|
||||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
59,574
|
490
|
99,776
|
845
|
||||||||||||
Loss on foreign currency exchange
|
-
|
-
|
-
|
(34
|
)
|
|||||||||||
Total other income (expense), net
|
59,574
|
490
|
99,776
|
811
|
||||||||||||
(Loss) Income before income taxes
|
(1,173,718
|
)
|
1,451,085
|
(2,366,866
|
)
|
2,400,739
|
||||||||||
Income tax benefit (expense)
|
131,937
|
(283,473
|
)
|
434,893
|
(406,102
|
)
|
||||||||||
Net (loss) income
|
$
|
(1,041,781
|
)
|
$
|
1,167,612
|
$
|
(1,931,973
|
)
|
$
|
1,994,637
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2022
|
2021
|
Dollars
|
Percent
|
2022
|
2021
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Finished jewelry
|
$
|
8,436,208
|
$
|
10,539,166
|
$
|
(2,102,958
|
)
|
(20
|
)%
|
$
|
13,976,614
|
$
|
16,225,453
|
$
|
(2,248,839
|
)
|
(14
|
)%
|
||||||||||||||
Loose jewels
|
1,929,914
|
3,213,969
|
(1,284,055
|
)
|
(40
|
)%
|
3,763,590
|
7,807,993
|
(4,044,403
|
)
|
(52
|
)%
|
||||||||||||||||||||
Total consolidated net sales
|
$
|
10,366,122
|
$
|
13,753,135
|
$
|
(3,387,013
|
)
|
(25
|
)%
|
$
|
17,740,204
|
$
|
24,033,446
|
$
|
(6,293,242
|
)
|
(26
|
)%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended December
31,
|
Change
|
|||||||||||||||||||||||||||||
2022
|
2021
|
Dollars
|
Percent
|
2022
|
2021
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Product line cost of goods sold:
|
||||||||||||||||||||||||||||||||
Finished jewelry
|
$
|
4,185,331
|
$
|
4,703,976
|
$
|
(518,645
|
)
|
(11
|
)%
|
$
|
6,792,031
|
$
|
7,038,459
|
$
|
(246,428
|
)
|
(4
|
)%
|
||||||||||||||
Loose jewels
|
871,250
|
1,434,565
|
(563,315
|
)
|
(39
|
)%
|
1,696,873
|
3,494,011
|
(1,797,138
|
)
|
(51
|
)%
|
||||||||||||||||||||
Total product line cost of goods sold
|
5,056,581
|
6,138,541
|
(1,081,960
|
)
|
(18
|
)%
|
8,488,904
|
10,532,470
|
(2,043,566
|
)
|
(19
|
)%
|
||||||||||||||||||||
Non-product line cost of goods sold
|
1,015,194
|
895,405
|
119,789
|
13
|
%
|
1,668,881
|
1,518,026
|
150,855
|
10
|
%
|
||||||||||||||||||||||
Total cost of goods sold
|
$
|
6,071,775
|
$
|
7,033,946
|
$
|
(962,171
|
)
|
(14
|
)%
|
$
|
10,157,785
|
$
|
12,050,496
|
$
|
(1,892,711
|
)
|
(16
|
)%
|
Three Months Ended December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2022
|
2021
|
Dollars
|
Percent
|
2022
|
2021
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Sales and marketing
|
$
|
4,339,684
|
$
|
4,079,035
|
$
|
260,649
|
6
|
%
|
$
|
7,447,630
|
$
|
6,809,187
|
$
|
638,443
|
9
|
%
|
Three Months Ended December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2022
|
2021
|
Dollars
|
Percent
|
2022
|
2021
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
General and administrative
|
$
|
1,187,955
|
$
|
1,189,559
|
$
|
(1,604
|
)
|
(0
|
)%
|
$
|
2,601,431
|
$
|
2,773,835
|
$
|
(172,404
|
)
|
(6
|
)%
|
Three Months Ended December 31,
|
Change
|
Six Months Ended December 31,
|
Change
|
|||||||||||||||||||||||||||||
2022
|
2021
|
Dollars
|
Percent
|
2022
|
2021
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Interest income
|
$
|
59,574
|
$
|
490
|
$
|
59,084
|
*
|
%
|
$
|
99,776
|
$
|
845
|
$
|
98,931
|
*
|
%
|
Three Months Ended December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2022
|
2021
|
Dollars
|
Percent
|
2022
|
2021
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Loss on foreign currency exchange
|
$
|
-
|
$
|
-
|
$
|
-
|
-
|
%
|
$
|
-
|
$
|
34
|
$
|
(34
|
)
|
(100
|
)%
|
• |
Our ability to develop and promote the Charles & Colvard brands, such as Forever One™, Moissanite by Charles & Colvard®, and Caydia®, all of which are used in finished jewelry featuring moissanite and lab grown diamonds, which may in part drive interest and demand for moissanite and lab grown diamond jewelry at the
consumer level;
|
• |
Our ability to differentiate Charles & Colvard Created Moissanite® and Caydia® from competing products,
including competitive moissanite and the rapidly emerging lab grown diamond industry;
|
• |
Our ability to operationally execute our digital marketing strategy for our Online Channels segment;
|
• |
Our continued ability and the ability of manufacturers, designers, and retail jewelers to select jewelry settings that encourage consumer acceptance of and demand for our moissanite jewels, lab grown diamonds, and finished jewelry;
|
• |
Our ability to understand our consumer market segment and effectively market to them a compelling value proposition that leads to converted customers;
|
• |
Our ability to continue our relationship with Wolfspeed in order to sustain our supply of high-quality SiC crystals;
|
• |
The continued willingness and ability of our jewelry distributors and other jewelry suppliers, manufacturers, and designers to market and promote Charles & Colvard Created Moissanite® and Caydia® to the retail jewelry
trade;
|
• |
The continued willingness of distributors, retailers, and others in our distribution channels to purchase loose Forever One™, Moissanite by Charles & Colvard®, and Caydia® as well as their continued willingness of manufacturers, designers, and retail jewelers to undertake setting of the loose jewels;
|
• |
Our continued ability and the ability of jewelry manufacturers and retail jewelers to set loose moissanite jewels and lab grown diamonds in finished jewelry with high-quality workmanship; and
|
• |
Our continued ability and the ability of retail jewelers, including that of our internal retail jewelry marketing team in connection with the Charles & Colvard Signature Showroom, which is
our first retail jewelry brick-and-mortar location that we opened in October 2022, to effectively market and sell finished jewelry featuring moissanite and lab grown diamonds to consumers.
|
Period
|
Total
Number of
Shares
Purchased
|
Average Price
Paid per share
|
Total Number of
shares Purchased
as Part of
Publicly
Announced Plans
or Programs(1)
|
Approximate
Dollar Value of
Shares that May
Yet be Purchased
Under the Plans or
Programs
|
||||||||||||
October 1, 2022 – October 31, 2022
|
-
|
$
|
-
|
-
|
$
|
-
|
||||||||||
November 1, 2022 – November 30, 2022
|
-
|
$
|
-
|
-
|
$
|
-
|
||||||||||
December 1, 2022 – December 31, 2022
|
-
|
$
|
-
|
-
|
$
|
-
|
||||||||||
Total
|
-
|
$
|
-
|
-
|
$
|
4,510,021
|
(1) |
On May 5, 2022, we announced that our Board of Directors had approved a share repurchase program to permit us to repurchase up to $5.00 million worth of our issued and outstanding common stock over the three-year period ending April 29,
2025.
|
Exhibit No.
|
Description
|
10.1+ | Charles & Colvard, Ltd. Fiscal 2023 Senior Management Equity Incentive Program, effective July 1, 2022 (incorporated herein by reference to
Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on November 9, 2022) |
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.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase document |
104 | Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101 |
+
|
Denotes management contract or compensatory plan or arrangement
|
CHARLES & COLVARD, LTD.
|
||
By:
|
/s/ Don O’Connell
|
|
February 2, 2023
|
Don O’Connell
|
|
President and Chief Executive Officer
|
||
By:
|
/s/ Clint J. Pete
|
|
February 2, 2023
|
Clint J. Pete
|
|
Chief Financial Officer
|
||
(Principal Financial Officer and Chief Accounting Officer)
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022 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 2, 2023
|
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, 2022 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;
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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;
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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
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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
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(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.
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By:
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/s/ Clint J. Pete
|
|
February 2, 2023
|
Clint J. Pete
|
|
Chief Financial Officer
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(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By:
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/s/ Don O’Connell
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Don O’Connell
|
|
President and Chief Executive Officer
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|
February 2, 2023
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(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By:
|
/s/ Clint J. Pete
|
Clint J. Pete
|
|
Chief Financial Officer
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|
February 2, 2023
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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2022 |
Jun. 30, 2022 |
---|---|---|
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) | 30,912,108 | 30,778,046 |
Common stock, shares outstanding (in shares) | 30,523,705 | 30,747,759 |
Treasury stock (in shares) | 388,403 | 30,287 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract] | ||||
Net sales | $ 10,366,122 | $ 13,753,135 | $ 17,740,204 | $ 24,033,446 |
Costs and expenses: | ||||
Cost of goods sold | 6,071,775 | 7,033,946 | 10,157,785 | 12,050,496 |
Sales and marketing | 4,339,684 | 4,079,035 | 7,447,630 | 6,809,187 |
General and administrative | 1,187,955 | 1,189,559 | 2,601,431 | 2,773,835 |
Total costs and expenses | 11,599,414 | 12,302,540 | 20,206,846 | 21,633,518 |
(Loss) Income from operations | (1,233,292) | 1,450,595 | (2,466,642) | 2,399,928 |
Other income (expense): | ||||
Interest income | 59,574 | 490 | 99,776 | 845 |
Loss on foreign currency exchange | 0 | 0 | 0 | (34) |
Total other income (expense), net | 59,574 | 490 | 99,776 | 811 |
(Loss) Income before income taxes | (1,173,718) | 1,451,085 | (2,366,866) | 2,400,739 |
Income tax benefit (expense) | 131,937 | (283,473) | 434,893 | (406,102) |
Net (loss) income | $ (1,041,781) | $ 1,167,612 | $ (1,931,973) | $ 1,994,637 |
Net (loss) income per common share: | ||||
Basic (in dollars per share) | $ (0.03) | $ 0.04 | $ (0.06) | $ 0.07 |
Diluted (in dollars per share) | $ (0.03) | $ 0.04 | $ (0.06) | $ 0.06 |
Weighted average number of shares used in computing net (loss) income per common share: | ||||
Basic (in shares) | 30,344,954 | 30,287,677 | 30,408,018 | 30,159,543 |
Diluted (in shares) | 30,344,954 | 31,315,488 | 30,408,018 | 31,237,948 |
DESCRIPTION OF BUSINESS |
6 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 | |||
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™, the Company’s 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 own Charles & Colvard
Signature Showroom, which opened in October 2022, and also through its wholly owned operating subsidiary, charlesandcolvard.com, LLC, third-party online marketplaces, drop-ship, and other pure-play, exclusively e-commerce outlets. The
Company also sells at discount retail prices to end-consumers through moissaniteoutlet.com, LLC, a wholly owned operating subsidiary of charlesandcolvard.com, LLC, and third-party online marketplaces.
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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||
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 six months ended December 31, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2023.
The condensed consolidated financial statements as of December 31, 2022 and for the three and six months ended December 31, 2022 and 2021 included in this Quarterly Report on Form 10-Q
are unaudited. The balance sheet as of June 30, 2022 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 “2022 Annual Report”) for the fiscal year ended June 30, 2022 filed with the SEC on September 2, 2022.
The accompanying condensed consolidated financial statements as of December 31, 2022, for the three and six months ended December 31, 2022 and 2021, and as of the fiscal year ended June
30, 2022, include the accounts of the Company and its wholly owned subsidiaries charlesandcolvard.com, LLC, including its wholly-owned subsidiary, moissaniteoulet.com, LLC, which was formed and incorporated as of February 24, 2022; 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 (HK) Ltd. previously became
dormant in the second quarter of 2009 and has had no operating activity since 2008. Charles & Colvard Direct, LLC, had no operating activity during the six-month periods ended December 31, 2022 or 2021. All intercompany accounts have been
eliminated.
Significant Accounting Policies – In the opinion of the
Company’s management, the Company’s significant accounting policies used for the three and six months ended December 31, 2022, are consistent with those used for the fiscal year ended June 30, 2022. Accordingly, please refer to Note 2 to the
Consolidated Financial Statements in the 2022 Annual Report for the Company’s significant accounting policies.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. 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, stock-based compensation, 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 the terms of the Company’s cash collateralized $5.00 million credit facility from JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), which expires by its terms on July 31, 2023, the Company is required
to keep $5.05 million in a cash deposit account held by JPMorgan Chase. Such amount is held as security for the Company’s credit
facility from JPMorgan Chase. Accordingly, this cash deposit held by JPMorgan Chase is classified as restricted cash for financial reporting purposes on the Company’s condensed consolidated balance sheets. For additional information regarding
the Company’s cash collateralized credit facility, see Note 10, “Debt.”
Pursuant to the terms and conditions of the Company’s broker-dealer agreement with Oppenheimer & Co., Inc. (“Oppenheimer”), with whom the Company has engaged to transact common
stock share repurchases in connection with its stock repurchase program, the Company is required to maintain a funded liquid margin account held by Oppenheimer for the benefit of the Company. The purpose of this account is to fund the Company’s
common stock purchases and any underlying transaction costs and fees. Depending upon the level and timing of stock repurchase activity, the funded margin account cash balance will fluctuate from time to time. At December 31, 2022 and June 30,
2022, cash in the amount of approximately $30 and approximately $461,000, respectively, was held by Oppenheimer. Such cash amount held by Oppenheimer was classified as restricted cash for financial reporting purposes on the Company’s
condensed consolidated balance sheets. For additional information regarding the Company’s stock repurchase program, see Note 11, “Shareholders’ Equity and Stock-Based Compensation.”
The reconciliation of cash, cash equivalents, and restricted cash, as presented on the Condensed Consolidated Statements of Cash Flows, consist of the following as of the dates
presented:
Reclassification – Certain amounts in the Company’s condensed consolidated financial statements for the quarterly
period ended December 31, 2022 have been reclassified to conform to current presentation, principally amounts presented in Note 7, “Accrued Expenses and Other Liabilities”, relating to the combination of accrued sales taxes and accrued
franchise taxes, which had previously been presented separately. These reclassifications had no impact on the Company’s condensed consolidated financial position or condensed consolidated results of operations as of or for the three and six
months ended December 31, 2022 and 2021 and as of the year ended June 30, 2022.
Recently Adopted/Issued Accounting Pronouncements – In March 2020, and as updated
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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides guidance to ease the burden in accounting for or recognizing
the effects of referenced interest rate reform on financial reporting. ASU 2020-04 is elective and may be applied 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 during the fiscal year ended June 30, 2022 would have been based on a rate equal to the one-month LIBOR. As of December 31,
2022, the Company had not borrowed against its line of credit, and therefore, did not elect to apply ASU 2020-04 as of or for the
quarterly period then ended.
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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, moissaniteoutlet.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, including
its own Charles & Colvard Signature Showroom. 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 2022 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 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
websites, charlesandcolvard.com and moissaniteoutlet.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:
|
FAIR VALUE MEASUREMENTS |
6 Months Ended | ||
---|---|---|---|
Dec. 31, 2022 | |||
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, notes
receivable, trade accounts receivable, and trade accounts payable. All financial instruments are reflected in the condensed consolidated balance sheets at carrying value, which approximates fair value due to the 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 three and six months ended December 31, 2022 and 2021, no impairment was
recorded.
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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 goods set with 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, 2022 and
June 30, 2022, work-in-process inventories issued to active production jobs approximated $1.37 million and $2.76 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, approximately
of the Company’s jewel inventory is not mounted in finished jewelry settings and is
therefore not subject to fashion trends. 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 the
Company uses 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 include significant estimates by management, including the effect of market factors and sales trends. Changes
to the Company’s inventory reserves and allowances are accounted for in the 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.
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NOTE RECEIVABLE |
6 Months Ended | ||
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Dec. 31, 2022 | |||
NOTE RECEIVABLE [Abstract] | |||
NOTE RECEIVABLE |
On March 5, 2021, the Company entered into a $250,000
convertible promissory note agreement (the “Convertible Promissory Note”), with an unrelated third-party strategic marketing partner. The Convertible Promissory Note is unsecured and was scheduled originally to mature on March 5, 2022. In
February 2022, the Company entered into an amendment to the Convertible Promissory Note that was effective as of December 9, 2021 and changed the maturity date to September 30, 2022. Effective September 26, 2022, the Company further amended the
Convertible Promissory Note (the “September 2022 Amendment”) and changed the maturity date to June 20, 2024 (the “Maturity Date”). Prior to the September 2022 Amendment, the Company accounted for the Convertible Promissory Note as a current note
receivable within the accompanying condensed consolidated financial statements. However, in accordance with the terms of the September 2022 Amendment, the note receivable is classified as a noncurrent note receivable within the accompanying
condensed consolidated financial statements as of December 31, 2022.
Interest is accrued at a simple rate of 0.14%
per annum and will continue to accrue until the Convertible Promissory Note is converted in accordance with the conversion privileges contained within the Convertible Promissory Note or is repaid. Principal outstanding during an event of
default accrues interest at the rate of 5% per annum. Prior to the September 2022 Amendment, accrued and unpaid interest on the
Convertible Promissory Note was classified as a current asset and included in prepaid expenses and other assets in the accompanying condensed consolidated financial statements. In accordance with the terms of the September 2022 Amendment, accrued
and unpaid interest on the Convertible Promissory Note is classified as a noncurrent asset and included in other noncurrent assets in the accompanying condensed consolidated financial statements as of December 31, 2022.
Subject to the borrower’s completion of a specified equity financing transaction (an “Equity Financing”) on or prior to the Maturity Date, the unpaid principal amount, including accrued
and unpaid interest, automatically converts into equity units of the most senior class of equity securities issued to investors in the Equity Financing at the lesser of 80% of the per unit price of the units purchased by investors or the price equal to $33,500,000
divided by the aggregate number of outstanding units of the borrower immediately prior to the closing of the financing. Unless converted as provided in the Convertible Promissory Note, the principal amount, including accrued and unpaid interest,
will, on the Maturity Date, at the Company’s option either (i) become due and payable to the Company, or (ii) convert into equity units at the specified conversion
price in accordance with the terms of the Convertible Promissory Note.
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ACCRUED EXPENSES AND OTHER LIABILITIES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 |
6 Months Ended | ||
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Dec. 31, 2022 | |||
INCOME TAXES [Abstract] | |||
INCOME TAXES |
For both the three and six months ended December 31, 2022, the Company’s average effective tax rate was 20.46% which consisted of the federal income tax rate of 21.00% and
a blended state income tax rate benefit of 0.54%, net of the federal benefit. For both the three and six months ended December
31, 2021, the Company’s statutory tax rate was 22.24% which consisted of the federal income tax rate of 21% and a blended state income tax rate of 1.24%,
net of the federal benefit. The Company’s effective income tax rate reflects the effect of federal and state income taxes on earnings and the impact of differences in book and tax accounting arising primarily from the permanent tax benefits
associated with stock-based compensation transactions during the quarter. For the six months ended December 31, 2022 and 2021, the Company’s effective tax rate was 18.37% and 16.92%, respectively.
The Company recognized a net income tax benefit of approximately $132,000
and $435,000 for the three and six months ended December 31, 2022, respectively, compared with a net income tax expense of
approximately $283,000 and $406,000
for the three and six months ended December 31, 2021, respectively.
As of each reporting date, management
considers new evidence, both positive and negative, that could impact the Company’s view with regard to future realization of deferred tax assets. As of December 31, 2022, management determined that the Company’s expectations of future taxable
income in upcoming tax years, including estimated growth rates applied to future expected taxable income that includes significant management estimates and assumptions, would continue to be sufficient to result in full utilization of the
Company’s remaining federal net operating loss carryforwards and certain of the deferred tax assets prior to any statutory expiration. As a result, management determined that sufficient positive evidence existed as of December 31, 2022, to
conclude that it is more likely than not deferred tax assets of approximately $6.29 million remain realizable. Conversely, management
further determined that sufficient negative evidence continued to exist to conclude it was uncertain that the Company would have sufficient future taxable income to utilize certain of its deferred tax assets. Therefore, management continued to
maintain a valuation allowance against the Company’s deferred tax assets relating to certain state net operating loss carryforwards from its e-commerce subsidiary due to the timing uncertainty of when it will generate positive taxable income to
utilize the associated deferred tax assets. In addition, a valuation allowance remains against certain deferred tax assets relating to operating loss carryforwards relating to the Company’s dormant subsidiary located in Hong Kong.
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COMMITMENTS AND CONTINGENCIES |
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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,
April 15, 2014, and January 29, 2021 (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 is October 31, 2026 and the terms of the Lease
Agreement contain no early termination provisions. Provided there is no outstanding uncured event of default under the Lease Agreement, the Company has an option to extend the lease term for a period of five years. 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 option is 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. Upon execution of the third amendment to the Lease Agreement (the “Lease Amendment”) on January 29, 2021, the Lease Amendment included a rent abatement in the
amount of approximately $214,000, which is reflected in the rent payments used in the calculation of the right-of-use (“ROU”) asset and
lease liability once remeasured upon the execution of the Lease Amendment to extend the lease term. The Lease Amendment also included an allowance for leasehold improvements offered by the landlord in an amount not to exceed approximately $545,000. As of the quarter ended December 31, 2022, the Company has been reimbursed approximately $506,000 by the landlord for qualified leasehold improvements in accordance with the terms of the Lease Amendment. This reimbursement by the landlord reduced the remaining ROU
asset by the same amount and is being recognized prospectively over the remaining term of the lease.
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, 2022, the Company’s balance sheet classifications of its leases are as follows:
The Company’s total operating lease cost was approximately $175,000 and $214,000 for the three months ended December 31, 2022 and 2021,
respectively. The Company’s total operating lease cost was approximately $349,000 and $413,000 for the six months ended December 31, 2022 and 2021, respectively.
As of December 31, 2022, the Company’s estimated incremental borrowing rate used and assumed discount
rate with respect to operating leases was 2.81% and the remaining operating lease term was 3.83 years.
As of December 31, 2022, 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, 2022 and 2021, cash paid for operating leases was approximately $235,000 and $8,000, respectively. During the six months ended December 31, 2022 and 2021, cash paid for operating leases was approximately $466,000 and $170,000, respectively.
Purchase Commitments
On December 12, 2014, the Company entered into an exclusive supply agreement (the “Supply Agreement”)
with Wolfspeed, Inc. (“Wolfspeed”). Under the Supply Agreement, subject to certain terms and conditions, the Company agreed to exclusively purchase from Wolfspeed, and Wolfspeed 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 Wolfspeed 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 Wolfspeed 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 $24.75 million remains to be purchased as of December 31, 2022. Over the life of the Supply Agreement, as amended, the Company’s future minimum annual purchase commitments of SiC crystals range from approximately
$4.00 million to $10.00
million each year.
During the six months ended December 31, 2022 and 2021, the Company purchased approximately $1.80 million and $3.00 million,
respectively, of SiC crystals from Wolfspeed pursuant to the terms of the Supply Agreement, as amended.
Inflation
Heightened levels of inflation and the potential worsening of macro-economic conditions present a risk for the Company, its suppliers, and the stability of the broader retail and e-commerce industry. During the first six months of the
Company’s fiscal year ending June 30, 2023 (“Fiscal 2023”), the Company has experienced impacts to its labor and overhead rates and suppliers have signaled inflation related cost pressures, which is expected to flow through to the Company’s
costs and pricing. While the Company has seen some impact from inflation on its financial results in the first six months of Fiscal 2023, if inflation remains at current levels for an extended period, or increases, and the Company is unable
to successfully mitigate the impact, the Company’s costs are likely to continue to increase, resulting in further pressure on its revenues, margins, and cash flows. In addition, inflation and the increases in the cost of borrowing from rising
interest rates could constrain the overall purchasing power of the Company’s customers for its products and services, in particular in the near term to the extent inflation assumptions are less than current inflationary pressures.
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DEBT |
6 Months Ended | ||
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Dec. 31, 2022 | |||
DEBT [Abstract] | |||
DEBT |
Line of Credit
Effective July 7, 2021, the Company obtained from JPMorgan Chase a $5.00 million cash collateralized line of credit facility (the “JPMorgan Chase Credit Facility”). The JPMorgan Chase Credit Facility may be used
for general corporate and working capital purposes, including permitted acquisitions and certain additional indebtedness for borrowed money, installment obligations, and obligations under capital and operating leases. The JPMorgan Chase
Credit Facility is secured by a cash deposit in the amount of $5.05 million held by JPMorgan Chase as collateral for the line of
credit facility and was scheduled to mature on July 31, 2022. Effective July 28, 2022, the JPMorgan Chase Credit Facility was amended to, among other things, extend the maturity date to July 31, 2023, and append the Company’s obligations
under the JPMorgan Chase Credit Facility to be guaranteed by the Company’s wholly owned subsidiaries, Charles & Colvard Direct, LLC, charlesandcolvard.com, LLC, and moissaniteoutlet.com, LLC.
Each advance under the JPMorgan Chase Credit Facility, as amended, accrues interest at a rate equal
to the sum of JPMorgan Chase’s monthly secured overnight financing rate (“SOFR rate”) to which JPMorgan Chase is subject with respect to the adjusted SOFR rate as established by the U.S. Federal Reserve Board, plus a margin of 1.25% per annum and an unsecured to secured interest rate adjustment of 0.10% per annum. Prior to its amendment, each advance under the JPMorgan Chase Credit Facility would have accrued interest at a rate equal to JPMorgan Chase’s monthly LIBOR rate
multiplied by a statutory reserve rate for eurocurrency funding to which JPMorgan Chase is subject with respect to the adjusted LIBOR rate as established by the U.S. Federal Reserve Board, plus a margin of 1.25% per annum. Interest is calculated monthly on an actual/360-day basis and payable monthly in arrears. Principal outstanding during an event
of default, at JPMorgan Chase’s option, accrues interest at a rate of 3% per annum in excess of the above rate. Any advance may
be prepaid in whole or in part without penalty at any time.
As of December 31, 2022, the Company had not borrowed against the JPMorgan Chase Credit Facility and had no
outstanding debt as of the period then ended.
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SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION |
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SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS' EQUITY |
Repurchases of Common Stock
Pursuant to authority granted by the Company’s Board of Directors on April 29,
2022, the Company can repurchase up to approximately $5.00 million in shares outstanding of the Company’s common stock over the three-year period ending April 29, 2025. Pursuant to the terms of the repurchase authorization, the common stock share repurchases are generally at
the discretion of the Company’s management. As the Company repurchases its common shares, which have no par value, the Company
reports such shares held as treasury stock in the accompanying condensed consolidated balance sheets with the purchase price recorded within treasury stock.
During the six-month period ended December 31, 2022, the Company repurchased 358,116 shares of the Company’s common stock for an aggregate price of $451,815 pursuant to the repurchase authorization. The Company repurchased no
shares of the Company’s common stock during the three-month period ended December 31, 2022.
Dividends
The Company has paid no cash dividends during the current fiscal year through December 31, 2022.
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STOCK-BASED COMPENSATION |
Repurchases of Common Stock
Pursuant to authority granted by the Company’s Board of Directors on April 29,
2022, the Company can repurchase up to approximately $5.00 million in shares outstanding of the Company’s common stock over the three-year period ending April 29, 2025. Pursuant to the terms of the repurchase authorization, the common stock share repurchases are generally at
the discretion of the Company’s management. As the Company repurchases its common shares, which have no par value, the Company
reports such shares held as treasury stock in the accompanying condensed consolidated balance sheets with the purchase price recorded within treasury stock.
During the six-month period ended December 31, 2022, the Company repurchased 358,116 shares of the Company’s common stock for an aggregate price of $451,815 pursuant to the repurchase authorization. The Company repurchased no
shares of the Company’s common stock during the three-month period ended December 31, 2022.
Dividends
The Company has paid no cash dividends during the current fiscal year through December 31, 2022.
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, 2022 and 2021.
Stock Options
The following is a summary of the stock option activity for the six months ended December 31, 2022:
The weighted average grant date fair value of stock options granted during the six months ended December 31, 2022 and 2021 was approximately $0.59
and $1.53, respectively. The total fair value of stock options that vested during the six months ended December 31, 2022 and 2021 was
approximately $176,000 and $166,000,
respectively.
The following table summarizes information about stock options outstanding at December 31, 2022:
As of December 31, 2022, the unrecognized stock-based compensation expense related to unvested stock options was approximately $322,000, which is expected to be recognized over a weighted average period of approximately 20 months.
The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at December 31, 2022 and 2021 was approximately $57,000 and $3.04 million,
respectively. These amounts are before applicable income taxes and represent the closing market price of the Company’s common stock at December 31, 2022 less the grant price, multiplied by the number of stock options that had a grant price that
is less than the closing market price. These values represent the amount that would have been received by the optionees had these stock options been exercised on that date. During the six months ended December 31, 2021, the aggregate intrinsic
value of stock options exercised was approximately $717,000. During the six months ended December 31, 2021, the total estimated tax
benefit associated with certain stock options that were exercised was approximately $76,000. No stock options were exercised during the six-month period ended December 31, 2022.
Restricted Stock
The following is a summary of the restricted stock activity for the six months ended December 31, 2022:
The unvested restricted shares as of December 31, 2022 are all performance-based restricted shares that are scheduled to vest, subject to achievement of the underlying performance goals,
in July 2023. As of December 31, 2022, the estimated unrecognized stock-based compensation expense related to unvested restricted shares subject to achievement of performance goals was approximately $144,000, all of which is expected to be recognized over a weighted average period of approximately seven months.
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NET (LOSS) INCOME PER COMMON SHARE |
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NET (LOSS) INCOME PER COMMON SHARE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET (LOSS) INCOME PER COMMON SHARE |
Basic net (loss) income per common share is computed by dividing net (loss) 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 (loss) income per share presentations:
For the three and six months ended December 31, 2022, stock options to purchase approximately 1.91 million shares were excluded from the computation of diluted net loss per common share because the effect of inclusion of such amounts would be anti-dilutive to
net loss per common share. For the three and six months ended December 31, 2021 stock options to purchase approximately 836,000 and
786,000 shares, respectively, were excluded from the computation of diluted net income per common share for each period
presented herein. These shares were excluded from the computation of diluted net income per common share because the exercise price of the stock options for the period presented herein 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
shares of unvested restricted stock are excluded from the computation of basic net (loss) income and diluted net (loss) income per common share as of December 31, 2022 and 2021, respectively, because the shares are performance-based and the
underlying conditions had not been met as of the periods presented herein.
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MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 principally of cash on deposit and cash equivalents held with banks and trade accounts receivable. The Company places cash deposits with federally
insured financial institutions and maintains its cash at banks and financial institutions it considers to be of high credit quality. However, the Company’s cash deposits may at times exceed the Federal Deposit Insurance Corporation’s
insurable limits. Accordingly, balances in excess of federally insured limitations may not be insured. The Company has not experienced losses on these accounts, and management believes that the Company is not exposed to significant risks
on such accounts.
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 and lab grown diamonds 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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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||||||||
Basis of Presentation | 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 six months ended December 31, 2022 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2023.
The condensed consolidated financial statements as of December 31, 2022 and for the three and six months ended December 31, 2022 and 2021 included in this Quarterly Report on Form 10-Q
are unaudited. The balance sheet as of June 30, 2022 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 “2022 Annual Report”) for the fiscal year ended June 30, 2022 filed with the SEC on September 2, 2022.
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Principles of Consolidation |
The accompanying condensed consolidated financial statements as of December 31, 2022, for the three and six months ended December 31, 2022 and 2021, and as of the fiscal year ended June
30, 2022, include the accounts of the Company and its wholly owned subsidiaries charlesandcolvard.com, LLC, including its wholly-owned subsidiary, moissaniteoulet.com, LLC, which was formed and incorporated as of February 24, 2022; 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 (HK) Ltd. previously became
dormant in the second quarter of 2009 and has had no operating activity since 2008. Charles & Colvard Direct, LLC, had no operating activity during the six-month periods ended December 31, 2022 or 2021. All intercompany accounts have been
eliminated.
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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, stock-based compensation, 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 the terms of the Company’s cash collateralized $5.00 million credit facility from JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), which expires by its terms on July 31, 2023, the Company is required
to keep $5.05 million in a cash deposit account held by JPMorgan Chase. Such amount is held as security for the Company’s credit
facility from JPMorgan Chase. Accordingly, this cash deposit held by JPMorgan Chase is classified as restricted cash for financial reporting purposes on the Company’s condensed consolidated balance sheets. For additional information regarding
the Company’s cash collateralized credit facility, see Note 10, “Debt.”
Pursuant to the terms and conditions of the Company’s broker-dealer agreement with Oppenheimer & Co., Inc. (“Oppenheimer”), with whom the Company has engaged to transact common
stock share repurchases in connection with its stock repurchase program, the Company is required to maintain a funded liquid margin account held by Oppenheimer for the benefit of the Company. The purpose of this account is to fund the Company’s
common stock purchases and any underlying transaction costs and fees. Depending upon the level and timing of stock repurchase activity, the funded margin account cash balance will fluctuate from time to time. At December 31, 2022 and June 30,
2022, cash in the amount of approximately $30 and approximately $461,000, respectively, was held by Oppenheimer. Such cash amount held by Oppenheimer was classified as restricted cash for financial reporting purposes on the Company’s
condensed consolidated balance sheets. For additional information regarding the Company’s stock repurchase program, see Note 11, “Shareholders’ Equity and Stock-Based Compensation.”
The reconciliation of cash, cash equivalents, and restricted cash, as presented on the Condensed Consolidated Statements of Cash Flows, consist of the following as of the dates
presented:
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Reclassification |
Reclassification – Certain amounts in the Company’s condensed consolidated financial statements for the quarterly
period ended December 31, 2022 have been reclassified to conform to current presentation, principally amounts presented in Note 7, “Accrued Expenses and Other Liabilities”, relating to the combination of accrued sales taxes and accrued
franchise taxes, which had previously been presented separately. These reclassifications had no impact on the Company’s condensed consolidated financial position or condensed consolidated results of operations as of or for the three and six
months ended December 31, 2022 and 2021 and as of the year ended June 30, 2022.
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Recently Adopted/Issued Accounting Pronouncements |
Recently Adopted/Issued Accounting Pronouncements – In March 2020, and as updated
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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”), which provides guidance to ease the burden in accounting for or recognizing
the effects of referenced interest rate reform on financial reporting. ASU 2020-04 is elective and may be applied 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 during the fiscal year ended June 30, 2022 would have been based on a rate equal to the one-month LIBOR. As of December 31,
2022, the Company had not borrowed against its line of credit, and therefore, did not elect to apply ASU 2020-04 as of or for the
quarterly period then ended.
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BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |||||||||||||||||||||||||||||||||||||
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, consist of the following as of the dates
presented:
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SEGMENT INFORMATION AND GEOGRAPHIC DATA (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Financial Information by Reportable Segment |
Summary financial information by reportable segment is as follows:
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Reconciliation of Product Line 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, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Classifications of Leases |
As of December 31, 2022, 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, 2022, the Company’s remaining future payments under operating leases for each
fiscal year ending June 30 are as follows:
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SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION (Tables) |
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Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Option Activity |
Stock Options
The following is a summary of the stock option activity for the six months ended December 31, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Options Outstanding |
The following table summarizes information about stock options outstanding at December 31, 2022:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted Stock Activity |
The following is a summary of the restricted stock activity for the six months ended December 31, 2022:
|
NET (LOSS) INCOME PER COMMON SHARE (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET (LOSS) INCOME PER COMMON SHARE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic and Diluted Net (Loss) Income per Share |
The following table reconciles the differences between the basic and diluted net (loss) income per share presentations:
|
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Major Customers |
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:
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Restricted Cash (Details) - USD ($) |
Dec. 31, 2022 |
Jun. 30, 2022 |
Dec. 31, 2021 |
Jun. 30, 2021 |
---|---|---|---|---|
Restricted Cash [Abstract] | ||||
Funded liquid margin account | $ 30 | $ 461,000 | ||
Cash, Cash Equivalents and Restricted Cash [Abstract] | ||||
Cash and cash equivalents | 11,960,102 | 15,668,361 | ||
Restricted cash | 5,065,189 | 5,510,979 | ||
Total cash, cash equivalents, and restricted cash | 17,025,291 | $ 21,179,340 | $ 21,310,765 | $ 21,446,951 |
JPMorgan Chase Credit Facility [Member] | ||||
Restricted Cash [Abstract] | ||||
Borrowing capacity | 5,000,000 | |||
Cash deposit | $ 5,050,000.00 |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES, Recently Adopted/Issued Accounting Pronouncements (Details) - JPMorgan Chase Credit Facility [Member] |
6 Months Ended |
---|---|
Dec. 31, 2022
USD ($)
| |
Recently Adopted/Issued Accounting Pronouncements [Abstract] | |
Borrowings against line of credit | $ 0 |
LIBOR [Member] | |
Recently Adopted/Issued Accounting Pronouncements [Abstract] | |
Term of variable rate | 1 month |
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Reconciliation of Cost of Goods Sold (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Cost of goods sold | $ 6,071,775 | $ 7,033,946 | $ 10,157,785 | $ 12,050,496 |
Inventory write-downs | 119,000 | 232,000 | ||
Product Line [Member] | ||||
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Cost of goods sold | 5,056,581 | 6,138,541 | 8,488,904 | 10,532,470 |
Segment Reconciling Item [Member] | ||||
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Non-capitalized manufacturing and production control expenses | 686,834 | 416,828 | 1,063,887 | 759,229 |
Freight out | 358,617 | 465,207 | 634,354 | 682,712 |
Inventory write-downs | 0 | 0 | 119,000 | 232,000 |
Other inventory adjustments | $ (30,257) | $ 13,370 | $ (148,360) | $ (155,915) |
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Net Sales by Geographic Area (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Net Sales by Geographic Area [Abstract] | ||||
Net sales | $ 10,366,122 | $ 13,753,135 | $ 17,740,204 | $ 24,033,446 |
Reportable Geographical Component [Member] | United States [Member] | ||||
Net Sales by Geographic Area [Abstract] | ||||
Net sales | 9,989,702 | 13,021,717 | 17,085,074 | 22,846,447 |
Reportable Geographical Component [Member] | International [Member] | ||||
Net Sales by Geographic Area [Abstract] | ||||
Net sales | $ 376,420 | $ 731,418 | $ 655,130 | $ 1,186,999 |
FAIR VALUE MEASUREMENTS (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
FAIR VALUE MEASUREMENTS [Abstract] | ||||
Asset impairment | $ 0 | $ 0 | $ 0 | $ 0 |
INVENTORIES (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Dec. 31, 2022 |
Jun. 30, 2022 |
|
Inventories [Abstract] | ||
Total supplies inventory | $ 320,727 | $ 89,120 |
Total inventory | 34,995,047 | 33,512,800 |
Short-term portion | 13,091,953 | 11,024,276 |
Long-term portion | 21,903,094 | 22,488,524 |
Work-in-process inventories issued to active production jobs | $ 1,370,000 | 2,760,000 |
Percentage of jewel inventory not mounted in finished jewelry settings | 50.00% | |
Finished Jewelry [Member] | ||
Inventories [Abstract] | ||
Raw materials | $ 1,427,479 | 1,697,361 |
Work-in-process | 758,703 | 1,260,728 |
Finished goods | 14,160,399 | 12,100,910 |
Finished goods on consignment | 2,417,645 | 2,135,856 |
Total | 18,764,226 | 17,194,855 |
Loose Jewels [Member] | ||
Inventories [Abstract] | ||
Raw materials | 1,455,749 | 1,985,355 |
Work-in-process | 8,720,482 | 8,485,713 |
Finished goods | 5,473,592 | 5,454,266 |
Finished goods on consignment | 260,271 | 303,491 |
Total | $ 15,910,094 | $ 16,228,825 |
NOTE RECEIVABLE (Details) - Convertible Promissory Note [Member] - USD ($) |
Dec. 31, 2022 |
Mar. 05, 2021 |
---|---|---|
Note Receivable [Abstract] | ||
Note receivable | $ 250,000 | |
Interest rate | 0.14% | |
Interest rate during event of default | 5.00% | |
Percentage of per unit price of units purchased by investors | 80.00% | |
Value used to compute equity securities received upon conversion | $ 33,500,000 |
ACCRUED EXPENSES AND OTHER LIABILITIES (Details) - USD ($) |
Dec. 31, 2022 |
Jun. 30, 2022 |
---|---|---|
ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract] | ||
Accrued compensation and related benefits | $ 453,917 | $ 614,443 |
Deferred revenue | 469,157 | 452,866 |
Accrued sales taxes and franchise taxes | 266,773 | 341,706 |
Accrued cooperative advertising | 208,330 | 137,467 |
Other accrued expenses | 1 | 1 |
Total accrued expenses and other liabilities | $ 1,398,178 | $ 1,546,483 |
INCOME TAXES (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
Jun. 30, 2022 |
|
INCOME TAXES [Abstract] | |||||
Average effective tax rate | 20.46% | 22.24% | 20.46% | 22.24% | |
Federal income tax rate | 21.00% | 21.00% | 21.00% | 21.00% | |
Blended state income tax rate | (0.54%) | 1.24% | (0.54%) | 1.24% | |
Effective tax rate | 18.37% | 16.92% | |||
Income tax (benefit) expense | $ (131,937) | $ 283,473 | $ (434,893) | $ 406,102 | |
Deferred tax assets | $ 6,286,797 | $ 6,286,797 | $ 5,851,904 |
COMMITMENTS AND CONTINGENCIES, Purchase Commitments (Details) - SiC Materials [Member] $ in Thousands |
6 Months Ended | |
---|---|---|
Dec. 31, 2022
USD ($)
Option
|
Dec. 31, 2021
USD ($)
|
|
Purchase Commitments [Abstract] | ||
Percentage of materials committed to be purchased | 100.00% | |
Number of options to extend term of exclusive supply agreement | Option | 1 | |
Extension period of exclusive supply agreement | 2 years | |
Total purchase commitment | $ 52,950 | |
Remaining purchase commitment | 24,750 | |
Purchases | 1,800 | $ 3,000 |
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 (Details) - USD ($) |
1 Months Ended | 6 Months Ended |
---|---|---|
Jul. 27, 2022 |
Dec. 31, 2022 |
|
Line of Credit [Abstract] | ||
Long-term debt | $ 0 | |
JPMorgan Chase Credit Facility [Member] | ||
Line of Credit [Abstract] | ||
Borrowing capacity | 5,000,000 | |
Cash deposit | $ 5,050,000.00 | |
Interest rate premium in excess of rate otherwise applicable charged during an event of default | 3.00% | |
Credit facility outstanding | $ 0 | |
JPMorgan Chase Credit Facility [Member] | SOFR Rate [Member] | ||
Line of Credit [Abstract] | ||
Basis spread on variable rate | 1.25% | |
Interest rate adjustment | 0.10% | |
JPMorgan Chase Credit Facility [Member] | LIBOR [Member] | ||
Line of Credit [Abstract] | ||
Basis spread on variable rate | 1.25% |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Repurchases of Common Stock (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2022 |
Sep. 30, 2022 |
Dec. 31, 2022 |
Jun. 30, 2022 |
Apr. 29, 2022 |
|
Repurchases of Common Stock [Abstract] | |||||
Period over which common stock can be repurchased | 3 years | ||||
Common stock, par value (in dollars per share) | $ 0 | $ 0 | $ 0 | ||
Repurchases of common stock (in shares) | 0 | 358,116 | |||
Repurchases of common stock | $ 451,815 | $ 451,815 | |||
Maximum [Member] | |||||
Repurchases of Common Stock [Abstract] | |||||
Authorized amount of common stock that can be repurchased | $ 5,000,000 |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Dividends (Details) |
6 Months Ended |
---|---|
Dec. 31, 2022
USD ($)
| |
Dividends [Abstract] | |
Cash dividends | $ 0 |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Stock-Based Compensation (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Stock-Based Compensation [Abstract] | ||||
Employee stock options | $ 49,704 | $ 57,448 | $ 122,202 | $ 127,014 |
Restricted stock awards | 28,789 | 141,556 | 52,523 | 351,397 |
Totals | 78,493 | 199,004 | 174,725 | 478,411 |
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 ($) $ / shares in Units, $ in Thousands |
6 Months Ended | |
---|---|---|
Dec. 31, 2022 |
Dec. 31, 2021 |
|
Stock Option Activity [Roll Forward] | ||
Outstanding, beginning balance (in shares) | 1,658,803 | |
Granted (in shares) | 270,787 | |
Forfeited (in shares) | (19,336) | |
Expired (in shares) | (2,664) | |
Outstanding, ending balance (in shares) | 1,907,590 | |
Weighted Average Exercise Price [Roll Forward] | ||
Outstanding, beginning balance (in dollars per share) | $ 1.32 | |
Granted (in dollars per share) | 1.02 | |
Forfeited (in dollars per share) | 2 | |
Expired (in dollars per share) | 0.98 | |
Outstanding, ending balance (in dollars per share) | 1.27 | |
Fair Value of Stock Options [Abstract] | ||
Fair value of stock options (in dollars per share) | $ 0.59 | $ 1.53 |
Fair value of stock options vested | $ 176 | $ 166 |
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