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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170 Southport Drive
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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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☒
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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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14
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Item 1B.
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20
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Item 2.
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20
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Item 3.
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20
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Item 4.
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20
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PART II
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Item 5.
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21
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Item 6.
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21
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Item 7.
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21
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Item 7A.
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36
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Item 8.
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37
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Item 9.
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64
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Item 9A.
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64
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Item 9B.
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65
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PART III
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||
Item 10.
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67
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Item 11.
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67
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Item 12.
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67
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Item 13.
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67
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Item 14.
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67
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PART IV
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Item 15.
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67
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· | Expansion of Forever One TM . In September 2015, Charles & Colvard launched Forever One ™ – the world’s first colorless moissanite jewel. We introduced Forever One TM to the market with a limited launch. It was met with great enthusiasm from channel partners and existing customers. We intend to leverage this momentum, and expand our Forever One TM assortment (more shapes and sizes) throughout 2016 via a series of scheduled product releases. |
· | A move up-market. Over the years our core product supplier, Cree, Inc., or Cree, has improved its proprietary processes for SiC production. It is this 20-year evolution that has enabled the launch of our colorless jewel, Forever One TM . With this improvement in core product comes the opportunity for Charles & Colvard to move up-market – competing directly with diamond for share of wallet. Over the next few years, we plan to sell our remaining Forever Classic TM inventory, leaving only Forever Brilliant ® and Forever One TM products for sale. We believe that this higher quality product line positions Charles & Colvard for a move up-market to higher end retail opportunities. We do anticipate new providers of moissanite to enter the market, as our USA exclusive patent expired in 2015, and international patents will be expiring this year. We know how challenging it is to create high-quality moissanite and anticipate it will take emerging providers significant time and investment to bring meaningful and competitive products to market. As we experienced ourselves, we anticipate these new providers evolving from low-end moissanite quality, and do not anticipate competition in the near-colorless ( Forever Brilliant ® ) or colorless ( Forever One TM ) range for some time to come. To differentiate ourselves from emerging competition and to ensure our customers they are receiving a reputable and high-quality jewel, each Charles & Colvard Created Moissanite ® jewel is backed by a Limited Lifetime Warranty and Certificate of Authenticity – our commitment to our customers that their purchase is guaranteed to retain its fire and brilliance forever. |
· | Expansion of our jewelry line. In 2010, Charles & Colvard made the conscious decision to expand from being solely a loose jewel supplier to being a loose jewel and finished jewelry provider. This calculated measure has proven to be a positive one as it provided us the opportunity to make an emotional connection with the consumer. Our finished jewelry customers tend to be repeat customers – returning again and again to purchase additional goods. We intend to leverage this positive momentum with an expanded product line in 2016 to include increased focus on the bridal category. Charles & Colvard plans to curate a blend of its own finished jewelry featuring moissanite with products from select artisan jewelers. This broadened collection will be available to our retail and wholesale partners as well as promoted on Charles & Colvard’s e-commerce site and third-party transactional websites. |
· | Growth within our traditional channels. Charles & Colvard has enjoyed 20 years of partnership with industry leaders in the wholesale and retail spaces. We believe these traditional channels represent fertile ground for our move up-market, and we are already working with several existing partners to expand their product lines to include Forever One TM . With this new, extraordinary, upscale product we believe we have an opportunity to both expand our relationship with existing partners and onboard new partners. A continued presence for Charles & Colvard Created Moissanite ® in traditional retail channels remains an important way for us to create touchpoints directly with consumers by providing them an opportunity to see and believe the beauty and brilliance of moissanite. |
· | 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 finished jewelry collections and its loose moissanite jewel assortment by featuring a variety of shapes and sizes, and invest in targeted advertising and marketing campaigns. During 2016, we intend to expand our e-commerce footprint by providing our products for sale through additional e-commerce channels and emerging social commerce channels. We believe our direct-to-consumer e-commerce sales channels will not only add to our top-line revenues, 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 builds our brand and subsequently our business with wholesale and retail partners. |
· | A laser focus on millennials. Millennials are the largest age group in U.S. history, and they are moving into their prime spending years. Millennials have less money to spend and are often encumbered with debt, with student loans taking up a significant chunk of postgraduate millennials’ income. They are the first ‘digital natives,’ known for spending significant time online, especially within their social networks. When they do partake in traditional pastimes such as listening to music or watching television, they do so streaming from their digital devices. And most importantly, they are socially and ethically-responsible individuals. Millennials proactively seek out goods and services that align with their core principles, and become devoted and vocal advocates of brands that embody ‘green’ practices. Our socially responsible and ethically-sourced loose jewel and finished jewelry products align directly with the principles and purchasing preferences of the millennial, and our quality and price point offer unprecedented value to the cost-conscious millennial. Throughout 2016, Charles & Colvard plans to proactively engage this target market through a multi-channel traditional and digital marketing strategy, as outlined below. |
· | Our go-to-market strategy. In order to expand existing channels while reaching our millennial targets, Charles & Colvard intends to reconstruct its promotional and go-to-market strategies. In 2016, we plan to: |
· | Develop significant educational content to help the market understand moissanite, the availability of our expanded selection of loose jewels and finished jewelry featuring moissanite, and our commitment to corporate social responsibility in the products we bring to market and the way we operate our business. We also plan to deliver background content relative to the mined diamond industry to help the consumer understand the significant difference in practices between the created gemstone and jewel industry versus the mined diamond industry. We anticipate being disruptive in the industry and intend to be an authority on the topics of social injustices and environmental impact in the mined diamond industry, the upsurge of created gemstones and jewels, and the social and ethical appeal of created gemstones and jewels to the market. |
· | Expand our traditional channels. We plan to foster existing relationships designed to move channel partners up-market with us, while onboarding new partners who we believe are well positioned to help us bring Forever One TM to market. We intend to focus our efforts on additional television channels, new wholesale and retail opportunities, an expanded drop-ship network, a presence with independent jewelers, and more. |
· | Execute an aggressive social media strategy to directly reach consumers. Leveraging our own social media properties and those of third parties, we believe we will create a dialogue that enables a ‘pull’ strategy which draws consumers to Charles & Colvard to learn about and acquire our products. |
· | Expand our online presence including an aggressive push of Charles & Colvard product to e-commerce marketplaces, comparison shopping engines, affiliate networks, social commerce sites and more. We intend to couple these postings with a significant digital marketing presence to deliver online advertising and search engine results to the consumer at the time they are searching for related products. |
· | Adopt new and emerging technologies to deliver our message. In order to remain relevant and in front of today’s rapidly-evolving consumer, it is incumbent on Charles & Colvard to study and adopt new technologies as the consumer demands them. A prime example is advancements in streaming video and the increasing impact video has on consumer education and behavior. We believe this is a significant shift, and one we need to employ in our online toolkit. We will strive to adopt this and other technologies to enhance our own e-commerce property as well as third-party outlets to tell our story. |
Description
|
Refractive
Index
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Dispersion
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Hardness
(Mohs Scale)
(2)
|
Toughness
|
|||||||||
Charles & Colvard Created Moissanite
®
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2.65-2.69
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0.104
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9.25
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Excellent
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|||||||||
Diamond
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2.42
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0.044
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10
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Excellent*
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|||||||||
Ruby
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1.77
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0.018
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9
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Excellent**
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|||||||||
Sapphire
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1.77
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0.018
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9
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Excellent**
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|||||||||
Emerald
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1.58
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0.014
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7.50
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Good to Poor
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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. |
· | growing gem-grade raw SiC crystals; |
· | manufacturing rough preforms; |
· | polishing jewels; and |
· | inspecting, sorting, and grading. |
· | Millennials – This important age group is socially and ethically wired. They proactively seek out goods and services that align with their core principles and become devoted and vocal advocates of brands that embody ‘green’ practices. Our socially responsible and ethically-sourced product aligns directly with the principles and purchasing requirements of the millennial and our quality and price point offer unprecedented value to the cost-conscious millennial. Throughout 2016, Charles & Colvard plans to proactively engage this target market through a multi-channel strategy. |
· | Social Media - To reinforce and support our position as the premier source of moissanite, our marketing team is working on several social media initiatives that target current and future moissanite consumers and support the promotion and sale of Charles & Colvard Created Moissanite ™ . Our campaigns are focused on driving a consistent message emphasizing the ethical origins of our jewels, their everlasting beauty, and overall value. We are using various forms of digital and social media outreach to accomplish greater awareness of the value proposition we offer. |
· | Marketing to the trade - In 2015, we continued to target the trade with print advertisements featuring our Forever Brilliant ® moissanite jewel and finished jewelry featuring the Forever Brilliant ® jewel in leading trade publications, tagging key distributors to support sales growth. Our September 2015 launch of Forever One TM was a controlled event, and little advertising or promotion accompanied the release. We anticipate delivering meaningful promotion of Forever One TM in 2016 as we expand this product line (more shapes and sizes) via a series of scheduled product releases. |
· | Industry associations - 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 as a sponsor, an exhibitor, or a participant has helped us extend our outreach to customers. In 2015, we attended major domestic and international jewelry industry trade shows, including JCK in Las Vegas and the Hong Kong Gem and Jewellery Fair, and we intend to continue investing in these important industry events in 2016. |
· | Cooperative advertising - Some 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. We plan to de-emphasize broad-based cooperative advertising, but we will consider strategic opportunities to utilize this form of advertising. |
· | Consumer education - Because education of the consumer is so important to sell-through of moissanite products, we continue to enhance our corporate website www.charlesandcolvard.com 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 , also features much of the same educational content that allows a consumer to learn more about moissanite prior to purchase. We expect to launch additional improvements and enhancements to our web presence in 2016. |
· | Consumer advertising - We are supporting our initiative to increase consumer awareness of moissanite and our finished jewelry primarily with various forms of electronic communication, including targeted email and via social media outlets. |
· | New e-commerce outlets – We are firm believers in the importance of e-commerce to our growth strategy and are anticipating an expanded e-commerce footprint in 2016 across third-party marketplaces, comparison shopping engines, affiliate networks, digital marketing platforms, social commerce engines, and more. |
· | 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. We sell our loose moissanite jewels to wholesale distributors and finished jewelry manufacturers, which in turn set them in mountings and sell them to retailers, sell them through their own e-commerce sites, or resell the loose jewels at a markup. We also mount our loose jewels into our own jewelry, which we currently sell at wholesale to home shopping networks, various e-commerce websites, and select retailers. In addition, we have allowed loose moissanite jewel and finished jewelry inventory to be placed in stores on a consignment basis. We continue to evaluate our channel strategy for domestic wholesale distribution, which may result in a change to our historical distribution methods and partners. |
· | International - Our international wholesale distribution currently comprises primarily loose moissanite jewels that are sold to international distributors for resale to jewelry manufacturers and retailers in their local markets. We currently have over 20 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 $3.47 million, or 11% of total consolidated net sales, and $3.54 million, or 14% of total consolidated net sales, in 2015 and 2014, respectively. It should be noted that a portion of our international sales consists of finished jewels sold internationally that may be re-imported to U.S. retailers. |
· | our ability to understand the consumer market segment and effectively market to them a compelling value proposition that leads to converted customers; |
· | 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 ® 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 ® , 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 to consumers; and |
· | our ability to operationally execute our direct-to-consumer e-commerce 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. |
Neal Goldman
Executive Chairman of the Board; President of Goldman Capital Management, Inc., an investment advisory firm.
|
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.
|
George R. Cattermole
Retired former Chairman of the Board, President and Chief Executive Officer of Outlast Technologies Inc, a technology company that provides “phase change materials” to the fiber, textile, bedding, and apparel markets worldwide.
|
Jaqui Lividini
Chief Executive Officer and Founding Partner of Lividini & Co., a brand strategy company that specializes in retail strategy, brand development, and engagement marketing.
|
Suzanne Miglucci
President and Chief Executive Officer of Charles & Colvard, Ltd.
|
Ollin B. Sykes
President of Sykes & Company, P.A., a regional accounting firm specializing in accounting, tax, and financial advisory services.
|
Suzanne Miglucci
President and Chief Executive Officer
|
Kyle Macemore
Senior Vice President, Chief Financial Officer and Treasurer
|
Steven M. Larkin
Chief Revenue Officer
|
· | our ability to understand the consumer market segment and effectively market to them a compelling value proposition that leads to converted customers; |
· | 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 ® 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 ® , 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 to consumers; and |
· | our ability to operationally execute our direct-to-consumer e-commerce 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 |
High
|
Low
|
|||||||
Year Ended December 31, 2014:
|
||||||||
First Quarter
|
$
|
5.06
|
$
|
2.84
|
||||
Second Quarter
|
$
|
2.98
|
$
|
1.87
|
||||
Third Quarter
|
$
|
2.50
|
$
|
1.70
|
||||
Fourth Quarter
|
$
|
3.00
|
$
|
1.16
|
||||
Year Ended December 31, 2015:
|
||||||||
First Quarter
|
$
|
1.92
|
$
|
1.11
|
||||
Second Quarter
|
$
|
1.68
|
$
|
1.15
|
||||
Third Quarter
|
$
|
1.72
|
$
|
1.14
|
||||
Fourth Quarter
|
$
|
1.45
|
$
|
0.90
|
· | Developing brand strategies - In the third quarter of 2015, we launched our latest created gemstone and first colorless moissanite, named Forever One TM , through select domestic and international distribution partners and on our Moissanite.com e-commerce website, in limited shape and size assortments, priced at a premium to Forever Brilliant ® . |
· | 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. During 2014 and 2015, 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 – During 2015, we continued to invest in finance, sales, and customer service personnel to support our back office technology and supply chain efforts of Lulu Avenue ® . These investments in our direct-to-consumer home party sales channel have played a role in our campaign to increase overall consumer awareness of moissanite and have provided us with sales growth since its launch. However, as we execute our strategy to build our core businesses around the wholesale distribution segment and our direct-to-consumer e-commerce business, we have decided in March 2016 to divest this business in order to put all of our potential future investments in our businesses that fit within our company-wide strategies to increase overall consumer awareness of moissanite and overall sales growth. On March 4, 2016, we divested our direct-to-consumer home party business pursuant to an asset purchase agreement with Yanbal, as further described below under the heading “Recent Developments.” |
· | Our total consolidated net sales increased by $5.13 million, or 20%, to $30.77 million in 2015 from $25.64 million in 2014. The increase in 2015 sales was primarily due to increased domestic sales due primarily to the ongoing execution of our growth strategies including our investments in our Forever Brilliant ® and Forever One TM moissanite jewel, the growth of our wholesale customers’ moissanite finished jewelry lines with styles that include both Forever Brilliant ® and our other grades of loose jewels, and to a 59% and 250% increase in sales through our direct-to-consumer businesses, Moissanite.com and Lulu Avenue ® , respectively, which collectively increased their net sales to $10.50 million. |
· | Operating expenses increased by $3.09 million, or 19%, to $19.76 million in 2015 from $16.67 million in 2014 primarily as a result of personnel additions and cost of severance for departing executives, professional services, as well as advertising, marketing, and branding initiatives incurred to position our company for future growth, especially with respect to the two direct-to-consumer distribution segments. 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 loss decreased by $3.53 million, to a loss of $9.57 million in 2015 from a net loss of $13.10 million in 2014. Net loss per share was $0.47 in 2015 compared to a net loss per share of $0.65 in 2014. Net loss for the year ended December 31, 2014 included a $4.05 million net income tax expense, which contributed a loss of $0.20 per diluted share, representing an increase of a valuation allowance on certain deferred tax assets based on our expectation of their future utilization. |
· | We generated positive cash flows from operations of $1.57 million in 2015 compared to positive cash flows of $2.03 million in 2014. The primary drivers of positive cash flow were a decrease in inventory of $6.17 million, $2.98 million of net non-cash charges, a decrease in accounts receivable of $1.75 million, an increase in other accrued expenses and other liabilities primarily related to our long-term lease obligations of $167,000, and an increase in accounts payable of $177,000. These factors more than offset a net loss of $9.57 million and an increase in prepaid expenses and other assets of $105,000. |
· | Cash and cash equivalents at December 31, 2015 were $5.27 million compared to $4.01 million at December 31, 2014. The primary reason for this increase is the $1.57 million of cash flow provided by operations. |
· | Total inventory, including long-term and consignment inventory, was $32.33 million as of December 31, 2015, down from approximately $38.94 million at December 31, 2014. This decrease is primarily a result of specific efforts to sell slow-moving loose jewel inventory of less desirable quality at lower product margins; the effect of a finished jewelry melt of slow-moving and obsolete jewelry that we identified during the year, from which we recovered the cost of the metal and loose jewels that was less than the carrying cost of the finished jewelry; and, the sell-down of samples and previously returned goods at lower margins, but in excess of the recovery, through a finished jewelry melt. We believe we have an opportunity to continue to build our cash position as we sell down our on-hand loose moissanite jewel and finished jewelry 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,
|
||||||||
2015
|
2014
|
|||||||
Net sales
|
$
|
30,767,117
|
$
|
25,640,649
|
||||
Costs and expenses:
|
||||||||
Cost of goods sold
|
20,552,707
|
18,013,335
|
||||||
Sales and marketing
|
12,362,511
|
9,853,671
|
||||||
General and administrative
|
7,384,119
|
6,789,274
|
||||||
Research and development
|
17,795
|
18,070
|
||||||
Loss on abandonment of assets
|
-
|
10,523
|
||||||
Total costs and expenses
|
40,317,132
|
34,684,873
|
||||||
Loss from operations
|
(9,550,015
|
)
|
(9,044,224
|
)
|
||||
Other income (expense):
|
||||||||
Interest income
|
11
|
65
|
||||||
Interest expense
|
(10,359
|
)
|
(901
|
)
|
||||
Gain on sale of long-term assets
|
125
|
-
|
||||||
Total other expense, net
|
(10,223
|
)
|
(836
|
)
|
||||
Loss before income taxes
|
(9,560,238
|
)
|
(9,045,060
|
)
|
||||
Income tax net expense
|
(12,821
|
)
|
(4,051,963
|
)
|
||||
Net loss
|
$
|
(9,573,059
|
)
|
$
|
(13,097,023
|
)
|
Year Ended December 31,
|
Change
|
|||||||||||||||
2015
|
2014
|
Dollars
|
Percent
|
|||||||||||||
Loose jewels
|
$
|
15,113,204
|
$
|
12,926,370
|
$
|
2,186,834
|
17
|
%
|
||||||||
Finished jewelry
|
15,653,913
|
12,714,279
|
2,939,634
|
23
|
%
|
|||||||||||
Total consolidated net sales
|
$
|
30,767,117
|
$
|
25,640,649
|
$
|
5,126,468
|
20
|
%
|
Year Ended December 31,
|
Change
|
|||||||||||||||
2015
|
2014
|
Dollars
|
Percent
|
|||||||||||||
Product line cost of goods sold
|
||||||||||||||||
Loose jewels
|
$
|
9,459,224
|
$
|
7,566,829
|
$
|
1,892,395
|
25
|
%
|
||||||||
Finished jewelry
|
7,539,387
|
8,428,182
|
(888,795
|
)
|
-11
|
%
|
||||||||||
Total product line cost of goods sold
|
16,998,611
|
15,995,011
|
1,003,600
|
7
|
%
|
|||||||||||
Non-product line cost of goods sold
|
3,554,096
|
2,018,324
|
1,535,772
|
76
|
%
|
|||||||||||
Total cost of goods sold
|
$
|
20,552,707
|
$
|
18,013,335
|
$
|
2,539,372
|
14
|
%
|
Year Ended December 31,
|
Change
|
|||||||||||||||
2015
|
2014
|
Dollars |
Percent
|
|||||||||||||
Sales and marketing
|
$
|
12,362,511
|
$
|
9,853,671
|
$
|
2,508,840
|
25
|
%
|
Year Ended December 31,
|
Change
|
|||||||||||||||
2015
|
2014
|
Dollars
|
Percent
|
|||||||||||||
General and administrative
|
$
|
7,384,119
|
$
|
6,789,274
|
$
|
594,845
|
9
|
%
|
Year Ended December 31,
|
Change
|
|||||||||||||||
2015 |
2014
|
Dollars
|
Percent
|
|||||||||||||
Research and development
|
$
|
17,795
|
$
|
18,070
|
$
|
(275
|
)
|
-2
|
%
|
Year Ended December 31,
|
Change
|
|||||||||||||||
2015
|
2014
|
Dollars
|
Percent
|
|||||||||||||
Loss on abandonment of assets
|
$
|
-
|
$
|
10,523
|
$
|
(10,523
|
)
|
-100
|
%
|
Year Ended December 31,
|
Change
|
|||||||||||||||
2015
|
2014
|
Dollars
|
Percent
|
|||||||||||||
Interest expense
|
$
|
10,359
|
$
|
901
|
$
|
9,458
|
1050
|
%
|
Page
Number
|
|
Report of Independent Registered Public Accounting Firm
|
38
|
Consolidated Balance Sheets as of December 31, 2015 and 2014
|
39
|
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014
|
40
|
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2015 and 2014
|
41
|
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014
|
42
|
Notes to Consolidated Financial Statements
|
43
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
5,274,305
|
$
|
4,007,341
|
||||
Accounts receivable, net
|
3,852,651
|
5,510,253
|
||||||
Inventory, net
|
10,739,798
|
13,320,639
|
||||||
Prepaid expenses and other assets
|
784,105
|
602,850
|
||||||
Total current assets
|
20,650,859
|
23,441,083
|
||||||
Long-term assets:
|
||||||||
Inventory, net
|
21,588,622
|
25,617,990
|
||||||
Property and equipment, net
|
1,615,683
|
1,859,355
|
||||||
Intangible assets, net
|
71,086
|
216,947
|
||||||
Other assets
|
214,588
|
291,022
|
||||||
Total long-term assets
|
23,489,979
|
27,985,314
|
||||||
TOTAL ASSETS
|
$
|
44,140,838
|
$
|
51,426,397
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
3,463,148
|
$
|
3,286,086
|
||||
Accrued cooperative advertising
|
58,000
|
220,000
|
||||||
Accrued expenses and other liabilities
|
1,100,187
|
684,577
|
||||||
Total current liabilities
|
4,621,335
|
4,190,663
|
||||||
Long-term liabilities:
|
||||||||
Accrued expenses and other liabilities
|
710,223
|
809,879
|
||||||
Accrued income taxes
|
420,503
|
407,682
|
||||||
Total long-term liabilities
|
1,130,726
|
1,217,561
|
||||||
Total liabilities
|
5,752,061
|
5,408,224
|
||||||
Commitments and contingencies
|
||||||||
Shareholders’ equity:
|
||||||||
Common stock, no par value; 50,000,000 shares authorized; 21,111,585 and 20,382,333 shares issued and outstanding at December 31, 2015 and 2014, respectively
|
54,240,247
|
53,949,001
|
||||||
Additional paid-in capital – stock-based compensation
|
13,280,920
|
11,628,503
|
||||||
Accumulated deficit
|
(29,132,390
|
)
|
(19,559,331
|
)
|
||||
Total shareholders’ equity
|
38,388,777
|
46,018,173
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
44,140,838
|
$
|
51,426,397
|
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Net sales
|
$
|
30,767,117
|
$
|
25,640,649
|
||||
Costs and expenses:
|
||||||||
Cost of goods sold
|
20,552,707
|
18,013,335
|
||||||
Sales and marketing
|
12,362,511
|
9,853,671
|
||||||
General and administrative
|
7,384,119
|
6,789,274
|
||||||
Research and development
|
17,795
|
18,070
|
||||||
Loss on abandonment of assets
|
-
|
10,523
|
||||||
Total costs and expenses
|
40,317,132
|
34,684,873
|
||||||
Loss from operations
|
(9,550,015
|
)
|
(9,044,224
|
)
|
||||
Other income (expense):
|
||||||||
Interest income
|
11
|
65
|
||||||
Interest expense
|
(10,359
|
)
|
(901
|
)
|
||||
Gain on sale of long-term assets
|
125
|
-
|
||||||
Total other expense, net
|
(10,223
|
)
|
(836
|
)
|
||||
Loss before income taxes
|
(9,560,238
|
)
|
(9,045,060
|
)
|
||||
Income tax net expense
|
(12,821
|
)
|
(4,051,963
|
)
|
||||
Net loss
|
$
|
(9,573,059
|
)
|
$
|
(13,097,023
|
)
|
||
Net loss per common share:
|
||||||||
Basic
|
$
|
(0.47
|
)
|
$
|
(0.65
|
)
|
||
Diluted
|
$
|
(0.47
|
)
|
$
|
(0.65
|
)
|
||
Weighted average number of shares used in computing net loss income per common share:
|
||||||||
Basic
|
20,407,764
|
20,295,618
|
||||||
Diluted
|
20,407,764
|
20,295,618
|
Common Stock
|
Additional
Paid-in
|
|||||||||||||||||||
Number of
Shares
|
Amount |
Capital –
Stock-Based
Compensation
|
Accumulated
Deficit
|
Total
Shareholders’
|
||||||||||||||||
Balance at December 31, 2013
|
20,197,301
|
$
|
53,949,001
|
$
|
9,940,980
|
$
|
(6,462,308
|
)
|
$
|
57,427,673
|
||||||||||
Stock-based compensation
|
-
|
-
|
1,687,523
|
-
|
1,687,523
|
|||||||||||||||
Issuance of restricted stock
|
185,032
|
-
|
-
|
-
|
-
|
|||||||||||||||
Net loss
|
-
|
-
|
-
|
(13,097,023
|
)
|
(13,097,023
|
)
|
|||||||||||||
Balance at December 31, 2014
|
20,382,333
|
$
|
53,949,001
|
$
|
11,628,503
|
$
|
(19,559,331
|
)
|
$
|
46,018,173
|
||||||||||
Stock-based compensation
|
-
|
-
|
1,770,897
|
-
|
1,770,897
|
|||||||||||||||
Issuance of restricted stock
|
487,500
|
-
|
-
|
-
|
-
|
|||||||||||||||
Stock option exercises
|
241,752
|
291,246
|
(118,480
|
)
|
-
|
172,766
|
||||||||||||||
Net loss
|
-
|
-
|
-
|
(9,573,059
|
)
|
(9,573,059
|
)
|
|||||||||||||
Balance at December 31, 2015
|
21,111,585
|
$
|
54,240,247
|
$
|
13,280,920
|
$
|
(29,132,390
|
)
|
$
|
38,388,777
|
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$
|
(9,573,059
|
)
|
$
|
(13,097,023
|
)
|
||
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
863,353
|
1,107,955
|
||||||
Stock-based compensation
|
1,770,897
|
1,687,523
|
||||||
Provision for uncollectible accounts
|
89,462
|
734,243
|
||||||
Provision for sales returns
|
(179,000
|
)
|
(276,000
|
)
|
||||
Provision for inventory reserves
|
436,000
|
295,000
|
||||||
Provision for deferred income taxes
|
-
|
4,039,723
|
||||||
Loss on abandonment of assets
|
-
|
10,523
|
||||||
Gain on sale of long-term assets
|
(125
|
)
|
-
|
|||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
1,747,140
|
4,276,236
|
||||||
Inventory
|
6,174,209
|
3,178,473
|
||||||
Prepaid expenses and other assets, net
|
(104,821
|
)
|
116,459
|
|||||
Accounts payable
|
177,062
|
(384,465
|
)
|
|||||
Accrued cooperative advertising
|
(162,000
|
)
|
32,000
|
|||||
Accrued income taxes
|
12,821
|
12,240
|
||||||
Accrued expenses and other liabilities
|
315,954
|
302,110
|
||||||
Net cash provided by operating activities
|
1,567,893
|
2,034,997
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(428,128
|
)
|
(545,543
|
)
|
||||
Patent, license rights, and trademark costs
|
(45,742
|
)
|
(55,518
|
)
|
||||
Proceeds from sale of assets
|
175
|
|||||||
Net cash used in investing activities
|
(473,695
|
)
|
(601,061
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Stock option exercises
|
172,766
|
-
|
||||||
Net cash provided by financing activities
|
172,766
|
-
|
||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
1,266,964
|
1,433,936
|
||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
4,007,341
|
2,573,405
|
||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
5,274,305
|
$
|
4,007,341
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the year for interest
|
$
|
10,359
|
$
|
901
|
||||
Cash paid during the year for income taxes
|
$
|
-
|
$
|
-
|
||||
Non-cash investing activities:
|
||||||||
Tenant improvement allowance received under operating lease
|
$
|
-
|
$
|
550,160
|
1. | DESCRIPTION OF BUSINESS |
2. | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Balance, beginning of period
|
$
|
910,000
|
$
|
1,186,000
|
||||
Additions charged to operations
|
3,651,741
|
1,942,191
|
||||||
Sales returns
|
(3,830,741
|
)
|
(2,218,191
|
)
|
||||
Balance, end of period
|
$
|
731,000
|
$
|
910,000
|
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Balance, beginning of period
|
$
|
1,074,000
|
$
|
522,000
|
||||
Additions charged to operations
|
89,462
|
734,243
|
||||||
Write-offs, net of recoveries
|
(26,462
|
)
|
(182,243
|
)
|
||||
Balance, end of period
|
$
|
1,137,000
|
$
|
1,074,000
|
· | 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 issued in 2015 and 2014 represent the estimated period of time until exercise or forfeiture and are based on the simplified method of using the mid-point between the vesting term and the original contractual term. Stock options issued prior to 2014 were expensed using expected lives that represented the time until exercise or forfeiture using historical information. |
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Numerator:
|
||||||||
Net loss
|
$
|
(9,573,059
|
)
|
$
|
(13,097,023
|
)
|
||
Denominator:
|
||||||||
Weighted average common shares outstanding:
|
||||||||
Basic
|
20,407,764
|
20,295,618
|
||||||
Stock options
|
-
|
-
|
||||||
Diluted
|
20,407,764
|
20,295,618
|
||||||
Net loss per common share:
|
||||||||
Basic
|
$
|
(0.47
|
)
|
$
|
(0.65
|
)
|
||
Diluted
|
$
|
(0.47
|
)
|
$
|
(0.65
|
)
|
3. | SEGMENT INFORMATION AND GEOGRAPHIC DATA |
Year Ended December 31, 2015 | ||||||||||||||||
Wholesale
|
Moissanite.com
|
Charles &
Colvard Direct
|
Total
|
|||||||||||||
Net sales
|
||||||||||||||||
Loose jewels
|
$
|
14,581,554
|
$
|
531,695
|
$
|
(45
|
)
|
$
|
15,113,204
|
|||||||
Finished jewelry
|
5,683,478
|
4,896,565
|
5,073,870
|
15,653,913
|
||||||||||||
Total
|
$
|
20,265,032
|
$
|
5,428,260
|
$
|
5,073,825
|
$
|
30,767,117
|
||||||||
Product line cost of goods sold
|
||||||||||||||||
Loose jewels
|
$
|
9,375,195
|
$
|
83,964
|
$
|
65
|
$
|
9,459,224
|
||||||||
Finished jewelry
|
3,867,080
|
2,429,684
|
1,242,623
|
7,539,387
|
||||||||||||
Total
|
$
|
13,242,275
|
$
|
2,513,648
|
$
|
1,242,688
|
$
|
16,998,611
|
||||||||
Product line gross profit
|
||||||||||||||||
Loose jewels
|
$
|
5,206,359
|
$
|
447,731
|
$
|
(110
|
)
|
$
|
5,653,980
|
|||||||
Finished jewelry
|
1,816,398
|
2,466,881
|
3,831,247
|
8,114,526
|
||||||||||||
Total
|
$
|
7,022,757
|
$
|
2,914,612
|
$
|
3,831,137
|
$
|
13,768,506
|
||||||||
Operating loss
|
$
|
(3,736,111
|
)
|
$
|
(1,328,117
|
)
|
$
|
(4,485,787
|
)
|
$
|
(9,550,015
|
)
|
||||
Depreciation and amortization
|
$
|
652,326
|
$
|
106,461
|
$
|
104,566
|
$
|
863,353
|
||||||||
Total assets
|
$
|
43,881,011
|
$
|
174,899
|
$
|
84,928
|
$
|
44,140,838
|
||||||||
Capital expenditures
|
$
|
291,372
|
$
|
116,080
|
$
|
20,676
|
$
|
428,128
|
Year Ended December 31, 2014 | ||||||||||||||||
Wholesale
|
Moissanite.com
|
Charles &
Colvard Direct
|
Total
|
|||||||||||||
Net sales
|
||||||||||||||||
Loose jewels
|
$
|
12,324,045
|
$
|
600,505
|
$
|
1,820
|
$
|
12,926,370
|
||||||||
Finished jewelry
|
8,452,800
|
2,812,158
|
1,449,321
|
12,714,279
|
||||||||||||
Total
|
$
|
20,776,845
|
$
|
3,412,663
|
$
|
1,451,141
|
$
|
25,640,649
|
||||||||
Product line cost of goods sold
|
||||||||||||||||
Loose jewels
|
$
|
7,458,355
|
$
|
100,851
|
$
|
7,623
|
$
|
7,566,829
|
||||||||
Finished jewelry
|
6,584,937
|
1,371,056
|
472,189
|
8,428,182
|
||||||||||||
Total
|
$
|
14,043,292
|
$
|
1,471,907
|
$
|
479,812
|
$
|
15,995,011
|
||||||||
Product line gross profit
|
||||||||||||||||
Loose jewels
|
$
|
4,865,690
|
$
|
499,654
|
$
|
(5,803
|
)
|
$
|
5,359,541
|
|||||||
Finished jewelry
|
1,867,863
|
1,441,102
|
977,132
|
4,286,097
|
||||||||||||
Total
|
$
|
6,733,553
|
$
|
1,940,756
|
$
|
971,329
|
$
|
9,645,638
|
||||||||
Operating loss
|
$
|
(4,802,435
|
)
|
$
|
(1,265,035
|
)
|
$
|
(2,976,754
|
)
|
$
|
(9,044,224
|
)
|
||||
Depreciation and amortization
|
$
|
887,287
|
$
|
174,562
|
$
|
46,106
|
$
|
1,107,955
|
||||||||
Total assets
|
$
|
51,183,888
|
$
|
128,049
|
$
|
114,460
|
$
|
51,426,397
|
||||||||
Capital expenditures
|
$
|
1,093,055
|
$
|
1,386
|
$
|
1,262
|
$
|
1,095,703
|
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Product line cost of goods sold
|
$
|
16,998,611
|
$
|
15,995,011
|
||||
Non-capitalized manufacturing and production control expenses
|
1,388,567
|
949,385
|
||||||
Freight out
|
698,840
|
284,944
|
||||||
Inventory valuation allowances
|
436,000
|
295,000
|
||||||
Other inventory adjustments
|
1,030,689
|
488,995
|
||||||
Cost of goods sold
|
$
|
20,552,707
|
$
|
18,013,335
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Loose jewels
|
||||||||
Raw materials
|
$
|
6,741,712
|
$
|
4,658,692
|
||||
Work-in-process
|
5,516,799
|
5,752,103
|
||||||
Finished goods
|
15,877,436
|
21,495,873
|
||||||
Finished goods on consignment
|
55,388
|
46,284
|
||||||
Total
|
$
|
28,191,335
|
$
|
31,952,952
|
||||
Finished jewelry
|
||||||||
Raw materials
|
$
|
190,427
|
$
|
258,707
|
||||
Work-in-process
|
514,946
|
540,576
|
||||||
Finished goods
|
3,193,569
|
5,557,417
|
||||||
Finished goods on consignment
|
200,613
|
578,200
|
||||||
Total
|
$
|
4,099,555
|
$
|
6,934,900
|
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Net sales
|
||||||||
United States
|
$
|
27,297,901
|
$
|
22,101,974
|
||||
International
|
3,469,216
|
3,538,675
|
||||||
Total
|
$
|
30,767,117
|
$
|
25,640,649
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Property and equipment, net
|
||||||||
United States
|
$
|
1,615,683
|
$
|
1,859,355
|
||||
International
|
-
|
-
|
||||||
Total
|
$
|
1,615,683
|
$
|
1,859,355
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Intangible assets, net
|
||||||||
United States
|
$
|
15,362
|
$
|
39,050
|
||||
International
|
55,724
|
177,897
|
||||||
Total
|
$
|
71,086
|
$
|
216,947
|
4. | 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 |
5. | INVENTORIES |
December 31,
|
||||||||
2015
|
2014
|
|||||||
Raw materials
|
$
|
6,932,139
|
$
|
4,917,399
|
||||
Work-in-process
|
6,031,745
|
6,292,679
|
||||||
Finished goods
|
20,441,535
|
27,985,067
|
||||||
Finished goods on consignment
|
293,001
|
677,484
|
||||||
Less inventory reserves
|
(1,370,000
|
)
|
(934,000
|
)
|
||||
Total
|
$
|
32,328,420
|
$
|
38,938,629
|
||||
Short-term portion
|
$
|
10,739,798
|
$
|
13,320,639
|
||||
Long-term portion
|
21,588,622
|
25,617,990
|
||||||
Total
|
$
|
32,328,420
|
$
|
38,938,629
|
6. | PROPERTY AND EQUIPMENT |
December 31,
|
||||||||
2015
|
2014
|
|||||||
Computer software
|
$
|
1,771,102
|
$
|
1,622,806
|
||||
Machinery and equipment
|
922,532
|
818,362
|
||||||
Computer hardware
|
855,348
|
750,776
|
||||||
Leasehold improvements
|
1,030,423
|
1,002,357
|
||||||
Furniture and fixtures
|
302,064
|
259,944
|
||||||
Total
|
4,881,469
|
4,454,245
|
||||||
Less accumulated depreciation
|
(3,265,786
|
)
|
(2,594,890
|
)
|
||||
Property and equipment, net
|
$
|
1,615,683
|
$
|
1,859,355
|
7. | INTANGIBLE ASSETS |
December 31,
|
Weighted
Average
Amortization
Period
|
|||||||||||
2015
|
2014
|
(in Years)
|
||||||||||
Patents
|
$
|
958,604
|
$
|
912,862
|
0.4
|
|||||||
Trademarks
|
50,208
|
50,208
|
1.8
|
|||||||||
License rights
|
6,718
|
6,718
|
0.0
|
|||||||||
Total
|
1,015,530
|
969,788
|
||||||||||
Less accumulated amortization
|
(944,444
|
)
|
(752,841
|
)
|
||||||||
Intangible assets, net
|
$
|
71,086
|
$
|
216,947
|
8. | COMMITMENTS AND CONTINGENCIES |
2016
|
$
|
569,138
|
||
2017
|
584,789
|
|||
2018
|
600,871
|
|||
2019
|
617,395
|
|||
2020
|
634,373
|
|||
Thereafter
|
541,957
|
|||
Total
|
$
|
3,548,523
|
9. | LINE OF CREDIT |
10. | SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION |
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Employee stock options
|
$
|
697,269
|
$
|
840,568
|
||||
Consultant stock options
|
257,342
|
-
|
||||||
Restricted stock awards
|
816,286
|
846,955
|
||||||
Total
|
$
|
1,770,897
|
$
|
1,687,523
|
Shares
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding, December 31, 2013
|
1,204,297
|
$
|
3.14
|
|||||
Granted
|
535,000
|
$
|
2.49
|
|||||
Exercised
|
-
|
$
|
-
|
|||||
Forfeited
|
(30,775
|
)
|
$
|
2.51
|
||||
Expired
|
(42,576
|
)
|
$
|
3.64
|
||||
Outstanding, December 31, 2014
|
1,665,946
|
$
|
2.93
|
|||||
Granted
|
1,413,765
|
$
|
1.28
|
|||||
Exercised
|
(241,752
|
)
|
$
|
0.71
|
||||
Forfeited
|
(132,731
|
)
|
$
|
3.08
|
||||
Expired
|
(492,528
|
)
|
$
|
3.17
|
||||
Outstanding, December 31, 2015
|
2,212,700
|
$
|
2.06
|
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Dividend yield
|
0.0
|
%
|
0.0
|
%
|
||||
Expected volatility
|
63.8
|
%
|
81.1
|
%
|
||||
Risk-free interest rate
|
1.64
|
%
|
1.77
|
%
|
||||
Expected lives (years)
|
5.7
|
5.8
|
Options Outstanding
|
Options Exercisable
|
Options Vested or Expected to Vest
|
||||||||||||||||||||||||||||||
Balance
as of
12/31/2015
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2015
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
12/31/2015
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||
2,212,700
|
8.26
|
$
|
2.06
|
1,008,577
|
7.03
|
$
|
2.47
|
2,113,395
|
8.21
|
$
|
2.08
|
Shares
|
Weighted
Average
Grant Date
Fair Value
|
|||||||
Unvested, December 31, 2013
|
350,903
|
$
|
4.26
|
|||||
Granted
|
185,032
|
$
|
2.09
|
|||||
Vested
|
(248,929
|
)
|
$
|
3.77
|
||||
Canceled
|
-
|
$
|
-
|
|||||
Unvested, December 31, 2014
|
287,006
|
$
|
3.29
|
|||||
Granted
|
487,500
|
$
|
1.38
|
|||||
Vested
|
(349,506
|
)
|
$
|
2.36
|
||||
Canceled
|
-
|
$
|
-
|
|||||
Unvested, December 31, 2015
|
425,000
|
$
|
1.87
|
11. | INCOME TAXES |
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Current:
|
||||||||
Federal
|
$
|
-
|
$
|
-
|
||||
State
|
(12,821
|
)
|
(7,749
|
)
|
||||
Total
|
(12,821
|
)
|
(7,749
|
)
|
||||
Deferred:
|
||||||||
Federal
|
-
|
(3,691,163
|
)
|
|||||
State
|
-
|
(353,051
|
)
|
|||||
Total
|
-
|
(4,044,214
|
)
|
|||||
Income tax net expense
|
$
|
(12,821
|
)
|
$
|
(4,051,963
|
)
|
December 31,
|
||||||||
2015
|
2014
|
|||||||
Reserves and accruals
|
$
|
1,578,374
|
$
|
1,472,997
|
||||
Prepaid expenses
|
(50,966
|
)
|
(48,427
|
)
|
||||
Federal NOL carryforwards
|
|
6,762,537
|
|
4,185,179
|
||||
State NOL carryforwards
|
583,651
|
616,655
|
||||||
Hong Kong NOL carryforwards
|
995,566
|
995,566
|
||||||
Federal benefit on state taxes under uncertain tax positions
|
132,385
|
128,026
|
||||||
Stock-based compensation
|
481,917
|
189,045
|
||||||
Investment loss
|
-
|
9,373
|
||||||
Research tax credit
|
434,637
|
434,637
|
||||||
Alternative minimum tax credit
|
348,264
|
348,264
|
||||||
Contributions carryforward
|
33,582
|
3,929
|
||||||
Depreciation
|
(312,023
|
)
|
(418,154
|
)
|
||||
Accrued rent
|
254,404
|
297,362
|
||||||
Loss on impairment of long-lived assets
|
52,226
|
53,533
|
||||||
Valuation allowance
|
(11,294,554
|
)
|
(8,267,985
|
)
|
||||
Total
|
-
|
-
|
||||||
Total deferred income tax assets, net
|
$
|
-
|
$
|
-
|
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Anticipated income tax benefit at statutory rate
|
$
|
3,315,420
|
$
|
3,075,321
|
||||
State income tax benefit, net of federal tax effect
|
35,814
|
215,109
|
||||||
Capital loss carryforward expiration
|
(9,227
|
)
|
-
|
|||||
Income tax effect of uncertain tax positions
|
(8,461
|
)
|
(8,080
|
)
|
||||
Return to provision adjustments
|
(82,341
|
)
|
(2,751
|
)
|
||||
Stock-based compensation
|
(215,030
|
)
|
(279,985
|
)
|
||||
Other changes in deferred income tax assets, net
|
(22,414
|
)
|
25,493
|
|||||
Increase in valuation allowance
|
(3,026,582
|
)
|
(7,077,070
|
)
|
||||
Income tax net expense
|
$
|
(12,821
|
)
|
$
|
(4,051,963
|
)
|
Balance as of January 1, 2014
|
$
|
494,222
|
||
Increases related to prior year tax positions
|
12,241
|
|||
Balance as of December 31, 2014
|
506,463
|
|||
Increases related to prior year tax positions
|
12,821
|
|||
Balance as of December 31, 2015
|
$
|
519,284
|
12. | MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Customer A
|
17
|
%
|
28
|
%
|
||||
Customer B
|
14
|
%
|
10
|
%
|
||||
Customer C
|
11
|
%
|
*
|
|||||
Customer D
|
10
|
%
|
*
|
Year Ended December 31,
|
||||||||
2015
|
2014
|
|||||||
Customer A
|
21
|
%
|
28
|
%
|
||||
Customer B
|
-1
|
%
|
10
|
%
|
13. | EMPLOYEE BENEFIT PLAN |
14. | SUBSEQUENT EVENTS |
(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. |
Exhibit No.
|
Description
|
2.1
|
Asset Purchase Agreement, effective March 4, 2016, by and among Yanbal USA, Inc., Charles & Colvard, Ltd., and Charles & Colvard Direct, LLC (incorporated herein by reference to Exhibit 2.1 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2016)
|
2.2
|
List of Schedules Omitted from Asset Purchase Agreement included as Exhibit 2.1 above (incorporated herein by reference to Exhibit 2.2 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2016)
|
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, 2013)*
|
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
|
Exclusive Supply Agreement, dated as of December 12, 2014, by and among Charles & Colvard, Ltd., Cree, Inc. and, solely for purposes of Section 6(c) of the Exclusive Supply Agreement, Charles & Colvard Direct, LLC and Moissanite.com, LLC (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on December 16, 2014)*
|
10.10
|
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)*
|
10.11
|
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)*
|
10.12
|
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)
|
10.13
|
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
|
Credit and Security Agreement, dated as of June 25, 2014, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on June 30, 2014)
|
10.16
|
First Amendment to Credit and Security Agreement, dated as of September 16, 2014, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014)
|
10.17
|
Second Amendment to Credit and Security Agreement, dated as of December 12, 2014, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K, as filed with the SEC on December 16, 2014)
|
10.18
|
Intercreditor Agreement, dated as of December 12, 2014, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, Cree, Inc., and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K, as filed with the SEC on December 16, 2014)
|
10.19
|
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)
|
10.20
|
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)
|
10.21
|
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)
|
10.22
|
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)
|
10.23
|
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)*
|
10.24
|
First Amendment to Lease, dated December 23, 2013, between Charles & Colvard, Ltd. and Southport Business Park Limited Partnership (incorporated herein by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the year ended December 31, 2013)
|
10.25
|
Second Amendment to Lease, dated April 15, 2014, between Charles & Colvard, Ltd. and Southport Business Park Limited Partnership (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014)
|
10.26
|
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)+
|
10.27
|
Board Compensation Program, effective May 21, 2014 (incorporated herein by reference to Exhibit 10.22 to our Annual Report on Form 10-K for the year ended December 31, 2013)+
|
10.28
|
Board Compensation Program, effective January 1, 2015 (incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K for the year ended December 31, 2014)+
|
10.29
|
Board Compensation Program, effective January 1, 2016 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on September 10, 2015)+
|
10.30
|
Charles & Colvard, Ltd. 2008 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on May 21, 2015)+
|
10.31
|
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)+
|
10.32
|
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)+
|
10.33
|
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)+
|
10.34
|
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)+
|
10.35
|
Form of Director Nonqualified Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.28 to our Annual Report on Form 10-K for the year ended December 31, 2013)+
|
10.36
|
Charles & Colvard, Ltd. Short-Term Incentive Plan, effective January 1, 2014 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on April 21, 2014)
+
|
10.37
|
Charles & Colvard, Ltd. Long-Term Incentive Program, effective January 1, 2014 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, as filed with the SEC on April 21, 2014)+
|
10.38
|
Form of Restricted Stock Award Agreement pursuant to the Charles & Colvard, Ltd. Long-Term Incentive Program (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K, as filed with the SEC on April 21, 2014)+
|
10.39
|
Form of Employee Nonqualified Stock Option Agreement pursuant to the Charles & Colvard, Ltd. Long-Term Incentive Program (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K, as filed with the SEC on April 21, 2014)+
|
10.40
|
Form of Restricted Stock Award Agreement (Performance-Based) under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K, as filed with the SEC on March 23, 2015)+
|
10.41
|
Charles & Colvard, Ltd. 2015 Senior Management Equity Incentive Program, effective January 1, 2015 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on May 8, 2015)+
|
10.42
|
Charles & Colvard, Ltd. 2016 Senior Management Equity Incentive Program, effective January 1, 2016+
|
10.43
|
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)+
|
10.44
|
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)+
|
10.45
|
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)+
|
10.46
|
First Amendment to Employment Agreement, dated March 8, 2016, by and between Charles & Colvard, Ltd. and Steve Larkin+
|
CHARLES & COLVARD, LTD.
|
||
By:
|
/s/ Suzanne Miglucci
|
|
March 8, 2016
|
Suzanne Miglucci
|
|
President and Chief Executive Officer
|
By:
|
/s/ Suzanne Miglucci
|
|
March 8, 2016
|
Suzanne Miglucci
|
|
Director, President and Chief Executive Officer
|
||
By:
|
/s/ Kyle Macemore
|
|
March 8, 2016
|
Kyle Macemore
|
|
Senior Vice President, Chief Financial Officer and Treasurer
|
||
(Principal Financial Officer and Principal Accounting Officer)
|
||
By:
|
/s/ Neal I. Goldman
|
|
March 8, 2016
|
Neal I. Goldman
|
|
Executive Chairman of the Board of Directors
|
||
By:
|
/s/ Anne M. Butler
|
|
March 8, 2016
|
Anne M. Butler
|
|
Director
|
||
By:
|
/s/ George R. Cattermole
|
|
March 8, 2016
|
George R. Cattermole
|
|
Director
|
||
By:
|
/s/ Jaqui Lividini
|
|
March 8, 2016
|
Jaqui Lividini
|
|
Director
|
||
By:
|
/s/ Ollin B. Sykes
|
|
March 8, 2016
|
Ollin B. Sykes
|
|
Director
|
Exhibit No.
|
Description
|
2.1
|
Asset Purchase Agreement, effective March 4, 2016, by and among Yanbal USA, Inc., Charles & Colvard, Ltd., and Charles & Colvard Direct, LLC (incorporated herein by reference to Exhibit 2.1 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2016)
|
2.2
|
List of Schedules Omitted from Asset Purchase Agreement included as Exhibit 2.1 above (incorporated herein by reference to Exhibit 2.2 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2016)
|
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, 2013)*
|
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
|
Exclusive Supply Agreement, dated as of December 12, 2014, by and among Charles & Colvard, Ltd., Cree, Inc. and, solely for purposes of Section 6(c) of the Exclusive Supply Agreement, Charles & Colvard Direct, LLC and Moissanite.com, LLC (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on December 16, 2014)*
|
10.10
|
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)*
|
10.11
|
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)*
|
10.12
|
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)
|
10.13
|
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
|
Credit and Security Agreement, dated as of June 25, 2014, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on June 30, 2014)
|
10.16
|
First Amendment to Credit and Security Agreement, dated as of September 16, 2014, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014)
|
10.17
|
Second Amendment to Credit and Security Agreement, dated as of December 12, 2014, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.3 to our Current Report on Form 8-K, as filed with the SEC on December 16, 2014)
|
10.18
|
Intercreditor Agreement, dated as of December 12, 2014, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, Cree, Inc., and Wells Fargo Bank, National Association (incorporated herein by reference to Exhibit 10.2 to our Current Report on Form 8-K, as filed with the SEC on December 16, 2014)
|
10.19
|
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)
|
10.20
|
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)
|
10.21
|
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)
|
10.22
|
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)
|
10.23
|
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)*
|
10.24
|
First Amendment to Lease, dated December 23, 2013, between Charles & Colvard, Ltd. and Southport Business Park Limited Partnership (incorporated herein by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the year ended December 31, 2013)
|
10.25
|
Second Amendment to Lease, dated April 15, 2014, between Charles & Colvard, Ltd. and Southport Business Park Limited Partnership (incorporated herein by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014)
|
10.26
|
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)+
|
10.27
|
Board Compensation Program, effective May 21, 2014 (incorporated herein by reference to Exhibit 10.22 to our Annual Report on Form 10-K for the year ended December 31, 2013)+
|
10.28
|
Board Compensation Program, effective January 1, 2015 (incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K for the year ended December 31, 2014)+
|
10.29
|
Board Compensation Program, effective January 1, 2016 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on September 10, 2015)+
|
10.30
|
Charles & Colvard, Ltd. 2008 Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on May 21, 2015)+
|
10.31
|
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)+
|
10.32
|
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)+
|
10.33
|
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)+
|
10.34
|
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)+
|
10.35
|
Form of Director Nonqualified Stock Option Agreement under the Charles & Colvard, Ltd. 2008 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.28 to our Annual Report on Form 10-K for the year ended December 31, 2013)+
|
10.36
|
Charles & Colvard, Ltd. Short-Term Incentive Plan, effective January 1, 2014 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on April 21, 2014)
+
|
10.37
|
Charles & Colvard, Ltd. Long-Term Incentive Program, effective January 1, 2014 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K, as filed with the SEC on April 21, 2014)+
|
10.38
|
Form of Restricted Stock Award Agreement pursuant to the Charles & Colvard, Ltd. Long-Term Incentive Program (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K, as filed with the SEC on April 21, 2014)+
|
Position
|
Maximum Amount of Shares Subject to
Restricted Stock Award
|
Chief Executive Officer
|
150,000
|
Chief Financial Officer (CFO)
|
75,000
|
Chief Revenue Officer (CRO)
|
75,000
|
Vice President(s)
|
35,000
|
CHARLES & COLVARD, LTD.
|
EMPLOYEE
|
||
By:
|
/s/ Suzanne Miglucci
|
/s/ Steve Larkin
|
Name:
|
Suzanne Miglucci
|
Steve Larkin
|
|
Title:
|
President and Chief Executive Officer
|
/s/ H. Marvin Beasley
|
12/1/15
|
||
H. Marvin Beasley
|
Date
|
CHARLES & COLVARD, LTD.
|
||||
By:
|
/s/ Neal I. Goldman
|
11/11/15
|
||
Name:
|
Neal I. Goldman
|
Date
|
||
Title:
|
Executive Chairman of the Board of Directors
|
1. | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2015 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/ Suzanne Miglucci
|
|
March 8, 2016
|
Suzanne Miglucci
|
|
President and Chief Executive Officer
|
1. | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2015 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/ Kyle Macemore
|
|
March 8, 2016
|
Kyle Macemore
|
|
Chief Financial Officer
|
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By:
|
/s/ Suzanne Miglucci
|
|
Suzanne Miglucci
|
||
President and Chief Executive Officer
|
||
March 8, 2016
|
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By:
|
/s/ Kyle Macemore
|
|
Kyle Macemore
|
||
Chief Financial Officer
|
||
March 8, 2016
|