UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q



(Mark One)
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2024

OR

Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

Commission File Number: 000-23329



Charles & Colvard, Ltd.
(Exact name of registrant as specified in its charter)



North Carolina
 
56-1928817
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

170 Southport Drive
Morrisville, North Carolina
 
27560
(Address of principal executive offices)
 
(Zip Code)

(919) 468-0399
(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, no par value per share
CTHR
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    ☒    No    ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    ☒    No    ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
Accelerated filer
Non-accelerated filer

Smaller reporting company

     
Emerging growth company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No    ☒

As of May 1, 2024, there were 30,344,955 shares of the registrant’s common stock, no par value per share, outstanding.



CHARLES & COLVARD, LTD.

FORM 10-Q
For the Quarterly Period Ended March 31, 2024
TABLE OF CONTENTS

   
Page
Number
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
 
 
1
 
2
 
3
 
4
 
5
Item 2.
18
Item 3.
31
Item 4.
31
 
PART II – OTHER INFORMATION
Item 1.
32
Item 1A.
32
Item 2.
33
Item 5.
33
Item 6.
34
 
35

PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

CHARLES & COLVARD, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS


 
March 31, 2024
(unaudited)
    June 30, 2023  
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
3,685,729
   
$
10,446,532
 
Restricted cash
   
5,553,873
     
5,122,379
 
Accounts receivable, net
   
566,570
     
380,085
 
Inventory, net
   
10,439,754
     
7,476,046
 
Note receivable
   
250,000
     
250,000
 
Prepaid expenses and other assets
   
794,218
     
901,354
 
Total current assets
   
21,290,144
     
24,576,396
 
Long-term assets:
               
Inventory, net
   
14,867,933
     
19,277,530
 
Property and equipment, net
   
2,699,133
     
2,491,569
 
Intangible assets, net
   
340,528
     
305,703
 
Operating lease right-of-use assets
   
1,715,475
     
2,183,232
 
Other assets
   
49,660
     
49,658
 
Total long-term assets
   
19,672,729
     
24,307,692
 
TOTAL ASSETS
 
$
40,962,873
   
$
48,884,088
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
 
$
5,865,435
   
$
4,786,155
 
Short-term borrowings under line of credit
    500,000       -  
Operating lease liabilities, current portion
   
898,217
     
880,126
 
Accrued expenses and other liabilities
   
1,356,264
     
1,395,479
 
Total current liabilities
   
8,619,916
     
7,061,760
 
Long-term liabilities:
               
Noncurrent operating lease liabilities
   
1,417,478
     
2,047,742
 
Total long-term liabilities
   
1,417,478
     
2,047,742
 
Total liabilities
   
10,037,394
     
9,109,502
 
Commitments and contingencies (Note 9)
           
Shareholders’ equity:
               
Common stock, no par value; 50,000,000 shares authorized; 30,733,358 shares issued and 30,344,955 shares outstanding at March 31, 2024 and 30,912,108 shares issued and 30,523,705 shares outstanding at June 30, 2023
   
57,242,211
     
57,242,211
 
Additional paid-in capital
   
26,394,881
     
26,205,919
 
Treasury stock, at cost, 388,403 shares at both March 31, 2024 and June 30, 2023
    (489,979 )     (489,979 )
Accumulated deficit
   
(52,221,634
)
   
(43,183,565
)
Total shareholders’ equity
   
30,925,479
     
39,774,586
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
40,962,873
   
$
48,884,088
 

See Notes to Condensed Consolidated Financial Statements (unaudited).

CHARLES & COLVARD, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

   
Three Months Ended March 31,
   
Nine Months Ended March 31,
 
   
2024
   
2023
   
2024
   
2023
 
Net sales
 
$
5,261,966
   
$
6,641,799
   
$
18,120,629
   
$
24,382,003
 
Costs and expenses:
                               
Cost of goods sold
   
4,076,081
     
4,493,125
     
12,134,535
     
14,650,910
 
Sales and marketing
   
3,684,506
     
3,267,436
     
10,702,796
     
10,715,066
 
General and administrative
   
1,199,511
     
1,053,357
     
4,550,841
     
3,654,788
 
Total costs and expenses
   
8,960,098
     
8,813,918
     
27,388,172
     
29,020,764
 
Loss from operations
   
(3,698,132
)
   
(2,172,119
)
   
(9,267,543
)
   
(4,638,761
)
Other income (expense):
                               
Interest income
   
74,528
     
69,159
     
244,146
     
168,935
 
Interest and other expense
    (9,103 )     -       (14,672 )     -  
Total other income, net
   
65,425
     
69,159
     
229,474
     
168,935
 
Loss before income taxes
   
(3,632,707
)
   
(2,102,960
)
   
(9,038,069
)
   
(4,469,826
)
Income tax expense
   
-
     
(6,293,048
)
   
-
     
(5,858,155
)
Net loss
 
$
(3,632,707
)
 
$
(8,396,008
)
 
$
(9,038,069
)
 
$
(10,327,981
)
                                 
Net loss per common share:
                               
Basic
 
$
(0.12
)
 
$
(0.28
)
 
$
(0.30
)
 
$
(0.34
)
Diluted
 
$
(0.12
)
 
$
(0.28
)
 
$
(0.30
)
 
$
(0.34
)
                                 
Weighted average number of shares used in computing net loss per common share:
                               
Basic
   
30,344,955
     
30,344,954
     
30,344,955
     
30,387,303
 
Diluted
   
30,344,955
     
30,344,954
     
30,344,955
     
30,387,303
 

See Notes to Condensed Consolidated Financial Statements (unaudited).

CHARLES & COLVARD, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)

    Nine Months Ended March 31, 2024  
   
Common Stock
   
                   
   
Number of
Shares
   
Amount
   
Additional
Paid-in
Capital
    Treasury Stock
   
Accumulated
Deficit
   
Total
Shareholders’
Equity
 
Balance at June 30, 2023
   
30,523,705
   
$
57,242,211
   
$
26,205,919
    $ (489,979 )  
$
(43,183,565
)
 
$
39,774,586
 
Stock-based compensation
   
-
     
-
     
51,444
      -      
-
     
51,444
 
Net loss
   
-
     
-
     
-
      -      
(2,539,457
)
   
(2,539,457
)
Balance at September 30, 2023
   
30,523,705
     
57,242,211
     
26,257,363
      (489,979 )    
(45,723,022
)
   
37,286,573
 
Stock-based compensation
   
-
     
-
     
67,174
      -      
-
     
67,174
 
Cancellation of restricted stock
    (178,750 )     -       -       -       -       -  
Net loss
   
-
     
-
     
-
      -      
(2,865,905
)
   
(2,865,905
)
Balance at December 31, 2023
   
30,344,955
     
57,242,211
     
26,324,537
      (489,979 )    
(48,588,927
)
   
34,487,842
 
Stock-based compensation
    -       -       70,344       -       -       70,344  
Net loss
    -       -       -       -       (3,632,707 )     (3,632,707 )
Balance at March 31, 2024     30,344,955     $
57,242,211     $
26,394,881     $
(489,979 )   $
(52,221,634 )   $
30,925,479  

   
Nine Months Ended March 31, 2023
 
   
Common Stock
   
                   
   
Number of
Shares
   
Amount
   
Additional
Paid-in
Capital
    Treasury Stock
   
Accumulated
Deficit
   
Total
Shareholders’
Equity
 
Balance at June 30, 2022
   
30,747,759
   
$
57,242,211
   
$
25,956,491
    $ (38,164 )  
$
(23,602,771
)
 
$
59,557,767
 
Stock-based compensation
   
-
     
-
     
96,232
      -      
-
     
96,232
 
Cancellation of restricted stock
    (44,688 )     -       -       -       -       -  
Repurchases of common stock
    (358,116 )     -       -       (451,815 )     -       (451,815 )
Net loss
   
-
     
-
     
-
      -      
(890,192
)
   
(890,192
)
Balance at September 30, 2022
   
30,344,955
     
57,242,211
     
26,052,723
      (489,979 )    
(24,492,963
)
   
58,311,992
 
Stock-based compensation
   
-
     
-
     
78,493
      -      
-
     
78,493
 
Issuance of restricted stock
    178,750       -       -       -       -       -  
Net loss
   
-
     
-
     
-
      -      
(1,041,781
)
   
(1,041,781
)
Balance at December 31, 2022
   
30,523,705
     
57,242,211
     
26,131,216
      (489,979 )    
(25,534,744
)
   
57,348,704
 
Stock-based compensation
    -       -       34,594       -       -       34,594  
Net loss
   
-
     
-
     
-
      -      
(8,396,008
)
   
(8,396,008
)
Balance at March 31, 2023
   
30,523,705
   
$
57,242,211
   
$
26,165,810
    $ (489,979 )  
$
(33,930,752
)
 
$
48,987,290
 

See Notes to Condensed Consolidated Financial Statements (unaudited).

CHARLES & COLVARD, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

   
Nine Months Ended March 31,
 
   
2024
   
2023
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
 
$
(9,038,069
)
 
$
(10,327,981
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
530,161
     
477,285
 
Stock-based compensation
   
188,961
     
209,319
 
(Recovery of) Provision for uncollectible accounts
   
107,000
     
(18,000
)
(Recovery of) Provision for sales returns
   
(160,000
)
   
59,000
 
Inventory write-downs
   
-
     
119,000
 
Provision for accounts receivable discounts
   
11,976
     
42
 
Deferred income taxes
    -       5,851,904  
Changes in operating assets and liabilities:
               
Accounts receivable
   
(145,461
)
   
1,246,221
 
Inventory
   
1,445,889
     
64,514
 
Prepaid expenses and other assets
   
574,892
     
756,554
 
Accounts payable
   
1,079,280
     
(1,284,419
)
Accrued expenses and other liabilities
   
(651,388
)
   
(980,909
)
Net cash used in operating activities
   
(6,056,759
)
   
(3,827,470
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of property and equipment
   
(723,256
)
   
(884,030
)
Payments for intangible assets
   
(49,294
)
   
(45,397
)
Net cash used in investing activities
   
(772,550
)
   
(929,427
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from line of credit
    500,000       -  
Repurchases of common stock
    -       (451,815 )
Net cash provided by (used in) financing activities
   
500,000
     
(451,815
)
                 
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
   
(6,329,309
)
   
(5,208,712
)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD
   
15,568,911
     
21,179,340
 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD
 
$
9,239,602
   
$
15,970,628
 
                 
Supplemental disclosure of cash flow information:
               
Cash paid during the period for income taxes
 
$
16,486
   
$
5,900
 
Cash paid during the period for interest expense
  $
10,770     $
-  

See Notes to Condensed Consolidated Financial Statements (unaudited).

CHARLES & COLVARD, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.
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 gems for sale in the worldwide fine jewelry market.

The Company sells loose moissanite gems and finished jewelry featuring moissanite, lab grown diamonds, and created color gems to leading jewelry distributors, manufacturers, and retailers at wholesale prices. In May 2023, the Company launched charlesandcolvarddirect.com, a wholesale sales portal servicing independent jewelers and retailers purchasing loose gemstones. These loose moissanite gems are then mounted into fine jewelry by jewelers, retailers, and manufacturers and sold via their own sales channels. Additionally, the Company sells to end-consumers at retail prices 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 to end-consumers at discounted retail prices through moissaniteoutlet.com, LLC, a wholly-owned operating subsidiary of charlesandcolvard.com, LLC, and select third-party marketplaces.

2.
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 nine months ended March 31, 2024 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 March 31, 2024 and for the three and nine months ended March 31, 2024 and 2023 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 March 31, 2024 and June 30, 2023 and for the three and nine months ended March 31, 2024 and 2023, 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 nine month periods ended March 31, 2024 or 2023. All intercompany accounts have been eliminated.

Nasdaq Listing Notification - On June 12, 2023, we received a notification letter from Nasdaq’s Listing Qualifications Department indicating that we are not in compliance with Nasdaq Listing Rule 5550 (a)(2), because the minimum bid price of our common stock on the Nasdaq Capital Market has closed below $1.00 per share for 30 consecutive business days. The notification letter has no immediate effect on the Nasdaq listing or trading in our common stock. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days, or until December 11, 2023, to regain compliance with the minimum $1.00 bid price per share requirement. We received notice on December 12, 2023 from the Nasdaq’s Listing Qualifications Department which resulted in an additional 180-day period, or until June 10, 2024, within which to regain compliance with the $1.00 minimum bid price requirement.

Going Concern - The Company’s accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of obligations in the normal course of business. However, for the nine months ended March 31, 2024, the Company had losses of $9.04 million and cash flow used in operations of $6.1 million. These factors and particularly our recent cash burn rate when combined with our existing cash and cash equivalents and availability of our short-term resources raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the financial statements are issued.
The Company’s management is continuing to work on plans to fund operations to alleviate the conditions that raise substantial doubt by evaluating its financing arrangements, implementing cost savings actions to reduce cash outflow, and evaluating its ability to liquidate and convert to cash certain of the Company’s existing inventory totaling $25.31 million as of March 31, 2024.  However, there can be no assurance that these plans will be successful or that additional financing will be available on terms acceptable to the Company.

In view of these matters, continuation as a going concern is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financial requirements and the success of its future operations. The financial statements do not include any adjustments to the amount or the classification of assets and liabilities that may be necessary should the Company not continue as a going concern.

Significant Accounting Policies – In the opinion of the Company’s management, the Company’s significant accounting policies used for the three and nine months ended March 31, 2024, 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.

5

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 the valuation and classification of inventories, accounts receivable reserves, stock-based compensation, valuation allowance for deferred income tax assets, 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 March 31, 2024 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.”

In accordance with the terms of the Company’s bank card/security agreement, entered into during the three months ended March 31, 2024 with a third-party financial service company that offers business credit cards, the Company is required to keep cash in an account held by the third-party totaling $250,000. Such amount is held as security for the Company’s bank card program with a credit limit of $500,000. Accordingly, this cash deposit held by the third party financial service company is classified as restricted cash for financial reporting purposes on the Company’s condensed consolidated balance sheets.

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:

   
March 31,
2024
   
June 30,
2023
 
Cash and cash equivalents
 
$
3,685,729
   
$
10,446,532
 
Restricted cash
   
5,553,873
     
5,122,379
 
Total cash, cash equivalents, and restricted cash
 
$
9,239,602
   
$
15,568,911
 


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, 2024 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating 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: 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.

3.
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” 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 and excludes certain indirect supporting expenses from the Company’s manufacturing and production control departments, comprising personnel costs, and allocations for depreciation, leases, utilities, and corporate overhead; freight; inventory write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods.

Summary financial information by reportable segment is as follows:

   
Three Months Ended March 31, 2024
 
   
Online
Channels
   
Traditional
   
Total
 
Net sales
                 
Finished jewelry
 
$
3,840,382
   
$
1,044,116
   
$
4,884,498
 
Loose jewels
   
219,828
     
157,640
     
377,468
 
Total
 
$
4,060,210
   
$
1,201,756
   
$
5,261,966
 
                         
Product line cost of goods sold
                       
Finished jewelry
 
$
1,980,096
   
$
737,957
   
$
2,718,053
 
Loose jewels
   
75,243
     
76,627
     
151,870
 
Total
 
$
2,055,339
   
$
814,584
   
$
2,869,923
 
                         
Product line gross profit
                       
Finished jewelry
 
$
1,860,286
   
$
306,159
   
$
2,166,445
 
Loose jewels
   
144,585
     
81,013
     
225,598
 
Total
 
$
2,004,871
   
$
387,172
   
$
2,392,043
 
                         
Depreciation and amortization
 
$
41,260
   
$
131,882
   
$
173,142
 
                         
Capital expenditures
 
$
142,756
   
$
85,198
   
$
227,954
 

   
Three Months Ended March 31, 2023
 
   
Online
Channels
   
Traditional
   
Total
 
Net sales
                 
Finished jewelry
 
$
4,130,314
   
$
1,190,987
   
$
5,321,301
 
Loose jewels
   
486,084
     
834,414
     
1,320,498
 
Total
 
$
4,616,398
   
$
2,025,401
   
$
6,641,799
 
                         
Product line cost of goods sold
                       
Finished jewelry
 
$
1,880,504
   
$
959,817
   
$
2,840,321
 
Loose jewels
   
197,145
     
448,114
     
645,259
 
Total
 
$
2,077,649
   
$
1,407,931
   
$
3,485,580
 
                         
Product line gross profit
                       
Finished jewelry
 
$
2,249,810
   
$
231,170
   
$
2,480,980
 
Loose jewels
   
288,939
     
386,300
     
675,239
 
Total
 
$
2,538,749
   
$
617,470
   
$
3,156,219
 
                         
Depreciation and amortization
 
$
47,876
   
$
120,509
   
$
168,385
 
                         
Capital expenditures
 
$
14,202
   
$
252,545
   
$
266,747
 
   
Nine Months Ended March 31, 2024
 
   
Online
Channels
   
Traditional
   
Total
 
Net sales
                 
Finished jewelry
 
$
13,780,906
   
$
2,796,204
   
$
16,577,110
 
Loose jewels
   
850,208
     
693,311
     
1,543,519
 
Total
 
$
14,631,114
   
$
3,489,515
   
$
18,120,629
 
                         
Product line cost of goods sold
                       
Finished jewelry
 
$
6,948,411
   
$
1,647,325
   
$
8,595,736
 
Loose jewels
   
271,669
     
320,569
     
592,238
 
Total
 
$
7,220,080
   
$
1,967,894
   
$
9,187,974
 
                         
Product line gross profit
                       
Finished jewelry
 
$
6,832,495
   
$
1,148,879
   
$
7,981,374
 
Loose jewels
   
578,539
     
372,742
     
951,281
 
Total
 
$
7,411,034
   
$
1,521,621
   
$
8,932,655
 
                         
Depreciation and amortization
 
$
135,411
   
$
394,750
   
$
530,161
 
                         
Capital expenditures
 
$
442,460
   
$
280,796
   
$
723,256
 

   
Nine Months Ended March 31, 2023
 
   
Online
Channels
   
Traditional
   
Total
 
Net sales
                 
Finished jewelry
 
$
15,657,343
   
$
3,640,572
   
$
19,297,915
 
Loose jewels
   
1,657,369
     
3,426,719
     
5,084,088
 
Total
 
$
17,314,712
   
$
7,067,291
   
$
24,382,003
 
                         
Product line cost of goods sold
                       
Finished jewelry
 
$
7,296,812
   
$
2,335,540
   
$
9,632,352
 
Loose jewels
   
623,129
     
1,719,004
     
2,342,133
 
Total
 
$
7,919,941
   
$
4,054,544
   
$
11,974,485
 
                         
Product line gross profit
                       
Finished jewelry
 
$
8,360,531
   
$
1,305,032
   
$
9,665,563
 
Loose jewels
   
1,034,240
     
1,707,715
     
2,741,955
 
Total
 
$
9,394,771
   
$
3,012,747
   
$
12,407,518
 
                         
Depreciation and amortization
 
$
167,769
   
$
309,516
   
$
477,285
 
                         
Capital expenditures
 
$
173,810
   
$
710,220
   
$
884,030
 

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:

   
Three Months Ended March 31,
    Nine Months Ended March 31,  
   
2024
   
2023
    2024     2023  
Product line cost of goods sold
 
$
2,869,923
   
$
3,485,580
    $
9,187,974     $
11,974,485  
Other indirect manufacturing and production control expenses and period costs
   
672,373
     
596,344
      1,934,837       1,660,231  
Freight out
   
286,526
     
216,817
      828,990       851,171  
Inventory write-downs
   
-
     
-
      -       119,000  
Other inventory adjustments
   
247,259
   
194,384
    182,734     46,023
Cost of goods sold
 
$
4,076,081
   
$
4,493,125
    $
12,134,535     $
14,650,910  



A reconciliation of the Company’s consolidated product line gross profit to the Company’s consolidated net loss before income taxes is as follows:


   
Three Months Ended March 31,
    Nine Months Ended March 31,
 
   
2024
   
2023
    2024
    2023  
Product line gross profit
 
$
2,392,043
   
$
3,156,219
    $ 8,932,655     $ 12,407,518  
Other indirect manufacturing and production control expenses and period costs
   
(1,206,158
)
   
(1,007,545
)
    (2,946,561 )     (2,676,425 )
Sales and marketing
   
(3,684,506
)
   
(3,267,436
)
    (10,702,796 )     (10,715,066 )
General and administrative
   
(1,199,511
)
   
(1,053,357
)
    (4,550,841 )     (3,654,788 )
Other income (expense) net
   
65,425
     
69,159
      229,474       168,935  
Loss before income taxes
 
$
(3,632,707
)
 
$
(2,102,960
)
  $ (9,038,069 )   $ (4,469,826 )

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, including charlesandcolvard.com, moissaniteoutlet.com, charlesandcolvarddirect.com and madeshopping.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:

   
Three Months Ended March 31,
    Nine Months Ended March 31,  

 
2024
   
2023
    2024     2023  
Net sales
                       
United States
 
$
5,188,939
   
$
6,545,336
    $ 17,700,626     $ 23,630,410  
International
   
73,027
     
96,463
      420,003       751,593  
Total
 
$
5,261,966
   
$
6,641,799
    $ 18,120,629     $ 24,382,003  

4.
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 the management of the Company. The financial instruments of the Company 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 March 31, 2024 or June 30, 2023.

5.
INVENTORIES

The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:

   
March 31,
2024
   
June 30,
2023
 
Finished jewelry:
           
Raw materials
 
$
1,413,161
   
$
1,288,906
 
Work-in-process
   
976,263
     
1,223,670
 
Finished goods
   
12,426,496
     
12,772,611
 
Finished goods on consignment
   
2,070,210
     
2,039,506
 
Total finished jewelry
 
$
16,886,130
   
$
17,324,693
 
Loose jewels:
               
Raw materials
 
$
109,876
   
$
421,603
 
Work-in-process
   
5,149,485
     
6,131,853
 
Finished goods
   
2,715,318
     
2,294,270
 
Finished goods on consignment
   
199,289
     
254,323
 
Total loose jewels
   
8,173,968
     
9,102,049
 
Total supplies inventory
   
247,589
     
326,834
 
Total inventory
 
$
25,307,687
   
$
26,753,576
 

As of the dates presented, the Company’s total inventories, net of reserves, are classified as follows:

   
March 31,
2024
   
June 30,
2023
 
Short-term portion
 
$
10,439,754
   
$
7,476,046
 
Long-term portion
   
14,867,933
     
19,277,530
 
Total
 
$
25,307,687
   
$
26,753,576
 
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 March 31, 2024 and June 30, 2023, work-in-process inventories issued to active production jobs approximated $1.43 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 its Online Channels segment. The Company also carries 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.

6.
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.

7.
ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities, current, consist of the following as of the dates presented:

   
March 31,
2024
   
June 30,
2023
 
Deferred revenue
 
$
470,075
   
$
566,896
 
Accrued compensation and related benefits
    372,223       382,630  
Accrued sales taxes and franchise tax
   
204,806
     
202,091
 
Accrued cooperative advertising
   
306,174
     
243,861
 
Other accrued expenses
   
2,986
     
1
 
Total accrued expenses and other liabilities
 
$
1,356,264
   
$
1,395,479
 

8.
INCOME TAXES


For the three and nine months ended March 31, 2024, 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 nine months ended March 31, 2024, the Company’s average effective tax rate was zero. Driven by the establishment of the valuation allowance during the quarter ended March 31, 2023, the Company’s effective tax rate for the nine month period then ended was a negative 131.06%. 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 nine months ended March 31, 2024, compared with a net income tax expense, driven by the establishment of the valuation allowance, of approximately $6.29 million and $5.86 million for the three and nine months ended March 31, 2023, 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 March 31, 2024, 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.


9.
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 March 31, 2024 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 March 31, 2024, 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 March 31, 2024, the Company’s balance sheet classifications of its leases are as follows:

Operating Leases:
     
Noncurrent operating lease ROU assets
 
$
1,715,475
 
 
       
Current operating lease liabilities
 
$
898,217
 
Noncurrent operating lease liabilities
   
1,417,478
 
Total operating lease liabilities
 
$
2,315,695
 

The Company’s total operating lease cost for the three months ended March 31, 2024 and 2023 was approximately $175,000 for each period. The Company’s total operating lease cost for the nine months ended March 31, 2024 and 2023 was approximately $524,000 for each period.

As of March 31, 2024, 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 2.58 years.

As of March 31, 2024, the Company’s remaining future payments under operating leases for each fiscal year ending June 30 are as follows:

2024
 
$
225,426
 
2025
   
918,236
 
2026
   
943,487
 
2027
   
317,327
 
Total lease payments
 
$
2,404,476
 
Less: imputed interest
   
(88,781
)
Present value of lease payments
   
2,315,695
 
Less: current lease obligations
   
898,217
 
Total long-term lease obligations
 
$
1,417,478
 

The Company makes cash payments for amounts included in the measurement of its lease liabilities. During the three months ended March 31, 2024 and 2023, cash paid for operating leases was approximately $251,000 and $237,000, respectively. During the nine months ended March 31, 2024 and 2023, cash paid for operating leases was approximately $730,000 and $704,000, 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 March 31, 2024. 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 nine months ended March 31, 2024 the Company made no purchases of SiC crystals. During the nine months ended March 31, 2023 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 March 31, 2024, 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.

10.
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 March 31, 2024, the Company had $ 500,000 in short-term outstanding debt on the line of credit.

11.
SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Repurchases of Common Stock

Pursuant to authority granted by the Company’s Board of Directors on April 29, 2022, the Company can repurchase up to approximately $5.00 million in shares outstanding of the Company’s common stock over the three year period ending April 29, 2025. Pursuant to the terms of the repurchase authorization, the common stock share repurchases are generally at the discretion of the Company’s management. As the Company repurchases its common shares, which have no par value, the Company reports such shares held as treasury stock in the accompanying condensed consolidated balance sheets with the purchase price recorded within treasury stock.
 
During the nine month period ended March 31, 2024 the Company repurchased no shares of its common stock. During the nine month period ended March 31, 2023, 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 March 31, 2024.

Stock-Based Compensation

The following table summarizes the components of the Company’s stock-based compensation included in net income for the periods presented:

   
Three Months Ended
March 31,
   
Nine Months Ended
March 31,
 
   
2024
   
2023
   
2024
   
2023
 
Employee stock options
 
$
70,343
   
$
63,383
   
$
188,961
   
$
185,585
 
Restricted stock awards
   
-
     
(28,789
)
   
-
     
23,734
 
Totals
 
$
70,343
   
$
34,594
   
$
188,961
   
$
209,319
 

No stock-based compensation was capitalized as a cost of inventory during the three and nine months ended March 31, 2024 or 2023.

Stock Options –The following is a summary of the stock option activity for the nine months ended March 31, 2024:


 
Shares
   
Weighted
Average
Exercise Price
 
Outstanding, June 30, 2023
   
1,817,665
   
$
1.24
 
Granted
   
1,178,612
   
$
0.35
 
Forfeited
   
(36,500
)
 
$
1.47
 
Expired
   
(100,000
)
 
$
2.05
 
Outstanding, March 31, 2024
   
2,859,777
   
$
0.84
 

The weighted average grant date fair value of stock options granted during the nine months ended March 31, 2024 and 2023 was approximately $0.21 and $0.59, respectively. The total fair value of stock options that vested during the nine months ended March 31, 2024 and 2023 was approximately $224,000 and $225,000, respectively.

The following table summarizes information about stock options outstanding at March 31, 2024:

Options Outstanding
   
Options Exercisable
   
Options Vested or Expected to Vest
 
Balance
as of
03/31/2024
   
Weighted
Average Remaining
Contractual Life
(Years)
   
Weighted
Average
Exercise
Price
   
Balance
as of
03/31/2024
   
Weighted
Average Remaining
Contractual Life
(Years)
   
Weighted
Average
Exercise
Price
   
Balance
as of
03/31/2024
   
Weighted
Average Remaining
Contractual Life
(Years)
   
Weighted
Average
Exercise
Price
 
 
2,859,777
     
7.27
   
$
0.84
     
1,793,488
     
5.90
   
$
1.07
     
2,780,376
     
7.21
   
$
0.85
 

As of March 31, 2024, the unrecognized stock-based compensation expense related to unvested stock options was approximately $200,390, 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 March 31, 2024 and 2023 was approximately $