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Press Release: Charles & Colvard Reports Second -2-

· 02/04/2021 16:07
CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Six Months Ended December 31, December 31, 2020 2019 2020 2019 Net sales $12,146,790 $10,659,090 $20,073,083 $18,267,511 Costs and expenses: Cost of goods sold 6,167,708 5,530,514 10,363,763 9,407,138 Sales and marketing 2,480,571 3,160,965 4,128,503 5,390,556 General and administrative 977,528 1,203,686 2,185,564 2,553,187 Total costs and expenses 9,625,807 9,895,165 16,677,830 17,350,881 Income from operations 2,520,983 763,925 3,395,253 916,630 Other income (expense): Interest income 1,126 45,379 4,586 106,758 Interest expense (2,466) (277) (4,905) (419) Loss on foreign currency exchange (72) (314) (603) (853) Total other (expense) income, net (1,412) 44,788 (922) 105,486 Income before income taxes 2,519,571 808,713 3,394,331 1,022,116 Income tax (expense) benefit (494) 5,337 (988) (747) Net income $2,519,077 $814,050 $3,393,343 $1,021,369 Net income per common share: Basic $0.09 $0.03 $0.12 $0.04 Diluted $0.09 $0.03 $0.12 $0.03 Weighted average number of shares used in computing net income per common share: Basic 28,804,265 28,656,910 28,795,424 28,610,299 Diluted 29,262,702 29,246,571 28,980,009 29,199,876 CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS December 31, 2020 (unaudited) June 30, 2020 ASSETS Current assets: Cash and cash equivalents $ 16,690,105 $ 13,993,032 Restricted cash 182,958 624,202 Accounts receivable, net 3,059,842 670,718 Inventory, net 12,072,929 7,443,257 Prepaid expenses and other assets 1,342,956 1,177,860 Total current assets 33,348,790 23,909,069 Long-term assets: Inventory, net 16,593,187 23,190,702 Property and equipment, net 975,989 999,061 Intangible assets, net 193,388 170,151 Operating lease right-of-use assets 366,083 584,143 Other assets 42,330 51,461 Total long-term assets 18,170,977 24,995,518 TOTAL ASSETS $ 51,519,767 $ 48,904,587 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,932,576 $ 3,748,235 Operating lease liabilities 527,761 622,493 Current maturity of long-term debt 579,000 193,000 Accrued expenses and other liabilities 1,946,283 1,922,332 Total current liabilities 5,985,620 6,486,060 Long-term liabilities: Long-term debt, net 386,000 772,000 Noncurrent operating lease liabilities - 203,003 Accrued income taxes 8,935 7,947 Total long-term liabilities 394,935 982,950 Total liabilities 6,380,555 7,469,010 Shareholders' equity: Common stock, no par value; 50,000,000 shares authorized; 29,092,326 and 28,949,410 shares issued and outstanding at December 31, 2020 and June 30, 2020, respectively 54,520,189 54,342,864 Additional paid-in capital 26,013,132 25,880,165 Accumulated deficit (35,394,109) (38,787,452) Total shareholders' equity 45,139,212 41,435,577 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 51,519,767 $ 48,904,587 CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended December 31, 2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,393,343 $1,021,369 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 271,061 234,303 Stock-based compensation 195,293 359,105 Provision for (Recovery of) uncollectible accounts 5,514 (10,000) Provision for sales returns 662,000 299,000 Inventory write-off 105,000 149,000 Provision for accounts receivable discounts 9,581 39,706 Changes in operating assets and liabilities:

All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. You should be aware that although the forward-looking statements included herein represent management's current judgment and expectations, our actual results may differ materially from those projected, stated, or implied in these forward-looking statements as a result of many factors including, but not limited to, (1) our business, financial condition and results of operations could continue to be adversely affected by an ongoing COVID-19 pandemic and related global economic conditions; (2) our future financial performance depends upon increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives; (3) the execution of our business plans could significantly impact our liquidity; (4) our business and our results of operations could be materially adversely affected as a result of general and economic conditions; (5) the financial difficulties or insolvency of one or more of our major customers or their lack of willingness and ability to market our products could adversely affect results; (6) we face intense competition in the worldwide gemstone and jewelry industry; (7) we are subject to certain risks due to our international operations, distribution channels and vendors; (8) our business and our results of operations could be materially adversely affected as a result of our inability to fulfill orders on a timely basis; (9) we are currently dependent on a limited number of distributor and retail partners in our Traditional segment for the sale of our products; (10) we rely on assumptions, estimates, and data to calculate certain of our key metrics and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business; (11) we may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation; (12) seasonality of our business may adversely affect our net sales and operating income; (13) our operations could be disrupted by natural disasters; (14) our loan, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act as administered by the U.S. Small Business Administration may not be forgiven or may subject us to challenges and investigations regarding qualification for the loan; (15) we may not be able to adequately protect our intellectual property, which could harm the value of our products and brands and adversely affect our business; (16) negative or inaccurate information on social media could adversely impact our brand and reputation; (17) sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control; (18) our current customers may potentially perceive us as a competitor in the finished jewelry business; (19) our failure to maintain compliance with The Nasdaq Stock Market's continued listing requirements could result in the delisting of our common stock; (20) we depend on an exclusive supply agreement with Cree, Inc., for substantially all of our silicon carbide, or SiC, crystals, the raw materials we use to produce moissanite jewels; if our supply of high-quality SiC crystals is interrupted, our business may be materially harmed; (21) if the e-commerce opportunity changes dramatically or if e-commerce technology or providers change their models, our results of operations may be adversely affected; (22) a failure of our information technology infrastructure or a failure to protect confidential information of our customers and our network against security breaches could adversely impact our business and operations; (23) if we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer; (24) governmental regulation and oversight might adversely impact our operations; and (25) some anti-takeover provisions of our charter documents may delay or prevent a takeover of our company, in addition to the other risks and uncertainties described in our filings with the U.S. Securities and Exchange Commission (the "SEC"), including our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 and subsequent reports filed with the SEC. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur except as required by the federal securities laws, and you are urged to review and consider disclosures that we make in the reports that we file with the SEC that discuss other factors relevant to our business.

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February 04, 2021 16:07 ET (21:07 GMT)