SOURCE: Charles & Colvard, Ltd.

Charles & Colvard, Ltd.

April 28, 2011 08:28 ET

Charles & Colvard Reports First Quarter Operating Results

MORRISVILLE, NC--(Marketwire - Apr 28, 2011) - Charles & Colvard, Ltd. (NASDAQ: CTHR), the sole manufacturer of created moissanite gemstones, The Most Brilliant Jewel in the World®, today announced its operating results for the first quarter of 2011.

Financial Highlights:

-- Q1 net sales increase 4% to $3.0 million vs. $2.9 million in Q1 2010
-- Net loss of $236,000 vs. prior-year period net income of $298,000
-- $9.0 million cash and investments and no long-term debt at 3/31/11
-- Positive cash flow from operations of $491,000

Net sales for the three months ended March 31, 2011 increased 4% to approximately $3.0 million, compared with approximately $2.9 million in net sales during the corresponding period of the previous year. Loose moissanite gemstone sales were relatively flat versus the prior-year period, during what is historically the slowest quarter of the year. Finished jewelry sales increased 130% to $410,000 in the first quarter of 2011 from $178,000 in the first quarter of 2010 as a result of the Company's strategic initiative to expand this new business opportunity.

The Company recorded a net loss of $236,000, or $0.01 per share, in the first quarter of 2011, compared with net income of $298,000, or $0.02 per diluted share, in the first quarter of 2010. The net loss was primarily a result of higher manufacturing overhead and operating expenses incurred during the quarter to invest in new business initiatives to support future revenue streams. Operating expenses increased $227,000, or 14%, when compared with the same period in 2010.

"Our first quarter results reflect our focus upon establishing customer relationships that can increase future sales of finished jewelry, combined with the fact that January and February are seasonally the slowest months of the year for wholesale jewelry sales," commented Randy N. McCullough, Chief Executive Officer of Charles & Colvard, Ltd. "Historically, the vast majority of our revenue has been derived from the sale of loose gemstones to distributors and jewelry manufacturers, which excluded us from participating in the incremental revenue and gross profit generated by the sale of finished jewelry to retailers and consumers. As a result, Charles & Colvard had very little control over the final product and how it was positioned to the marketplace. Last year, we made a strategic decision to increase jewelry manufacturing activities and finished jewelry sales as a percentage of the Company's total revenues. While gross profit margins on finished jewelry, due to labor and overhead, are generally lower than margins on loose gemstones, we believe the success of this new business initiative will increase the total revenue and gross profit dollars that Charles & Colvard generates from the ultimate sale of moissanite jewelry to the consumer. In addition, we believe our entry into the finished jewelry business positions us to expand consumer awareness of moissanite."

"I am pleased to report that management's efforts to broaden our customer base and expand marketing channel relationships have been successful in recent months, and we believe this will be evident in our results for the year ending December 31, 2011," continued McCullough. "We continue to believe that created moissanite gemstones and finished jewelry containing moissanite are destined to capture a growing share of the $120 billion global jewelry market in coming years. As more retailers and consumers become aware of the value proposition of moissanite, which offers greater brilliance and fire than diamonds at significantly lower prices, we are confident in our ability to successfully execute a multi-brand strategy that can realize the full potential of The Most Brilliant Jewel in the World®."

Financial Position

Cash and liquid long-term investments totaled $9.0 million at the end of the first quarter of 2011, up slightly from approximately $8.8 million at December 31, 2010, and the Company had no long-term debt outstanding as of March 31, 2011. Cash generated from operations totaled $491,000 during the three months ended March 31, 2011. Receipt of an income tax receivable of $113,000, a net decrease in inventory of $578,000, a decrease in prepaid expenses and other assets of $35,000, and an increase in trade accounts payable of $146,000 were the primary drivers of positive cash flow, more than offsetting the Company's net loss of $236,000 that includes $240,000 of non-cash expenses, an increase in trade accounts receivable of $288,000, and a net decrease in accrued liabilities of $92,000.

Total inventory, including long-term and consignment inventory, approximated $36.8 million as of March 31, 2011, which was down from approximately $37.4 million at the end of 2010 primarily as a result of sales, offset in part by purchases of jewelry castings, findings, and other jewelry components and limited production of moissanite gemstones. Net trade accounts receivable approximated $4.0 million at the end of the first quarter of 2011, up from approximately $3.7 million at the end of 2010, primarily due to sales that occurred late in the quarter and extended payment terms that are offered by the Company from time to time.

Investor Conference Call

The Company will host an investor conference call at 11:15 a.m. EDT today, April 28, 2011, to discuss its first quarter 2011 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 before 11:15 a.m. EDT on Thursday, April 28, 2011. The call will also be broadcast live on the Internet at www.videonewswire.com/event.asp?id=78953.

A replay of the conference call will be available one hour after the call through Thursday, May 5, 2011, at 9:00 a.m. EDT by dialing 877-344-7529 (U.S.) or 412-317-0088 (international) and entering the conference ID number 450483.

The conference call will be archived for review on the Internet at www.videonewswire.com/event.asp?id=78953 and on the Company's website at www.charlesandcolvard.com through Thursday, May 5, 2011.

About Charles & Colvard, Ltd.

Charles & Colvard, Ltd., based in the Research Triangle Park area of North 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® is currently incorporated into fine jewelry sold through domestic and international retailers and other sales channels. Charles & Colvard, Ltd. is headquartered in Morrisville, North Carolina, and its common stock is listed on the NASDAQ Global Select Market under the symbol "CTHR". For more information, please access www.moissanite.com or www.charlesandcolvard.com.

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 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; our dependence on third parties for the sales and marketing of our products to end consumers; dependence on a limited number of customers; our current customers' potential perception of us as a competitor as we enter the finished jewelry business; general economic and market conditions, including the current economic environment; dependence on Cree, Inc. as the current supplier of the raw material; intense competition in the worldwide jewelry industry; the financial condition of our major customers; risks of conducting business in foreign countries; the pricing of precious metals, which is beyond our control; our ability to protect our intellectual property; and possible adverse effects of governmental regulation and oversight, 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, 2010 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.
                  Consolidated Statements of Operations
                                (unaudited)

                                              Three Months Ended March 31,
                                              ----------------------------
                                                  2011           2010
                                              -------------  -------------
Net sales                                     $   2,977,556  $   2,853,675
Costs and expenses:
   Cost of goods sold                             1,328,521      1,058,981
   Sales and marketing                              681,285        586,598
   General and administrative                     1,184,972      1,023,665
   Research and development                          12,548         41,857
                                              -------------  -------------
     Total costs and expenses                     3,207,326      2,711,101
                                              -------------  -------------
(Loss) income from operations                      (229,770)       142,574
Other income (expense):
   Interest income                                   17,919         26,522
   Interest expense                                     (12)          (676)
   Loss on call of long-term investments             (2,913)             -
                                              -------------  -------------
     Total other income (expense)                    14,994         25,846
                                              -------------  -------------
(Loss) income before income taxes                  (214,776)       168,420
Income tax net (expense) benefit                    (21,612)       129,965
                                              -------------  -------------
Net (loss) income                             $    (236,388) $     298,385
                                              =============  =============

Net (loss) income per common share:
   Basic                                      $       (0.01) $        0.02
   Fully diluted                              $       (0.01) $        0.02

Weighted average number of shares used in
 computing net (loss) income per common
 share:
   Basic                                         19,297,861     19,019,402
   Fully diluted                                 19,297,861     19,214,466





                          Charles & Colvard, Ltd.
                        Consolidated Balance Sheets


                                            March 31, 2011   December 31,
                                             (unaudited)         2010
                                            --------------  --------------
ASSETS
Current assets:
  Cash and cash equivalents                 $    7,973,131  $    7,736,044
  Accounts receivable, net                       4,013,649       3,679,141
  Interest receivable                               11,789           6,163
  Income tax receivable                                  -         113,030
  Inventory, net                                 6,164,918       6,306,875
  Prepaid expenses and other assets                296,065         343,137
                                            --------------  --------------
     Total current assets                       18,459,552      18,184,390
Long-term assets:
  Held-to-maturity investments                   1,010,098       1,018,551
  Inventory, net                                30,618,094      31,075,626
  Property and equipment, net                      618,186         377,352
  Patent and license rights, net                   246,739         252,542
  Other assets                                      13,746           1,990
                                            --------------  --------------
     Total long-term assets                     32,506,863      32,726,061
                                            --------------  --------------
  TOTAL ASSETS                              $   50,966,415  $   50,910,451
                                            ==============  ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                          $      687,905  $      542,084
  Accrued cooperative advertising                  319,000         314,000
  Accrued expenses and other liabilities           190,068         308,653
                                            --------------  --------------
     Total current liabilities                   1,196,973       1,164,737
Long-term liabilities:
  Accrued income taxes                             959,025         937,414
                                            --------------  --------------
        Total liabilities                        2,155,998       2,102,151
                                            --------------  --------------
Commitments and contingencies
Shareholders' equity:
  Common stock, no par value                    53,144,937      53,113,608
  Additional paid-in capital - stock-based
   compensation                                  7,018,864       6,811,688
  Accumulated deficit                          (11,353,384)    (11,116,996)
                                            --------------  --------------
     Total shareholders' equity                 48,810,417      48,808,300
                                            --------------  --------------
  TOTAL LIABILITIES AND SHAREHOLDERS'
   EQUITY                                   $   50,966,415  $   50,910,451
                                            ==============  ==============





                          Charles & Colvard, Ltd.
                  Consolidated Statements of Cash Flows
                                (unaudited)

                                              Three Months Ended March 31,
                                              ----------------------------
                                                  2011           2010
                                              -------------  -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income                             $    (236,388) $     298,385
Adjustments to reconcile net (loss) income to
 net cash provided by operating activities:
  Depreciation and amortization                      42,439         31,887
  Amortization of bond premium                        1,165          2,894
  Stock-based compensation                          219,343        107,485
  Provision for uncollectible accounts               29,000        (40,000)
  Provision for sales returns                       (76,000)       (30,000)
  Provision for inventory reserves                   21,000        (96,000)
  Benefit for deferred income taxes                       -       (102,443)
  Loss on call of long-term investments               2,913              -
Changes in assets and liabilities:
  Accounts receivable                              (287,508)      (594,531)
  Interest receivable                                (5,626)       (39,681)
  Income tax receivable                             113,030              -
  Note receivable                                         -         54,627
  Inventory                                         578,489        734,564
  Prepaid expenses and other assets, net             35,316        (23,196)
  Accounts payable                                  145,821         31,830
  Accrued cooperative advertising                     5,000        138,000
  Accrued income taxes                               21,611        (27,522)
  Other accrued liabilities, net                   (118,585)        43,039
                                              -------------  -------------
     Net cash provided by operating
      activities                                    491,020        489,338
                                              -------------  -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment                (271,035)       (48,459)
Purchases of long-term investments                 (495,625)    (5,056,990)
Proceeds from call of long-term investments         500,000              -
Patent and license rights costs                      (6,435)        (7,051)
                                              -------------  -------------
     Net cash used in investing activities         (273,095)    (5,112,500)
                                              -------------  -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Stock option exercises                               19,162          3,450
                                              -------------  -------------
     Net cash provided by financing
      activities                                     19,162          3,450
                                              -------------  -------------

NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                                        237,087     (4,619,712)
CASH AND CASH EQUIVALENTS, BEGINNING OF
 PERIOD                                           7,736,044      7,405,685
                                              -------------  -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD      $   7,973,131  $   2,785,973
                                              =============  =============

Supplemental disclosure of cash flow
 information:
  Cash paid during the year for interest      $          12  $         676

Contact Information

  • Company Contact:
    Timothy Krist
    Chief Financial Officer
    919.468.0399, ext. 295
    Email Contact

    Investor Relations:
    R. Jerry Falkner
    RJ Falkner & Company, Inc.
    Investor Relations Counsel
    800.377.9893
    Email Contact