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This doc incorporates sure “forward-looking statements”. All statements
apart from statements of historic truth are “forward-looking statements” for
functions of federal and state securities legal guidelines, together with, however not restricted to,
any projections of earnings, income or different monetary gadgets; any statements of
the plans, methods, targets and targets of administration for future operations;
any statements regarding proposed new services or developments
thereof; any statements concerning future financial circumstances or efficiency; any
statements or perception; and any statements of assumptions underlying any of the
foregoing.
Ahead wanting statements could embody the phrases “could,” “might,” “estimate,”
“intend,” “proceed,” “imagine,” “count on,” or “anticipate,” or different comparable
phrases, or the adverse thereof. These forward-looking statements current our
estimates and assumptions solely as of the date of this report. Accordingly,
readers are cautioned to not place undue reliance on forward-looking statements,
which communicate solely as of the dates on which they’re made. We don’t undertake to
replace forward-looking statements to mirror the impression of circumstances or
occasions that come up after the dates they’re made. You must, nevertheless, seek the advice of
additional disclosures and threat elements we included within the part titled Threat
Components contained herein.
Overview
We’re a high-tech diamond firm that makes use of our proprietary expertise to
produce high-quality, single crystal diamonds and diamond supplies via a
CVD course of, which we consult with as our Diamond Expertise. Lab-grown diamonds
have the precise bodily, chemical, and optical properties of one of the best mined
diamonds. Lab-grown diamonds are composed of a pure carbon lattice, similar to
mined diamonds, and will not be thought of artificial or simulant diamonds like cubic
zirconia and moissanite. Simulants are different chemical compounds that resemble
diamonds however don’t possess the identical hardness, thermal traits, band hole
power, and lightweight reflectivity as diamond, whether or not mined or lab-grown.
We use our Diamond Expertise to provide completed diamonds that we intend to
promote wholesale and retail for jewellery and tough unfinished diamond supplies
that we intend to promote wholesale and retail for industrial makes use of. We’re within the
preliminary phases of commercializing diamonds and diamond supplies, and our
main mission is the event of a worthwhile and sustainable business
manufacturing mannequin for the manufacture and sale of diamonds and diamond supplies,
that are appropriate for recognized, rising, and anticipated industrial, expertise,
and client functions.
Since buying the Scio belongings over two years in the past, we have now targeted our efforts
on analysis and growth of enhancements to the elemental CVD course of. Like
most high-tech producers, the philosophy of steady enchancment is at our
core. Our growth efforts have targeted on commercialization of the diamonds
and diamond supplies we produce, enhancements in our white diamond course of,
enhancements in our diamond seed processes, automation in our machine operation,
enlargement of our capability with our present machines, and enhancements in our
laser reducing procedures. The guideline of those efforts is to offer
the very best high quality diamonds and diamond supplies in a constant and
high-yield method.
We presently have restricted obtainable business merchandise and should date offered
minimal diamonds or diamond supplies to customers or business consumers. Our
present operations, till only recently, have been devoted to the analysis and
growth of our Diamond Expertise and the exploration of markets that we could
exploit sooner or later. Whereas we’re unable to foretell the timing of our entry
into any market sooner or later, we’ll attempt to provide on a big scale
high-quality completed and uncooked diamond supplies and to pursue associated business
alternatives.
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Latest Developments and the Covid-19 Pandemic
On
declared the COVID-19 outbreak a “Public Well being Emergency of Worldwide
Concern” and on
world wide to assist mitigate the unfold of COVID-19 have included
restrictions on journey, quarantines in sure areas, work-from-home orders, and
pressured closures for sure kinds of public locations and companies. COVID-19 and
actions taken to mitigate its unfold have had and are anticipated to proceed to
have an adversarial impression on the economies and monetary markets of many nations.
On
enacted to, amongst different provisions, present emergency help for
people, households, and companies affected by the COVID-19 pandemic.
Because the COVID-19 pandemic continues, the extent of the impression to our outcomes of
operations, gross sales, money flows, liquidity, and monetary situation can be
primarily pushed by the severity and length of the COVID-19 pandemic, the
pandemic’s impression on the
effectiveness of federal, state, and native governmental responses to the
pandemic. These main drivers are past our information and management and, as a
outcome, at the moment, we’re unable to foretell the cumulative impression, each in
phrases of severity and length, that the COVID-19 pandemic could have on our
enterprise, outcomes of operations, gross sales, money flows, and monetary situation, however
such impression may very well be materials if the present circumstances live on for
a chronic time period. Though we have now made our greatest estimates primarily based upon
present data, precise outcomes might materially differ from our estimates
and assumptions. Accordingly, it’s fairly potential that the estimates made
within the monetary statements have been, or can be, materially and adversely
impacted within the close to time period due to these circumstances, and in that case, we could also be
topic to future impairment losses associated to long-lived and indefinite-lived
belongings in addition to modifications to valuations.
Additionally, due to the COVID-19 pandemic, we have now been experiencing important
supply delays from our suppliers since
constraints, we elevated our uncooked materials inventories to try to handle and
mitigate this threat. Nonetheless, a number of key suppliers have knowledgeable us of supply
delays, starting from eight to sixteen weeks, that impacted manufacturing in all
4 quarters of the fiscal yr ended
impression the fiscal yr ending
to have an effect on the interval as of the date of this submitting and should impression the rest
of this fiscal yr. Latest elevated instances of COVID-19 and/or shutdowns associated
to further or improve outbreaks haven’t had any additional materials impression on
our operations, provide chain, liquidity, or capital assets.
Impression of the Battle in
The short- and long-term implications of
tough to foretell at the moment. The imposition of sanctions and counter
sanctions could have an adversarial impact on the financial markets typically and will
impression our enterprise, monetary situation, and outcomes of operations. The
sanctions in opposition to
diamond commerce. As such, there are fewer Russian diamonds within the market
right this moment, which poses a chance for our product as a substitute. Nonetheless,
there are additionally disruptions within the provide chain in
(e.g.,
obtainable to us. To mitigate such disruptions, we have now voluntarily changed the
companies of considered one of our diamond cutters that’s primarily based in
cutters from different areas. The one adverse impression we have now recognized up to now
has been the time it has taken us to modify to a different vendor. None of our
crucial uncooked supplies are sourced from that area. We have now no operations or
different tasks in that area.
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Inflationary Pressures
We’re presently experiencing inflationary pressures in our manufacturing
processes. Prices for our industrial gear, uncooked supplies, companies, and
delivery have elevated and proceed to pattern upward. Over the previous couple of
years, uncooked supplies utilized in our manufacturing processes, corresponding to refractory
metals, lab-grade gases, and their related fuel supply programs, have all
proven will increase between 4% and 15%; chemical solvents, adhesives, and different
consumables have proven annual will increase from 4% to 25%; and industrial
digital gear, corresponding to energy provides and fuel mills, have additionally seen
will increase between 10% and 15%. Transport charges are up practically 6% for the yr. To
date, we imagine these inflationary will increase have had a minimal impression on our
enterprise total. Nonetheless, to mitigate such inflationary pressures, we proceed
to judge value will increase for our merchandise, negotiate quantity reductions, search
different merchandise and suppliers, and discover alternatives to convey a number of
non-critical companies inside our firm.
Outcomes of Operations
The next desk presents summarized monetary data taken from our
statements of operations for the yr ended
yr ended
For the Years Ended
September 30,
2022 2021
Web Gross sales $ 1,788,642 $ -
Value of Items Offered (603,276 ) -
Gross Margin 1,185,366 -
Complete working bills 10,121,817 11,790,785
Loss from operations (8,936,451 ) (11,790,785 )
Different bills - -
Curiosity expense (2,131,407 ) (322,452 )
Loss earlier than earnings taxes $ (11,067,858 ) $ (12,113,237 )
Elements of Outcomes of Operations
Web Gross sales
Through the fiscal yr ended
million
We anticipate deriving persevering with future income from the next enterprise
traces:
? Direct Gross sales of Diamonds: The sale of diamond gems direct to the
client via our web site and the sale of business grade diamonds
direct to industrial manufacturing firms.
? Wholesale of Diamonds: The sale of diamonds to wholesalers,
distributors, and jewelers.
Value of Items Offered
Value of products offered consists of direct prices (elements, materials, and labor), oblique
manufacturing prices (manufacturing overhead, depreciation, plant working lease
expense, and hire), delivery, lab companies, and logistics prices.
Prices of products offered for the yr ended
Gross margin for the yr ended
revenue margin on diamond gross sales of 66% for the yr ended
There have been no prices of products offered nor any associated gross margin for the yr
ended
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Analysis and Growth Expense
We conduct analysis and growth actions to boost present processes and
merchandise and develop new processes and merchandise at our amenities in
South Carolina
all prices related to our analysis and growth efforts via both
our price of products offered, as they’re carried out by the identical workers
our completed product, or via our normal and administrative bills if the
product has not been delivered to market.
We count on our analysis and growth bills to extend for the foreseeable
future as we proceed to put money into analysis and growth actions to
obtain our operational and business targets.
Working Expense
Working expense consists of promoting, normal and administrative expense, worker
salaries and associated expense and depreciation and amortization expense. Promoting,
normal, and administrative bills consist primarily of authorized and
skilled, consulting companies and all non-personnel-related bills or
depreciation and amortization. Personnel-related bills encompass salaries,
payroll taxes, advantages, and stock-based compensation. Depreciation and
amortization bills are associated to the Firm’s fastened belongings and intangible
belongings.
Working expense for the yr ended
assertion of operations was
comparability to the comparable prior yr.
We count on our working expense to extend for the foreseeable future as we
scale headcount and bills with the expansion of our enterprise, construct out our
manufacturing amenities, refine our manufacturing processes, drive for
productiveness enhancements, purchase new and retain present clients, and incur
further prices because of being a public firm.
Different Bills Curiosity Expense
Curiosity expense consists of curiosity paid and accrued on our notes payable,
promissory notes and the amortization of debt problem prices.
Curiosity expense was
in comparison with
curiosity expense of
internet borrowings and excellent indebtedness for the yr ended
2022
reductions.
Web Earnings (loss)
Primarily because of the above elements we had a internet lack of
in comparison with a internet lack of
and
Liquidity and Capital Assets
As of
lower of
Modifications in money flows are summarized as follows:
Working Actions
For the yr ended
totaled roughly
roughly
million
depreciation and amortization of roughly
compensation of
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For the yr ended
totaled roughly
roughly
million
with an offset by the good thing about non-cash bills for depreciation and
amortization of roughly
Investing Actions
Through the yr ended
actions.
Through the yr ended
investing actions to buy equipment and gear.
Financing Actions
Through the yr ended
actions was roughly
million
exercise and
inventory.
Through the yr ended
actions was roughly
obtained from the sale of our widespread inventory.
These circumstances elevate substantial doubt about our means to proceed as a
going concern for the following yr. Our unbiased auditors have added an
explanatory paragraph of their audit opinion in regard to this uncertainty.
Satisfaction of our Money Obligations for the Subsequent 12 Months
Our current IPO which closed on
million
funds together with the power to acquire further capital via further
fairness and/or debt financing are anticipated to satisfy our working wants. We’re
not presently producing ample income to satisfy working wants. Within the
occasion we can not acquire further capital to pursue our strategic plan, nevertheless,
this might materially impression our means to proceed as a going concern.
Since inception, we have now financed money movement necessities via debt financing
and the non-public issuance of widespread inventory for money and companies together with
advances from our CEO in addition to our CEO and CFO deferring important
compensation and advantages that had been earned below their respective employment
contracts. If we proceed to expertise money movement deficiencies, we might be
required to acquire further financing to fund operations via non-public
widespread inventory choices and debt borrowings to the extent essential to offer
working capital. Nonetheless, there isn’t a assurance we might be capable to acquire such
financing on commercially affordable phrases, if in any respect.
We intend to implement and efficiently execute our enterprise and advertising
technique, proceed to develop, and improve expertise and merchandise, reply to
aggressive developments, and appeal to, retain, and encourage certified personnel.
There might be no assurance that we are going to achieve success in addressing such dangers,
and the failure to take action can have a fabric adversarial impact on our enterprise
prospects, monetary situation, and outcomes of operations.
Abstract of
Since buying the Scio belongings over two years in the past, we have now primarily targeted
our efforts on analysis and growth of enhancements to the elemental CVD
course of. Our growth efforts have targeted on commercialization of the
diamonds and diamond supplies we produce, enhancements in our white diamond
course of, enhancements in our diamond seed processes, automation in our machine
operation, enlargement of our capability with our present machines, and
enhancements in our laser reducing procedures. Sooner or later, our analysis and
growth tasks will embody additional enhancements within the CVD course of,
primarily in capability enlargement per diamond rising machine. We’re planning to
put money into different elements of the manufacturing chain as nicely to develop our personal
diamond seeds, that are skinny slices of diamond upon which our diamonds are
grown; add colour enhancement; and add further laser capabilities.
Anticipated Buy or Sale of Vital Tools
We anticipate that we are going to buy the required gear required to ramp up
our manufacturing of lab-grown diamonds and improve our capabilities through the
subsequent 12 months. Particularly, we anticipate expenditures on further
proprietary diamond rising machines to extend our total capability,
expenditures to double the capability of every present and new diamond rising
machine, expenditures in lasering gear to raised put together diamonds for
gemstone reducing and industrial functions, and expenditures to synthesize
seeds.
Vital Modifications within the Variety of Staff
As of
consultants. We count on a big improve within the variety of full-time
workers over the subsequent 12 months. We’re utilizing and can proceed to make use of the
companies of unbiased consultants and contractors to carry out varied
skilled companies. We imagine that this use of third-party service suppliers
could improve our means to include normal and administrative bills.
Off-Steadiness Sheet Preparations
We wouldn’t have any off-balance sheet preparations which have or are fairly
prone to have a present or future impact on our monetary situation, modifications in
monetary situation, income or bills, outcomes of operations, liquidity,
capital expenditures, or capital assets that’s materials to buyers.
34
Vital Accounting Insurance policies and Estimates
Our dialogue and evaluation of our monetary situation and outcomes of operations
are primarily based upon our monetary statements, which have been ready in accordance
with GAAP. The preparation of those monetary statements requires us to make
estimates and judgments that have an effect on the reported quantity of belongings, liabilities,
income, and bills. We have now recognized a number of accounting rules that we
imagine are key to the understanding of our monetary statements. These
essential accounting insurance policies require our most tough subjective judgements.
Use of Estimates
The preparation of economic statements in conformity with GAAP requires us to
make estimates and assumptions that affected the reported quantities of belongings and
liabilities and disclosure of contingent belongings and liabilities on the date of
the monetary statements and the reported quantities of income and bills throughout
the reporting interval. Precise outcomes might differ from these estimates.
Vital estimates made in making ready the monetary statements embody, however
will not be restricted to, the next: collectability of accounts receivable, the
potential impairment of goodwill; the valuation of deferred tax belongings;
inventories; carrying worth of stock; helpful lives and restoration of kit
and different intangible asset; debt reductions and valuations; and valuation of
stock-based compensation.
Goodwill
We consider goodwill for impairment yearly or extra often when an occasion
happens or circumstances change that point out the carrying worth might not be
recoverable. In testing for goodwill impairment, we could elect to make the most of a
qualitative evaluation to judge whether or not it’s extra possible than not that the
truthful worth of a reporting unit is lower than its carrying quantity. If our
qualitative evaluation signifies that goodwill impairment is extra possible than
not, we carry out a two-step impairment take a look at. We take a look at goodwill for impairment
below the two-step impairment take a look at by first evaluating the e-book worth of internet
belongings to the truthful worth of the reporting models. If the truthful worth is decided
to be lower than the e-book worth or qualitative elements point out that it’s extra
possible than not that goodwill is impaired, a second step is carried out to compute
the quantity of impairment because the distinction between the estimated truthful worth of
goodwill and the carrying worth. We estimate the truthful worth of the reporting
models utilizing discounted money flows. Forecasts of future money flows are primarily based on
our greatest estimate of future internet gross sales and working bills, primarily based totally on
anticipated class enlargement, pricing, market section share, and normal financial
circumstances. The measurement date of our annual goodwill impairment take a look at is
or the yr ended
Accounts Receivable and Allowance for Uncertain Accounts
Our accounts receivable represents quantities due from clients for merchandise offered
and embody an allowance for uncollectible accounts which is estimated primarily based on
the growing older of the accounts receivable and particular identification of
uncollectible accounts. On
allowance for uncertain accounts. We had no allowance for uncertain accounts for
the yr ended
Stock
We state inventories on the decrease of price and internet realizable worth. We decide
price utilizing the typical price methodology on all stock generated by our
manufacturing operations upon our transition from analysis and growth in
our manufacturing amenities to the total manufacturing of our merchandise on the market. We
solely produce diamonds and never different valuable gems corresponding to rubies or
sapphires. Due to this fact, any time we consult with our stock, it’s going to consist solely
of diamonds as uncooked supplies, work in progress, and completed items. After we use
the phrases “stones” or “valuable stones” when describing our stock, we’re
additionally speaking solely of diamonds. As of
consisted of completed and practically completed valuable stones in varied carat
sizes, shapes, and colours. A few of these stones had been initially included as half
of the belongings bought by our firm as a part of the Scio asset buy
settlement. These stones had been independently valued as a part of the acquisition value
allocation. Further stones added to stock because the Scio asset buy
are a byproduct of our persevering with analysis and growth efforts in addition to
the start section of our manufacturing course of.
Analysis and Growth
To this point, we have now expensed all prices related to creating our product
specs, manufacturing procedures, and merchandise via our price of products
offered, as this work was executed by the identical workers
product. We anticipate that it could change into essential to reclassify analysis and
growth prices into our working expenditures for reporting functions as we
start to develop new applied sciences and contours of diamonds.
Income Recognition
We generate income from the sale of diamonds and diamond supplies. We
acknowledge income in line with Accounting Requirements Codification, or ASC, 606.
When the client obtains management over the promised items or companies, we file
income within the quantity of consideration that we will count on to obtain in alternate
for these items and companies. We apply the next five-step mannequin to
decide income recognition:
? identification of a contract with a buyer;
? identification of the efficiency obligations within the contact;
? willpower of the transaction value;
? allocation of the transaction value to the separate efficiency
obligations; and
? recognition of income when efficiency obligations are happy.
35
We solely apply the five-step mannequin when it’s possible that we are going to accumulate the
consideration we’re entitled to in alternate for the products or companies we
switch to the client. At contract inception and as soon as the contract is
decided to be inside the scope of ASC 606, we assess the products or companies
promised inside every contract, and decide these which can be efficiency
obligations, and assesses whether or not every promised good or service is distinct. If
a contract incorporates a single efficiency obligation, your entire transaction
value is allotted to the only efficiency obligation. We anticipate that our
contracts will include a single efficiency obligation, and your entire
transaction value is allotted to the only efficiency obligation. We
acknowledge as income the quantity of the transaction value that’s allotted to
the respective efficiency obligation when the efficiency obligation is
happy or as it’s happy. Accordingly, we acknowledge income (internet) when
the client obtains management of our product, which can sometimes happen upon
cargo of the product.
Honest Worth of Monetary Devices
Honest worth estimates mentioned herein are primarily based upon sure market assumptions
and pertinent data obtainable to us as of
30, 2021
devices approximated their truthful worth. These monetary devices embody
money, accounts receivable, accounts payable, accrued bills, quantities on account of
associated events, and notes payable. Honest values had been assumed to approximate
carrying values as a result of they’re quick time period in nature and their carrying quantities
approximate truthful values or they’re payable on demand, or for notes payable,
primarily based on borrowing charges presently obtainable to us for loans with comparable phrases
and maturities.
Earnings Taxes
We comply with ASC subtopic 740 – Earnings Taxes, or ASC 740, for recording the
provision for earnings taxes. ASC 740-10 requires using the asset and
legal responsibility methodology of accounting for earnings taxes. Beneath the asset and legal responsibility
methodology, deferred tax belongings and liabilities are computed primarily based upon the
distinction between the monetary assertion and earnings tax foundation of belongings and
liabilities utilizing the enacted marginal tax price relevant when the associated
asset or legal responsibility is anticipated to be realized or settled. Deferred earnings tax
bills or advantages are primarily based on the modifications within the asset or legal responsibility every
interval. If obtainable proof suggests that’s extra possible than not that some
portion or all the deferred tax belongings won’t be realized, a valuation
allowance is required to scale back the deferred tax belongings to the quantity that’s
extra possible than to not be realized. Future modifications in such valuation allowance
are included within the provision for deferred earnings taxes within the interval of change.
Inventory-Primarily based Compensation
We grant stock-based compensation to key workers and administrators as a method of
attracting and retaining extremely certified personnel. We additionally grant inventory in lieu
of money compensation for key consultants and repair suppliers. We acknowledge
expense associated to stock-based fee transactions through which we obtain worker
or non-employee companies in alternate for fairness. We measure stock-based
compensation primarily based on gross sales of our widespread inventory close to the date of the grant.
Along with our base of workers, we additionally use the companies of a number of
contract personnel and different professionals on an “as wanted foundation.” We plan to
proceed to make use of consultants, authorized and patent attorneys, engineers, and
accountants, as essential. We can also develop our employees to help the market
roll-out of our merchandise to each business and government-related
organizations. A portion of any key worker compensation possible would come with
direct inventory grants, which might dilute the possession curiosity of holders of
present shares of our widespread inventory and our new buyers.
Severance Expense
We account for severance expense in accordance with ASC 710,
Compensation-Basic. The severance program gives for advantages to sure key
government workers, to be paid upon their termination, whether or not initiated by us
or on the worker’s route. These advantages are totally vested and have an
annual escalation provision and are expensed as they’re incurred. Sure key
executives entitled to severance compensation have waived these funds prior
to the Firm’s IPO.
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