Charles & Colvard, Ltd. (NASDAQ: CTHR), the original and leading worldwide source of created moissanite, reports financial results for the third quarter ended September 30, 2016. Continuing operations for the quarter and prior periods do not include the results of Charles & Colvard Direct, LLC (dba Lulu Avenue®), which are now being reported as a discontinued operation following the sale of certain assets on March 4, 2016 to Yanbal USA, Inc.
Suzanne Miglucci, President and CEO of Charles & Colvard, said, “The transformation of Charles & Colvard is well underway with significant recent accomplishments as we execute on our marketing and distribution strategies. We launched our consolidated and upgraded web presence, providing an expanded product selection of new bridal and fashion-forward Forever One™ jewelry targeted to millennial customers looking for high quality, socially responsible options. We continued the expansion of our omni-channel distribution network, with the addition of several new online marketplaces, including a partnership with Gemvara, a leading online retailer of customizable fine jewelry.”
“From a financial perspective, our performance in the third quarter of 2016 was on track given this transitional period in which we are investing in marketing and product redesign. In the year to date 2016, net sales increased 26%, gross margin percentages expanded by nearly 600 basis points and net loss declined by 55% compared to year to date 2015. As we continue to make progress in our corporate transformation, we believe Charles & Colvard is well positioned for 2017 and beyond,” Ms. Miglucci concluded.
Recent Corporate Highlights:
- Launched an updated brand platform, delivered an up-market jewelry selection and enhanced the customer buying experience through the redesigned Charles & Colvard website;
- Expanded product availability with 200+ styles available through multiple online marketplaces;
- Continued product line expansion and increased customer options with the introduction of Forever One™ in a second quality grade (G-H-I);
- Extended the robust lifetime guarantee of Charles & Colvard Created Moissanite® gemstones to include protection against usage damage; and
- Initiated new digital marketing, social media and public relations campaigns to increase market awareness of Charles & Colvard brands, products and marketplaces.
Financial Summary for the Third Quarter 2016:
- Third quarter 2016 net sales from continuing operations were $5.2 million compared with $5.1 million in the year-ago third quarter, an increase of 2%.
- Loose jewel net sales from continuing operations were $3.6 million for the quarter, compared with $2.9 million for the year-ago third quarter, an increase of 25%.
- Finished jewelry net sales from continuing operations were $1.6 million for the quarter, compared with $2.2 million in the year-ago third quarter, a 28% decrease.
- The Company’s wholesale business net sales increased 7% to $4.2 million, or 80% of net sales for the quarter compared with $3.9 million, or 77% of net sales in the year-ago third quarter.
- The Company’s direct-to-consumer e-commerce business, charlesandcolvard.com (formerly Moissanite.com), net sales decreased 14% to $1.0 million, or 20% of net sales from the year-ago third quarter when it had net sales of $1.2 million, or 23% of net sales.
- Operating expenses from continuing operations were $3.1 million for the third quarter of 2016, compared with $2.3 million in the year-ago third quarter.
- Net loss for the third quarter of 2016 was $1.2 million, or $0.06 per share, compared with a net loss of $2.0 million, or $0.10 per share, in the year-ago third quarter.
Financial Summary for the First Nine Months of 2016:
- Net sales from continuing operations were $23.1 million for the first nine months of 2016 compared with $18.3 million in the year-ago nine-month period, an increase of 26%.
- Loose jewel net sales from continuing operations were $18.2 million for the nine months ended September 30, 2016, compared with $10.5 million for the year-ago period, an increase of 74%.
- Finished jewelry net sales from continuing operations were $4.9 million for the nine months ended September 30, 2016, compared with $7.8 million in the year-ago period, a 37% decrease.
- The Company’s wholesale business net sales increased 33% to $19.6 million, or 85% of net sales for the nine months ended September 30, 2016, compared with $14.7 million, or 81% of net sales in the year-ago period.
- The Company’s direct-to-consumer e-commerce business, charlesandcolvard.com, net sales decreased by 1% to $3.5 million, or 15% of net sales, from the year-ago period when it had $3.6 million, or 19% of net sales.
- Operating expenses from continuing operations were $9.6 million for the first nine months of 2016, compared with $8.5 million for the year-ago period.
- Net loss for the nine months ended September 30, 2016 was $3.5 million, or $0.17 per share, compared with a net loss of $7.7 million, or $0.38 per share, in the year-ago period.
Financial Position
Cash and liquid investments totaled $9.7 million at September 30, 2016, an increase of $4.4 million from approximately $5.3 million at December 31, 2015. The Company had no debt outstanding as of September 30, 2016. Total inventory was $27.2 million compared with $32.3 million at December 31, 2015.
Investor Conference Call
Shareholders and other interested parties may participate in the upcoming investor conference call by dialing 844-875-6912 (U.S. toll-free) or 412-317-6708 (international) and asking to be connected to the “Charles & Colvard, Ltd. Conference Call” a few minutes before 4:30 p.m. EDT on Thursday, November 3, 2016. A replay of this conference call will be available until November 10, 2016 at 877-344-7529 (U.S. toll-free) or 412-317-0088 (international). The replay conference ID is 10094633. The call will also be available live and for replay in the Investor Relations section of the Company’s website at http://www.charlesandcolvard.com/company/investor-relations/calendar/.
About Charles & Colvard, Ltd.
Charles & Colvard, Ltd., based in the Research Triangle Park area of North Carolina, is the original creator and leading source of Forever Classic™, Forever Brilliant® and Forever One™ moissanite gemstones for fine jewelry. Moissanite is unique, available in three color grades (colorless, near-colorless and faint color) and produced from silicon carbide (SiC) crystals. Charles & Colvard Created Moissanite® is sold with a Certificate of Authenticity and Limited Lifetime Warranty to wholesale distributors, manufacturers, retailers, TV shopping networks and designers as loose stones or set in a wide variety of quality metal setting options. Charles & Colvard, Ltd. also sells direct to consumers through its wholly owned operating subsidiary, charlesandcolvard.com, LLC, and through third-party marketplaces. Charles & Colvard, Ltd.’s common stock is listed on the NASDAQ Global Select Market under the symbol “CTHR.” For more information, please visit www.charlesandcolvard.com.
Forward-Looking Statement
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements expressing expectations regarding our future and projections relating to our products, sales, revenues, and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations, and contentions and are not historical facts and typically are identified by use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” and similar words, although some forward-looking statements are expressed differently.
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, our dependence on consumer awareness, acceptance, and growth of sales of our products resulting from our strategic initiatives; dependence on a limited number of customers; the impact of the execution of our business plans on our liquidity; our ability to fulfill orders on a timely basis; the financial condition of our major customers and their willingness and ability to market our products; dependence on our exclusive supply agreement with Cree, Inc. for the sole supply of the raw material; intense competition in the worldwide jewelry industry; our ability to maintain compliance with the continued listing requirements of The Nasdaq Stock Market LLC; our current wholesale customers’ potential perception of us as a competitor in the finished jewelry business; quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation; general economic and market conditions; risks of conducting business in foreign countries; the risk of disruption of our operations by natural disasters; the pricing of precious metals, which is beyond our control; the potential impact of seasonality on our business; our ability to protect our intellectual property; the risk of a failure of our information technology infrastructure to protect confidential information and prevent security breaches; the impact of significant changes in e-commerce opportunities, technology, or models; the failure to evaluate and integrate strategic opportunities; possible adverse effects of governmental regulation and oversight; and the impact of anti-takeover provisions included in our charter documents, in addition to the other risks and uncertainties described in our filings with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 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.
CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) | ||||||||||
September 30, |
December 31, | |||||||||
ASSETS | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 9,678,329 | $ | 5,274,305 | ||||||
Accounts receivable, net | 1,946,026 | 3,852,651 | ||||||||
Inventory, net | 10,070,966 | 10,739,798 | ||||||||
Prepaid expenses and other assets | 839,100 | 701,105 | ||||||||
Assets related to discontinued operations | - | 83,000 | ||||||||
Total current assets | 22,534,421 | 20,650,859 | ||||||||
Long-term assets: | ||||||||||
Inventory, net | 17,111,073 | 21,588,622 | ||||||||
Property and equipment, net | 1,493,287 | 1,615,683 | ||||||||
Intangible assets, net | 5,989 | 71,086 | ||||||||
Other assets | 163,664 | 214,588 | ||||||||
Total long-term assets | 18,774,013 | 23,489,979 | ||||||||
TOTAL ASSETS | $ | 41,308,434 | $ | 44,140,838 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 3,604,625 | $ | 3,323,148 | ||||||
Accrued cooperative advertising | 9,000 | 58,000 | ||||||||
Accrued expenses and other liabilities | 824,948 | 891,187 | ||||||||
Liabilities related to discontinued operations | 2,100 | 349,000 | ||||||||
Total current liabilities | 4,440,673 | 4,621,335 | ||||||||
Long-term liabilities: | ||||||||||
Accrued expenses and other liabilities | 625,391 | 710,223 | ||||||||
Accrued income taxes | 430,571 | 420,503 | ||||||||
Total long-term liabilities | 1,055,962 | 1,130,726 |
| |||||||
Total liabilities | 5,496,635 | 5,752,061 | ||||||||
Commitments and contingencies | ||||||||||
Shareholders’ equity: | ||||||||||
Common stock, no par value; 50,000,000 shares authorized; | 54,243,816 | 54,240,247 | ||||||||
Additional paid-in capital | 14,153,203 | 13,280,920 | ||||||||
Accumulated deficit | (32,585,220 | ) |
| (29,132,390 | ) | |||||
Total shareholders’ equity | 35,811,799 | 38,388,777 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 41,308,434 | $ | 44,140,838 | ||||||
CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | ||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Net sales | $ | 5,212,973 | $ | 5,100,152 | $ | 23,133,248 | $ | 18,299,773 | ||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of goods sold | 3,221,007 | 3,349,062 | 16,278,989 | 13,870,543 | ||||||||||||||||
Sales and marketing | 1,891,162 | 1,166,707 | 5,222,757 | 4,312,581 | ||||||||||||||||
General and administrative | 1,244,400 | 1,162,015 | 4,380,218 | 4,219,257 | ||||||||||||||||
Research and development | - | 6,352 | 2,848 | 15,456 | ||||||||||||||||
Total costs and expenses | 6,356,569 | 5,684,136 | 25,884,812 | 22,417,837 | ||||||||||||||||
Loss from operations | (1,143,596 | ) | (583,984 | ) | (2,751,564 | ) | (4,118,064 | ) | ||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | - | - | - | 11 | ||||||||||||||||
Interest expense | (36 | ) | (17 | ) | (1,548 | ) | (801 | ) | ||||||||||||
Loss on abandonment of property and equipment | (473 | ) | - | (116,021 | ) | - | ||||||||||||||
Gain on sale of long-term assets | - | - | - | 125 | ||||||||||||||||
Total other expense, net | (509 | ) | (17 | ) | (117,569 | ) | (665 | ) | ||||||||||||
Loss before income taxes from continuing operations | (1,144,105 | ) | (584,001 | ) | (2,869,133 | ) | (4,118,729 | ) | ||||||||||||
Income tax net expense from continuing operations | (3,325 | ) | (3,243 | ) | (10,068 | ) | (9,579 | ) | ||||||||||||
Net loss from continuing operations | (1,147,430 | ) | (587,244 | ) | (2,879,201 | ) | (4,128,308 | ) | ||||||||||||
Discontinued operations: | ||||||||||||||||||||
Loss from discontinued operations | (6,949 | ) | (1,378,837 | ) | (586,027 | ) | (3,564,760 | ) | ||||||||||||
(Loss) gain on sale of assets from discontinued operations | (3,065 | ) | - | 12,398 | - | |||||||||||||||
Net loss from discontinued operations | (10,014 | ) | (1,378,837 | ) | (573,629 | ) | (3,564,760 | ) | ||||||||||||
Net loss | $ | (1,157,444 | ) | $ | (1,966,081 | ) | $ | (3,452,830 | ) | $ | (7,693,068 | ) | ||||||||
Net loss per common share: | ||||||||||||||||||||
Basic – continuing operations | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.14 | ) | $ | (0.20 | ) | ||||||||
Basic – discontinued operations | (0.00 | ) | (0.07 | ) | (0.03 | ) | (0.18 | ) | ||||||||||||
Basic – total | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.17 | ) | $ | (0.38 | ) | ||||||||
Diluted – continuing operations | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.14 | ) | $ | (0.20 | ) | ||||||||
Diluted – discontinued operations | (0.00 | ) | (0.07 | ) | (0.03 | ) | (0.18 | ) | ||||||||||||
Diluted – total | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.17 | ) | $ | (0.38 | ) | ||||||||
Weighted average number of shares used in | ||||||||||||||||||||
Basic | 20,997,686 | 20,571,340 | 20,898,484 | 20,336,839 | ||||||||||||||||
Diluted | 20,997,686 | 20,571,340 | 20,898,484 | 20,336,839 | ||||||||||||||||
CHARLES & COLVARD, LTD. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | ||||||||||
| Nine Months Ended September 30, | |||||||||
2016 | 2015 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
Net loss | $ | (2,879,201 | ) | $ | (4,128,308 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 445,576 | 582,291 | ||||||||
Stock-based compensation | 829,381 | 1,090,779 | ||||||||
Provision for uncollectible accounts | (60,300 | ) | 29,000 | |||||||
Provision for sales returns | (430,000 | ) | (505,000 | ) | ||||||
Provision for inventory reserves | 54,000 | 213,000 | ||||||||
Loss on abandonment of property and equipment | 116,021 | - | ||||||||
Gain on sale of long-term assets | - | (125 | ) | |||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | 2,396,925 | 3,126,654 | ||||||||
Inventory | 5,092,381 | 4,732,476 | ||||||||
Prepaid expenses and other assets, net | (87,071 | ) | (424,879 | ) | ||||||
Accounts payable | 281,477 | 26,869 | ||||||||
Accrued cooperative advertising | (49,000 | ) | (192,000 | ) | ||||||
Accrued income taxes | 10,068 | 9,579 | ||||||||
Accrued expenses and other liabilities | (151,071 | ) | 186,931 | |||||||
Net cash provided by operating activities of continuing operations | 5,569,186 | 4,747,267 | ||||||||
Net cash used in operating activities of discontinued operations | (1,123,381 | ) | (3,074,095 | ) | ||||||
Net cash provided by operating activities | 4,445,805 | 1,673,172 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||
Purchases of property and equipment | (410,306 | ) | (188,410 | ) | ||||||
Patent, license rights, and trademark costs | (2,446 | ) | (45,742 | ) | ||||||
Proceeds from sale of long-term assets | - | 175 | ||||||||
Net cash used in investing activities of continuing operations | (412,752 | ) | (233,977 | ) | ||||||
Net cash provided by (used in) investing activities of discontinued operations | 368,671 | (17,041 | ) | |||||||
Net cash used in investing activities | (44,081 | ) | (251,018 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
Stock option exercises | 2,300 | 172,766 | ||||||||
Net cash provided by financing activities of continuing operations | 2,300 | 172,766 | ||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 4,404,024 | 1,594,920 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 5,274,305 | 4,007,341 | ||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 9,678,329 | $ | 5,602,261 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||
Cash paid during the period for interest | $ | 1,548 | $ | 801 | ||||||
Cash paid during the period for income taxes | $ | - | $ | - | ||||||
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