North Carolina
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56-1928817
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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300 Perimeter Park Drive, Suite A
Morrisville, North Carolina
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27560
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(Address of principal executive offices)
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(Zip Code)
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Title of each class
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Name of each exchange on which registered
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Common Stock, no par value per share
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The NASDAQ Stock Market LLC
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Page
Number
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PART I
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Item 1.
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1
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Item 1A.
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13
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Item 1B.
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18
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Item 2.
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18
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Item 3.
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19
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Item 4.
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19
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PART II
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Item 5.
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19
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Item 6.
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19
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Item 7.
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19
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Item 7A.
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33
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Item 8.
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34
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Item 9.
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60
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Item 9A.
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60
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Item 9B.
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61
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PART III
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Item 10.
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62
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Item 11.
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62
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Item 12.
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62
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Item 13.
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62
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Item 14.
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62
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PART IV
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Item 15.
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62
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66
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67
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· | Wholesale - We will continue to focus on our core business of manufacturing and distributing the loose moissanite jewel and finished jewelry featuring moissanite through wholesale sales channels, because this is currently the primary way we reach consumers and we believe there is substantial opportunity to capture a larger share of the jewelry market. Our wholesale loose jewel business has historically been the largest percentage of our total sales, and this trend has continued despite significant growth in our wholesale finished jewelry business that we launched in 2010. For the years ended December 31, 2013 and 2012, our wholesale distribution segment represented 90% and 93% of our total consolidated net sales, respectively, of which wholesale loose jewel sales comprised 71% of total net wholesale distribution segment sales and wholesale finished jewelry sales comprised 29% of total net wholesale distribution sales for both years. Our wholesale finished jewelry business continues to expand through select retailers and television shopping networks, and we believe there is significant opportunity to further expand these sales channels. |
· | Direct-to-consumer e-commerce - Our direct-to-consumer e-commerce website, www.moissanite.com, went live to the public in August 2011. We successfully re-launched Moissanite.com in October 2012 to feature a more intuitive site design with increased functionality to enhance the customer experience and convert more traffic into sales. Throughout 2013 we increased the offering of products available on our website and added new features such as a “Design Your Own” section. We believe our direct-to-consumer e-commerce sales channel will not only add to our top-line revenues in a significant manner, but will also play a key role in our campaign to increase overall consumer awareness of moissanite. |
· | Direct-to-consumer home parties - According to the Direct Selling Association, the U.S. direct sales business is an estimated $30 billion market, dominated primarily by women at 78% of the nearly 16 million direct-sales representatives nationwide. Direct sales offers a flexible earning opportunity as well as a social outlet. Since sales of moissanite are highest when the consumer is educated about its attributes and has the opportunity to see and touch it, we believe social selling and home parties are an excellent venue for selling our product and expanding consumer awareness. In April 2012, we test launched Lulu Avenue ® , a home party brand featuring over 200 jewelry styles blending fashion and moissanite jewelry. In October 2012, we partnered with a well-known designer to custom design and source finished fashion and moissanite jewelry and provide branding direction for Lulu Avenue ® . After an initial integration phase we launched the Fall 2013 collection for Lulu Avenue ® in the second half of 2013. |
1. | Sources: Gemological Institute of America, Gem Reference Guide for GIA Colored Stones, Gem Identification and Colored Stone Grading Courses 32-35, 65-82, 87-90 (1995); Cornelius S. Hurlburt, Jr. & Robert C. Kammerling, Gemology 320-324 (2d Ed. 1991); Kirk-Othmer, Encyclopedia of Chemical Technology 524-541 (5 th Ed. 2004); Institution Of Electrical Engineers, Properties of Silicon Carbide (Gary L. Harris, Ed., 1995); Robert Webster, Gems: Their Sources, Descriptions and Identification 889-940 (5 th Ed. 1994); W. von Muench, “ Silicon Carbide” in Landolt-B ö rnstein Numerical Data and Functional Relationships in Science and Technology, New Series, Group III , Vol. 17C, pp. 403-416 and 585-592 (M. Schultz and H. Weiss, Eds., 1984); Kurt Nassau, Shane F. McClure, Shane Elen & James E. Shigley, “ Synthetic Moissanite: A New Diamond Substitute ”, Gems & Gemology , Winter 1997, 260-275; Kurt Nassau. “ Moissanite: A New Synthetic Gemstone Material ”, Journal of Gemmology , 425-438 (1999). |
2. | The Mohs Scale is a relative scale only, and quantitative comparisons of different gemstone materials cannot be made directly using the Mohs Scale. Moissanite jewels, while harder than all other known gemstones, are approximately one-half as hard as diamond. |
· | DeBeers; |
· | the Central Selling Organization (the international cartel of diamond producers) or its successors; |
· | any party whose primary business is the development, manufacture, marketing, or sale of diamond gemstones; or |
· | any non-gemstone and non-jewelry industry competitor of Cree. |
· | growing gem-grade raw SiC crystals; |
· | manufacturing rough preforms; |
· | polishing jewels; and |
· | inspecting, sorting, and grading. |
· | Cooperative advertising - A number of our loose moissanite jewel wholesale customers participate in our cooperative advertising program, which reimburses, via a credit towards future purchases, a portion of their marketing costs based on the amount of their purchases from us, subject to the customer adhering to our branding guidelines and other conditions. With the world market opportunities being an integral part of our overall goals, we will continue to explore cooperative advertising and other international promotional support initiatives. |
· | Marketing to the trade - In 2013, we targeted the trade with print advertisements featuring our new whiter Forever Brilliant ® moissanite jewel and finished jewelry featuring the Forever Brilliant ® jewel both through our own print campaigns in Jewelers’ Circular Keystone (JCK) magazines; and in joint print campaigns with several of our larger U.S. wholesale distributors. In addition, we maintain relationships with major jewelry industry organizations and jewelry trade publications as an opportunity to communicate with our peers on a consistent basis through media coverage, trade shows, action committees, and charitable events, among others. |
· | Trade shows - Our attendance at leading jewelry trade shows worldwide as a sponsor, an exhibitor, or a participant assisting our loose moissanite jewel and finished jewelry wholesale customers has helped us extend our outreach to customers. In 2013, we attended major domestic and international jewelry industry trade shows, including JCK in Las Vegas and the Hong Kong Gem and Jewellery Fair, and plan attendance at these and other shows in 2014. |
· | Consumer advertising - We are supporting our initiative to increase consumer awareness of moissanite and our finished jewelry primarily with print advertising and various forms of electronic communication, including social media campaigns. |
· | Consumer education - Because education of the consumer is so important to sell-through of moissanite products, we redesigned and deployed our corporate website www.charlesandcolvard.com during 2012 to include extensive educational information about moissanite, in addition to general background information about our company. Our direct-to-consumer e-commerce site, Moissanite.com , features much of the same educational content that allows a consumer to learn more about moissanite prior to purchase. |
· | Public relations - We continue to pursue our public relations activities, which include news coverage of our company by business, trade, and investment periodicals and television broadcasts, the possible identification of one or more celebrity spokespersons, and product placement opportunities. |
· | Domestic - Finished jewelry featuring moissanite is sold through our wholesale distribution segment to consumers through a broad range of channels, including single- and multiple-location independent jewelry stores, jewelry store chains, online retailers, television shopping networks, department stores, and catalogs. Historically, we have primarily sold our loose moissanite jewels to wholesale distributors and finished jewelry manufacturers, which in turn set them in mountings and sold to retailers or resold the loose jewels at a markup. While we plan to continue this aspect of our business, in 2010 we began mounting our loose jewels into our own jewelry, which we currently sell at wholesale to home shopping networks and select retailers. In addition, we have allowed loose moissanite jewel and finished jewelry inventory to be placed in stores on a consignment basis. |
· | International - Our international wholesale distribution is currently comprised primarily of loose moissanite jewels that are sold to international distributors for resale to jewelry manufacturers and retailers in their local markets. We currently have over 30 international wholesale distributors for loose moissanite jewels covering portions of Western Europe, Australia, India, Southeast Asia, and the Middle East. We have continued to invest in certain international markets that we believe have the most potential with respect to acceptance and sales of the moissanite jewel, including Australia, China, India, Italy, and the United Kingdom. Export sales aggregated approximately $7.80 million, or 27% of total consolidated net sales, and $5.58 million, or 25% of total consolidated net sales, in 2013 and 2012, respectively. It should be noted that a portion of our international sales consists of jewels sold internationally that may be re-imported to U.S. retailers. While we continue to believe that international markets are an important part of our business, we plan to prioritize increasing our domestic customer base over developing new international markets in 2014. |
· | our continued success in developing and promoting brands for our moissanite jewel and finished jewelry featuring moissanite, resulting in increased interest and demand for moissanite jewelry at the consumer level; |
· | the continued willingness and ability of our jewelry distributors and other jewelry suppliers, manufacturers, and designers to market and promote Charles & Colvard Created Moissanite ® , including both our classic moissanite jewels and Forever Brilliant ® jewels, to the retail jewelry trade; |
· | the continued willingness of distributors, retailers, and others in the channel of distribution to purchase loose Charles & Colvard Created Moissanite ® , including both our classic moissanite jewels and Forever Brilliant ® jewels, and the continued willingness of manufacturers, designers, and retail jewelers to undertake setting of the loose jewels; |
· | our continued ability and the ability of manufacturers, designers, and retail jewelers to select jewelry settings that encourage consumer acceptance of and demand for our moissanite jewels and finished jewelry; |
· | our continued ability and the ability of jewelry manufacturers and retail jewelers to set loose moissanite jewels in finished jewelry with high-quality workmanship; |
· | our continued ability and the ability of retail jewelers to effectively market and sell finished jewelry featuring moissanite, including finished jewelry featuring both our classic moissanite jewels and Forever Brilliant ® jewels, to consumers; |
· | our ability to operationally execute our direct-to-consumer e-commerce and home party businesses; and |
· | our ability to execute a move to a new corporate headquarters and manufacturing facility without significant disruptions to the business. |
· | natural gemstone, which is found in nature; |
· | synthetic gemstone, which has the same chemical composition and essentially the same physical and optical characteristics of natural gemstone but is created in a lab; and |
· | simulated or substitute material, which is similar in appearance to natural gemstone but does not have the same chemical composition, physical properties, or optical characteristics. |
George R. Cattermole
Chairman of the Board
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David B. Barr
Chairman of PMTD Restaurants LLC; Member of Boards of Directors of Del Frisco’s Restaurant Group, LLC; Mrs. Fields Original Cookies, Inc.; RM HoldCo, LLC; Bistro Restaurant Group; and Wornick, Inc.
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H. Marvin Beasley
Retired former Chief Executive Officer of Helzberg Diamonds, a retail jewelry store chain
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Anne M. Butler
Chief Executive Officer of Butler Advisors, a consulting firm specializing in strategic and operational advising to private equity, venture capital, and institutional investors on direct selling acquisitions and management
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Dr. Charles D. Lein
Retired former President and Chief Operating Officer of Stuller, Inc., a manufacturer and distributor of jewelry and jewelry-related products
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Randall N. McCullough
President and Chief Executive Officer of Charles & Colvard, Ltd.
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Ollin B. Sykes
President of Sykes & Company, P.A., a regional accounting firm specializing in accounting, tax, and financial advisory services
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Randall N. McCullough
President and Chief Executive Officer
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Kyle Macemore
Senior Vice President, Chief Financial Officer and Treasurer
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Steven M. Larkin
Chief Operating Officer
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· | our continued success in developing and promoting brands for our moissanite jewel and finished jewelry featuring moissanite, resulting in increased interest and demand for moissanite jewelry at the consumer level; |
· | the continued willingness and ability of our jewelry distributors and other jewelry suppliers, manufacturers, and designers to market and promote Charles & Colvard Created Moissanite ® , including both our classic moissanite jewels and Forever Brilliant ® jewels, to the retail jewelry trade; |
· | the continued willingness of distributors, retailers, and others in the channel of distribution to purchase loose Charles & Colvard Created Moissanite ® , including both our classic moissanite jewels and Forever Brilliant ® jewels, and the continued willingness of manufacturers, designers, and retail jewelers to undertake setting of the loose jewels; |
· | our continued ability and the ability of manufacturers, designers, and retail jewelers to select jewelry settings that encourage consumer acceptance of and demand for our moissanite jewels and finished jewelry; |
· | our continued ability and the ability of jewelry manufacturers and retail jewelers to set loose moissanite jewels in finished jewelry with high-quality workmanship; |
· | our continued ability and the ability of retail jewelers to effectively market and sell finished jewelry featuring moissanite, including finished jewelry featuring both our classic moissanite jewels and Forever Brilliant ® jewels, to consumers; |
· | our ability to operationally execute our direct-to-consumer e-commerce and home party businesses; and |
· | our ability to execute a move to a new corporate headquarters and manufacturing facility without significant disruptions to the business. |
· | the adverse effects on U.S.-based companies operating in foreign markets that might result from war; terrorism; changes in diplomatic, trade, or business relationships; or other political, social, religious, or economic instability; |
· | the continuing adverse economic effects of the recent global financial crisis; |
· | unexpected changes in, or impositions of, legislative or regulatory requirements; |
· | delays resulting from difficulty in obtaining export licenses; |
· | tariffs and other trade barriers and restrictions; |
· | the burdens of complying with a variety of foreign laws and other factors beyond our control; |
· | the potential difficulty of enforcing agreements with foreign customers and suppliers; and |
· | the complications related to collecting receivables through a foreign country’s legal system. |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
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High
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Low
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||||||
Year Ended December 31, 2012:
|
|
|
||||||
First Quarter
|
$
|
4.93
|
$
|
2.46
|
||||
Second Quarter
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$
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4.75
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$
|
3.45
|
||||
Third Quarter
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$
|
3.90
|
$
|
3.34
|
||||
Fourth Quarter
|
$
|
4.15
|
$
|
3.41
|
||||
Year Ended December 31, 2013:
|
||||||||
First Quarter
|
$
|
4.13
|
$
|
3.38
|
||||
Second Quarter
|
$
|
4.58
|
$
|
3.68
|
||||
Third Quarter
|
$
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8.34
|
$
|
4.00
|
||||
Fourth Quarter
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$
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7.12
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$
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4.68
|
· | Developing brand strategies - Our goal is to build multiple strong brands around the moissanite jewel and finished jewelry collections in attractive and desirable jewelry designs, especially those featuring larger center stones that leverage moissanite’s point of differentiation and value proposition. We believe branding will allow us to increase consumer awareness, which we expect to help drive sales and develop consumer brand recognition and loyalty. |
· | Expanding our direct-to-consumer e-commerce business - Our direct-to-consumer e-commerce website, Moissanite.com , features an intuitive site design with robust functionality to enhance the customer experience and convert traffic into sales. We continue to expand the website’s jewelry collections and its loose moissanite jewel assortment by featuring a variety of colors and shapes, and we are investing resources in targeted advertising and marketing campaigns. In 2013, we continued fine-tuning such marketing efforts to maximize return on investment, increasing product assortment, and building new site functionality designed to increase sales conversion rates. We believe our direct-to-consumer e-commerce sales channel will not only add to our top-line revenues in a significant manner, but will also play a key role in our campaign to increase overall consumer awareness of moissanite. We also envision e-commerce as a part of a broader effort to establish online connections with consumers that build our brands and our business with retail partners. |
· | Developing our direct-to-consumer home party business - In October 2012, our direct-to-consumer home party business, Lulu Avenue ® , began to integrate the custom designs of a well-known jewelry designer into the current jewelry line. The first phase of the integration was completed in March 2013. In April 2013, we hired a President of Lulu Avenue ® whose focus is on the scale-up of the sales force, and in March 2013, we hired a Director of Finance and Administration, who leads the back office technology and supply chain efforts of Lulu Avenue ® . With these new key personnel, we completed the final phase of the integration process in 2013. We believe our direct-to-consumer home party sales channel will provide future sales growth and play a role in our campaign to increase overall consumer awareness of moissanite. |
· | We grew our total consolidated net sales by $6.04 million, or 27%, to $28.49 million in 2013 from $22.45 million in 2012. The improvement in 2013 sales was primarily due to the ongoing execution of our growth strategies, including initiatives to increase consumer awareness of moissanite through marketing support of our customer base; the addition of several new wholesale customers and the expansion of existing wholesale customer relationships; the increase in sales of our new whiter Forever Brilliant ® moissanite jewel; and the growth of our wholesale customers’ moissanite finished jewelry lines with styles that include both Forever Brilliant ® and our other grades of loose jewels. The improvement in 2013 consolidated net sales was also attributable to an over 78% increase in sales through our direct-to-consumer businesses, Moissanite.com and Lulu Avenue ® , which collectively increased their net sales to $2.91 million. |
· | Operating expenses increased by $3.25 million, or 27%, to $15.47 million in 2013 from $12.22 million in 2012 primarily as a result of personnel additions and advertising, marketing, and branding initiatives incurred to position our company for future growth, especially with respect to the two wholly owned operating subsidiaries formed in 2011 for our e-commerce and home party direct sales businesses. As we grow our business, we intend to continue to closely manage our operating expenses by seeking the most cost effective and efficient solutions to our operating requirements. |
· | Net income decreased by $5.67 million, to a loss of $1.29 million in 2013 from net income of $4.38 million in 2012. Net loss per share was a loss of $0.06 in 2013 compared to net income per diluted share of $0.22 in 2012. Net income for the year ended December 31, 2012 included a $4.05 million net income tax benefit, which contributed $0.20 per diluted share, comprised of a reduction of a valuation allowance on certain deferred tax assets based on our expectation of their future utilization and the reversal of a liability for an uncertain tax position resulting from a voluntary disclosure agreement we entered into with a taxing authority. As discussed above, sales increases in 2013 were offset by higher operating expenses as we continued the investment in our strategic initiatives. |
· | We generated negative cash flows from operations of $9.31 million in 2013 compared to positive cash flows of $2.78 million in 2012. The primary drivers of negative cash flow were our net loss of $1.29 million that included $3.33 million of net non-cash charges, an increase in inventory of $9.88 million, an increase in trade accounts receivable of $2.83 million, and an increase in prepaid expenses and other assets of $261,000. These factors more than offset an increase in trade accounts payable of $1.56 million, and a net increase in accrued liabilities of $67,000. |
· | Cash and liquid government agency investments at December 31, 2013 were $2.57 million compared to $12.37 million at December 31, 2012. The primary reason for this decrease is the $9.31 million cash flow used from operations. |
· | Total inventory, including long-term and consignment inventory, was $42.41 million as of December 31, 2013, up from approximately $32.80 million at December 31, 2012. This increase is primarily a result of purchases in 2013 of jewelry castings, findings, and other jewelry components; purchases of fashion finished jewelry in support of our Lulu Avenue ® home party direct sales business; and production of Forever Brilliant ® jewels, offset in part by higher sales. We believe we have a significant opportunity to build our cash position as we sell down our on-hand loose moissanite jewel inventory. |
· | We continue to carry no long-term debt and believe we can fund our growth strategies for the foreseeable future from operating cash flows. |
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Net sales
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$
|
28,487,187
|
$
|
22,450,498
|
||||
Costs and expenses:
|
||||||||
Cost of goods sold
|
14,600,177
|
9,971,663
|
||||||
Sales and marketing
|
9,867,425
|
7,443,784
|
||||||
General and administrative
|
5,476,939
|
4,756,432
|
||||||
Research and development
|
24,903
|
17,013
|
||||||
Loss on abandonment of assets
|
98,027
|
2,016
|
||||||
Total costs and expenses
|
30,067,471
|
22,190,908
|
||||||
(Loss) income from operations
|
(1,580,284
|
)
|
259,590
|
|||||
Other income (expense):
|
||||||||
Interest income
|
22,007
|
69,520
|
||||||
Interest expense
|
(2,106
|
)
|
(1,260
|
)
|
||||
Total other income
|
19,901
|
68,260
|
||||||
(Loss) income before income taxes
|
(1,560,383
|
)
|
327,850
|
|||||
Income tax net benefit
|
269,285
|
4,049,804
|
||||||
Net (loss) income
|
$
|
(1,291,098
|
)
|
$
|
4,377,654
|
|
Year Ended December 31,
|
Change
|
||||||||||||||
|
2013
|
2012
|
Dollars
|
Percent
|
||||||||||||
Loose jewels
|
$
|
18,483,995
|
$
|
14,991,398
|
$
|
3,492,597
|
23
|
%
|
||||||||
Finished jewelry
|
10,003,192
|
7,459,100
|
2,544,092
|
34
|
%
|
|||||||||||
Total consolidated net sales
|
$
|
28,487,187
|
$
|
22,450,498
|
$
|
6,036,689
|
27
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||
|
2013
|
2012
|
Dollars
|
Percent
|
||||||||||||
Product line cost of goods sold
|
|
|
|
|
||||||||||||
Loose jewels
|
$
|
7,646,375
|
$
|
4,686,526
|
$
|
2,959,849
|
63
|
%
|
||||||||
Finished jewelry
|
5,299,572
|
3,587,458
|
1,712,114
|
48
|
%
|
|||||||||||
Total product line cost of goods sold
|
12,945,947
|
8,273,984
|
4,671,963
|
56
|
%
|
|||||||||||
Non-product line cost of goods sold
|
1,654,230
|
1,697,679
|
(43,449
|
)
|
-3
|
%
|
||||||||||
Total cost of goods sold
|
$
|
14,600,177
|
$
|
9,971,663
|
$
|
4,628,514
|
46
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||
|
2013
|
2012
|
Dollars
|
Percent
|
||||||||||||
Sales and marketing
|
$
|
9,867,425
|
$
|
7,443,784
|
$
|
2,423,641
|
33
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||
|
2013
|
2012
|
Dollars
|
Percent
|
||||||||||||
General and administrative
|
$
|
5,476,939
|
$
|
4,756,432
|
$
|
720,507
|
15
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||
|
2013
|
2012
|
Dollars
|
Percent
|
||||||||||||
Research and development
|
$
|
24,903
|
$
|
17,013
|
$
|
7,890
|
46
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||
|
2013
|
2012
|
Dollars
|
Percent
|
||||||||||||
Loss on abandonment of assets
|
$
|
98,027
|
$
|
2,016
|
$
|
96,011
|
4,762
|
%
|
|
Year Ended December 31,
|
Change
|
||||||||||||||
|
2013
|
2012
|
Dollars
|
Percent
|
||||||||||||
Interest income
|
$
|
22,007
|
$
|
69,520
|
$
|
(47,513
|
)
|
-68
|
%
|
|
Page
Number
|
|
|
Report of Independent Registered Public Accounting Firm
|
35
|
|
|
Consolidated Balance Sheets as of December 31, 2013 and 2012
|
36
|
|
|
Consolidated Statements of Operations for the years ended December 31, 2013 and 2012
|
37
|
|
|
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2013 and 2012
|
38
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
|
39
|
|
|
Notes to Consolidated Financial Statements
|
40
|
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
ASSETS
|
|
|
||||||
Current assets:
|
|
|
||||||
Cash and cash equivalents
|
$
|
2,573,405
|
$
|
11,860,842
|
||||
Accounts receivable, net
|
10,244,732
|
8,138,358
|
||||||
Interest receivable
|
-
|
694
|
||||||
Held-to-maturity investments
|
-
|
505,068
|
||||||
Inventory, net
|
13,074,428
|
8,442,430
|
||||||
Prepaid expenses and other assets
|
951,635
|
737,406
|
||||||
Deferred income taxes
|
1,197,832
|
1,211,772
|
||||||
Total current assets
|
28,042,032
|
30,896,570
|
||||||
Long-term assets:
|
||||||||
Inventory, net
|
29,337,674
|
24,353,580
|
||||||
Property and equipment, net
|
1,717,692
|
1,746,792
|
||||||
Intangible assets, net
|
325,867
|
346,732
|
||||||
Deferred income taxes
|
2,841,891
|
2,520,818
|
||||||
Other assets
|
58,696
|
12,199
|
||||||
Total long-term assets
|
34,281,820
|
28,980,121
|
||||||
TOTAL ASSETS
|
$
|
62,323,852
|
$
|
59,876,691
|
||||
|
||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
3,670,551
|
$
|
2,112,585
|
||||
Accrued cooperative advertising
|
188,000
|
200,000
|
||||||
Accrued expenses and other liabilities
|
642,186
|
574,522
|
||||||
Total current liabilities
|
4,500,737
|
2,887,107
|
||||||
Long-term liabilities:
|
||||||||
Accrued income taxes
|
395,442
|
383,730
|
||||||
Total liabilities
|
4,896,179
|
3,270,837
|
||||||
Commitments and contingencies
|
||||||||
Shareholders’ equity:
|
||||||||
Common stock, no par value; 50,000,000 shares authorized; 20,197,301 and 19,654,050 shares issued and outstanding at December 31, 2013 and 2012, respectively
|
53,949,001
|
53,318,044
|
||||||
Additional paid-in capital – stock-based compensation
|
9,940,980
|
8,459,020
|
||||||
Accumulated deficit
|
(6,462,308
|
)
|
(5,171,210
|
)
|
||||
Total shareholders’ equity
|
57,427,673
|
56,605,854
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
62,323,852
|
$
|
59,876,691
|
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Net sales
|
$
|
28,487,187
|
$
|
22,450,498
|
||||
Costs and expenses:
|
||||||||
Cost of goods sold
|
14,600,177
|
9,971,663
|
||||||
Sales and marketing
|
9,867,425
|
7,443,784
|
||||||
General and administrative
|
5,476,939
|
4,756,432
|
||||||
Research and development
|
24,903
|
17,013
|
||||||
Loss on abandonment of assets
|
98,027
|
2,016
|
||||||
Total costs and expenses
|
30,067,471
|
22,190,908
|
||||||
(Loss) income from operations
|
(1,580,284
|
)
|
259,590
|
|||||
Other income (expense):
|
||||||||
Interest income
|
22,007
|
69,520
|
||||||
Interest expense
|
(2,106
|
)
|
(1,260
|
)
|
||||
Total other income
|
19,901
|
68,260
|
||||||
(Loss) income before income taxes
|
(1,560,383
|
)
|
327,850
|
|||||
Income tax net benefit
|
269,285
|
4,049,804
|
||||||
Net (loss) income
|
$
|
(1,291,098
|
)
|
$
|
4,377,654
|
|||
|
||||||||
Net (loss) income per common share:
|
||||||||
Basic
|
$
|
(0.06
|
)
|
$
|
0.22
|
|||
Diluted
|
$
|
(0.06
|
)
|
$
|
0.22
|
|||
|
||||||||
Weighted average number of shares used in computing net (loss) income per common share:
|
||||||||
Basic
|
19,904,170
|
19,581,670
|
||||||
Diluted
|
19,904,170
|
19,967,271
|
|
Common Stock
|
Additional
Paid-in
Capital –
|
|
Total
|
||||||||||||||||
|
Number of
Shares
|
Amount
|
Stock-Based
Compensation
|
Accumulated
Deficit
|
Shareholders’
Equity
|
|||||||||||||||
Balance at December 31, 2011
|
19,454,689
|
$
|
52,833,716
|
$
|
7,767,877
|
$
|
(9,548,864
|
)
|
$
|
51,052,729
|
||||||||||
Stock-based compensation
|
-
|
-
|
1,017,078
|
-
|
1,017,078
|
|||||||||||||||
Issuance of restricted stock
|
113,593
|
-
|
-
|
-
|
-
|
|||||||||||||||
Stock option exercises
|
85,768
|
484,328
|
(325,935
|
)
|
-
|
158,393
|
||||||||||||||
Net income
|
-
|
-
|
-
|
4,377,654
|
4,377,654
|
|||||||||||||||
Balance at December 31, 2012
|
19,654,050
|
$
|
53,318,044
|
$
|
8,459,020
|
$
|
(5,171,210
|
)
|
$
|
56,605,854
|
||||||||||
Stock-based compensation
|
-
|
-
|
1,678,107
|
-
|
1,678,107
|
|||||||||||||||
Issuance of restricted stock
|
345,403
|
-
|
-
|
-
|
-
|
|||||||||||||||
Stock option exercises
|
197,848
|
630,957
|
(210,015
|
)
|
-
|
420,942
|
||||||||||||||
Tax effect of stock based compensation
|
-
|
-
|
13,868
|
-
|
13,868
|
|||||||||||||||
Net (loss)
|
-
|
-
|
-
|
(1,291,098
|
)
|
(1,291,098
|
)
|
|||||||||||||
Balance at December 31, 2013
|
20,197,301
|
$
|
53,949,001
|
$
|
9,940,980
|
$
|
(6,462,308
|
)
|
$
|
57,427,673
|
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
||||||
Net (loss) income
|
$
|
(1,291,098
|
)
|
$
|
4,377,654
|
|||
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
862,683
|
608,165
|
||||||
Amortization of bond premium
|
5,068
|
5,331
|
||||||
Stock-based compensation
|
1,678,107
|
1,017,078
|
||||||
Provision for uncollectible accounts
|
3,690
|
245,582
|
||||||
Provision for sales returns
|
723,000
|
307,000
|
||||||
Provision for inventory reserves
|
264,000
|
102,000
|
||||||
Benefit for deferred income taxes
|
(307,133
|
)
|
(3,732,590
|
)
|
||||
Loss on abandonment of assets
|
98,027
|
2,016
|
||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
(2,833,064
|
)
|
(2,626,176
|
)
|
||||
Interest receivable
|
694
|
11,415
|
||||||
Inventory
|
(9,880,092
|
)
|
2,109,079
|
|||||
Prepaid expenses and other assets, net
|
(260,726
|
)
|
(316,130
|
)
|
||||
Accounts payable
|
1,557,966
|
1,051,648
|
||||||
Accrued cooperative advertising
|
(12,000
|
)
|
(13,000
|
)
|
||||
Accrued income taxes
|
11,712
|
(357,915
|
)
|
|||||
Other accrued liabilities
|
67,664
|
(6,487
|
)
|
|||||
Net cash (used in) provided by operating activities
|
(9,311,502
|
)
|
2,784,670
|
|||||
|
||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(800,367
|
)
|
(868,986
|
)
|
||||
Proceeds from call of long-term investments
|
500,000
|
3,250,000
|
||||||
Patent, license rights, and trademark costs
|
(110,378
|
)
|
(164,936
|
)
|
||||
Net cash (used in) provided by investing activities
|
(410,745
|
)
|
2,216,078
|
|||||
|
||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Stock option exercises
|
420,942
|
158,393
|
||||||
Tax effect of stock based compensation
|
13,868
|
-
|
||||||
Net cash provided by financing activities
|
434,810
|
158,393
|
||||||
|
||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(9,287,437
|
)
|
5,159,141
|
|||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
11,860,842
|
6,701,701
|
||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
2,573,405
|
$
|
11,860,842
|
||||
|
||||||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the year for interest
|
$
|
2,106
|
$
|
1,260
|
||||
Cash paid during the year for income taxes
|
$
|
5,570
|
$
|
52,523
|
1. | DESCRIPTION OF BUSINESS |
2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Balance, beginning of period
|
$
|
549,000
|
$
|
380,000
|
||||
Additions charged to operations
|
3,690
|
245,582
|
||||||
Write-offs, net of recoveries
|
(30,690
|
)
|
(76,582
|
)
|
||||
Balance, end of period
|
$
|
522,000
|
$
|
549,000
|
· | Held-to-maturity - Debt securities that the Company has the positive intent and ability to hold to maturity are reported at amortized cost. |
· | Trading securities - Debt and equity securities that are bought and held principally for the purpose of selling in the near term are reported at fair value with unrealized gains and losses included in earnings. |
· | Available-for-sale - Debt and equity securities not classified as either securities held-to-maturity or trading securities are reported at fair value with unrealized gains or losses excluded from earnings and reported as a separate component of shareholders’ equity. |
· | Dividend yield - Although the Company issued dividends in prior years, a dividend yield of zero is used due to the uncertainty of future dividend payments. |
· | Expected volatility - Volatility is a measure of the amount by which a financial variable such as share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company estimates expected volatility giving primary consideration to the historical volatility of its common stock . |
· | Risk-free interest rate - The risk-free interest rate is based on the published yield available on U.S. Treasury issues with an equivalent term remaining equal to the expected life of the stock option. |
· | Expected lives - The expected lives of the stock options represent the estimated period of time until exercise or forfeiture and are based on historical experience of similar awards. |
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Numerator:
|
|
|
||||||
Net (loss) income
|
$
|
(1,291,098
|
)
|
$
|
4,377,654
|
|||
|
||||||||
Denominator:
|
||||||||
Weighted average common shares outstanding:
|
||||||||
Basic
|
19,904,170
|
19,581,670
|
||||||
Stock options
|
-
|
385,601
|
||||||
Diluted
|
19,904,170
|
19,967,271
|
||||||
|
||||||||
Net (loss) income per common share:
|
||||||||
Basic
|
$
|
(0.06
|
)
|
$
|
0.22
|
|||
Diluted
|
$
|
(0.06
|
)
|
$
|
0.22
|
3. | SEGMENT INFORMATION AND GEOGRAPHIC DATA |
|
Year Ended December 31, 2013
|
|||||||||||
|
Wholesale
|
Direct-to-
Consumer
|
Total
|
|||||||||
Net sales
|
|
|
|
|||||||||
Loose jewels
|
$
|
18,136,062
|
347,933
|
18,483,995
|
||||||||
Finished jewelry
|
7,438,340
|
2,564,852
|
10,003,192
|
|||||||||
Total
|
$
|
25,574,402
|
2,912,785
|
28,487,187
|
||||||||
|
||||||||||||
Product line cost of goods sold
|
||||||||||||
Loose jewels
|
$
|
7,588,838
|
57,537
|
7,646,375
|
||||||||
Finished jewelry
|
4,094,157
|
1,205,415
|
5,299,572
|
|||||||||
Total
|
$
|
11,682,995
|
1,262,952
|
12,945,947
|
||||||||
|
||||||||||||
Product line gross profit
|
||||||||||||
Loose jewels
|
$
|
10,547,224
|
290,396
|
10,837,620
|
||||||||
Finished jewelry
|
3,344,183
|
1,359,437
|
4,703,620
|
|||||||||
Total
|
$
|
13,891,407
|
1,649,833
|
15,541,240
|
||||||||
|
||||||||||||
Operating income (loss)
|
$
|
3,652,153
|
(5,232,437
|
)
|
(1,580,284
|
)
|
||||||
|
||||||||||||
Depreciation and amortization
|
$
|
481,993
|
380,690
|
862,683
|
||||||||
|
||||||||||||
Total assets
|
$
|
61,702,449
|
621,403
|
62,323,852
|
||||||||
|
||||||||||||
Capital expenditures
|
$
|
744,679
|
55,688
|
800,367
|
|
Year Ended December 31, 2012
|
|||||||||||
|
Wholesale
|
Direct-to-
Consumer
|
Total
|
|||||||||
Net sales
|
|
|
|
|||||||||
Loose jewels
|
$
|
14,770,191
|
$
|
221,207
|
$
|
14,991,398
|
||||||
Finished jewelry
|
6,044,727
|
1,414,373
|
7,459,100
|
|||||||||
Total
|
$
|
20,814,918
|
$
|
1,635,580
|
$
|
22,450,498
|
||||||
|
||||||||||||
Product line cost of goods sold
|
||||||||||||
Loose jewels
|
$
|
4,551,052
|
$
|
135,474
|
$
|
4,686,526
|
||||||
Finished jewelry
|
2,884,728
|
702,730
|
3,587,458
|
|||||||||
Total
|
$
|
7,435,780
|
$
|
838,204
|
$
|
8,273,984
|
||||||
|
||||||||||||
Product line gross profit
|
||||||||||||
Loose jewels
|
$
|
10,219,139
|
$
|
85,733
|
$
|
10,304,872
|
||||||
Finished jewelry
|
3,159,999
|
711,643
|
3,871,642
|
|||||||||
Total
|
$
|
13,379,138
|
$
|
797,376
|
$
|
14,176,514
|
||||||
|
||||||||||||
Operating income (loss)
|
$
|
4,370,028
|
$
|
(4,110,438
|
)
|
$
|
259,590
|
|||||
|
||||||||||||
Depreciation and amortization
|
$
|
390,044
|
$
|
218,121
|
$
|
608,165
|
||||||
|
||||||||||||
Total assets
|
$
|
58,823,642
|
$
|
1,053,049
|
$
|
59,876,691
|
||||||
|
||||||||||||
Capital expenditures
|
$
|
425,736
|
$
|
443,250
|
$
|
868,986
|
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Product line cost of goods sold
|
$
|
12,945,947
|
$
|
8,273,984
|
||||
Non-capitalized manufacturing and production control expenses
|
532,928
|
1,348,029
|
||||||
Freight out
|
201,911
|
111,639
|
||||||
Inventory valuation allowances
|
264,000
|
93,000
|
||||||
Other inventory adjustments
|
655,391
|
145,011
|
||||||
Cost of goods sold
|
$
|
14,600,177
|
$
|
9,971,663
|
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
Loose jewels
|
|
|
||||||
Raw materials
|
$
|
3,311,375
|
$
|
3,189,320
|
||||
Work-in-process
|
9,526,769
|
3,650,322
|
||||||
Finished goods
|
20,002,881
|
19,074,526
|
||||||
Finished goods on consignment
|
32,948
|
75,131
|
||||||
Total
|
$
|
32,873,973
|
$
|
25,989,299
|
||||
|
||||||||
Finished jewelry
|
||||||||
Raw materials
|
$
|
270,043
|
$
|
259,366
|
||||
Work-in-process
|
764,355
|
250,628
|
||||||
Finished goods
|
8,117,035
|
5,451,178
|
||||||
Finished goods on consignment
|
299,514
|
748,022
|
||||||
Total
|
$
|
9,450,947
|
$
|
6,709,194
|
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Net sales
|
|
|
||||||
United States
|
$
|
20,684,397
|
$
|
16,869,397
|
||||
International
|
7,802,790
|
5,581,101
|
||||||
Total
|
$
|
28,487,187
|
$
|
22,450,498
|
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
Property and equipment, net
|
|
|
||||||
United States
|
$
|
1,717,692
|
$
|
1,746,792
|
||||
International
|
-
|
-
|
||||||
Total
|
$
|
1,717,692
|
$
|
1,746,792
|
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
Intangible assets, net
|
|
|
||||||
United States
|
$
|
70,830
|
$
|
152,038
|
||||
International
|
255,037
|
194,694
|
||||||
Total
|
$
|
325,867
|
$
|
346,732
|
4. | INVESTMENTS |
|
Less than 1
Year
|
Total
|
||||||
U.S. government agency securities
|
$
|
505,068
|
$
|
505,068
|
5. | FAIR VALUE MEASUREMENTS |
· | Level 1 - quoted prices in active markets for identical assets and liabilities |
· | Level 2 - inputs other than Level 1 quoted prices that are directly or indirectly observable |
· | Level 3 - unobservable inputs that are not corroborated by market data |
6. | INVENTORIES |
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
Raw materials
|
$
|
3,581,418
|
$
|
3,448,686
|
||||
Work-in-process
|
10,291,124
|
3,900,950
|
||||||
Finished goods
|
28,771,098
|
24,978,221
|
||||||
Finished goods on consignment
|
407,462
|
843,153
|
||||||
Less inventory reserves
|
(639,000
|
)
|
(375,000
|
)
|
||||
Total
|
$
|
42,412,102
|
$
|
32,796,010
|
||||
|
||||||||
Short-term portion
|
$
|
13,074,428
|
$
|
8,442,430
|
||||
Long-term portion
|
29,337,674
|
24,353,580
|
||||||
Total
|
$
|
42,412,102
|
$
|
32,796,010
|
7. | PROPERTY AND EQUIPMENT |
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
Computer software
|
$
|
1,739,734
|
$
|
1,626,618
|
||||
Machinery and equipment
|
850,039
|
791,634
|
||||||
Computer hardware
|
820,535
|
468,615
|
||||||
Leasehold improvements
|
457,856
|
432,759
|
||||||
Furniture and fixtures
|
319,100
|
303,232
|
||||||
Total
|
4,187,264
|
3,622,858
|
||||||
Less accumulated depreciation
|
(2,469,572
|
)
|
(1,876,066
|
)
|
||||
Property and equipment, net
|
$
|
1,717,692
|
$
|
1,746,792
|
8. | INTANGIBLE ASSETS |
|
December 31,
|
Weighted
Average
Amortization
Period
|
||||||||||
|
2013
|
2012
|
(in Years)
|
|||||||||
Patents
|
$
|
858,397
|
$
|
748,939
|
2.4
|
|||||||
Trademarks
|
51,356
|
50,437
|
3.6
|
|||||||||
License rights
|
6,718
|
6,718
|
0.8
|
|||||||||
Total
|
916,471
|
806,094
|
||||||||||
Less accumulated amortization
|
(590,604
|
)
|
(459,362
|
)
|
||||||||
Intangible assets, net
|
$
|
325,867
|
$
|
346,732
|
9. | COMMITMENTS AND CONTINGENCIES |
2014
|
174,560
|
|||
2015
|
556,404
|
|||
2016
|
571,705
|
|||
2017
|
587,427
|
|||
2018
|
603,581
|
|||
Thereafter
|
1,692,451
|
|||
Total
|
$
|
4,186,128
|
10. | LINE OF CREDIT |
11. | SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION |
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Employee stock options
|
$
|
791,833
|
$
|
483,534
|
||||
Restricted stock awards
|
886,274
|
533,544
|
||||||
Income tax benefit
|
(309,607
|
)
|
(193,442
|
)
|
||||
Total
|
$
|
1,368,500
|
$
|
823,636
|
|
Shares
|
Weighted
Average
Exercise Price
|
||||||
Outstanding, December 31, 2011
|
1,157,579
|
$
|
2.16
|
|||||
Granted
|
146,136
|
$
|
4.02
|
|||||
Exercised
|
(85,768
|
)
|
$
|
1.85
|
||||
Forfeited
|
(44,098
|
)
|
$
|
2.71
|
||||
Expired
|
(26,002
|
)
|
$
|
6.28
|
||||
Outstanding, December 31, 2012
|
1,147,847
|
$
|
2.31
|
|||||
Granted
|
436,002
|
$
|
4.59
|
|||||
Exercised
|
(197,848
|
)
|
$
|
2.13
|
||||
Forfeited
|
(101,831
|
)
|
$
|
2.47
|
||||
Expired
|
(79,873
|
)
|
$
|
2.36
|
||||
Outstanding, December 31, 2013
|
1,204,297
|
$
|
3.14
|
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Dividend yield
|
0.0
|
%
|
0.0
|
%
|
||||
Expected volatility
|
92.9
|
%
|
92.8
|
%
|
||||
Risk-free interest rate
|
1.01
|
%
|
0.82
|
%
|
||||
Expected lives (years)
|
5.0
|
5.0
|
Options Outstanding
|
Options Exercisable
|
Options Vested or Expected to Vest
|
||||||||||||||||||||||||||||||||
Balance
as of
12/31/2013
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2013
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2013
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||||
1,204,297
|
7.77
|
$
|
3.14
|
750,743
|
7.04
|
$
|
2.49
|
1,154,613
|
7.70
|
$
|
3.08
|
|
Shares
|
Weighted
Average
Grant Date
Fair Value
|
||||||
Unvested, December 31, 2011
|
239,389
|
$
|
2.92
|
|||||
Granted
|
114,843
|
$
|
3.68
|
|||||
Vested
|
(162,389
|
)
|
$
|
2.91
|
||||
Canceled
|
-
|
$
|
-
|
|||||
Unvested, December 31, 2012
|
191,843
|
$
|
3.38
|
|||||
Granted
|
345,403
|
$
|
4.48
|
|||||
Vested
|
(186,343
|
)
|
$
|
3.76
|
||||
Canceled
|
-
|
$
|
-
|
|||||
Unvested, December 31, 2013
|
350,903
|
$
|
4.26
|
12. | INCOME TAXES |
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Current:
|
|
|
||||||
Federal
|
$
|
-
|
$
|
(5,186
|
)
|
|||
State
|
(22,929
|
)
|
322,400
|
|||||
Total
|
(22,929
|
)
|
317,214
|
|||||
|
||||||||
Deferred:
|
||||||||
Federal
|
408,871
|
3,263,177
|
||||||
State
|
(116,657
|
)
|
469,413
|
|||||
Total
|
292,214
|
3,732,590
|
||||||
Income tax net benefit
|
$
|
269,285
|
$
|
4,049,804
|
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
Current:
|
|
|
||||||
Reserves and accruals
|
$
|
1,298,557
|
$
|
880,542
|
||||
Prepaid expenses
|
(42,801
|
)
|
(94,110
|
)
|
||||
Federal net operating loss (“NOL”) carryforwards
|
-
|
375,624
|
||||||
State NOL carryforwards
|
-
|
113,414
|
||||||
Valuation allowance
|
(57,924
|
)
|
(63,698
|
)
|
||||
Total
|
$
|
1,197,832
|
$
|
1,211,772
|
|
December 31,
|
|||||||
|
2013
|
2012
|
||||||
Noncurrent:
|
|
|
||||||
Federal NOL carryforwards
|
$
|
1,884,118
|
$
|
1,530,636
|
||||
State NOL carryforwards
|
460,652
|
462,155
|
||||||
Hong Kong NOL carryforwards
|
995,566
|
995,566
|
||||||
Federal benefit on state taxes under uncertain tax positions
|
123,865
|
124,333
|
||||||
Stock-based compensation
|
30,724
|
108,770
|
||||||
Investment loss
|
9,429
|
53,737
|
||||||
Research tax credit
|
434,637
|
434,637
|
||||||
Alternative minimum tax credit
|
348,264
|
347,213
|
||||||
Contributions carryforward
|
1,095
|
-
|
||||||
Depreciation
|
(366,863
|
)
|
(461,875
|
)
|
||||
Loss on impairment of long-lived assets
|
53,395
|
53,720
|
||||||
Valuation allowance
|
(1,132,991
|
)
|
(1,128,074
|
)
|
||||
Total
|
2,841,891
|
2,520,818
|
||||||
Total deferred income tax assets, net
|
$
|
4,039,723
|
$
|
3,732,590
|
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Anticipated income tax expense at statutory rate
|
$
|
530,529
|
$
|
(87,012
|
)
|
|||
State income tax benefit, net of federal tax effect
|
(90,099
|
)
|
919
|
|||||
Capital loss carryforward expiration
|
(44,750
|
)
|
||||||
Research and development credits expiration
|
-
|
(131,764
|
)
|
|||||
Income tax effect of uncertain tax positions
|
(12,180
|
)
|
239,745
|
|||||
Return to provision adjustments
|
(8,092
|
)
|
(100,417
|
)
|
||||
Stock-based compensation
|
(81,564
|
)
|
(87,723
|
)
|
||||
Other changes in deferred income tax assets, net
|
(25,416
|
)
|
(17,489
|
)
|
||||
Decrease in valuation allowance
|
857
|
4,233,545
|
||||||
Income tax net benefit
|
$
|
269,285
|
$
|
4,049,804
|
Balance as of January 1, 2012
|
$
|
864,826
|
||
Increases related to prior year tax positions
|
18,184
|
|||
Decreases related to current year tax filings
|
(1,693
|
)
|
||
Decreases related to expired tax credits
|
(24,401
|
)
|
||
Decreases related to reversal of prior year tax positions by amendment of returns
|
(374,406
|
)
|
||
Balance as of December 31, 2012
|
482,510
|
|||
Increases related to prior year tax positions
|
11,712
|
|||
Balance as of December 31, 2013
|
$
|
494,222
|
13. | MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
|
Year Ended December 31,
|
|||||||
|
2013
|
2012
|
||||||
Customer A
|
19
|
%
|
27
|
%
|
||||
Customer B
|
9
|
%
|
11
|
%
|
14. | EMPLOYEE BENEFIT PLAN |
(i) | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
(ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
(iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
· | Engaging an outside commissioned sales representative, a wholesale jewelry veteran with over 30 years experience, to increase our opportunities with mid-size and major retailers including department stores. |
· | Employing a VP of E-commerce Marketplace Sales to focus exclusively on increasing sales to online only e-commerce sites for significant specialty and major retailers. |
· | Adding a VP of Marketing and Branding with over 20 years of luxury consumer products experience to develop and provide leadership of our branding strategy. Some of these responsibilities were handled by our previous VP of Marketing and E-Commerce who recently left our company to pursue other alternatives. We are consolidating all corporate marketing and branding under this individual. |
· | Moving responsibility for merchandising of certain core products out of the sales organization to our operational organization. |
· | Working to identify an individual for the sales organization to oversee processes, management of customer accounts and professional development. |
· | Moving overall responsibility for company-wide sales strategy to the CEO, which in combination with the changes described above resulted in Thomas Pautz, President, Wholesale Division, no longer being categorized an executive officer of our company for SEC purposes. |
Exhibit No.
|
Description
|
2.1
|
Asset Purchase Agreement, dated October 19, 2012, between Charles & Colvard Direct, LLC and Bamboo Pink, Inc. (incorporated herein by reference to Exhibit 2.1 to our Current Report on Form 8-K, as filed with the SEC on October 25, 2012)
|
|
|
3.1
|
Restated Articles of Incorporation of Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2004)
|
|
|
3.2
|
Bylaws of Charles & Colvard, Ltd., as amended and restated, effective May 19, 2011 (incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K, as filed with the SEC on May 24, 2011)
|
|
|
4.1
|
Specimen Certificate of Common Stock (incorporated herein by reference to Exhibit 4.1 to our Annual Report on Form 10-K for the year ended December 31, 1998)
|
|
|
10.1
|
Amended and Restated Exclusive Supply Agreement, dated as of June 6, 1997, between Cree Research, Inc. and C3, Inc. (incorporated herein by reference to Exhibit 10.11 to our Registration Statement on Form S-1 (File No. 333-36809), as filed with the SEC on September 30, 1997)*
|
|
|
10.2
|
Notice of Extension of Amended and Restated Exclusive Supply Agreement, dated January 6, 2005, from Charles & Colvard, Ltd. to Cree, Inc. (incorporated herein by reference to Exhibit 10.69 to our Current Report on Form 8-K, as filed with the SEC on January 7, 2005)
|
|
|
10.3
|
Letter Agreement, dated January 31, 1996, between Cree Research, Inc. and C3, Inc. (incorporated herein by reference to Exhibit 10.14 to our Registration Statement on Form S-1 (File No. 333-36809), as filed with the SEC on September 30, 1997)*
|
10.4
|
Letter Agreement, dated November 12, 2007, between Cree, Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.108 to our Current Report on Form 8-K, as filed with the SEC on November 13, 2007)*
|
|
|
10.5
|
Letter Agreement, dated September 18, 2008, between Cree, Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.123 to our Current Report on Form 8-K, as filed with the SEC on September 24, 2008)
|
|
|
10.6
|
Letter Agreement, effective March 22, 2010, between Cree, Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.6 to our Annual Report on Form 10-K for the year ended December 31, 2009)*
|
|
|
10.7
|
Amendment to Letter Agreement, effective February 8, 2013, between Charles & Colvard, Ltd. and Cree, Inc. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on February 14, 2012)*
|
|
|
10.8
|
Second Amendment to Letter Agreement, dated September 5, 2013, between Charles & Colvard, Ltd. and Cree, Inc. (incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)*
|
|
|
10.9
|
Letter Agreement, dated February 9, 2005 and effective February 21, 2005, between The Bell Group, d/b/a Rio Grande and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.73 to our Current Report on Form 8-K, as filed with the SEC on February 23, 2005)*
|
|
|
10.10
|
Letter Agreement, effective July 11, 2008, between Samuel Aaron Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.120 to our Current Report on Form 8-K, as filed with the SEC on July 17, 2008)*
|
|
|
10.11
|
Licensing Agreement, dated July 11, 2008, by and between Charles and Colvard, Ltd. and Samuel Aaron Inc. (incorporated herein by reference to Exhibit 10.121 to our Current Report on Form 8-K, as filed with the SEC on July 17, 2008)
|
|
|
10.12
|
Letter Agreement, effective November 4, 2009, between Stuller, Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on November 10, 2009)*
|
|
|
10.13
|
Loan Agreement, dated September 20, 2013, between Charles & Colvard, Ltd. and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on September 24, 2013)
|
|
|
10.14
|
Committed Line of Credit Note, dated September 20, 2013, by Charles & Colvard, Ltd. in favor of PNC Bank, National Association (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, as filed with the SEC on September 24, 2013)
|
|
|
10.15
|
Lease Agreement, dated March 26, 2004, by and between Duke Realty Limited Partnership and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.62 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004)
|
|
|
10.16
|
First Lease Amendment, dated September 22, 2004, by and between Duke Realty Limited Partnership and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.17 to our Annual Report on Form 10-K for the year ended December 31, 2010)
|
|
|
10.17
|
Second Amendment to Lease Agreement, dated July 30, 2010, by and between Raleigh Flex Owner I, LLC and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.18 to our Annual Report on Form 10-K for the year ended December 31, 2010)
|
10.18
|
Third Amendment to Lease Agreement, dated January 1, 2011, by and between Raleigh Flex Owner I, LLC and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.19 to our Annual Report on Form 10-K for the year ended December 31, 2010)
|
|
|
10.19
|
Lease Agreement, dated December 9, 2013, between Charles & Colvard, Ltd. and Southport Business Park Limited Partnership (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on December 12, 2012)*
|
|
|
10.20
|
First Amendment to Lease, dated December 23, 2013, between Charles & Colvard, Ltd. and Southport Business Park Limited Partnership
|
|
|
10.21
|
Board Compensation Program, effective March 16, 2011 (incorporated herein by reference to Exhibit 10.21 to our Annual Report on Form 10-K for the year ended December 31, 2010)+
|
|
|
10.22
|
Board Compensation Program, effective May 21, 2014+
|
|
|
10.23
|
Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 99 to our Registration Statement on Form S-8 (File No. 333-151255), as filed with the SEC on May 29, 2008)+
|
|
|
10.24
|
Form of Restricted Stock Award Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.115 to our Current Report on Form 8-K, as filed with the SEC on June 2, 2008)+
|
|
|
10.25
|
Form of Employee Incentive Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.116 to our Current Report on Form 8-K, as filed with the SEC on June 2, 2008)+
|
|
|
10.26
|
Form of Employee Nonqualified Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.118 to our Current Report on Form 8-K, as filed with the SEC on June 2, 2008)+
|
|
|
10.27
|
Form of Director Nonqualified Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.119 to our Current Report on Form 8-K, as filed with the SEC on June 2, 2008)+
|
|
|
10.28
|
Form of Director Nonqualified Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan+
|
|
|
10.29
|
Form of Special Committee Restricted Stock Award Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.129 to our Annual Report on Form 10-K for the year ended December 31, 2008)+
|
|
|
10.30
|
Corporate Incentive Plan, effective January 1, 2010 (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on March 23, 2010)+
|
|
|
10.31
|
Amended and Restated Corporate Incentive Plan, dated August 30, 2013 (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)+
|
|
|
10.32
|
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.109 to our Current Report on Form 8-K, as filed with the SEC on December 10, 2007)+
|
|
|
10.33
|
Employment Agreement, effective as of June 23, 2009, by and between Charles and Colvard, Ltd. and Timothy L. Krist (incorporated herein by reference to Exhibit 10.130 to our Current Report on Form 8-K, as filed with the SEC on June 26, 2009)+
|
|
|
10.34
|
Employment Agreement, effective as of October 12, 2009, by and between Charles and Colvard, Ltd. and Thomas G. Pautz (incorporated herein by reference to Exhibit 10.45 to our Annual Report on Form 10-K for the year ended December 31, 2009)+
|
10.35
|
Employment Agreement, effective as of November 5, 2009, by and between Charles & Colvard, Ltd. and Randy N. McCullough (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on November 12, 2009)+
|
|
|
10.36
|
Employment Agreement, effective as of May 6, 2013, by and between Charles & Colvard, Ltd. and Steve Larkin (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on April 22, 2013)+
|
|
|
10.37
|
Employment Agreement, effective as of August 5, 2013, by and between Charles & Colvard, Ltd. and Kyle Macemore (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)+
|
|
|
10.38
|
Separation of Employment Agreement, dated August 7, 2013, between Charles & Colvard, Ltd. and Timothy L. Krist (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)+
|
|
|
10.39
|
Consultant Agreement, dated September 28, 2012, between Charles & Colvard, Ltd. and Anne Butler (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012)+
|
|
|
21.1
|
Subsidiaries of Charles & Colvard, Ltd.
|
|
|
23.1
|
Consent of BDO USA, LLP
|
|
|
31.1
|
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1
|
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2
|
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
101
|
The following materials from Charles & Colvard, Ltd.’s Annual Report on Form 10-K for the year ended December 31, 2013 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
|
* | Asterisks located within the exhibit denote information which has been redacted pursuant to a request for confidential treatment filed with the SEC. |
+ | Management contract or compensatory plan or arrangement. |
|
|
CHARLES & COLVARD, LTD.
|
|
|
|
|
|
|
By:
|
/s/ Randy N. McCullough
|
|
March 27, 2014
|
|
Randy N. McCullough
|
|
|
|
President and Chief Executive Officer
|
|
By:
|
/s/ Randy N. McCullough
|
|
March 27, 2014
|
|
Randy N. McCullough
|
|
|
|
Director, President and Chief Executive Officer
|
|
|
|
|
|
|
By:
|
/s/ Kyle Macemore
|
|
March 27, 2014
|
|
Kyle Macemore
|
|
|
|
Senior Vice President, Chief Financial Officer and Treasurer
|
|
|
|
(Principal Financial Officer and Chief Accounting Officer)
|
|
|
|
|
|
|
By:
|
/s/ George R. Cattermole
|
|
March 27, 2014
|
|
George R. Cattermole
|
|
|
|
Chairman of the Board of Directors
|
|
|
|
|
|
|
By:
|
/s/ David B. Barr
|
|
March 27, 2014
|
|
David B. Barr
|
|
|
|
Director
|
|
|
|
|
|
|
By:
|
/s/ H. Marvin Beasley
|
|
March 27, 2014
|
|
H. Marvin Beasley
|
|
|
|
Director
|
|
|
|
|
|
|
By:
|
/s/ Anne M. Butler
|
|
March 27, 2014
|
|
Anne M. Butler
|
|
|
|
Director
|
|
|
|
|
|
|
By:
|
/s/ Charles D. Lein
|
|
March 27, 2014
|
|
Charles D. Lein
|
|
|
|
Director
|
|
|
|
|
|
|
By:
|
/s/ Ollin B. Sykes
|
|
March 27, 2014
|
|
Ollin B. Sykes
|
|
|
|
Director
|
Exhibit No.
|
Description
|
2.1
|
Asset Purchase Agreement, dated October 19, 2012, between Charles & Colvard Direct, LLC and Bamboo Pink, Inc. (incorporated herein by reference to Exhibit 2.1 to our Current Report on Form 8-K, as filed with the SEC on October 25, 2012)
|
|
|
3.1
|
Restated Articles of Incorporation of Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2004)
|
|
|
3.2
|
Bylaws of Charles & Colvard, Ltd., as amended and restated, effective May 19, 2011 (incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K, as filed with the SEC on May 24, 2011)
|
|
|
4.1
|
Specimen Certificate of Common Stock (incorporated herein by reference to Exhibit 4.1 to our Annual Report on Form 10-K for the year ended December 31, 1998)
|
|
|
10.1
|
Amended and Restated Exclusive Supply Agreement, dated as of June 6, 1997, between Cree Research, Inc. and C3, Inc. (incorporated herein by reference to Exhibit 10.11 to our Registration Statement on Form S-1 (File No. 333-36809), as filed with the SEC on September 30, 1997)*
|
|
|
10.2
|
Notice of Extension of Amended and Restated Exclusive Supply Agreement, dated January 6, 2005, from Charles & Colvard, Ltd. to Cree, Inc. (incorporated herein by reference to Exhibit 10.69 to our Current Report on Form 8-K, as filed with the SEC on January 7, 2005)
|
|
|
10.3
|
Letter Agreement, dated January 31, 1996, between Cree Research, Inc. and C3, Inc. (incorporated herein by reference to Exhibit 10.14 to our Registration Statement on Form S-1 (File No. 333-36809), as filed with the SEC on September 30, 1997)*
|
10.4
|
Letter Agreement, dated November 12, 2007, between Cree, Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.108 to our Current Report on Form 8-K, as filed with the SEC on November 13, 2007)*
|
|
|
10.5
|
Letter Agreement, dated September 18, 2008, between Cree, Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.123 to our Current Report on Form 8-K, as filed with the SEC on September 24, 2008)
|
|
|
10.6
|
Letter Agreement, effective March 22, 2010, between Cree, Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.6 to our Annual Report on Form 10-K for the year ended December 31, 2009)*
|
|
|
10.7
|
Amendment to Letter Agreement, effective February 8, 2013, between Charles & Colvard, Ltd. and Cree, Inc. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on February 14, 2012)*
|
|
|
10.8
|
Second Amendment to Letter Agreement, dated September 5, 2013, between Charles & Colvard, Ltd. and Cree, Inc. (incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)*
|
|
|
10.9
|
Letter Agreement, dated February 9, 2005 and effective February 21, 2005, between The Bell Group, d/b/a Rio Grande and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.73 to our Current Report on Form 8-K, as filed with the SEC on February 23, 2005)*
|
|
|
10.10
|
Letter Agreement, effective July 11, 2008, between Samuel Aaron Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.120 to our Current Report on Form 8-K, as filed with the SEC on July 17, 2008)*
|
10.11
|
Licensing Agreement, dated July 11, 2008, by and between Charles and Colvard, Ltd. and Samuel Aaron Inc. (incorporated herein by reference to Exhibit 10.121 to our Current Report on Form 8-K, as filed with the SEC on July 17, 2008)
|
10.12
|
Letter Agreement, effective November 4, 2009, between Stuller, Inc. and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on November 10, 2009)*
|
|
|
10.13
|
Loan Agreement, dated September 20, 2013, between Charles & Colvard, Ltd. and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on September 24, 2013)
|
|
|
10.14
|
Committed Line of Credit Note, dated September 20, 2013, by Charles & Colvard, Ltd. in favor of PNC Bank, National Association (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, as filed with the SEC on September 24, 2013)
|
|
|
10.15
|
Lease Agreement, dated March 26, 2004, by and between Duke Realty Limited Partnership and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.62 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004)
|
|
|
10.16
|
First Lease Amendment, dated September 22, 2004, by and between Duke Realty Limited Partnership and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.17 to our Annual Report on Form 10-K for the year ended December 31, 2010)
|
|
|
10.17
|
Second Amendment to Lease Agreement, dated July 30, 2010, by and between Raleigh Flex Owner I, LLC and Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 10.18 to our Annual Report on Form 10-K for the year ended December 31, 2010)
|
10.25
|
Form of Employee Incentive Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.116 to our Current Report on Form 8-K, as filed with the SEC on June 2, 2008)+
|
|
|
10.26
|
Form of Employee Nonqualified Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.118 to our Current Report on Form 8-K, as filed with the SEC on June 2, 2008)+
|
|
|
10.27
|
Form of Director Nonqualified Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.119 to our Current Report on Form 8-K, as filed with the SEC on June 2, 2008)+
|
|
|
Form of Director Nonqualified Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan+
|
|
|
|
10.29
|
Form of Special Committee Restricted Stock Award Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.129 to our Annual Report on Form 10-K for the year ended December 31, 2008)+
|
|
|
10.30
|
Corporate Incentive Plan, effective January 1, 2010 (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on March 23, 2010)+
|
|
|
10.31
|
Amended and Restated Corporate Incentive Plan, dated August 30, 2013 (incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)+
|
|
|
10.32
|
Form of Indemnification Agreement (incorporated herein by reference to Exhibit 10.109 to our Current Report on Form 8-K, as filed with the SEC on December 10, 2007)+
|
|
|
10.33
|
Employment Agreement, effective as of June 23, 2009, by and between Charles and Colvard, Ltd. and Timothy L. Krist (incorporated herein by reference to Exhibit 10.130 to our Current Report on Form 8-K, as filed with the SEC on June 26, 2009)+
|
|
|
10.34
|
Employment Agreement, effective as of October 12, 2009, by and between Charles and Colvard, Ltd. and Thomas G. Pautz (incorporated herein by reference to Exhibit 10.45 to our Annual Report on Form 10-K for the year ended December 31, 2009)+
|
|
|
10.35
|
Employment Agreement, effective as of November 5, 2009, by and between Charles & Colvard, Ltd. and Randy N. McCullough (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on November 12, 2009)+
|
|
|
10.36
|
Employment Agreement, effective as of May 6, 2013, by and between Charles & Colvard, Ltd. and Steve Larkin (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on April 22, 2013)+
|
|
|
10.37
|
Employment Agreement, effective as of August 5, 2013, by and between Charles & Colvard, Ltd. and Kyle Macemore (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)+
|
|
|
10.38
|
Separation of Employment Agreement, dated August 7, 2013, between Charles & Colvard, Ltd. and Timothy L. Krist (incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013)+
|
|
|
10.39
|
Consultant Agreement, dated September 28, 2012, between Charles & Colvard, Ltd. and Anne Butler (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012)+
|
|
|
Subsidiaries of Charles & Colvard, Ltd.
|
Consent of BDO USA, LLP
|
|
|
|
Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
101
|
The following materials from Charles & Colvard, Ltd.’s Annual Report on Form 10-K for the year ended December 31, 2013 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements.
|
* | Asterisks located within the exhibit denote information which has been redacted pursuant to a request for confidential treatment filed with the SEC. |
+ | Management contract or compensatory plan or arrangement. |
1. | Page Two and Three: Section 1.02 — TERM OF THE LEASE |
2. | Page Three and Four: Section 1.04. RENT AND ADJUSTMENTS TO RENT |
Lease Year
|
Annual
Minimum Rent
|
Monthly
Minimum Rent
|
Annual Minimum
Rent Per Rentable
Square Foot
|
|||||||||
Lease Year 1
|
$
|
545,160.00
|
$
|
45,430.00
|
$
|
15.00
|
||||||
Commencement Date through first 12 full months
|
||||||||||||
Lease Year 2
|
$
|
560,151.90
|
$
|
46,679.33
|
$
|
15.41
|
||||||
Months 13 through 24
|
||||||||||||
Lease Year 3
|
$
|
575,556.08
|
$
|
47,963.01
|
$
|
15.84
|
||||||
Months 25 through 36
|
||||||||||||
Lease Year 4
|
$
|
591,383.87
|
$
|
49,281.99
|
$
|
16.27
|
||||||
Months 37 through 48
|
||||||||||||
Lease Year 5
|
$
|
607,646.93
|
$
|
50,637.24
|
$
|
16.72
|
||||||
Months 49 through 60
|
||||||||||||
Lease Year 6
|
$
|
624,357.22
|
$
|
52,029.77
|
$
|
17.18
|
||||||
Months 61 through 72
|
||||||||||||
Lease Year 7
|
$
|
641,527.04
|
$
|
53,460.59
|
$
|
17.65
|
||||||
Months 73 through 84
|
||||||||||||
Partial Year
|
N/
|
A
|
$
|
54,930.75
|
N/
|
A
|
||||||
Months 85 through 89
|
3. | Page Five — SECTION 1.05 — RENT ABATEMENT Delete this section in its entirety and insert the following in its place: |
4. | Tenant warrants that it has had no dealings with any broker or agent in connection with this First Amendment, other than Aldene "Dee" Creech Osborne, SIOR of NAI Carolantic Realty and Matthew Cooke of Jones Lang LaSalle Brokerage, Inc., and covenants to pay, hold harmless and indemnify Landlord from and against, any and all cost, expense or liability for any compensation, commissions and charges claimed by any other broker or agent with respect to this First Amendment or the negotiation thereof. |
|
LANDLORD:
|
||
|
|
||
|
SOUTHPORT BUSINESS PARK LIMITED
PARTNERSHIP, a North Carolina limited
partnership
|
||
|
|
|
|
|
By:
|
SOUTHPORT BUSINESS PARK
|
|
|
INVESTORS CORPORATION, a North Carolina
corporation, its general partner
|
||
|
|
|
|
|
BY:
|
/s/ Richard G. Sullivan
|
|
|
|
Richard G. Sullivan
|
|
|
|
Vice President
|
|
|
|
|
|
|
TENANT:
|
||
|
CHARLES & COLVARD, LTD, a North
Carolina corporation
|
||
|
|
|
|
|
By:
|
/s/ Randy McCullough
|
|
|
|
Randy McCullough
|
|
|
|
President & CEO
|
TO:
|
Randy McCullough
|
|
President & CEO
|
|
Charles & Colvard, Ltd.
|
FROM:
|
Stephanie Mesnard
|
|
General Manager
|
|
Southport Business Park
|
SUBJECT:
|
Commencement Date/Expiration Date
|
/s/ Randy McCullough
|
|
|
Randy McCullough
|
|
Date
|
President & CEO
|
|
|
Charles & Colvard, Ltd.
|
|
|
|
|
|
|
|
|
Stephanie Mesnard
|
|
Date
|
General Manager
|
|
|
Southport Business Park
|
|
|
Annual Retainer:
|
$30,000 paid in four quarterly installments in arrears, pro-rated as applicable.
|
|
|
Additional Annual Retainers:
|
Chairman of the Board - $20,000 paid in four quarterly installments in arrears, pro-rated as applicable.
|
|
|
|
Chairperson of the Audit Committee - $15,000 paid in four quarterly installments in arrears, pro-rated as applicable.
|
|
|
|
Chairperson of Compensation Committee and Nominating and Governance Committee - $7,500 paid in four quarterly installments in arrears, pro-rated as applicable.
|
|
|
|
Board Committee Members (excluding Chairperson) - $5,000 paid in four quarterly installments in arrears, pro-rated as applicable.
Members of the Board may only receive retainers for serving as a member (including Chairperson) of two board committees.
|
|
|
Equity Compensation:
|
Restricted stock grant upon appointment as a member of the Board by the Board to fill a vacancy in the Board, with a grant date value to be determined by the Board as appropriate considering the time remaining before re-election at the next annual shareholders meeting.
Restricted stock grant upon annual re-election as a director with a grant date value of $50,000 for Directors and $55,000 for the Chairman
.
The only restriction on the restricted shares shall be service on the Board of Directors until the next annual shareholders meeting following the grant.
|
Attendance Participation Fee:
|
None.
|
|
Name of Participant:
|
|
|
Address:
|
|
|
|
|
|
|
|
|
Grant Date:
|
20___
|
|
Number of Shares Subject to Option:
|
|
|
|
|
|
|
Option Price:
|
$
|
|
|
Type of Option:
|
Nonqualified Stock Option
|
|
Expiration Date (Last day of Option Period):
|
, 20___
|
Vesting Schedule/Conditions:
|
Signature:
|
|
|
Date:
|
|
|
Participant
|
|
|
|
|
|
|
|
|
|
|
|
Agreed to by:
|
|
|
|
|
|
|
|
|
|
CHARLES & COLVARD, LTD.
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
Robert S. Thomas
|
|
|
|
|
Chairman & CEO
|
Attest:
|
|
|
|
|
|
|
|
|
|
James R. Braun
|
|
|
|
|
Secretary
|
|
|
|
|
Company Name
|
|
Jurisdiction
|
Moissanite.com, LLC
|
|
North Carolina
|
Charles & Colvard Direct, LLC
|
|
North Carolina
|
1. | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of Charles & Colvard, Ltd.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
By:
|
/s/ Randy N. McCullough
|
|
March 27, 2014
|
|
Randy N. McCullough
|
|
|
President and Chief Executive Officer
|
1. | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of Charles & Colvard, Ltd.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other e mployees who have a significant role in the registrant’s internal control over financial reporting. |
|
By:
|
/s/ Kyle Macemore
|
|
March 27, 2014
|
|
Kyle Macemore
|
|
|
|
Chief Financial Officer
|
/s/ Randy N. McCullough
|
|
|
Randy N. McCullough
|
|
|
President and Chief Executive Officer
|
|
|
March 27, 2014
|
|
|
/s/ Kyle Macemore
|
|
|
Kyle Macemore
|
|
|
Chief Financial Officer
|
||
March 27, 2014
|