UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported) February 25, 2010
Charles
& Colvard, Ltd.
(Exact
name of registrant as specified in its charter)
|
North
Carolina
|
000-23329
|
56-1928817
|
|
(State
or other jurisdiction of
incorporation)
|
(Commission
File
Number)
|
(I.R.S.
Employer
Identification
No.)
|
|
300
Perimeter Park Drive, Suite A
|
|
|
Morrisville,
North Carolina
|
27560
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(919)
468-0399
(Registrant’s
telephone number, including area code)
N/A
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
|
o
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
o
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
o
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
|
o
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
Item 2.02 Results
of Operations and Financial Condition.
On
February 25, 2010, Charles & Colvard, Ltd. (the “Company”) issued a
press release regarding its financial results for the fiscal quarter and year
ended December 31, 2009. A copy of this press release is attached hereto as
Exhibit 99.1 and is incorporated herein by reference.
Pursuant
to General Instruction B.2 of Current Report on Form 8-K, the information in
Item 2.02 of this report, including the press release attached as Exhibit
99.1, is furnished and shall not be deemed to be “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liabilities of that section. Furthermore, such information shall
not be deemed to be incorporated by reference into the filings of the Company
under the Securities Act of 1933, as amended.
Item 9.01 Financial
Statements and Exhibits.
(d) Exhibits.
|
Exhibit
No.
|
Description
of Document
|
|
99.1
|
Press
Release dated February 25, 2010
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
| Charles & Colvard, Ltd. | |||
|
February
25, 2010
|
By:
|
/s/ Timothy L. Krist | |
| Timothy L. Krist | |||
| Chief Financial Officer | |||
|
|
EXHIBIT
INDEX
|
|
Exhibit
No.
|
Description
of Document
|
|
99.1
|
Press
Release dated February 25, 2010
|
Exhibit 99.1
{Charles & Colvard Logo}
NEWS
RELEASE
|
300
Perimeter Park Drive, Suite A
Morrisville,
North Carolina 27560
919.468.0399
|
Company
Contact:
Timothy
Krist
Chief
Financial Officer
919.468.0399,
ext. 295
tkrist@charlesandcolvard.com
|
Investor
Relations:
Fran
Barsky
919.244.7357
fbarsky@charlesandcolvard.com
|
FOR
IMMEDIATE RELEASE
CHARLES
& COLVARD REPORTS FOURTH QUARTER AND FISCAL YEAR 2009 FINANCIAL
RESULTS
|
·
|
10%
increase in fourth quarter net sales over third quarter
2009
|
|
·
|
$7.4
million cash and no debt
|
|
·
|
Positive
cash flow from operations: $563,000 in fourth quarter, $1.9 million in
2009
|
MORRISVILLE,
N.C., February 25, 2010 - Charles & Colvard, Ltd. (NASDAQ: CTHR), the sole
manufacturer of moissanite jewels, The Most Brilliant Jewel in the WorldTM,
announced today its financial results for the fourth quarter and fiscal year
ended December 31, 2009.
Net sales
for the quarter were $2.4 million, down 33% from $3.5 million in the fourth
quarter of 2008. Net sales for fiscal year 2009 were $8.3 million, down 44% from
$14.7 million in the same period of 2008. Sales continued to be impacted by the
economic recession, which has measurably affected the retail and jewelry
industries, combined with reduced demand from major retailers who curbed
purchases due to current levels of moissanite inventory. However, net sales for
the quarter were up 10% over net sales of $2.1 million in the third quarter of
2009.
The net
loss for the quarter was $440,000, or $0.02 per diluted share, as compared to a
net loss of $1.3 million, or $0.07 per diluted share, in the fourth quarter of
2008. The fourth quarter 2009 results included a reserve on a note receivable of
$170,000 and an impairment loss on long-lived assets of $146,000, both of which
are expected to be non-recurring. The fourth quarter 2008 results included a
reversal of a bad debt expense of $1.9 million related to a receivable
settlement with a wholesale customer. The net loss for fiscal year 2009 was $3.4
million, or $0.18 per diluted share, representing a $2.8 million, or 45%,
improvement over the net loss of $6.2 million, or $0.34 per diluted share, in
the same period of 2008. Offsetting sales declines during fiscal year 2009 was a
46% reduction in costs and expenses when compared with fiscal year 2008, due to
lower sales and cost control measures, including a reduction in headcount and
decreased expenses for sales and marketing programs.
Randy N.
McCullough, Chief Executive Officer of Charles & Colvard, commented, “With
our new management team in place, we experienced a renewed interest in
moissanite and confidence in the Company with our existing customer base, who
responded with increased orders during the quarter. This, coupled with our cost
savings initiatives, resulted in the lowest quarterly net loss this year along
with positive cash flow from operations. This momentum, along with a strong cash
position, will carry us into 2010 as our management team works closely with
select major jewelry manufacturers to establish new exclusive supply
relationships. These exclusive sales and distribution rights target appropriate
retailers, affording Charles & Colvard new opportunities to establish our
jewel in the marketplace as we continue repositioning for the
future.”
~more~
Financial
Position
The
Company had $7.4 million in cash at the end of the quarter and generated $1.9
million of cash from operations during fiscal year 2009, $563,000 of which was
generated in the fourth quarter. A $1.5 million decrease in accounts receivable,
receipt of a $2.1 million income tax receivable during the second quarter, and a
$3.0 million decrease in inventory were the primary drivers for positive cash
flow in fiscal year 2009, which more than offset the net loss of $3.4 million
and a $1.4 million decrease in accounts payable.
Total
inventory, including long-term and consignment inventory, was $41.4 million at
the end of fiscal year 2009, down from $43.0 million and $42.2 million at the
end of fiscal year 2008 and the end of third quarter 2009, respectively. No
purchases of raw material were made in fiscal year 2009. Trade accounts
receivable were $1.0 million at the end of fiscal year 2009, down from $3.8
million at the end of fiscal year 2008 and up slightly from $918,000 at the end
of third quarter 2009. Cash collections and a settlement agreement with a former
customer positively impacted accounts receivable during fiscal year
2009.
Fourth
Quarter and Fiscal Year 2009 Financial Results Webcast
Charles
and Colvard will host a webcast to present fourth quarter and fiscal year 2009
results on Thursday, February 25, 2010 at 11:00 a.m. Eastern Time. The webcast
can be accessed live and will be available for replay at
www.charlesandcolvard.com.
About
Charles & Colvard, Ltd.
Charles &
Colvard, Ltd. (NASDAQ: CTHR), based in the Research Triangle Park area of North
Carolina, is the global sole source of lab-created moissanite, a unique,
near-colorless jewel that is distinct from other gemstones and jewels based on
its exceptional fire, brilliance, luster, durability, and rarity.
Charles & Colvard Created Moissanite is currently used in fine jewelry
sold primarily through domestic and international retailers. For more
information, please access www.moissanite.com or
www.charlesandcolvard.com.
Charles
& Colvard and Charles & Colvard Created Moissanite are registered
trademarks of Charles & Colvard, Ltd.
This
press release contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Statements expressing expectations regarding our future and
projections relating to 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, the recent downturn in the worldwide
economy and its ongoing impact on our business and the business of our customers
and suppliers, any continued trends in the general economy that would adversely
affect consumer spending, a further decline in our sales, dependence on consumer
acceptance of our products, dependence on Cree, Inc. as the current supplier of
the raw material, ability to develop a material second source of supply,
dependence on a limited number of customers, risks of conducting operations in
foreign countries, dependence on third parties for the sales and marketing of
our products to end consumers, and the impact of significant changes in our
management on our ability to execute our business strategy in the near-term, in
addition to the other risks and uncertainties described in more detail 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, 2008 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.
Financial
Tables Follow
~more~
Charles
& Colvard, Ltd.
Consolidated
Statements of Operations
(unaudited)
|
Three
Months Ended December 31,
|
Year
Ended December 31,
|
|||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||
|
Net
sales
|
$
|
2,362,072
|
$
|
3,520,950
|
$
|
8,312,470
|
$
|
14,727,054
|
||||
|
Costs
and expenses:
|
||||||||||||
|
Cost
of goods sold
|
891,943
|
1,365,291
|
3,472,842
|
5,592,879
|
||||||||
|
Sales
and marketing
|
445,268
|
1,644,585
|
1,949,576
|
7,466,266
|
||||||||
|
General
and administrative
|
1,291,567
|
(232,270
|
)
|
5,702,609
|
8,454,567
|
|||||||
|
Research
and development
|
24,721
|
77,981
|
401,496
|
113,621
|
||||||||
|
Loss on impairment of long-lived assets
|
145,800
|
-
|
145,800
|
-
|
||||||||
|
Total
costs and expenses
|
2,799,299
|
2,855,587
|
11,672,323
|
21,627,333
|
||||||||
|
Income
(loss) from operations
|
(437,227
|
)
|
665,363
|
(3,359,853
|
)
|
(6,900,279
|
)
|
|||||
|
Interest
income
|
12,600
|
20,266
|
38,194
|
116,484
|
||||||||
|
Income
(loss) before income taxes
|
(424,627
|
)
|
685,629
|
(3,321,659
|
)
|
(6,783,795
|
)
|
|||||
|
Income
tax benefit (expense)
|
(15,523
|
) |
(1,937,569
|
) |
(77,710
|
)
|
632,667
|
|||||
|
Net
loss
|
$
|
(440,150
|
) |
$
|
(1,251,940
|
) |
$
|
(3,399,369
|
)
|
$
|
(6,151,128
|
) |
|
Net
loss per common share:
|
||||||||||||
|
Basic
and fully diluted
|
$
|
(0.02
|
)
|
$
|
(0.07
|
)
|
$
|
(0.18
|
)
|
$
|
(0.34
|
)
|
|
Weighted
average number of shares used in computing net loss per common
share:
|
||||||||||||
|
Basic
and fully diluted
|
18,965,357
|
18,334,136
|
18,720,850
|
18,240,853
|
||||||||
~more~
Charles
& Colvard, Ltd.
Consolidated
Balance Sheets
(unaudited)
|
December
31,
|
||||||
|
2009
|
2008
|
|||||
|
ASSETS
|
||||||
|
Current
assets:
|
||||||
|
Cash
and cash equivalents
|
$
|
7,405,685
|
$
|
5,587,144
|
||
|
Accounts
receivable, net
|
1,043,296
|
3,754,657
|
||||
|
Interest
receivable
|
65
|
2,747
|
||||
|
Income
tax receivable
|
-
|
2,074,420
|
||||
|
Note
receivable, net
|
54,627
|
142,000
|
||||
|
Inventory,
net
|
3,470,136
|
8,291,847
|
||||
|
Prepaid
expenses and other assets
|
188,812
|
500,643
|
||||
|
Deferred
income taxes
|
-
|
1,231,071
|
||||
|
Total
current assets
|
12,162,621
|
21,584,529
|
||||
|
Property
and equipment, net
|
218,418
|
412,234
|
||||
|
Patent
and license rights, net
|
260,548
|
279,315
|
||||
|
Inventory,
non-current, net
|
37,888,622
|
34,727,841
|
||||
|
Note
receivable, non-current
|
-
|
82,627
|
||||
|
Deferred
income taxes, non-current
|
-
|
940,903
|
||||
|
Other
assets, non-current
|
1,990
|
-
|
||||
|
TOTAL
ASSETS
|
$
|
50,532,199
|
$
|
58,027,449
|
||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||
|
Current
liabilities:
|
||||||
|
Accounts
payable
|
$
|
265,439
|
$
|
1,631,074
|
||
|
Deferred
revenue
|
-
|
171,181
|
||||
|
Accrued
co-op advertising
|
173,000
|
401,849
|
||||
|
Accrued
expenses and other liabilities
|
157,954
|
623,584
|
||||
|
Total
current liabilities
|
596,393
|
2,827,688
|
||||
|
Long-term
liabilities:
|
||||||
|
Accrued
income taxes
|
1,058,659
|
3,154,110
|
||||
|
Total
liabilities
|
1,655,052
|
5,981,798
|
||||
|
Commitments
and contingencies
|
||||||
|
Stockholders’
equity:
|
||||||
|
Common
stock, no par value; 50,000,000 shares authorized; 19,013,749 and
18,334,136 shares issued and outstanding at December 31, 2009 and 2008,
respectively
|
52,906,459
|
52,910,075
|
||||
|
Additional
paid-in capital – share-based compensation
|
6,411,727
|
6,177,246
|
||||
|
Accumulated
deficit
|
(10,441,039
|
) |
(7,041,670
|
) | ||
|
Total
stockholders’ equity
|
48,877,147
|
52,045,651
|
||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$
|
50,532,199
|
$
|
58,027,449
|
||
~more~
Charles & Colvard,
Ltd.
Consolidated
Statements of Cash Flows
(unaudited)
|
Year
Ended December 31,
|
||||||
|
2009
|
2008
|
|||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||
|
Net
loss
|
$
|
(3,399,369
|
)
|
$
|
(6,151,128
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||
|
Depreciation
and amortization
|
168,881
|
216,028
|
||||
|
Share-based
compensation
|
233,909
|
467,104
|
||||
|
Provision
for uncollectible accounts
|
297,014
|
2,675,000
|
||||
|
Provision
for sales returns
|
(150,000
|
)
|
130,000
|
|||
|
Consignment
inventory reserve
|
(138,000
|
)
|
185,000
|
|||
|
Jewelry
reserve
|
116,000
|
220,000
|
||||
|
Provision
(benefit) for deferred income taxes
|
2,171,974
|
(662,775
|
)
|
|||
|
Loss
on impairment of long-lived assets
|
145,800
|
-
|
||||
|
Loss
on disposal of assets
|
-
|
385,082
|
||||
|
Changes
in assets and liabilities:
|
||||||
|
Accounts
receivable
|
1,460,107
|
2,822,062
|
||||
|
Income
tax receivable
|
2,074,420
|
(1,992,229
|
)
|
|||
|
Inventory
|
2,957,170
|
(238,851
|
)
|
|||
|
Other
assets, net
|
312,523
|
263,694
|
||||
|
Accounts
payable
|
(1,365,635
|
)
|
(1,717,699
|
)
|
||
|
Deferred
revenue
|
(171,181
|
)
|
171,181
|
|||
|
Accrued
co-op advertising
|
(228,849
|
)
|
(50,943
|
)
|
||
|
Accrued
income taxes
|
(2,095,451
|
)
|
2,242,504
|
|||
|
Other
accrued liabilities, net
|
(465,630
|
)
|
98,267
|
|||
|
Net
cash provided by (used in) operating activities
|
1,923,683
|
(937,703
|
)
|
|||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||
|
Purchases
of property and equipment
|
(75,792
|
)
|
(28,910
|
)
|
||
|
Patent
and license rights costs
|
(26,306
|
)
|
(308,968
|
)
|
||
|
Proceeds
from sale of equipment
|
-
|
898
|
||||
|
Net
cash used in investing activities
|
(102,098
|
)
|
(336,980
|
)
|
||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||
|
Stock
option exercises
|
45,992
|
-
|
||||
|
Excess
tax benefit (cost) from share-based payment arrangements
|
1,390
|
(186,582
|
)
|
|||
|
Share
repurchases
|
(50,426
|
)
|
-
|
|||
|
Net
cash used in financing activities
|
(3,044
|
)
|
(186,582
|
)
|
||
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
1,818,541
|
(1,461,265
|
)
|
|||
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
5,587,144
|
7,048,409
|
||||
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
7,405,685
|
$
|
5,587,144
|
||
|
Supplemental
schedule of non-cash operating activities:
|
||||||
|
Inventory
acquired from settlement of accounts receivable
|
$
|
1,274,240
|
$
|
-
|
||
|
Supplemental
schedule of non-cash investing activities:
|
||||||
|
Reduction
of note receivable
|
$
|
-
|
$
|
140,763
|
||