UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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): March 9, 2017
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.) |
| 170 Southport Drive | |
| 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 March 9, 2017, Charles & Colvard, Ltd. (the “Company”) issued a press release regarding its financial results for the fiscal quarter and year ended December 31, 2016. 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 March 9, 2017 |
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. | ||
| March 9, 2017 | By: | /s/ Suzanne Miglucci |
| Suzanne Miglucci President and Chief Executive Officer | ||
Exhibit Index
|
Exhibit No. |
Description of Document | |
| 99.1 | Press Release dated March 9, 2017 |
Exhibit 99.1
CHARLES & COLVARD REPORTS FOURTH
QUARTER AND
FULL YEAR 2016 FINANCIAL RESULTS
- Net Sales from Continuing Operations Increased 14% in 2016 -
- Enhanced Branded Web Presence Features
Unique and Sophisticated Moissanite Jewelry -
- Conference Call to Be Held Today at 4:30 PM EST -
RESEARCH TRIANGLE PARK, NC – March 9, 2017 – Charles & Colvard, Ltd. (NASDAQ: CTHR), the original and leading worldwide source of created moissanite, reports financial results for the fourth quarter and full year ended December 31, 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, “We remain focused on our vision to create the world’s most brilliant gem, leading the way for environmentally and socially responsible choices in the jewelry industry at a revolutionary value. We made substantial progress during the year by executing a corporate re-branding initiative designed to position our brand as a premier, consumer-facing provider of fine jewelry. We shifted to an up-market offering led by our innovative and popular Forever One™ moissanite collection and expanded our jewelry line featuring a curated bridal collection. We enhanced our omni-channel distribution network, expanding partnerships with leading online marketplaces, retailers and a pilot roll out in more than 50 stores of a well-respected national fine jewelry retailer.”
“2016 was a pivotal year for Charles & Colvard from both a marketing and financial perspective. We are gradually improving our financial performance and balance sheet position as our strategic actions take effect. For the full year of 2016, net sales increased 14%, gross margin percentages expanded by approximately 400 basis points and net loss declined by 53% compared to the full year of 2015. On a quarterly basis, comparisons were impacted first, by the transition to the redesigned e-commerce website in the fourth quarter of 2016 with a strategy that requires attracting a new customer base, and second, by the reduction of online clearance sales in fourth quarter 2016 versus 2015 due to the rebranding of Charles & Colvard on the new website. As we move forward with our transformation into 2017, we are committed to continuing product innovation, investing in key retail and wholesale partnerships and leveraging traditional and non-traditional sales channels,” Ms. Miglucci concluded.
Recent Corporate Highlights:
| • | Expanded the Forever One™ moissanite collection through continuous research and development to include four sought-after shapes: emerald, hearts and arrows, pear and radiant; |
| • | 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; |
| • | Launched an updated brand platform in the fourth quarter of 2016 through the redesigned Charles & Colvard website; |
| • | Continued deployment of digital marketing, social media and public relations campaigns to increase market awareness of Charles & Colvard brands, products and marketplaces; and |
| • | Enhanced the management team with the addition of Jose Ayala, Senior Director of Merchandising, who brings extensive brand management expertise having worked in premier organizations including Colombian Emeralds, Tiffany & Co, Saks Fifth Avenue and HSN/Cornerstone Brands. |
Financial Summary for the Fourth Quarter 2016:
| • | Net sales from continuing operations were $6.0 million for the quarter, compared with $7.4 million in the year-ago fourth quarter, a decrease of 18%. |
| • | Loose jewel net sales from continuing operations were $3.3 million for the quarter, compared with $4.7 million for the year-ago fourth quarter, a decrease of 30%. |
| • | Finished jewelry net sales from continuing operations were $2.8 million for the quarter, compared with $2.7 million in the year-ago fourth quarter, a 2% increase. |
| • | The Company’s wholesale business net sales decreased 11% to $4.9 million, or 81% of net sales for the quarter compared with $5.5 million, or 75% of net sales in the year-ago fourth quarter. |
| • | The Company’s direct-to-consumer e-commerce business, charlesandcolvard.com (formerly Moissanite.com), net sales decreased 40% to $1.1 million, or 19% of net sales for the quarter compared with $1.9 million, or 25% of net sales in the year-ago fourth quarter. |
| • | Operating expenses from continuing operations were $3.0 million for the fourth quarter of 2016, compared with $3.3 million in the year-ago fourth quarter. |
| • | Net loss from continuing operations for the fourth quarter of 2016 was $1.1 million, or $0.05 per share, compared with a net loss of $1.0 million, or $0.05 per share, in the year-ago fourth quarter. |
| • | Net loss for the fourth quarter of 2016 was $1.1 million, or $0.05 per share, compared with a net loss of $1.9 million, or $0.09 per share, in the year-ago fourth quarter. |
Financial Summary for Full Year 2016:
| • | Net sales from continuing operations for the year ended December 31, 2016 were $29.2 million compared with $25.7 million in the year-ago period, an increase of 14%. |
| • | Loose jewel net sales from continuing operations were $21.5 million in 2016 compared with $15.1 million for the year-ago period, an increase of 42%. |
| • | Finished jewelry net sales from continuing operations were $7.7 million in 2016 compared with $10.6 million in the year-ago period, a 27% decrease. |
| • | The Company’s wholesale business net sales increased 21% to $24.5 million, or 84% of net sales in 2016, compared with $20.3 million, or 79% of net sales in the year-ago period. |
| • | The Company’s direct-to-consumer e-commerce business, charlesandcolvard.com, net sales decreased by 15% to $4.6 million, or 16% of net sales in 2016, compared with $5.4 million, or 21% of net sales in the year-ago period. |
| • | Operating expenses from continuing operations were $12.7 million in 2016, compared with $11.8 million in the year-ago period. |
| • | Net loss from continuing operations in 2016 was $4.0 million, or $0.19 per share, compared with a net loss of $5.1 million, or $0.25 per share, in the year-ago period. |
| • | Net loss in 2016 was $4.5 million, or $0.22 per share, compared with a net loss of $9.6 million, or $0.47 per share, in the year-ago period. |
Financial Position
Cash and cash equivalents totaled $7.4 million at December 31, 2016, an increase of approximately $2.2 million from $5.3 million at December 31, 2015. The Company had no debt outstanding as of December 31, 2016. Total inventory was $28.1 million at December 31, 2016 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. EST on Thursday, March 9, 2017. A replay of this conference call will be available until March 16, 2017 at 877-344-7529 (U.S. toll-free) or 412-317-0088 (international). The replay conference ID is 10101900. The call will also be available live and for replay in the Investor Relations section of the Company’s website at http://ir.charlesandcolvard.com/events.
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 successfully manage the transition of our Chief Financial Officer and other organizational change; 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, including the current economic environment; risks of conducting business in foreign countries; the impact of natural disasters on our operations; 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.
Contacts:
Clint J. Pete
Interim Chief Financial Officer
919-468-0399
cpete@charlesandcolvard.com
Investor Relations:
Taglich Brothers, Inc.
Christopher Schreiber
212-661-6886
-Financial Tables Follow-
CHARLES & COLVARD, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Net sales | $ | 6,034,880 | $ | 7,393,819 | $ | 29,168,128 | $ | 25,693,292 | ||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of goods sold | 4,122,450 | 5,073,263 | 20,401,439 | 18,943,507 | ||||||||||||
| Sales and marketing | 1,815,520 | 1,451,808 | 7,038,277 | 5,764,389 | ||||||||||||
| General and administrative | 1,164,234 | 1,812,572 | 5,544,452 | 6,031,829 | ||||||||||||
| Research and development | - | 2,.340 | 2,848 | 17,795 | ||||||||||||
| Loss on abandonment of property and | ||||||||||||||||
| equipment | 1,909 | - | 117,930 | - | ||||||||||||
| Total costs and expenses | 7,104,113 | 8,339,983 | 33,104,946 | 30,757,520 | ||||||||||||
| Loss from operations | (1,069,233 | ) | (946,164 | ) | (3,936,818 | ) | (5,064,228 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | - | - | - | 11 | ||||||||||||
| Interest expense | (189 | ) | (9,558 | ) | (1,737 | ) | (10,359 | ) | ||||||||
| Gain on sale of long-term assets | - | - | - | 125 | ||||||||||||
| Total other expense, net | (189 | ) | (9,558 | ) | (1,737 | ) | (10,223 | ) | ||||||||
| Loss before income taxes from continuing operations | (1,069,422 | ) | (955,722 | ) | (3,938,555 | ) | (5,074,451 | ) | ||||||||
| Income tax net expense from continuing operations | (3,412 | ) | (3,242 | ) | (13,480 | ) | (12,821 | ) | ||||||||
| Net loss from continuing operations | (1,072,834 | ) | (958,964 | ) | (3,952,035 | ) | (5,087,272 | ) | ||||||||
| Discontinued operations: | ||||||||||||||||
| Loss from discontinued operations | (97 | ) | (921,027 | ) | (586,124 | ) | (4,485,787 | ) | ||||||||
| (Loss) gain on sale of assets from discontinued operations | - | - | 12,398 | - | ||||||||||||
| Net loss from discontinued operations | (97 | ) | (921,027 | ) | (573,726 | ) | (4,485,787 | ) | ||||||||
| Net loss | $ | (1,072,931 | ) | $ | (1,879,991 | ) | $ | (4,525,761 | ) | $ | (9,573,059 | ) | ||||
| Net loss per common share: | ||||||||||||||||
| Basic – continuing operations | $ | (0.05 | ) | $ | (0.05 | ) | $ | (0.19 | ) | $ | (0.25 | ) | ||||
| Basic – discontinued operations | (0.00 | ) | (0.04 | ) | (0.03 | ) | (0.22 | ) | ||||||||
| Basic – total | $ | (0.05 | ) | $ | (0.09 | ) | $ | (0.22 | ) | $ | (0.47 | ) | ||||
| Diluted – continuing operations | $ | (0.05 | ) | $ | (0.05 | ) | $ | (0.19 | ) | $ | (0.25 | ) | ||||
| Diluted – discontinued operations | (0.00 | ) | (0.04 | ) | (0.03 | ) | (0.22 | ) | ||||||||
| Diluted – total | $ | (0.05 | ) | $ | (0.09 | ) | $ | (0.22 | ) | $ | (0.47 | ) | ||||
| Weighted average number of shares used in computing net loss per common share: | ||||||||||||||||
| Basic | 21,008,429 | 20,618,225 | 20,926,120 | 20,407,764 | ||||||||||||
| Diluted | 21,008,429 | 20,618,225 | 20,926,120 | 20,407,764 | ||||||||||||
CHARLES & COLVARD, LTD.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 7,427,273 | $ | 5,274,305 | ||||
| Accounts receivable, net | 2,794,626 | 3,852,651 | ||||||
| Inventory, net | 9,770,206 | 10,739,798 | ||||||
| Prepaid expenses and other assets | 682,083 | 701,105 | ||||||
| Assets related to discontinued operations | - | 83,000 | ||||||
| Total current assets | 20,674,188 | 20,650,859 | ||||||
| Long-term assets: | ||||||||
| Inventory, net | 18,360,211 | 21,588,622 | ||||||
| Property and equipment, net | 1,391,116 | 1,615,683 | ||||||
| Intangible assets, net | 8,808 | 71,086 | ||||||
| Other assets | 71,453 | 214,588 | ||||||
| Total long-term assets | 19,831,588 | 23,489,979 | ||||||
| TOTAL ASSETS | $ | 40,505,776 | $ | 44,140,838 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,977,149 | $ | 3,323,148 | ||||
| Accrued cooperative advertising | 50,000 | 58,000 | ||||||
| Accrued expenses and other liabilities | 581,107 | 891,187 | ||||||
| Liabilities related to discontinued operations | - | 349,000 | ||||||
| Total current liabilities | 4,608,256 | 4,621,335 | ||||||
| Long-term liabilities: | ||||||||
| Accrued expenses and other liabilities | 594,916 | 710,223 | ||||||
| Accrued income taxes | 433,983 | 420,503 | ||||||
| Total long-term liabilities | 1,028,899 | 1,130,726 | ||||||
| Total liabilities | 5,637,155 | 5,752,061 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, no par value; 50,000,000 shares authorized; 21,369,885 and 21,111,585 shares issued and outstanding at December 31, 2016 and 2015, respectively | 54,243,816 | 54,240,247 | ||||||
| Additional paid-in capital | 14,282,956 | 13,280,920 | ||||||
| Accumulated deficit | (33,658,151 | ) | (29,132,390 | ) | ||||
| Total shareholders’ equity | 34,868,621 | 38,388,777 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 40,505,776 | $ | 44,140,838 | ||||
CHARLES & COLVARD, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (4,525,761 | ) | $ | (9,573,059 | ) | ||
| Net loss from discontinued operations | (573,726 | ) | (4,485,787 | ) | ||||
| Net loss from continuing operations | $ | (3,952,035 | ) | $ | (5,087,272 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities of continuing operations: | ||||||||
| Depreciation and amortization | 557,393 | 758,787 | ||||||
| Stock-based compensation | 959,134 | 1,545,144 | ||||||
| Provision for uncollectible accounts | (73,300 | ) | 89,462 | |||||
| Provision for sales returns | (316,000 | ) | (179,000 | ) | ||||
| Provision for inventory reserves | 200,000 | 436,000 | ||||||
| Loss on abandonment of property and equipment | 117,930 | - | ||||||
| Gain on sale of long-term assets | - | (125 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 1,447,325 | 1,747,140 | ||||||
| Inventory | 3,998,003 | 6,174,209 | ||||||
| Prepaid expenses and other assets, net | 162,157 | (103,012 | ) | |||||
| Accounts payable | 654,001 | 251,517 | ||||||
| Accrued cooperative advertising | (8,000 | ) | (162,000 | ) | ||||
| Accrued income taxes | 13,480 | 12,821 | ||||||
| Accrued expenses and other liabilities | (425,387 | ) | 338,702 | |||||
| Net cash provided by operating activities of continuing operations | 3,334,701 | 5,822,373 | ||||||
| Net cash used in operating activities of discontinued operations | (1,125,578 | ) | (4,254,480 | ) | ||||
| Net cash provided by operating activities | 2,209,123 | 1,567,893 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property and equipment | (421,761 | ) | (407,452 | ) | ||||
| Patent, license rights, and trademark costs | (5,615 | ) | (45,742 | ) | ||||
| Proceeds from sale of long-term assets | 250 | 175 | ||||||
| Net cash used in investing activities of continuing operations | (427,126 | ) | (453,019 | ) | ||||
| Net cash provided by (used in) investing activities of discontinued operations | 368,671 | (20,676 | ) | |||||
| Net cash used in investing activities | (58,455 | ) | (473,695 | ) | ||||
| 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 | 2,152,968 | 1,266,964 | ||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 5,274,305 | 4,007,341 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 7,427,273 | $ | 5,274,305 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the period for interest | $ | 1,737 | $ | 10,359 | ||||