|
|
|
(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.
|
33 | |
Item 4.
|
33
|
|
|
||
PART II – OTHER INFORMATION
|
||
Item 1.
|
34
|
|
Item 1A.
|
34
|
|
Item 2.
|
34
|
|
Item 5. |
Other Information |
34 |
Item 6.
|
35
|
|
36
|
Item 1. |
Financial Statements
|
December 31, 2023
(unaudited)
|
June 30, 2023 | |||||||
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
|
|
|
||||||
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,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
Net sales
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
|
|
|
|
||||||||||||
Sales and marketing
|
|
|
|
|
||||||||||||
General and administrative
|
|
|
|
|
||||||||||||
Total costs and expenses
|
|
|
|
|
||||||||||||
Loss from operations
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
|
|
|
|
||||||||||||
Interest expense
|
( |
) | ( |
) | ||||||||||||
Total other income (expense), net
|
|
|
|
|
||||||||||||
Loss before income taxes
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
Income tax benefit
|
|
|
|
|
||||||||||||
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Net loss per common share:
|
||||||||||||||||
Basic
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Diluted
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
Weighted average number of shares used in computing net loss per common share:
|
||||||||||||||||
Basic
|
|
|
|
|
||||||||||||
Diluted
|
|
|
|
|
Six Months Ended December 31, 2023 | ||||||||||||||||||||||||
Common Stock
|
||||||||||||||||||||||||
Number of
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Treasury Stock |
Accumulated
Deficit
|
Total
Shareholders’
Equity
|
|||||||||||||||||||
Balance at June 30, 2023
|
|
$
|
|
$
|
|
$ | ( |
) |
$
|
(
|
)
|
$
|
|
|||||||||||
Stock-based compensation
|
-
|
|
|
|
|
|||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||
Balance at September 30, 2023
|
|
$
|
|
$
|
|
$ | ( |
) |
$
|
(
|
)
|
$
|
|
|||||||||||
Stock-based compensation
|
-
|
|
|
|
|
|||||||||||||||||||
Cancellation of restricted stock
|
(
|
)
|
|
|
|
|
||||||||||||||||||
Net loss
|
-
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||
Balance at December 31, 2023
|
|
$
|
|
$
|
|
$ | ( |
) |
$
|
(
|
)
|
$
|
|
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,
|
||||||||
2023
|
2022
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Adjustments to reconcile net loss to net cash used in 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 expenses and other liabilities
|
(
|
)
|
(
|
)
|
||||
Net cash used in 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:
|
||||||||
Proceeds from line of credit |
||||||||
Payments on line of credit |
( |
) | ||||||
Repurchases of common stock |
( |
) | ||||||
Net cash used in 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
|
$
|
|
$
|
|
||||
Cash paid during the period for interest expense |
1. |
DESCRIPTION OF BUSINESS
|
2. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
December 31,
2023
|
June 30,
2023
|
|||||||
Cash and cash equivalents
|
$
|
|
$
|
|
||||
Restricted cash
|
|
|
||||||
Total cash, cash equivalents, and restricted cash
|
$
|
|
$
|
|
3. |
SEGMENT INFORMATION AND GEOGRAPHIC DATA
|
Three Months Ended December 31, 2023
|
||||||||||||
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
|
$
|
|
$
|
|
$
|
|
||||||
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
||||||
Capital expenditures
|
$
|
|
$
|
|
$
|
|
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
|
$
|
|
$
|
|
$
|
|
||||||
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
||||||
Capital expenditures
|
$
|
|
$
|
|
$
|
|
Six Months Ended December 31, 2023
|
||||||||||||
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
|
$
|
|
$
|
|
$
|
|
||||||
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
|
$
|
|
$
|
|
$
|
|
||||||
Depreciation and amortization
|
$
|
|
$
|
|
$
|
|
||||||
Capital expenditures
|
$
|
|
$
|
|
$
|
|
Three Months Ended December 31,
|
Six Months Ended December 31, | |||||||||||||||
2023
|
2022
|
2023 | 2022 | |||||||||||||
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, |
|||||||||||||||
2023
|
2022
|
2023 |
2022 | |||||||||||||
Product line gross profit
|
$
|
|
$
|
|
$ |
$ |
||||||||||
Non-allocated cost of goods sold
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
Sales and marketing
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
General and administrative
|
(
|
)
|
(
|
)
|
( |
) | ( |
) | ||||||||
Other income (expense) net
|
|
|
||||||||||||||
Loss before income taxes
|
$
|
(
|
)
|
$
|
(
|
)
|
$ |
( |
) | $ |
( |
) |
Three Months Ended December 31,
|
Six Months Ended December 31, | |||||||||||||||
2023
|
2022
|
2023 | 2022 | |||||||||||||
Net sales
|
||||||||||||||||
United States
|
$
|
|
$
|
|
$ | $ | ||||||||||
International
|
|
|
||||||||||||||
Total
|
$
|
|
$
|
|
$ | $ |
4. |
FAIR VALUE MEASUREMENTS
|
5. |
INVENTORIES
|
December 31,
2023
|
June 30,
2023
|
|||||||
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,
2023
|
June 30,
2023
|
|||||||
Short-term portion
|
$
|
|
$
|
|
||||
Long-term portion
|
|
|
||||||
Total
|
$
|
|
$
|
|
6. |
NOTE RECEIVABLE
|
7. |
ACCRUED EXPENSES AND OTHER LIABILITIES
|
December 31,
2023
|
June 30,
2023
|
|||||||
Deferred revenue
|
$ |
|
$ |
|
||||
Accrued compensation and related benefits
|
||||||||
Accrued sales taxes and franchise tax
|
|
|
||||||
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
|
$
|
|
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,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
Employee stock options
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Restricted stock awards
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Shares
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding, June 30, 2023
|
|
$
|
|
|||||
Granted
|
|
$
|
|
|||||
Forfeited
|
(
|
)
|
$
|
|
||||
Expired
|
(
|
)
|
$
|
|
||||
Outstanding, December 31, 2023
|
|
$
|
|
Options Outstanding
|
Options Exercisable
|
Options Vested or Expected to Vest
|
||||||||||||||||||||||||||||||||
Balance
as of
12/31/2023
|
Weighted
Average Remaining
Contractual Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2023
|
Weighted
Average Remaining
Contractual Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2023
|
Weighted
Average Remaining
Contractual Life
(Years)
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||||
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
12. |
NET LOSS PER COMMON SHARE
|
13. |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
|
December 31,
2023
|
June 30,
2023
|
|||||||
Customer A
|
|
%
|
|
%
|
||||
Customer B
|
|
%
|
% | |||||
Customer C
|
% | % | ||||||
Customer D |
% | % | ||||||
Customer E
|
% | % |
*
|
|
**
|
|
Three Months Ended
December 31,
|
Six Months Ended
December 31,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
Customer E
|
% |
|
%
|
|
%
|
|
%
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
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. |
We face intense competition in the worldwide gemstone and jewelry industry;
|
4. |
We have historically been dependent 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;
|
5. |
Constantly evolving privacy regulatory regimes are creating new legal compliance challenges;
|
6. |
Our information technology, or IT, infrastructure, and our network has been and may be impacted by a cyber-attack or other security incident as a result of the rise of cybersecurity
events;
|
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. |
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;
|
12. |
Seasonality of our business may adversely affect our net sales and operating income;
|
13. |
Our operations could be disrupted by natural disasters;
|
14. |
Sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control;
|
15. |
Our current customers may potentially perceive us as a competitor in the finished jewelry business;
|
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. |
We are subject to arbitration, litigation and demands, which could result in significant liability and costs, and impact our resources and reputation;
|
20. |
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;
|
21. |
Negative or inaccurate information on social media could adversely impact our brand and reputation;
|
22. |
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;
|
23. |
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;
|
24. |
Environmental, social, and governance matters may impact our business, reputation, financial condition, and results of operations;
|
25. |
If we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer;
|
26. |
Our failure to maintain compliance with The Nasdaq Stock Market’s continued listing requirements could result in the delisting of our common stock;
|
27. |
Some anti-takeover provisions of our charter documents may delay or prevent a takeover of our Company; and
|
28. |
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,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
Net sales
|
$
|
7,905,639
|
$
|
10,366,122
|
$
|
12,858,662
|
$
|
17,740,204
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
5,049,947
|
6,071,775
|
8,058,454
|
10,157,785
|
||||||||||||
Sales and marketing
|
4,296,324
|
4,339,684
|
7,018,289
|
7,447,630
|
||||||||||||
General and administrative
|
1,497,061
|
1,187,955
|
3,351,329
|
2,601,431
|
||||||||||||
Total costs and expenses
|
10,843,332
|
11,599,414
|
18,428,072
|
20,206,846
|
||||||||||||
Loss from operations
|
(2,937,693
|
)
|
(1,233,292
|
)
|
(5,569,410
|
)
|
(2,466,642
|
)
|
||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
77,359
|
59,574
|
169,619
|
99,776
|
||||||||||||
Interest expense
|
(5,571
|
)
|
-
|
(5,571
|
)
|
-
|
||||||||||
Total other income (expense), net
|
71,788
|
59,574,
|
164,048
|
99,776
|
||||||||||||
Loss before income taxes
|
(2,865,905
|
)
|
(1,173,718
|
)
|
(5,405,362
|
)
|
(2,366,866
|
)
|
||||||||
Income tax benefit
|
-
|
131,937
|
-
|
434,893
|
||||||||||||
Net loss
|
$
|
(2,865,905
|
)
|
$
|
(1,041,781
|
)
|
$
|
(5,405,362
|
)
|
$
|
(1,931,973
|
)
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2023
|
2022
|
Dollars
|
Percent
|
2023
|
2022
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Finished jewelry
|
$
|
7,391,352
|
$
|
8,436,208
|
$
|
(1,044,856
|
)
|
(12
|
)%
|
$
|
11,692,611
|
$
|
13,976,614
|
$
|
(2,284,003
|
)
|
(16
|
)%
|
||||||||||||||
Loose jewels
|
514,287
|
1,929,914
|
(1,415,627
|
)
|
(73
|
)%
|
1,166,051
|
3,763,590
|
(2,597,539
|
)
|
(69
|
)%
|
||||||||||||||||||||
Total consolidated net sales
|
$
|
7,905,639
|
$
|
10,366,122
|
$
|
(2,460,483
|
)
|
(24
|
)%
|
$
|
12,858,662
|
$
|
17,740,204
|
$
|
(4,881,542
|
)
|
(28
|
)%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2023
|
2022
|
Dollars
|
Percent
|
2023
|
2022
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Product line cost of goods sold:
|
||||||||||||||||||||||||||||||||
Finished jewelry
|
$
|
3,918,516
|
$
|
4,185,332
|
$
|
(266,816
|
)
|
(6
|
)%
|
$
|
5,877,683
|
$
|
6,792,031
|
$
|
(914,348
|
)
|
(13
|
)%
|
||||||||||||||
Loose jewels
|
200,993
|
871,250
|
(670,257
|
)
|
(77
|
)%
|
440,367
|
1,696,873
|
(1,256,506
|
)
|
(74
|
)%
|
||||||||||||||||||||
Total product line cost of goods sold
|
4,119,509
|
5,056,582
|
(937,073
|
)
|
(19
|
)%
|
6,318,050
|
8,488,904
|
(2,170,854
|
)
|
(26
|
)%
|
||||||||||||||||||||
Non-product line cost of goods sold
|
930,438
|
1,015,193
|
(84,755
|
)
|
(8
|
)%
|
1,740,404
|
1,668,881
|
71,523
|
4
|
%
|
|||||||||||||||||||||
Total cost of goods sold
|
$
|
5,049,947
|
$
|
6,071,775
|
$
|
(1,021,828
|
)
|
(17
|
)%
|
$
|
8,058,454
|
$
|
10,157,785
|
$
|
(2,099,331
|
)
|
(21
|
)%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2023
|
2022
|
Dollars
|
Percent
|
2023
|
2022
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Sales and marketing
|
$
|
4,296,324
|
$
|
4,339,684
|
$
|
(43,360
|
)
|
(1
|
)%
|
$
|
7,018,289
|
$
|
7,447,630
|
$
|
(429,341
|
)
|
(6
|
)%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2023
|
2022
|
Dollars
|
Percent
|
2023
|
2022
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
General and administrative
|
$
|
1,497,061
|
$
|
1,187,955
|
$
|
309,106
|
26
|
%
|
$
|
3,351,329
|
$
|
2,601,431
|
$
|
749,898
|
29
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2023
|
2022
|
Dollars
|
Percent
|
2023
|
2022
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Interest income
|
$
|
77,359
|
$
|
59,574
|
$
|
17,785
|
30
|
%
|
$
|
169,619
|
$
|
99,776
|
$
|
69,843
|
70
|
%
|
Three Months Ended
December 31,
|
Change
|
Six Months Ended
December 31,
|
Change
|
|||||||||||||||||||||||||||||
2023
|
2022
|
Dollars
|
Percent
|
2023
|
2022
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Interest expense
|
$
|
5,571
|
$
|
-
|
$
|
5,571
|
100
|
%
|
$
|
5,571
|
$
|
-
|
$
|
5,571
|
100
|
%
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
Item 4. |
Controls and Procedures
|
Item 1. |
Legal Proceedings
|
Item 1A. |
Risk Factors
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
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, 2023 – October 31, 2023
|
-
|
$
|
-
|
-
|
$
|
4,510,021
|
||||||||||
November 1, 2023 – November 30, 2023
|
-
|
$
|
-
|
-
|
$
|
4,510,021
|
||||||||||
December 1, 2023 – December 31, 2023
|
-
|
$
|
-
|
-
|
$
|
4,510,021
|
||||||||||
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.
|
Item 6. |
Exhibits
|
Exhibit No.
|
Description
|
|
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
||
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
||
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
||
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
||
101.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
|
CHARLES & COLVARD, LTD.
|
||
By:
|
/s/ Don O’Connell
|
|
February 13, 2024
|
Don O’Connell
|
|
President and Chief Executive Officer
|
||
By:
|
/s/ Clint J. Pete
|
|
February 13, 2024
|
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, 2023 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 13, 2024
|
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, 2023 of Charles & Colvard, Ltd.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By:
|
/s/ Clint J. Pete
|
|
February 13, 2024
|
Clint J. Pete
|
|
Chief Financial Officer
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By:
|
/s/ Don O’Connell
|
Don O’Connell
|
|
President and Chief Executive Officer
|
|
February 13, 2024
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By:
|
/s/ Clint J. Pete
|
Clint J. Pete
|
|
Chief Financial Officer
|
|
February 13, 2024
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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Dec. 31, 2023 |
Jun. 30, 2023 |
---|---|---|
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) | 30,733,358 | 30,912,108 |
Common stock, shares outstanding (in shares) | 30,344,955 | 30,523,705 |
Treasury stock (in shares) | 388,403 | 388,403 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract] | ||||
Net sales | $ 7,905,639 | $ 10,366,122 | $ 12,858,662 | $ 17,740,204 |
Costs and expenses: | ||||
Cost of goods sold | 5,049,947 | 6,071,775 | 8,058,454 | 10,157,785 |
Sales and marketing | 4,296,324 | 4,339,684 | 7,018,289 | 7,447,630 |
General and administrative | 1,497,061 | 1,187,955 | 3,351,329 | 2,601,431 |
Total costs and expenses | 10,843,332 | 11,599,414 | 18,428,072 | 20,206,846 |
Loss from operations | (2,937,693) | (1,233,292) | (5,569,410) | (2,466,642) |
Other income (expense): | ||||
Interest income | 77,359 | 59,574 | 169,619 | 99,776 |
Interest expense | (5,571) | 0 | (5,571) | 0 |
Total other income (expense), net | 71,788 | 59,574 | 164,048 | 99,776 |
Loss before income taxes | (2,865,905) | (1,173,718) | (5,405,362) | (2,366,866) |
Income tax benefit | 0 | 131,937 | 0 | 434,893 |
Net loss | $ (2,865,905) | $ (1,041,781) | $ (5,405,362) | $ (1,931,973) |
Net loss per common share: | ||||
Basic (in dollars per share) | $ (0.09) | $ (0.03) | $ (0.18) | $ (0.06) |
Diluted (in dollars per share) | $ (0.09) | $ (0.03) | $ (0.18) | $ (0.06) |
Weighted average number of shares used in computing net loss per common share: | ||||
Basic (in shares) | 30,344,955 | 30,344,954 | 30,344,955 | 30,408,018 |
Diluted (in shares) | 30,344,955 | 30,344,954 | 30,344,955 | 30,408,018 |
DESCRIPTION OF BUSINESS |
6 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 | |||
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 and created color for sale in the worldwide fine jewelry market.
The Company sells loose moissanite jewels, loose lab grown diamonds, and finished jewelry featuring, moissanite, lab grown diamonds, and created color at wholesale prices to
distributors, manufacturers, retailers, and designers, including some of the largest distributors and jewelry manufacturers in the world. In addition, in May 2023, the Company launched charlesandcolvarddirect.com,
a direct-to-wholesaler sales portal, which is a gemstone product disposition wholesale outlet. 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 through its wholly-owned operating subsidiary, charlesandcolvard.com, LLC, which includes the Company’s own transactional website madeshopping.com, 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, 2023 | |||||||||||||||||||||||||||||||||||||||
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, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2024.
The condensed consolidated financial statements as of December 31, 2023 and for the three and six months ended December 31, 2023 and 2022 included in this Quarterly Report on Form 10-Q
are unaudited. The balance sheet as of June 30, 2023 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 “2023 Annual Report”) for the fiscal year ended June 30, 2023 or Fiscal 2023 filed with the SEC on October 12, 2023.
The accompanying condensed consolidated financial statements as of December 31,
2023 and June 30, 2023 and for the three and six months ended December 31, 2023 and 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, 2023 or 2022. 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, 2023, are consistent with those used for the fiscal year ended June 30, 2023. Accordingly, please refer to Note 2 to the
Consolidated Financial Statements in the 2023 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 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
consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, stock-based compensation, and revenue recognition. Changes in estimates are reflected in the consolidated financial statements in the period in which the change in estimate occurs.
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, 2024, the Company is required to keep cash 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, 2023 and June 30, 2023, cash in the amount
of approximately $250,000 and approximately $30, 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:
Recently Adopted/Issued Accounting Pronouncements – In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment
Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable
segments, primarily through enhanced disclosures about significant expenses. The updated standard is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2023. Early adoption is
permitted. The Company is currently evaluation the effect of adopting this ASU.
In December, 2023 the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” which requires two primary disclosure enhancements of 1) disaggregated information on a reporting entity’s
effective tax rate reconciliation, and 2) information on income taxes paid. For public business entities, the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective
basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.
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SEGMENT INFORMATION AND GEOGRAPHIC DATA |
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, charlesandcolvarddirect.com, madeshopping.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 2023 Annual Report.
The Company evaluates the financial performance of its segments based on net sales and product line gross profit, or the excess of product line sales over product line cost of goods
sold. 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.
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:
A reconciliation of the Company’s consolidated product line gross profit to the Company’s consolidated net loss before income taxes 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 data by geographic area:
|
FAIR VALUE MEASUREMENTS |
6 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 | |||
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,
restricted cash, 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
short-term nature of these financial instruments.
There
were no assets measured at fair value on a non-recurring basis as of December 31, 2023 or June 30, 2023.
|
INVENTORIES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2023 and
June 30, 2023, work-in-process inventories issued to active production jobs approximated $1.20 million and $1.99 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. Product obsolescence is closely monitored and reviewed by management as of and for each financial reporting period.
The Company manufactures finished jewelry featuring moissanite, lab grown diamonds, and created color gemstones. 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 side-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 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.
|
NOTE RECEIVABLE |
6 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 | |||
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”).
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.
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, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2023 | |||
INCOME TAXES [Abstract] | |||
INCOME TAXES |
For the three and six months
ended December 31, 2023, the Company’s statutory tax rate was 22.94% and consisted of the federal income tax rate of 21.00% and a blended state income tax rate of 1.94%, net of the federal benefit. For both the three and six months ended December 31, 2023, the Company’s average effective tax rate was zero. For the three and six months ended December 31, 2022, the Company’s effective tax rate was 11.24% and 18.37%,
respectively. 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 accounting period then ended.
The Company recognized zero net income tax benefit for the three and six months ended December 31, 2023, compared with a net income tax benefit of
approximately $132,000 and $435,000
for the three and six months ended December 31, 2022, respectively.
As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax
assets. As of December 31, 2023, the Company’s management determined that sufficient negative evidence continued to exist to conclude it was uncertain that the Company would have sufficient future taxable income to utilize its
deferred tax assets, and therefore, the Company maintained a full valuation allowance against its deferred tax assets.
|
COMMITMENTS AND CONTINGENCIES |
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 in effect as of December 31, 2023 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, 2023, 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, 2023, the Company’s balance sheet classifications of its leases are as follows:
The Company’s total operating lease cost for the three months ended December 31, 2023 and 2022 was approximately $175,000 for each period. The Company’s total operating lease cost for the six months ended December 31, 2023 and 2022 was approximately $349,000 for each period.
As of December 31, 2023, 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 2.83 years.
As of December 31, 2023, 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, 2023 and 2022, cash paid for operating leases was approximately $241,000 and $235,000, respectively. During the six months ended December 31, 2023 and 2022, cash paid for operating leases was approximately $479,000 and $466,000, respectively.
Purchase Commitments
On December 12, 2014, the Company entered into an exclusive supply agreement (the “Supply Agreement”)
with Wolfspeed, Inc. (“Wolfspeed”), formerly known as Cree, Inc. 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, 2023. 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, 2023 the Company made no purchases of SiC crystals. During the six months ended December 31, 2022 the Company purchased $1.80 million of SiC crystals from Wolfspeed pursuant to the terms of the Supply Agreement, as amended.
The Company has made no purchases of SiC crystals during the twelve-month period ended December 31, 2023. while engaged in discussions regarding the terms of the Supply Agreement.
On July 28, 2023,
Wolfspeed initiated a confidential arbitration against the Company for breach of contract claiming damages, plus interest, costs, and attorneys’ fees. Wolfspeed has alleged that the Company failed to satisfy the purchase obligations provided in
the Supply Agreement for Fiscal 2023 in the amount of $4.25 million and failed to pay for $3.30 million of SiC crystals Wolfspeed delivered to the Company. Wolfspeed further alleges that the Company intends to breach its remaining purchase obligations under the
Supply Agreement, representing an additional $18.5 million in alleged damages.
While the Company is evaluating Wolfspeed’s claims, the Company disputes the amount sought, and intends to vigorously defend its position, including by asserting rights and
defenses that the Company may have under the Supply Agreement at law and in equity. A hearing has been scheduled for September 30, 2024. The final determinations of liability arising from this matter will be made following comprehensive
investigations, discovery and arbitration processes.
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DEBT |
6 Months Ended | ||
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Dec. 31, 2023 | |||
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 $5.1 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. Effective, June 21, 2023, the JPMorgan Chase Credit Facility was amended further to extend the maturity date to July 31, 2024.
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. 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.
The JPMorgan Chase Credit Facility is evidenced by a credit agreement, as amended, between JPMorgan Chase and the Company (the “JPMorgan Chase Credit Agreement”), effective as of June 21, 2023,
and customary ancillary documents, in the principal amount not to exceed $5.00 million at any one time outstanding and a line
of credit note (the “JPMorgan Chase Line of Credit Note”) in which the Company promises to pay on or before July 31, 2024, the amount of $5.00
million or so much thereof as may be advanced and outstanding. In the event of default, JPMorgan Chase, at its option, may accelerate the maturity of advances outstanding under the JPMorgan Chase Credit Facility. The JPMorgan Chase Credit
Agreement and ancillary documents contain customary covenants, representations, fees, debt, contingent obligations, liens, loans, leases, investments, mergers, acquisitions, divestitures, subsidiaries, affiliate transactions, changes in
control, as well as indemnity, expense reimbursement, and confidentiality provisions.
In connection with
the JPMorgan Chase Credit Facility, effective July 7, 2021, the Company incurred a non-refundable origination fee in the amount of $10,000
that was paid in full to JPMorgan Chase upon execution of the JPMorgan Chase Credit Facility on July 12, 2021. No
origination fee was paid to JPMorgan Chase in connection with amending the JPMorgan Chase Credit Facility on July 28, 2022, and June 21, 2023. The Company also agreed to maintain its primary banking depository and disbursement relationship
with JPMorgan Chase.
Events of default
under the JPMorgan Chase Credit Facility include, without limitation, a default, event of default, or event that would constitute a default or event of default (pending giving notice or lapse of time or both), of any provision of the
JPMorgan Chase Credit Agreement, the JPMorgan Chase Line of Credit Note, or any other instrument or document executed in connection with the JPMorgan Chase Credit Agreement or with any of the indebtedness, liabilities, and obligations of
the Company to JPMorgan Chase or that would result from the extension of credit by JPMorgan Chase to the Company.
As of December 31, 2023 the Company had no outstanding debt.
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SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION |
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2023 the Company repurchased no shares of its common 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.
Dividends
The Company has paid no cash dividends during the current fiscal year through December 31, 2023.
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STOCK-BASED COMPENSATION |
Stock-Based Compensation
The following table summarizes the components of the Company’s stock-based compensation included in net income for the periods presented:
No stock-based compensation was capitalized as a cost of inventory
during the three and six months ended December 31, 2023 or 2022.
Stock Options –The following is a summary of the stock option activity for the six months
ended December 31, 2023:
The weighted average grant date fair value of stock options granted during the six-months ended December 31, 2023 and 2022 was approximately $0.21
and $0.59, respectively. The total fair value of stock options that vested during the six months ended December 31, 2023 and 2022 was approximately $188,000 and $176,000, respectively.
The following table summarizes information about stock options outstanding at December 31, 2023:
As of December 31, 2023, the unrecognized stock-based compensation expense related to unvested stock options was approximately $248,000, which is expected to be recognized over a weighted average period of approximately 15 months.
The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at December 31, 2023 and 2022 was approximately $59,000 and $57,000, respectively. These amounts are before applicable income taxes and
represents the closing market price of the Company’s common stock at December 31, 2023 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. There were no stock options exercised during the six-month-periods ended December 31, 2023 and 2022.
Restricted Stock
During the six-month period ended December 31, 2023 there were no restricted stock shares awarded to plan participants. The unvested restricted shares as of December 31, 2022, totaled 178,750 with a weighted average grant date fair value of $0.97,
were all performance-based restricted shares and were scheduled to vest in July 2023, subject to achievement of the underlying performance goals. None
of these shares vested and during the three-month period ended December 31, 2023, these shares were cancelled as the underlying performance goals were not met
.
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NET LOSS PER COMMON SHARE |
6 Months Ended | ||
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Dec. 31, 2023 | |||
NET LOSS PER COMMON SHARE [Abstract] | |||
NET LOSS PER COMMON SHARE |
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted net loss 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.
For the three and six months ended December 31, 2023, stock options to purchase approximately 2.75
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, 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. Approximately 179,000 shares of unvested restricted stock are excluded from the computation of diluted net loss
for the three and six months ended December 31, 2022 because the shares were performance-based and the underlying conditions had not been met as of December 31, 2022.
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MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
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MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
Financial
instruments that potentially subject the Company to concentrations of credit risk consist 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 uncollectible accounts is determined based upon factors surrounding the credit risk
of specific customers, historical trends, and other information.
At times, a portion of the Company’s accounts receivable will be due from customers that have individual balances of 10% or more of the Company’s total gross accounts receivable.
The following is a summary of customers that represent 10% or more of total gross accounts receivable as of the dates presented:
A significant portion of sales is derived from certain customer relationships.
The following is a summary of customers that represent 10% or more of total net sales for the periods presented:
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Insider Trading Arrangements |
3 Months Ended |
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Dec. 31, 2023 | |
Insider Trading Arrangements [Line Items] | |
Rule 10b5-1 Arrangement Adopted | false |
Non-Rule 10b5-1 Arrangement Adopted | false |
Rule 10b5-1 Arrangement Terminated | false |
Non-Rule 10b5-1 Arrangement Terminated | false |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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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, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2024.
The condensed consolidated financial statements as of December 31, 2023 and for the three and six months ended December 31, 2023 and 2022 included in this Quarterly Report on Form 10-Q
are unaudited. The balance sheet as of June 30, 2023 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 “2023 Annual Report”) for the fiscal year ended June 30, 2023 or Fiscal 2023 filed with the SEC on October 12, 2023.
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Principles of Consolidation |
The accompanying condensed consolidated financial statements as of December 31,
2023 and June 30, 2023 and for the three and six months ended December 31, 2023 and 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, 2023 or 2022. 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 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
consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, stock-based compensation, and revenue recognition. Changes in estimates are reflected in the consolidated financial statements in the period in which the change in estimate occurs.
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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, 2024, the Company is required to keep cash 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, 2023 and June 30, 2023, cash in the amount
of approximately $250,000 and approximately $30, 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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Recently Adopted/Issued Accounting Pronouncements |
Recently Adopted/Issued Accounting Pronouncements – In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment
Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable
segments, primarily through enhanced disclosures about significant expenses. The updated standard is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2023. Early adoption is
permitted. The Company is currently evaluation the effect of adopting this ASU.
In December, 2023 the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” which requires two primary disclosure enhancements of 1) disaggregated information on a reporting entity’s
effective tax rate reconciliation, and 2) information on income taxes paid. For public business entities, the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective
basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.
|
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||
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:
|
SEGMENT INFORMATION AND GEOGRAPHIC DATA (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Financial Information by Reportable Segment |
Summary financial information by reportable segment is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Product Line Gross Profit |
A reconciliation of the Company’s consolidated product line gross profit to the Company’s consolidated net loss before income taxes is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales by Geographic Area |
The following presents net sales data by geographic area:
|
INVENTORIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
|
ACCRUED EXPENSES AND OTHER LIABILITIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
|
COMMITMENTS AND CONTINGENCIES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Classifications of Leases |
As of December 31, 2023, the Company’s balance sheet classifications of its leases are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||
Remaining Future Payments Under Operating Leases |
As of December 31, 2023, the Company’s remaining future payments under operating leases for each
fiscal year ending June 30 are as follows:
|
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2023:
|
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Stock Options Outstanding |
The following table summarizes information about stock options outstanding at December 31, 2023:
|
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 (Details) - USD ($) |
Dec. 31, 2023 |
Jun. 30, 2023 |
Dec. 31, 2022 |
Jun. 30, 2022 |
---|---|---|---|---|
Restricted Cash [Abstract] | ||||
Funded liquid margin account | $ 250,000 | $ 30 | ||
Cash, Cash Equivalents and Restricted Cash [Abstract] | ||||
Cash and cash equivalents | 5,772,124 | 10,446,532 | ||
Restricted cash | 5,315,063 | 5,122,379 | ||
Total cash, cash equivalents, and restricted cash | 11,087,187 | $ 15,568,911 | $ 17,025,291 | $ 21,179,340 |
JPMorgan Chase Credit Facility [Member] | ||||
Restricted Cash [Abstract] | ||||
Borrowing capacity | $ 5,000,000 |
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Reconciliation of Cost of Goods Sold (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Cost of goods sold | $ 5,049,947 | $ 6,071,775 | $ 8,058,454 | $ 10,157,785 |
Inventory write-downs | 0 | 119,000 | ||
Product Line [Member] | ||||
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Cost of goods sold | 4,119,509 | 5,056,581 | 6,318,050 | 8,488,904 |
Segment Reconciling Item [Member] | ||||
Reconciliation of Cost of Goods Sold [Abstract] | ||||
Cost of goods sold | 930,438 | 1,015,194 | 1,740,404 | 1,668,881 |
Non-capitalized manufacturing and production control expenses | 664,578 | 686,834 | 1,262,463 | 1,063,887 |
Freight out | 338,249 | 358,617 | 542,465 | 634,354 |
Inventory write-downs | 0 | 0 | 0 | 119,000 |
Other inventory adjustments | $ (72,389) | $ (30,257) | $ (64,524) | $ (148,360) |
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Reconciliation of Gross Profit (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Reconciliation of Gross Profit [Abstract] | ||||
Non-allocated cost of goods sold | $ (5,049,947) | $ (6,071,775) | $ (8,058,454) | $ (10,157,785) |
Sales and marketing | (4,296,324) | (4,339,684) | (7,018,289) | (7,447,630) |
General and administrative | (1,497,061) | (1,187,955) | (3,351,329) | (2,601,431) |
Other income (expense) net | 71,788 | 59,574 | 164,048 | 99,776 |
Loss before income taxes | (2,865,905) | (1,173,718) | (5,405,362) | (2,366,866) |
Product Line [Member] | ||||
Reconciliation of Gross Profit [Abstract] | ||||
Product line gross profit | 3,786,130 | 5,309,541 | 6,540,612 | 9,251,300 |
Non-allocated cost of goods sold | (4,119,509) | (5,056,581) | (6,318,050) | (8,488,904) |
Segment Reconciling Item [Member] | ||||
Reconciliation of Gross Profit [Abstract] | ||||
Non-allocated cost of goods sold | (930,438) | (1,015,194) | (1,740,404) | (1,668,881) |
Sales and marketing | (4,296,324) | (4,339,684) | (7,018,289) | (7,447,630) |
General and administrative | (1,497,061) | (1,187,955) | (3,351,329) | (2,601,431) |
Other income (expense) net | $ 71,788 | $ 59,574 | $ 164,048 | $ 99,776 |
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Net Sales by Geographic Area (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Net Sales by Geographic Area [Abstract] | ||||
Net sales | $ 7,905,639 | $ 10,366,122 | $ 12,858,662 | $ 17,740,204 |
Reportable Geographical Component [Member] | United States [Member] | ||||
Net Sales by Geographic Area [Abstract] | ||||
Net sales | 7,742,776 | 9,989,702 | 12,511,686 | 17,085,074 |
Reportable Geographical Component [Member] | International [Member] | ||||
Net Sales by Geographic Area [Abstract] | ||||
Net sales | $ 162,863 | $ 376,420 | $ 346,976 | $ 655,130 |
FAIR VALUE MEASUREMENTS (Details) - USD ($) |
Dec. 31, 2023 |
Jun. 30, 2023 |
---|---|---|
Non-Recurring [Member] | ||
Fair Value Measurements [Abstract] | ||
Assets | $ 0 | $ 0 |
INVENTORIES (Details) - USD ($) |
Dec. 31, 2023 |
Jun. 30, 2023 |
---|---|---|
Inventories [Abstract] | ||
Total supplies inventory | $ 268,892 | $ 326,834 |
Total inventory | 25,762,435 | 26,753,576 |
Short-term portion | 9,879,556 | 7,476,046 |
Long-term portion | 15,882,879 | 19,277,530 |
Work-in-process inventories issued to active production jobs | 1,200,000 | 1,990,000 |
Finished Jewelry [Member] | ||
Inventories [Abstract] | ||
Raw materials | 1,409,122 | 1,288,906 |
Work-in-process | 623,300 | 1,223,670 |
Finished goods | 12,914,517 | 12,772,611 |
Finished goods on consignment | 2,095,443 | 2,039,506 |
Total | 17,042,382 | 17,324,693 |
Loose Jewels [Member] | ||
Inventories [Abstract] | ||
Raw materials | 174,274 | 421,603 |
Work-in-process | 5,450,946 | 6,131,853 |
Finished goods | 2,627,706 | 2,294,270 |
Finished goods on consignment | 198,235 | 254,323 |
Total | $ 8,451,161 | $ 9,102,049 |
NOTE RECEIVABLE (Details) - Convertible Promissory Note [Member] - USD ($) |
Dec. 31, 2023 |
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, 2023 |
Jun. 30, 2023 |
---|---|---|
ACCRUED EXPENSES AND OTHER LIABILITIES [Abstract] | ||
Deferred revenue | $ 432,235 | $ 566,896 |
Accrued compensation and related benefits | 371,423 | 382,630 |
Accrued sales tax and franchise tax | 246,163 | 202,091 |
Accrued cooperative advertising | 352,295 | 243,861 |
Other accrued expenses | 2,709 | 1 |
Total accrued expenses and other liabilities | $ 1,404,825 | $ 1,395,479 |
INCOME TAXES (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
INCOME TAXES [Abstract] | ||||
Combined federal and state statutory tax rate | 22.94% | 22.94% | ||
Federal income tax rate | 21.00% | 21.00% | ||
Blended state income tax rate | 1.94% | 1.94% | ||
Effective tax rate | 0.00% | 11.24% | 0.00% | 18.37% |
Income tax benefit | $ 0 | $ 131,937 | $ 0 | $ 434,893 |
DEBT (Details) - USD ($) |
6 Months Ended | |||
---|---|---|---|---|
Jun. 21, 2023 |
Jul. 28, 2022 |
Jul. 12, 2021 |
Dec. 31, 2023 |
|
Line of Credit [Abstract] | ||||
Long-term debt | $ 0 | |||
JPMorgan Chase Credit Facility [Member] | ||||
Line of Credit [Abstract] | ||||
Borrowing capacity | 5,000,000 | |||
Cash deposit | $ 5,100,000 | |||
Interest rate premium in excess of rate otherwise applicable charged during an event of default | 3.00% | |||
Non-refundable origination fee | $ 0 | $ 0 | $ 10,000 | |
JPMorgan Chase Credit Facility [Member] | Maximum [Member] | ||||
Line of Credit [Abstract] | ||||
Excess availability | $ 5,000,000 | |||
JPMorgan Chase Credit Facility [Member] | SOFR Rate [Member] | ||||
Line of Credit [Abstract] | ||||
Basis spread on variable rate | 1.25% | |||
Interest rate adjustment | 0.10% |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Repurchases of Common Stock (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Jun. 30, 2023 |
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 | |||
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, 2023
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, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Stock-Based Compensation [Abstract] | ||||
Employee stock options | $ 67,174 | $ 49,704 | $ 118,618 | $ 122,202 |
Restricted stock awards | 0 | 28,789 | 0 | 52,523 |
Totals | 67,174 | 78,493 | 118,618 | 174,725 |
Stock-based compensation capitalized as 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, 2023 |
Dec. 31, 2022 |
|
Stock Option Activity [Roll Forward] | ||
Outstanding, beginning balance (in shares) | 1,817,665 | |
Granted (in shares) | 1,058,612 | |
Forfeited (in shares) | (25,166) | |
Expired (in shares) | (99,334) | |
Outstanding, ending balance (in shares) | 2,751,777 | |
Weighted Average Exercise Price [Roll Forward] | ||
Outstanding, beginning balance (in dollars per share) | $ 1.24 | |
Granted (in dollars per share) | 0.35 | |
Forfeited (in dollars per share) | 1.88 | |
Expired (in dollars per share) | 2.05 | |
Outstanding, ending balance (in dollars per share) | 0.86 | |
Fair Value of Stock Options [Abstract] | ||
Fair value of stock options (in dollars per share) | $ 0.21 | $ 0.59 |
Fair value of stock options vested | $ 188 | $ 176 |
SHAREHOLDERS' EQUITY AND STOCK-BASED COMPENSATION, Restricted Stock (Details) - Restricted Stock [Member] - $ / shares |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Restricted Stock [Abstract] | |||
Shares awarded (in shares) | 0 | ||
Unvested shares (in shares) | 178,750 | ||
Weighted average grant date fair value of unvested shares (in dollars per share) | $ 0.97 | ||
Shared vested (in shares) | 0 | ||
Shares cancelled (in shares) | 178,750 |
NET LOSS PER COMMON SHARE (Details) - shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Dec. 31, 2022 |
|
Stock Options [Member] | ||||
Net Loss per Common Share [Abstract] | ||||
Shares excluded from the computation of diluted net income per common share (in shares) | 2,750,000 | 1,910,000 | 2,750,000 | 1,910,000 |
Restricted Stock [Member] | ||||
Net Loss per Common Share [Abstract] | ||||
Shares excluded from the computation of diluted net income per common share (in shares) | 179,000 | 179,000 |
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