North Carolina
|
56-1928817
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
170 Southport Drive
Morrisville, North Carolina
|
27560
|
|
(Address of principal executive offices)
|
(Zip Code)
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated filer
|
☐ (Do not check if a smaller reporting company)
|
Smaller reporting company
|
☒
|
Page
Number
|
||
PART I – FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements
|
|
3
|
||
4
|
||
5
|
||
6
|
||
Item 2.
|
22
|
|
Item 3.
|
37
|
|
Item 4.
|
38
|
|
PART II – OTHER INFORMATION
|
||
Item 1.
|
38
|
|
Item 1A.
|
38
|
|
Item 6.
|
39
|
|
40
|
Item 1. |
Financial Statements
|
September 30,
2016
(unaudited)
|
December 31,
2015
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
9,678,329
|
$
|
5,274,305
|
||||
Accounts receivable, net
|
1,946,026
|
3,852,651
|
||||||
Inventory, net
|
10,070,966
|
10,739,798
|
||||||
Prepaid expenses and other assets
|
839,100
|
701,105
|
||||||
Assets related to discontinued operations
|
-
|
83,000
|
||||||
Total current assets
|
22,534,421
|
20,650,859
|
||||||
Long-term assets:
|
||||||||
Inventory, net
|
17,111,073
|
21,588,622
|
||||||
Property and equipment, net
|
1,493,287
|
1,615,683
|
||||||
Intangible assets, net
|
5,989
|
71,086
|
||||||
Other assets
|
163,664
|
214,588
|
||||||
Total long-term assets
|
18,774,013
|
23,489,979
|
||||||
TOTAL ASSETS
|
$
|
41,308,434
|
$
|
44,140,838
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
3,604,625
|
$
|
3,323,148
|
||||
Accrued cooperative advertising
|
9,000
|
58,000
|
||||||
Accrued expenses and other liabilities
|
824,948
|
891,187
|
||||||
Liabilities related to discontinued operations
|
2,100
|
349,000
|
||||||
Total current liabilities
|
4,440,673
|
4,621,335
|
||||||
Long-term liabilities:
|
||||||||
Accrued expenses and other liabilities
|
625,391
|
710,223
|
||||||
Accrued income taxes
|
430,571
|
420,503
|
||||||
Total long-term liabilities
|
1,055,962
|
1,130,726
|
||||||
Total liabilities
|
5,496,635
|
5,752,061
|
||||||
Commitments and contingencies (Note 7)
|
||||||||
Shareholders’ equity:
|
||||||||
Common stock, no par value; 50,000,000 shares authorized; 21,444,885 and 21,111,585 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
|
54,243,816
|
54,240,247
|
||||||
Additional paid-in capital
|
14,153,203
|
13,280,920
|
||||||
Accumulated deficit
|
(32,585,220
|
)
|
(29,132,390
|
) | ||||
Total shareholders’ equity
|
35,811,799
|
38,388,777
|
||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$
|
41,308,434
|
$
|
44,140,838
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
$
|
5,212,973
|
$
|
5,100,152
|
$
|
23,133,248
|
$
|
18,299,773
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
3,221,007
|
3,349,062
|
16,278,989
|
13,870,543
|
||||||||||||
Sales and marketing
|
1,891,162
|
1,166,707
|
5,222,757
|
4,312,581
|
||||||||||||
General and administrative
|
1,244,400
|
1,162,015
|
4,380,218
|
4,219,257
|
||||||||||||
Research and development
|
-
|
6,352
|
2,848
|
15,456
|
||||||||||||
Total costs and expenses
|
6,356,569
|
5,684,136
|
25,884,812
|
22,417,837
|
||||||||||||
Loss from operations
|
(1,143,596
|
)
|
(583,984
|
)
|
(2,751,564
|
)
|
(4,118,064
|
)
|
||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
-
|
-
|
-
|
11
|
||||||||||||
Interest expense
|
(36
|
)
|
(17
|
)
|
(1,548
|
)
|
(801
|
)
|
||||||||
Loss on abandonment of property and equipment
|
(473
|
)
|
-
|
(116,021
|
)
|
-
|
||||||||||
Gain on sale of long-term assets
|
-
|
-
|
-
|
125
|
||||||||||||
Total other expense, net
|
(509
|
)
|
(17
|
)
|
(117,569
|
)
|
(665
|
)
|
||||||||
Loss before income taxes from continuing operations
|
(1,144,105
|
)
|
(584,001
|
)
|
(2,869,133
|
)
|
(4,118,729
|
)
|
||||||||
Income tax net expense from continuing operations
|
(3,325
|
)
|
(3,243
|
)
|
(10,068
|
)
|
(9,579
|
)
|
||||||||
Net loss from continuing operations
|
(1,147,430
|
)
|
(587,244
|
)
|
(2,879,201
|
)
|
(4,128,308
|
)
|
||||||||
Discontinued operations:
|
||||||||||||||||
Loss from discontinued operations
|
(6,949
|
)
|
(1,378,837
|
)
|
(586,027
|
)
|
(3,564,760
|
)
|
||||||||
(Loss) gain on sale of assets from discontinued operations
|
(3,065
|
)
|
-
|
12,398
|
-
|
|||||||||||
Net loss from discontinued operations
|
(10,014
|
)
|
(1,378,837
|
)
|
(573,629
|
)
|
(3,564,760
|
)
|
||||||||
Net loss
|
$
|
(1,157,444
|
)
|
$
|
(1,966,081
|
)
|
$
|
(3,452,830
|
)
|
$
|
(7,693,068
|
)
|
||||
Net loss per common share:
|
||||||||||||||||
Basic – continuing operations
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.14
|
)
|
$
|
(0.20
|
)
|
||||
Basic – discontinued operations
|
(0.00
|
)
|
(0.07
|
)
|
(0.03
|
)
|
(0.18
|
)
|
||||||||
Basic – total
|
$
|
(0.06
|
)
|
$
|
(0.10
|
)
|
$
|
(0.17
|
)
|
$
|
(0.38
|
)
|
||||
Diluted – continuing operations
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.14
|
)
|
$
|
(0.20
|
)
|
||||
Diluted – discontinued operations
|
(0.00
|
)
|
(0.07
|
)
|
(0.03
|
)
|
(0.18
|
)
|
||||||||
Diluted – total
|
$
|
(0.06
|
)
|
$
|
(0.10
|
)
|
$
|
(0.17
|
)
|
$
|
(0.38
|
)
|
||||
Weighted average number of shares used in computing net loss per common share:
|
||||||||||||||||
Basic
|
20,997,686
|
20,571,340
|
20,898,484
|
20,336,839
|
||||||||||||
Diluted
|
20,997,686
|
20,571,340
|
20,898,484
|
20,336,839
|
Nine Months Ended September 30,
|
||||||||
2016
|
2015
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$
|
(2,879,201
|
)
|
$
|
(4,128,308
|
)
|
||
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
445,576
|
582,291
|
||||||
Stock-based compensation
|
829,381
|
1,090,779
|
||||||
Provision for uncollectible accounts
|
(60,300
|
)
|
29,000
|
|||||
Provision for sales returns
|
(430,000
|
)
|
(505,000
|
)
|
||||
Provision for inventory reserves
|
54,000
|
213,000
|
||||||
Loss on abandonment of property and equipment
|
116,021
|
-
|
||||||
Gain on sale of long-term assets
|
-
|
(125
|
)
|
|||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
2,396,925
|
3,126,654
|
||||||
Inventory
|
5,092,381
|
4,732,476
|
||||||
Prepaid expenses and other assets, net
|
(87,071
|
)
|
(424,879
|
)
|
||||
Accounts payable
|
281,477
|
26,869
|
||||||
Accrued cooperative advertising
|
(49,000
|
)
|
(192,000
|
)
|
||||
Accrued income taxes
|
10,068
|
9,579
|
||||||
Accrued expenses and other liabilities
|
(151,071
|
)
|
186,931
|
|||||
Net cash provided by operating activities of continuing operations
|
5,569,186
|
4,747,267
|
||||||
Net cash used in operating activities of discontinued operations
|
(1,123,381
|
)
|
(3,074,095
|
)
|
||||
Net cash provided by operating activities
|
4,445,805
|
1,673,172
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(410,306
|
)
|
(188,410
|
)
|
||||
Patent, license rights, and trademark costs
|
(2,446
|
)
|
(45,742
|
)
|
||||
Proceeds from sale of long-term assets
|
-
|
175
|
||||||
Net cash used in investing activities of continuing operations
|
(412,752
|
)
|
(233,977
|
)
|
||||
Net cash provided by (used in) investing activities of discontinued operations
|
368,671
|
(17,041
|
)
|
|||||
Net cash used in investing activities
|
(44,081
|
)
|
(251,018
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Stock option exercises
|
2,300
|
172,766
|
||||||
Net cash provided by financing activities of continuing operations
|
2,300
|
172,766
|
||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
4,404,024
|
1,594,920
|
||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
5,274,305
|
4,007,341
|
||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
9,678,329
|
$
|
5,602,261
|
||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for interest
|
$
|
1,548
|
$
|
801
|
||||
Cash paid during the period for income taxes
|
$
|
-
|
$
|
-
|
1. |
DESCRIPTION OF BUSINESS
|
2. |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
|
3. |
SEGMENT INFORMATION AND GEOGRAPHIC DATA
|
Three Months Ended September 30, 2016
|
||||||||||||
Wholesale
|
charlesandcolvard.com
|
Total
|
||||||||||
Net sales
|
||||||||||||
Loose jewels
|
$
|
3,447,266
|
$
|
150,213
|
$
|
3,597,479
|
||||||
Finished jewelry
|
735,293
|
880,201
|
1,615,494
|
|||||||||
Total
|
$
|
4,182,559
|
$
|
1,030,414
|
$
|
5,212,973
|
||||||
Product line cost of goods sold
|
||||||||||||
Loose jewels
|
$
|
1,782,742
|
$
|
26,237
|
$
|
1,808,979
|
||||||
Finished jewelry
|
342,820
|
363,359
|
706,179
|
|||||||||
Total
|
$
|
2,125,562
|
$
|
389,596
|
$
|
2,515,158
|
||||||
Product line gross profit
|
||||||||||||
Loose jewels
|
$
|
1,664,524
|
$
|
123,976
|
$
|
1,788,500
|
||||||
Finished jewelry
|
392,473
|
516,842
|
909,315
|
|||||||||
Total
|
$
|
2,056,997
|
$
|
640,818
|
$
|
2,697,815
|
||||||
Operating loss
|
$
|
(391,513
|
)
|
$
|
(752,083
|
)
|
$
|
(1,143,596
|
)
|
|||
Depreciation and amortization
|
$
|
100,720
|
$
|
14,709
|
$
|
115,429
|
||||||
Capital expenditures
|
$
|
58,695
|
$
|
233,178
|
$
|
291,873
|
Three Months Ended September 30, 2015
|
||||||||||||
Wholesale
|
charlesandcolvard.com
|
Total
|
||||||||||
Net sales
|
||||||||||||
Loose jewels
|
$
|
2,734,545
|
$
|
132,809
|
$
|
2,867,354
|
||||||
Finished jewelry
|
1,167,883
|
1,064,915
|
2,232,798
|
|||||||||
Total
|
$
|
3,902,428
|
$
|
1,197,724
|
$
|
5,100,152
|
||||||
Product line cost of goods sold
|
||||||||||||
Loose jewels
|
$
|
1,468,123
|
$
|
21,874
|
$
|
1,489,997
|
||||||
Finished jewelry
|
877,869
|
519,740
|
1,397,609
|
|||||||||
Total
|
$
|
2,345,992
|
$
|
541,614
|
$
|
2,887,606
|
||||||
Product line gross profit
|
||||||||||||
Loose jewels
|
$
|
1,266,422
|
$
|
110,935
|
$
|
1,377,357
|
||||||
Finished jewelry
|
290,014
|
545,175
|
835,189
|
|||||||||
Total
|
$
|
1,556,436
|
$
|
656,110
|
$
|
2,212,546
|
||||||
Operating loss
|
$
|
(271,269
|
)
|
$
|
(312,715
|
)
|
$
|
(583,984
|
)
|
|||
Depreciation and amortization
|
$
|
166,971
|
$
|
27,776
|
$
|
194,747
|
||||||
Capital expenditures
|
$
|
42,677
|
$
|
-
|
$
|
42,677
|
Nine Months Ended September 30, 2016
|
||||||||||||
Wholesale
|
charlesandcolvard.com
|
Total
|
||||||||||
Net sales
|
||||||||||||
Loose jewels
|
$
|
17,798,745
|
$
|
396,625
|
$
|
18,195,370
|
||||||
Finished jewelry
|
1,816,292
|
3,121,586
|
4,937,878
|
|||||||||
Total
|
$
|
19,615,037
|
$
|
3,518,211
|
$
|
23,133,248
|
||||||
Product line cost of goods sold
|
||||||||||||
Loose jewels
|
$
|
11,941,576
|
$
|
51,286
|
$
|
11,992,862
|
||||||
Finished jewelry
|
1,362,702
|
1,304,258
|
2,666,960
|
|||||||||
Total
|
$
|
13,304,278
|
$
|
1,355,544
|
$
|
14,659,822
|
||||||
Product line gross profit
|
||||||||||||
Loose jewels
|
$
|
5,857,169
|
$
|
345,339
|
$
|
6,202,508
|
||||||
Finished jewelry
|
453,590
|
1,817,328
|
2,270,918
|
|||||||||
Total
|
$
|
6,310,759
|
$
|
2,162,667
|
$
|
8,473,426
|
||||||
Operating loss
|
$
|
(1,189,070
|
)
|
$
|
(1,562,494
|
)
|
$
|
(2,751,564
|
)
|
|||
Depreciation and amortization
|
$
|
400,321
|
$
|
45,255
|
$
|
445,576
|
||||||
Capital expenditures
|
$
|
147,246
|
$
|
263,060
|
$
|
410,306
|
Nine Months Ended September 30, 2015
|
||||||||||||
Wholesale
|
charlesandcolvard.com
|
Total
|
||||||||||
Net sales
|
||||||||||||
Loose jewels
|
$
|
10,050,497
|
$
|
404,213
|
$
|
10,454,710
|
||||||
Finished jewelry
|
4,686,747
|
3,158,316
|
7,845,063
|
|||||||||
Total
|
$
|
14,737,244
|
$
|
3,562,529
|
$
|
18,299,773
|
||||||
Product line cost of goods sold
|
||||||||||||
Loose jewels
|
$
|
6,710,697
|
$
|
62,693
|
$
|
6,773,390
|
||||||
Finished jewelry
|
3,309,852
|
1,533,759
|
4,843,611
|
|||||||||
Total
|
$
|
10,020,549
|
$
|
1,596,452
|
$
|
11,617,001
|
||||||
Product line gross profit
|
||||||||||||
Loose jewels
|
$
|
3,339,800
|
$
|
341,520
|
$
|
3,681,320
|
||||||
Finished jewelry
|
1,376,895
|
1,624,557
|
3,001,452
|
|||||||||
Total
|
$
|
4,716,695
|
$
|
1,966,077
|
$
|
6,682,772
|
||||||
Operating loss
|
$
|
(3,123,326
|
)
|
$
|
(994,738
|
)
|
$
|
(4,118,064
|
)
|
|||
Depreciation and amortization
|
$
|
490,821
|
$
|
91,470
|
$
|
582,291
|
||||||
Capital expenditures
|
$
|
187,877
|
$
|
533
|
$
|
188,410
|
September 30, 2016
|
||||||||||||
Wholesale
|
charlesandcolvard.com
|
Total
|
||||||||||
Total assets
|
$
|
40,794,260
|
$
|
514,174
|
$
|
41,308,434
|
December 31, 2015
|
||||||||||||
Wholesale
|
charlesandcolvard.com
|
Total
|
||||||||||
Total assets
|
$
|
43,882,939
|
$
|
174,899
|
$
|
44,057,838
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Product line cost of goods sold
|
$
|
2,515,158
|
$
|
2,887,606
|
$
|
14,659,822
|
$
|
11,617,001
|
||||||||
Non-capitalized manufacturing and production control expenses
|
448,038
|
386,571
|
1,190,321
|
1,034,143
|
||||||||||||
Freight out
|
105,616
|
64,887
|
268,705
|
212,885
|
||||||||||||
Inventory valuation allowances
|
(1,000
|
)
|
(402,000
|
)
|
54,000
|
213,000
|
||||||||||
Other inventory adjustments
|
153,195
|
411,998
|
106,141
|
793,514
|
||||||||||||
Cost of goods sold
|
$
|
3,221,007
|
$
|
3,349,062
|
$
|
16,278,989
|
$
|
13,870,543
|
September 30,
2016
|
December 31,
2015
|
|||||||
Loose jewels
|
||||||||
Raw materials
|
$
|
4,143,698
|
$
|
6,741,712
|
||||
Work-in-process
|
8,716,244
|
5,516,799
|
||||||
Finished goods
|
9,283,820
|
15,877,436
|
||||||
Finished goods on consignment
|
14,671
|
55,388
|
||||||
Total
|
$
|
22,158,433
|
$
|
28,191,335
|
||||
Finished jewelry
|
||||||||
Raw materials
|
$
|
369,062
|
$
|
190,427
|
||||
Work-in-process
|
651,218
|
514,946
|
||||||
Finished goods
|
3,672,144
|
3,193,569
|
||||||
Finished goods on consignment
|
291,973
|
200,613
|
||||||
Total
|
$
|
4,984,397
|
$
|
4,099,555
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
||||||||||||||||
United States
|
$
|
4,590,299
|
$
|
4,181,333
|
$
|
20,682,341
|
$
|
16,245,633
|
||||||||
International
|
622,674
|
918,819
|
2,450,907
|
2,054,140
|
||||||||||||
Total
|
$
|
5,212,973
|
$
|
5,100,152
|
$
|
23,133,248
|
$
|
18,299,773
|
September 30,
2016
|
December 31,
2015
|
|||||||
Property and equipment, net
|
||||||||
United States
|
$
|
1,493,287
|
$
|
1,615,683
|
||||
International
|
-
|
-
|
||||||
Total
|
$
|
1,493,287
|
$
|
1,615,683
|
September 30,
2016
|
December 31,
2015
|
|||||||
Intangible assets, net
|
||||||||
United States
|
$
|
5,989
|
$
|
15,362
|
||||
International
|
-
|
55,724
|
||||||
Total
|
$
|
5,989
|
$
|
71,086
|
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
|
September 30,
2016
|
December 31,
2015
|
|||||||
Raw materials
|
$
|
4,512,760
|
$
|
6,932,139
|
||||
Work-in-process
|
9,367,462
|
6,031,745
|
||||||
Finished goods
|
14,368,173
|
20,441,535
|
||||||
Finished goods on consignment
|
354,644
|
293,001
|
||||||
Less inventory reserves
|
(1,421,000
|
)
|
(1,370,000
|
)
|
||||
Total
|
$
|
27,182,039
|
$
|
32,328,420
|
||||
Current portion
|
$
|
10,070,966
|
$
|
10,739,798
|
||||
Long-term portion
|
17,111,073
|
21,588,622
|
||||||
Total
|
$
|
27,182,039
|
$
|
32,328,420
|
6. |
INCOME TAXES
|
7. |
COMMITMENTS AND CONTINGENCIES
|
2016
|
$
|
143,889
|
||
2017
|
584,789
|
|||
2018
|
600,871
|
|||
2019
|
617,395
|
|||
2020
|
634,373
|
|||
Thereafter
|
541,957
|
|||
Total
|
$
|
3,123,274
|
8. |
LINE OF CREDIT
|
9. |
STOCK-BASED COMPENSATION
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Employee stock options
|
$
|
94,715
|
$
|
207,722
|
$
|
339,441
|
$
|
514,183
|
||||||||
Consultant stock options
|
39,143
|
46,394
|
136,253
|
87,842
|
||||||||||||
Restricted stock awards
|
100,796
|
248,827
|
397,859
|
674,260
|
||||||||||||
Totals
|
$
|
234,654
|
$
|
502,943
|
$
|
873,553
|
$
|
1,276,285
|
Shares
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding, December 31, 2015
|
2,441,077
|
$
|
2.11
|
|||||
Granted
|
561,005
|
$
|
1.15
|
|||||
Exercised
|
(2,500
|
)
|
$
|
0.92
|
||||
Forfeited
|
(386,247
|
)
|
$
|
1.40
|
||||
Expired
|
(382,562
|
)
|
$
|
2.08
|
||||
Outstanding, September 30, 2016
|
2,230,773
|
$
|
2.00
|
Dividend yield
|
0.0
|
%
|
||
Expected volatility
|
62.4
|
%
|
||
Risk-free interest rate
|
1.41
|
%
|
||
Expected lives (years)
|
5.54
|
Options Outstanding
|
Options Exercisable
|
Options Vested or Expected to Vest
|
||||||||||||||||||||||||||||||||
Balance
as of
9/30/2016
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
9/30/2016
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
Balance
as of
9/30/2016
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Weighted
Average
Exercise
Price
|
||||||||||||||||||||||||||
2,230,773
|
7.39
|
$
|
2.00
|
1,435,519
|
6.37
|
$
|
2.37
|
2,167,552
|
7.33
|
$
|
2.02
|
Shares
|
Weighted
Average
Grant Date
Fair Value
|
|||||||
Unvested, December 31, 2015
|
425,000
|
$
|
1.87
|
|||||
Granted
|
509,250
|
$
|
0.93
|
|||||
Vested
|
(318,269
|
)
|
$
|
2.01
|
||||
Canceled
|
(178,450
|
)
|
$
|
1.29
|
||||
Unvested, September 30, 2016
|
437,531
|
$
|
0.91
|
10. |
NET LOSS PER COMMON SHARE
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net loss from continuing operations
|
$
|
(1,147,430
|
)
|
$
|
(587,244
|
)
|
$
|
(2,879,201
|
)
|
$
|
(4,128,308
|
)
|
||||
Net loss from discontinued operations
|
(10,014
|
)
|
(1,378,837
|
)
|
(573,629
|
)
|
(3,564,760
|
)
|
||||||||
Net loss
|
$
|
(1,157,444
|
)
|
$
|
(1,966,081
|
)
|
$
|
(3,452,830
|
)
|
$
|
(7,693,068
|
)
|
||||
Denominator:
|
||||||||||||||||
Weighted average common shares outstanding:
|
||||||||||||||||
Basic
|
20,997,686
|
20,571,340
|
20,898,484
|
20,336,839
|
||||||||||||
Stock options and restricted stock
|
-
|
-
|
-
|
-
|
||||||||||||
Diluted
|
20,997,686
|
20,571,340
|
20,898,484
|
20,336,839
|
||||||||||||
Net loss per common share:
|
||||||||||||||||
Basic – continuing operations
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.14
|
)
|
$
|
(0.20
|
)
|
||||
Basic – discontinued operations
|
(0.00
|
)
|
(0.07
|
)
|
(0.03
|
)
|
(0.18
|
)
|
||||||||
Basic – total
|
$
|
(0.06
|
)
|
$
|
(0.10
|
)
|
$
|
(0.17
|
)
|
$
|
(0.38
|
)
|
||||
Diluted – continuing operations
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
$
|
(0.14
|
)
|
$
|
(0.20
|
)
|
||||
Diluted – discontinued operations
|
(0.00
|
)
|
(0.07
|
)
|
(0.03
|
)
|
(0.18
|
)
|
||||||||
Diluted – total
|
$
|
(0.06
|
)
|
$
|
(0.10
|
)
|
$
|
(0.17
|
)
|
$
|
(0.38
|
)
|
11. |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
|
September 30,
2016
|
December 31,
2015
|
|||||||
Customer A
|
21
|
%
|
** |
%
|
||||
Customer B
|
12
|
%
|
** |
%
|
||||
Customer C
|
*
|
%
|
17
|
%
|
||||
Customer D
|
*
|
%
|
14
|
%
|
||||
Customer E
|
*
|
%
|
11
|
%
|
||||
Customer F
|
*
|
%
|
10
|
%
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Customer A
|
27
|
%
|
3
|
%
|
17
|
%
|
9
|
%
|
||||||||
Customer C
|
*
|
%
|
14
|
%
|
29
|
%
|
32
|
%
|
12. |
DISCONTINUED OPERATIONS
|
September 30,
2016
|
December 31,
2015
|
|||||||
Prepaid expenses and other assets
|
$
|
-
|
$
|
83,000
|
||||
Total assets
|
$
|
-
|
$
|
83,000
|
||||
Accounts payable
|
$
|
-
|
$
|
140,000
|
||||
Accrued expenses and other liabilities
|
2,100
|
209,000
|
||||||
Total liabilities
|
$
|
2,100
|
$
|
349,000
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
$
|
29,850
|
$
|
1,417,913
|
$
|
804,585
|
$
|
4,072,228
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
7,188
|
541,729
|
276,100
|
1,325,688
|
||||||||||||
Sales and marketing
|
29,611
|
1,842,133
|
940,592
|
5,187,493
|
||||||||||||
General and administrative
|
-
|
412,888
|
173,909
|
1,123,807
|
||||||||||||
Interest expense
|
-
|
-
|
11
|
-
|
||||||||||||
Total costs and expenses
|
36,799
|
2,796,750
|
1,390,612
|
7,636,988
|
||||||||||||
Loss from discontinued operations
|
(6,949
|
)
|
(1,378,837
|
)
|
(586,027
|
)
|
(3,564,760
|
)
|
||||||||
Other (expense) income:
|
||||||||||||||||
(Loss) gain on sale of long-term assets
|
(3,065
|
)
|
-
|
12,398
|
-
|
|||||||||||
Total other (expense) income, net
|
(3,065
|
)
|
-
|
12,398
|
-
|
|||||||||||
Pretax loss from discontinued operations
|
$
|
(10,014
|
)
|
$
|
(1,378,837
|
)
|
$
|
(573,629
|
)
|
$
|
(3,564,760
|
)
|
· |
Our future financial performance depends upon increased consumer awareness and acceptance, growth of sales of our products, and operational execution of our strategic initiatives.
|
· |
We are currently substantially dependent on a limited number of distributors, jewelry manufacturers, and retailers for the sale of our products.
|
· |
The execution of our business plans could significantly impact our liquidity
.
|
· |
Our business and our results of operations could be materially adversely affected as a result of our inability to fulfill orders on a timely basis.
|
· |
The financial difficulties or insolvency of one or more of our major customers or their lack of willingness and ability to market our products could adversely affect results.
|
· |
We expect to remain dependent upon our exclusive supply agreement, or the Supply Agreement, with Cree, Inc., or Cree, which we entered into on December 12, 2014, for the sole supply of our silicon carbide, or SiC, crystals for the foreseeable future.
|
· |
We face intense competition in the worldwide jewelry industry.
|
· |
Our failure to maintain compliance with NASDAQ’s continued listing requirements could result in the delisting of our common stock.
|
· |
Our current wholesale customers may potentially perceive us as a competitor in the finished jewelry business.
|
· |
We may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation.
|
· |
Our business and our results of operations could be materially adversely affected as a result of general economic and market conditions.
|
· |
We are subject to certain risks due to our international distribution channels and vendors.
|
· |
Our operations could be disrupted by natural disasters.
|
· |
Sales of moissanite jewelry could be dependent upon the pricing of precious metals, which is beyond our control.
|
· |
Seasonality of our business may adversely affect our net sales and operating income.
|
· |
We may not be able to adequately protect our intellectual property, which could harm the value of our products and brands and adversely affect our business.
|
· |
A failure of our information technology infrastructure or a failure to protect confidential information of our customers and our network against security breaches could adversely impact our business and operations.
|
· |
If the e-commerce opportunity changes dramatically or if e-commerce technology or providers change their models, our results of operations may be adversely affected.
|
· |
If we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer.
|
· |
Governmental regulation and oversight might adversely impact our operations.
|
· |
Some anti-takeover provisions of our charter documents may delay or prevent a takeover of our company.
|
· |
Expansion of our direct-to-consumer e-commerce business.
On October 11, 2016, we announced the launch of an updated brand platform, delivered an up-market jewelry selection and enhanced the customer buying experience through the redesigned charlesandcolvard.com website. With the launch of our new website, we introduced new and elevated lines of jewelry, an expanded line of bridal jewelry, fashion and classic styles, and introduced fashion oriented pieces that will address entry price points. We have launched an awareness campaign in the fourth quarter of 2016 that coincided with the release of the new website and includes public relations, social media, and search engine management. We have expanded our e-commerce footprint by providing our products for sale through additional e-commerce channels, and we expect this expansion to continue in the fourth quarter of 2016. In addition, we expect to expand through emerging social media commerce channels. We believe our direct-to-consumer e-commerce sales channels will not only create top-line net sales, 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 brand and subsequently our business with wholesale and retail partners.
|
· |
Expansion of Forever One
TM
. In September 2015, we launched
Forever One
™ – our 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. Our goal has been to leverage this momentum, and expand our
Forever One
TM
assortment (more shapes and sizes) throughout 2016 via a series of scheduled product releases. In connection with our launch of our new e-commerce website as noted above, we debuted a
new e-commerce website offering a second grade of
Forever One
™
moissanite.
Forever One
™
is now available in G-H-I quality based on the Gemological Institute of America’s diamond grading scale. This new, near-colorless gemstone is currently available in limited quantities on the Charles & Colvard
®
e-commerce website,
www.charlesandcolvard.com
,
for consumers only.
|
· |
A move up-market.
Over the years our core product supplier, Cree, has improved its proprietary processes for SiC production. It is this over 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 us to move up-market – competing directly with diamond for share of wallet. We believe that this higher quality product line positions us for a move up-market to higher end retail opportunities. We do anticipate new providers of moissanite to enter the market, as our U.S. exclusive patent expired in 2015, and international patents expired in the third quarter of 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. With the launch of our new e-commerce website, we now offer expanded warranty coverage on our
Forever One
TM
jewels to include protection against usage damage to our moissanite gemstones.
|
· |
Expansion of our jewelry line.
We expanded our jewelry product line in 2016 to include increased focus on the bridal category, and we intend to continue expanding. We have curated a blend of our own finished jewelry featuring moissanite with products from select artisan jewelers. We have begun making this broadened collection available to our retail and wholesale partners and promoted on our e-commerce site and third-party transactional websites. We have expanded our resources and realigned our sales and marketing team in the third quarter of the 2016 to implement this initiative.
|
· |
Growth within our traditional channels.
We have enjoyed over 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. In the third quarter of 2016, we launched a 26 store test with a nationwide fine jewelry retailer. In October 2016, we agreed to extend the test to an additional 25 stores. This retailer currently carries our jewelry on its e‑commerce website. The terms of this test were on consignment and contained limited styles of
Forever One
TM
jewelry. During the first quarter of 2016, we launched moissanite on a TV shopping network with limited hours and continued sessions with limited hours in the second and third quarters of 2016. During 2015, this TV shopping network only sold our jewelry on their website. These are examples of creating growth within our traditional channels.
|
· |
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. During the first half of 2016, we hired outside agencies to help us build a brand strategy and architecture and develop a brand design and messaging aligned with this target market. Throughout 2016, we plan to proactively engage this market through a multi-channel traditional and digital marketing strategy, as outlined below. In addition, we believe our new e-commerce website is designed to speak to the targeted millennial audience.
|
· |
Our go-to-market strategy.
In order to expand existing channels while reaching our millennial targets, we continue to reconstruct our promotional and go-to-market strategies. In 2016, our strategy has been and remains 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 impact of mining on the jewelry industry. We anticipate being disruptive in the industry and intend to be a leader on the topic of corporate environmental and social responsibility and the social and ethical appeal of created gemstones and jewels.
|
· |
Expand our traditional channels. We plan to continue fostering 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 continue 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 us to learn about and acquire our products.
|
· |
Continue expanding our online presence including an aggressive push of our product to e-commerce marketplaces, comparison shopping engines, affiliate networks, social 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 us 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.
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2016
|
2015
|
2016
|
2015
|
|||||||||||||
Net sales
|
$
|
5,212,973
|
$
|
5,100,152
|
$
|
23,133,248
|
$
|
18,299,773
|
||||||||
Costs and expenses:
|
||||||||||||||||
Cost of goods sold
|
3,221,007
|
3,349,062
|
16,278,989
|
13,870,543
|
||||||||||||
Sales and marketing
|
1,891,162
|
1,166,707
|
5,222,757
|
4,312,581
|
||||||||||||
General and administrative
|
1,244,400
|
1,162,015
|
4,380,218
|
4,219,257
|
||||||||||||
Research and development
|
-
|
6,352
|
2,848
|
15,456
|
||||||||||||
Total costs and expenses
|
6,356,569
|
5,684,136
|
25,884,812
|
22,417,837
|
||||||||||||
Loss from operations
|
(1,143,596
|
)
|
(583,984
|
)
|
(2,751,564
|
)
|
(4,118,064
|
)
|
||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
-
|
-
|
-
|
11
|
||||||||||||
Interest expense
|
(36
|
)
|
(17
|
)
|
(1,548
|
)
|
(801
|
)
|
||||||||
Loss on abandonment of property and equipment
|
(473
|
)
|
-
|
(116,021
|
)
|
-
|
||||||||||
Gain on sale of long-term assets
|
-
|
-
|
-
|
125
|
||||||||||||
Total other expense, net
|
(509
|
)
|
(17
|
)
|
(117,569
|
)
|
(665
|
)
|
||||||||
Loss before income taxes from continuing operations
|
(1,144,105
|
)
|
(584,001
|
)
|
(2,879,133
|
)
|
(4,118,729
|
)
|
||||||||
Income tax net expense from continuing operations
|
(3,325
|
)
|
(3,243
|
)
|
(10,068
|
)
|
(9,579
|
)
|
||||||||
Net loss from continuing operations
|
(1,147,430
|
)
|
(587,244
|
)
|
(2,879,201
|
)
|
(4,128,308
|
)
|
||||||||
Discontinued operations:
|
||||||||||||||||
Loss from discontinued operations
|
(6,949
|
)
|
(1,378,837
|
)
|
(586,027
|
)
|
(3,564,760
|
)
|
||||||||
(Loss) gain on sale of assets from discontinued operations
|
(3,065
|
)
|
-
|
12,398
|
-
|
|||||||||||
Net loss from discontinued operations
|
(10,014
|
)
|
(1,378,837
|
)
|
(573,629
|
)
|
(3,564,760
|
)
|
||||||||
Net loss
|
$
|
(1,157,444
|
)
|
$
|
(1,966,081
|
)
|
$
|
(3,452,830
|
)
|
$
|
(7,693,068
|
)
|
|
Three Months Ended
September 30,
|
Change
|
|
Nine Months Ended
September 30,
|
Change
|
|||||||||||||||||||||||||||
2016
|
2015 |
Dollars
|
Percent
|
2016
|
2015
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Loose jewels
|
$
|
3,597,479
|
$
|
2,867,354
|
$
|
730,125
|
25
|
%
|
$
|
18,195,370
|
$
|
10,454,710
|
$
|
7,740,660
|
74
|
%
|
||||||||||||||||
Finished jewelry
|
1,615,494
|
2,232,798
|
(617,304
|
)
|
-28
|
%
|
4,937,878
|
7,845,063
|
(2,907,185
|
)
|
-37
|
%
|
||||||||||||||||||||
Total consolidated net sales
|
$
|
5,212,973
|
$
|
5,100,152
|
$
|
112,821
|
2
|
%
|
$
|
23,133,248
|
$
|
18,299,773
|
$
|
4,833,475
|
26
|
%
|
Three Months Ended
September 30,
|
Change
|
Nine Months Ended
September 30,
|
Change
|
|||||||||||||||||||||||||||||
2016
|
2015
|
Dollars
|
Percent
|
2016
|
2015
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Product line cost of goods sold
|
||||||||||||||||||||||||||||||||
Loose jewels
|
$
|
1,808,979
|
$
|
1,489,997
|
$
|
318,982
|
21
|
%
|
$
|
11,992,862
|
$
|
6,773,390
|
$
|
5,219,472
|
77
|
%
|
||||||||||||||||
Finished jewelry
|
706,179
|
1,397,609
|
(691,430
|
)
|
-49
|
%
|
2,666,960
|
4,843,611
|
(2,176,651
|
)
|
-45
|
%
|
||||||||||||||||||||
Total product line cost of goods sold
|
2,515,158
|
2,887,606
|
(372,448
|
)
|
-13
|
%
|
14,659,822
|
11,617,011
|
3,042,821
|
26
|
%
|
|||||||||||||||||||||
Non-product line cost of goods sold
|
705,849
|
461,456
|
244,393
|
53
|
%
|
1,619,167
|
2,253,542
|
(634,375
|
)
|
-28
|
%
|
|||||||||||||||||||||
Total cost of goods sold
|
$
|
3,221,007
|
$
|
3,349,062
|
$
|
(128,055
|
)
|
-4
|
%
|
$
|
16,278,989
|
$
|
13,870,543
|
$
|
2,408,446
|
17
|
%
|
|
Three Months Ended
September 30,
|
Change
|
|
Nine Months Ended
September 30,
|
Change
|
|||||||||||||||||||||||||||
2016
|
2015
|
Dollars
|
Percent
|
2016
|
2015
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Sales and marketing
|
$
|
1,891,162
|
$
|
1,166,707
|
$
|
724,455
|
62
|
%
|
$
|
5,222,757
|
$
|
4,312,581
|
$
|
910,176
|
21
|
%
|
Three Months Ended
September 30,
|
Change
|
Nine Months Ended
September 30,
|
Change
|
|||||||||||||||||||||||||||||
2016
|
2015
|
Dollars
|
Percent
|
2016
|
2015
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
General and administrative
|
$
|
1,244,400
|
$
|
1,162,015
|
$
|
82,385
|
7
|
%
|
4,380,218
|
$
|
4,219,257
|
$
|
160,961
|
4
|
%
|
Three Months Ended
September 30,
|
Change
|
Nine Months Ended
September 30,
|
Change
|
|||||||||||||||||||||||||||||
2016
|
2015
|
Dollars
|
Percent
|
2016
|
2015
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Research and development
|
$
|
-
|
$
|
6,352
|
$
|
(6,352
|
)
|
-100
|
%
|
$
|
2,848
|
$
|
15,456
|
$
|
(12,608
|
)
|
-82
|
%
|
Three Months Ended
September 30,
|
Change
|
Nine Months Ended
September 30,
|
Change
|
|||||||||||||||||||||||||||||
2016
|
2015
|
Dollars
|
Percent
|
2016
|
2015
|
Dollars
|
Percent
|
|||||||||||||||||||||||||
Loss on abandonment of property and equipment
|
$
|
473
|
$
|
-
|
$
|
473
|
100
|
%
|
$
|
116,021
|
$
|
-
|
$
|
116,021
|
100
|
%
|
Exhibit No.
|
Description
|
|
10.1
|
Third Amendment to Credit and Security Agreement and Other Loan Documents, dated as of September 23, 2016, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, to be known as charlesandcolvard.com, LLC, and Wells Fargo Bank, National Association
|
|
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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements.
|
CHARLES & COLVARD, LTD.
|
||
By:
|
/s/ Suzanne T. Miglucci
|
|
November 4, 2016
|
Suzanne T. Miglucci
|
|
President and Chief Executive Officer
|
||
By:
|
/s/ Kyle S. Macemore
|
|
November 4, 2016
|
Kyle S. Macemore
|
|
Senior Vice President and Chief Financial Officer
|
||
(Principal Financial Officer and Chief Accounting Officer)
|
Exhibit No.
|
Description
|
|
Third Amendment to Credit and Security Agreement and Other Loan Documents, dated as of September 23, 2016, by and among Charles & Colvard, Ltd., Charles & Colvard Direct, LLC, Moissanite.com, LLC, to be known as charlesandcolvard.com, LLC, and Wells Fargo Bank, National Association
|
||
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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements.
|
WELLS FARGO BANK, NATIONAL ASSOCIATION
|
||
By:
|
/s/ Arthur R. Cordwell, Jr.
|
|
Arthur R. Cordwell, Jr., Authorized Signatory
|
||
CHARLES & COLVARD, LTD.
|
||
By:
|
/s/ Kyle S. Macemore
|
|
Name: Kyle S. Macemore
|
||
Title: Senior Vice President and Chief Financial Officer
|
||
CHARLES & COLVARD DIRECT, LLC
|
||
By:
|
/s/ Kyle S. Macemore
|
|
Name: Kyle S. Macemore
|
||
Title: Manager
|
||
MOISSANITE.COM, LLC, to be known as CHARLESANDCOLVARD.COM, LLC
|
||
By:
|
/s/ Kyle S. Macemore
|
|
Name: Kyle S. Macemore
|
||
Title: Manager
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 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 T. Miglucci
|
|
November 4, 2016
|
Suzanne T. Miglucci
|
|
President and Chief Executive Officer
|
1. |
I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 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 S. Macemore
|
|
November 4, 2016
|
Kyle S. Macemore
|
|
Senior Vice President and Chief Financial Officer
|