Charles & Colvard(CTHR) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial information for the period, including statements, MD&A, market risk, and controls Financial Statements Presents the company's financial position, operational performance, and cash flows for the quarter ended March 31, 2021 Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2021, shows increased assets and equity, reflecting a stronger financial position Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 (unaudited) | June 30, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $19,609 | $13,993 | | Inventory, net (Total) | $28,946 | $30,634 | | Total current assets | $35,794 | $23,909 | | TOTAL ASSETS | $57,397 | $48,905 | | Liabilities & Equity | | | | Total current liabilities | $6,133 | $6,486 | | Total liabilities | $10,247 | $7,469 | | Total shareholders' equity | $47,150 | $41,436 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $57,397 | $48,905 | Condensed Consolidated Statements of Operations Reports a significant turnaround to net income for Q3 and nine months ended March 31, 2021, driven by sales growth Key Operational Metrics (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2021 | Three Months Ended Mar 31, 2020 | Nine Months Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $9,436 | $6,491 | $29,509 | $24,759 | | Cost of goods sold | $5,093 | $9,172 | $15,457 | $18,579 | | Income (Loss) from operations | $1,039 | $(6,194) | $4,434 | $(5,277) | | Net income (loss) | $1,036 | $(6,155) | $4,430 | $(5,134) | | Diluted EPS | $0.03 | $(0.21) | $0.15 | $(0.18) | Condensed Consolidated Statements of Cash Flows Cash flow from operations turned positive for the nine months ended March 31, 2021, significantly increasing cash Cash Flow Summary (Nine Months Ended March 31, in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $4,668 | $(1,572) | | Net cash used in investing activities | $(622) | $(466) | | Net cash provided by financing activities | $1,013 | $932 | | Net increase (decrease) in cash | $5,058 | $(1,105) | Notes to Condensed Consolidated Financial Statements Provides detailed disclosures on business segments, accounting policies, supply agreements, and the PPP loan - The company manufactures and distributes Charles & Colvard Created Moissanite® and Caydia™ lab grown diamonds, selling loose jewels and finished jewelry through both wholesale (Traditional) and direct-to-consumer e-commerce (Online Channels) segments[24] Segment Net Sales (Three Months Ended March 31, 2021) | Segment | Finished Jewelry | Loose Jewels | Total Net Sales | | :--- | :--- | :--- | :--- | | Online Channels | $4,902,964 | $680,804 | $5,583,768 | | Traditional | $1,316,928 | $2,535,360 | $3,852,288 | | Total | $6,219,892 | $3,216,164 | $9,436,056 | - The company has an exclusive supply agreement with Cree, Inc. for SiC materials, with a total purchase commitment of approximately $52.95 million extending to June 2025. As of March 31, 2021, approximately $34.35 million of this commitment remains[76][77] - The company received a $965,000 loan under the Paycheck Protection Program (PPP) in June 2020, which is accounted for as debt. As of March 31, 2021, the full amount remains outstanding[85][87] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the drivers behind the improved financial performance and the company's liquidity position Results of Operations Analyzes the 45% increase in net sales and the factors influencing cost of goods sold and operating expenses Consolidated Net Sales Breakdown (Three Months Ended March 31) | Product Line | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Finished jewelry | $6,219,892 | $3,480,168 | $2,739,724 | 79% | | Loose jewels | $3,216,164 | $3,010,880 | $205,284 | 7% | | Total | $9,436,056 | $6,491,048 | $2,945,008 | 45% | - The decrease in cost of goods sold for Q3 2021 was primarily driven by a prior year write-off of approximately $5.26 million related to legacy loose jewel and finished goods inventory during the quarter ended March 31, 2020[144] - Sales and marketing expenses for Q3 2021 decreased by 12% YoY, mainly due to a $261,000 reduction in compensation-related expenses following a June 2020 management reorganization and workforce reduction[149][150][151] Liquidity and Capital Resources Details the company's cash position, working capital, and significant financial commitments and credit facilities - As of March 31, 2021, the company's principal sources of liquidity were cash and equivalents of $19.7 million and access to a $5.0 million asset-based revolving credit facility, which was undrawn[181][195] - The company has a long-term debt of $965,000 from a PPP loan received in June 2020. Monthly payments are scheduled to commence on October 1, 2021[171][178] - A significant contractual commitment exists with Cree, Inc. for the exclusive supply of SiC materials. The total commitment is approximately $52.95 million through June 2025, with a remaining balance of $34.35 million as of March 31, 2021[190] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the company as it qualifies as a smaller reporting company - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[199] Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes to internal controls - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[200] - No changes were made to the internal control over financial reporting during the three months ended March 31, 2021, that materially affected, or are reasonably likely to materially affect, these controls[201] PART II – OTHER INFORMATION Other information including legal proceedings, risk factors, and exhibits filed with the report Legal Proceedings The company reports no material pending legal proceedings as of the reporting date - There are no material pending legal proceedings involving the company[204] Risk Factors No material changes to previously disclosed risk factors were reported for the period - There have been no material changes to the risk factors disclosed in previous reports[205] Exhibits Lists the certifications by executive officers and XBRL financial data filed as exhibits - Exhibits filed include certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, and financial statements formatted in XBRL[207]