Charles & Colvard Reports Second Quarter Sales Increase 29% Over Prior-Year Period Quarter Demonstrates Investment for Holiday Season and Long Term Growth Business Wire MORRISVILLE, N.C. -- August 8, 2013 Charles & Colvard, Ltd.(NASDAQ Global Select Market: CTHR), the sole manufacturer of created moissanite gemstones,The Most Brilliant Jewel in the World^®, today announced that net sales for the three and six months ended June 30, 2013 increased 29% and 41%, respectively, over the prior-year periods. Financial and Business Highlights: *Q2 net sales increase 29% to$6.5 millionvs.$5.1 millionin Q2 2012 *Q2 net loss of$492,000 after approximate $761,000 incremental year-over-year investment in consumer-direct business models vs. prior-year period net income of $549,000 *Increased our capacity to deliver Forever Brilliant^® to meet growing demand *Recently entered into a wholesale distribution agreement with Amazon.com *Announce Kyle Macemore as chief financial officer Net sales for the three months endedJune 30, 2013increased 29% to approximately$6.5 million, compared with approximately$5.1 millionin net sales during the corresponding period of the previous year. Loose moissanite gemstone net sales were flat compared with the corresponding period of the previous year at approximately$4.1 million. Finished jewelry net sales increased 151% to approximately$2.4 million, compared with approximately$972,000in the corresponding period of the previous year. Net sales for the six months ended June 30, 2013 increased 41% to approximately $13.0 million, compared with approximately $9.2 million in net sales during the corresponding period of the previous year. Loose moissanite gemstone net sales increased 29% to approximately $8.4 million, compared with approximately $6.5 million in the corresponding period of the previous year. Finished jewelry net sales increased 70% to approximately $4.6 million, compared with approximately $2.7 million in the corresponding period of the previous year. The Company recorded a net loss of$492,000, or$0.02per share, in the second quarter of 2013, compared with net income of$549,000, or$0.03per diluted share, in the second quarter of 2012. For the first six months of 2013, the Company recorded a net loss of $185,000, or $0.01 per share, compared with net income of $173,000, or $0.01 per diluted share, in the corresponding period of the prior year. The Company sold slow moving inventory at reduced margins, negatively impacting the Company’s overall gross margin percentage in the second quarter of 2013. Operating expenses increased$1.1 million, or 38%, and $1.3 million, or 23%, during the second quarter and six months ended June 30, 2013, respectively, when compared to the same periods in 2012. Of these increases, sales and marketing expenses increased$949,000, or 60%, and $1.7 million, or 55%, during the second quarter and six months ended June 30, 2013, respectively, when compared with the same periods in 2012. These increases were primarily due to the Company’s ongoing investments in marketing and branding initiatives to better position Charles & Colvard’s product lines in the marketplace, as well as marketing investments and key strategic personnel additions in support of its direct-to-consumerMoissanite.come-commerce andLulu Avenue^TMhome party businesses. “We continued to take steps in the second quarter to strategically support and align our growing retail brands for the holiday season and future growth,” stated Randy N. McCullough, Chief Executive Officer ofCharles & Colvard, Ltd.“The sale of close-out jewelry during the quarter hampered our gross margin percentage, but we believe this is a limited occurrence event and an important step in fine-tuning our inventory and maintenance of our relationship with key distribution channels, positioning them with the opportunity for strong sales in the second half of the year.” Steve Larkin, Chief Operating Officer, shared: “A key step in increasing our global wholesale distribution channels we believe has been achieved through our new relationship with the world’s largest Internet retailer, Amazon.com, which reaches over 17 million visitors a day. This is a testament to our continued effort to promote moissanite and broaden consumer access to the brightest gemstone available.” “The reception of the Forever Brilliant^® gemstone has been extremely positive and the Company has invested significantly to increase capacity to meet the growing demand. We continue to receive feedback from consumers who are delighted with the increased brilliance of our exclusive Forever Brilliant^® gemstone that stems from the technological advancement in the organic growth of silicon carbide crystals resulting in up to four color shades improved natural whiteness throughout,” added McCullough. “We are also seeing increased traction in our Moissanite.com and Lulu Avenue™ channels with meaningful increases in web traffic and the enrollment of additional style advisors.” “The board and the executive team are excited to announce that Kyle Macemore has joined Charles & Colvard as our chief financial officer,” said McCullough. “Kyle has significant experience working as a CFO for growing public companies and we believe he is the best financial officer to lead the company through its next phase of growth and return shareholder value.” “I believe our recent investments will propel our company to greater levels of growth and shareholder value. We are committed to the investments that we believe will deliver the long term top- and bottom-line growth that is expected from Charles & Colvard and that we demand of ourselves,” concluded McCullough. Financial Position Cash and liquid long-term investments totaled$9.8 millionatJune 30, 2013, down from approximately$12.4 millionatDecember 31, 2012, and the Company had no debt outstanding as ofJune 30, 2013. Cash used in operations totaled $3.2 million and $2.3 million during the three and six months ended June 30, 2013, respectively. During the second quarter of 2013, the primary drivers of negative cash flow were a net increase in inventory of $2.8 million, an increase in trade accounts receivable of $410,000, an increase in prepaid expenses and other assets of $138,000, and a decrease in trade accounts payable of $41,000. These factors more than offset a net increase in accrued liabilities of$185,000, the Company’s net loss of$492,000that included$527,000of net non-cash expenses, and a decrease in interest receivable of$3,000. During the six months ended June 30, 2013, the primary drivers of negative cash flow were a net increase in inventory of $3.7 million and an increase in prepaid expenses and other assets of $393,000. These factors more than offset the Company’s net loss of $185,000 that included $955,000 of net non-cash expenses, a decrease in trade accounts receivable of $477,000, an increase in trade accounts payable of $430,000, and a net increase in accrued liabilities of $73,000. Total inventory, including long-term and consignment inventory, approximated $36.4 million as of June 30, 2013, which was up from approximately $32.8 million at the end of 2012 primarily as a result of the purchase of new raw material silicon carbide crystals and the production of moissanite gemstones in support of the Company’s whiter Forever Brilliant® gemstone; and purchases during the quarter of jewelry castings, findings, and other jewelry components, offset in part by sales during the quarter. Net trade accounts receivable approximated $7.9 million at the end of the second quarter of 2013, down $281,000 from the end of 2012. Investor Conference Call The Company will host an investor conference call at11:15 a.m. EDTtoday,August 8, 2013, to discuss its second quarter and first six months of 2013 operating results, along with other topics of interest.Shareholders and other interested parties may participate in the conference call by dialing 877-317-6789 (international/local participants dial 412-317-6789) and asking to be connected to the “Charles & Colvard, Ltd. Conference Call” a few minutes before11:15 a.m. EDTonThursday, August 8, 2013.The call will also be broadcast live on the Internet atwww.visualwebcaster.com/event.asp?id=91620. A replay of the conference call will be available one hour after the call until9:00 a.m. EDTonFriday, August 23, 2013by dialing 877-344-7529 (U.S.) or 412-317-0088 (international) and entering the conference ID number 10023607. The conference call will also be archived for review on the Internet at www.visualwebcaster.com/event.asp?id=91620 andon the Company’s website at www.charlesandcolvard.comuntilFriday, August 23, 2013. AboutCharles & Colvard, Ltd. Charles & Colvard, Ltd., based in theResearch Triangle Parkarea ofNorth Carolina, is the global sole source of moissanite, a unique, near-colorless created gemstone that is distinct from other gemstones and jewels based on its exceptional fire, brilliance, luster, durability, and rarity.Charles & Colvard Created Moissanite^®andForever Brilliant^®are currently incorporated into fine jewelry sold through domestic and international retailers and other sales channels. Charles & Colvard, Ltd.’s common stock is listed on the NASDAQ Global Select Market under the symbol “CTHR.” For more information, please visitwww.charlesandcolvard.com. This press release contains forward-looking statements within the meaning of Section27A of the Securities Act of 1933, as amended, and Section21E of the Securities Exchange Act of 1934, as amended.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, our dependence on consumer acceptance and growth of sales of our products resulting from our strategic initiatives; dependence on a limited number of customers; our ability to fulfill orders on a timely basis; the financial condition of our major customers; dependence onCree, Inc.as the sole current supplier of the raw material; our current wholesale customers’ potential perception of us as a competitor in the finished jewelry business; intense competition in the worldwide jewelry industry; general economic and market conditions, including the current economic environment; risks of conducting business in foreign countries; 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; possible adverse effects of governmental regulation and oversight; and the failure to evaluate and integrate strategic opportunities, in addition to the other risks and uncertainties described in our filings with theSecurities and Exchange Commission, or theSEC, including our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2012and subsequent reports filed with theSEC.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 theSECthat discuss other factors relevant to our business. (Financial Highlights Follow) Charles & Colvard, Ltd. Consolidated Statements of Operations (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 Net sales $ 6,512,500 $ 5,058,227 $ 13,017,574 $ 9,236,612 Costs and expenses: Cost of goods 3,389,315 1,642,759 6,271,293 3,670,445 sold Sales and 2,532,995 1,583,895 4,779,204 3,085,816 marketing General and 1,344,408 1,285,294 2,193,785 2,642,466 administrative Research and 9,041 8,381 15,024 16,789 development Loss on abandonment of 95,052 - 95,052 - assets Total costs 7,370,811 4,520,329 13,354,358 9,415,516 and expenses (Loss) income from (858,311 ) 537,898 (336,784 ) (178,904 ) operations Other income (expense): Interest 6,972 17,823 14,474 41,688 income Interest (234 ) (127 ) (974 ) (604 ) expense Total other 6,738 17,696 13,500 41,084 income, net (Loss) income before income (851,573 ) 555,594 (323,284 ) (137,820 ) taxes Income tax net benefit 359,988 (7,022 ) 137,972 310,546 (expense) Net (loss) $ (491,585 ) $ 548,572 $ (185,312 ) $ 172,726 income Net (loss) income per common share: Basic $ (0.02 ) $ 0.03 $ (0.01 ) $ 0.01 Fully diluted $ (0.02 ) $ 0.03 $ (0.01 ) $ 0.01 Weighted average number of shares used in computing net (loss) income per common share: Basic 19,812,397 19,564,451 19,736,068 19,517,481 Fully diluted 19,812,397 19,972,267 19,736,068 19,905,582 Charles & Colvard, Ltd. Consolidated Balance Sheets (unaudited) June 30, 2013 December 31, (unaudited) 2012 ASSETS Current assets: Cash and cash equivalents $ 9,271,219 $ 11,860,842 Accounts receivable, net 7,857,189 8,138,358 Interest receivable 1,585 694 Held-to-maturity investments 502,362 505,068 Inventory, net 9,031,685 8,442,430 Prepaid expenses and other assets 1,129,158 737,406 Deferred income taxes 1,211,772 1,211,772 Total current assets 29,004,970 30,896,570 Long-term assets: Inventory, net 27,353,831 24,353,580 Property and equipment, net 1,528,557 1,746,792 Intangible assets, net 379,454 346,732 Deferred income taxes 2,671,650 2,520,818 Other assets 13,266 12,199 Total long-term assets 31,946,758 28,980,121 TOTAL ASSETS $ 60,951,728 $ 59,876,691 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,542,711 $ 2,112,585 Accrued cooperative advertising 308,000 200,000 Accrued expenses and other liabilities 533,902 574,522 Total current liabilities 3,384,613 2,887,107 Long-term liabilities: Accrued income taxes 389,540 383,730 Total liabilities 3,774,153 3,270,837 Commitments and contingencies Shareholders’ equity: Common stock, no par value 53,340,844 53,318,044 Additional paid-in capital – stock-based 9,193,253 8,459,020 compensation Accumulated deficit (5,356,522 ) (5,171,210 ) Total shareholders’ equity 57,177,575 56,605,854 TOTAL LIABILITIES AND SHAREHOLDERS’ $ 60,951,728 $ 59,876,691 EQUITY Charles & Colvard, Ltd. Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, 2013 2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (185,312 ) $ 172,726 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 384,749 265,607 Amortization of bond premium 2,706 2,652 Stock-based compensation 743,633 569,230 Provision for uncollectible accounts (60,805 ) 245,460 Provision for sales returns (135,000 ) 170,000 Provision for inventory reserves 75,000 26,000 Benefit for deferred income taxes (150,832 ) - Loss on abandonment of assets 95,052 - Changes in assets and liabilities: Accounts receivable 476,974 215,840 Interest receivable (891 ) 10,220 Inventory (3,664,506 ) 734,983 Prepaid expenses and other assets, net (392,819 ) (174,519 ) Accounts payable 430,126 (316,446 ) Accrued cooperative advertising 108,000 100,000 Accrued income taxes 5,810 (358,493 ) Other accrued liabilities (40,620 ) (247,293 ) Net cash (used in) provided by operating (2,308,735 ) 1,415,967 activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (202,610 ) (485,878 ) Proceeds from call of long-term - 2,500,000 investments Patent, license rights, and trademark (91,678 ) (40,498 ) costs Net cash (used in) provided by investing (294,288 ) 1,973,624 activities CASH FLOWS FROM FINANCING ACTIVITIES: Stock option exercises 13,400 119,914 Net cash provided by financing activities 13,400 119,914 NET (DECREASE) INCREASE IN CASH AND CASH (2,589,623 ) 3,509,505 EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF 11,860,842 6,701,701 PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,271,219 $ 10,211,206 Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 974 $ 604 Cash paid during the year for income taxes $ 7,050 $ 11,800 Contact: Corporate Communications: LANE Ted Lane, 212-302-5948 email@example.com
Charles & Colvard Reports Second Quarter Sales Increase 29% Over Prior-Year Period
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