PR Newswire | Nov 5, 2020 04:04PM EST

11/05 15:04 CST

Charles & Colvard Reports First Quarter Fiscal Year 2021 Financial Results- Generated $7.9 Million in Revenue, an Increase Over Year-Ago Quarter- Delivered Strong Gross Margin Performance of 47%- Generated Net Income of $874,000 and Earnings per Share of $0.03- Conference Call with Accompanying Slide Presentation Scheduled Today at 4:30 PM ET RESEARCH TRIANGLE PARK, N.C., Nov. 5, 2020

RESEARCH TRIANGLE PARK, N.C., Nov. 5, 2020 /PRNewswire/ -- Charles & Colvard, Ltd. (Nasdaq: CTHR) (the "Company"), a globally recognized lab created gemstone company specializing in fine jewelry, reported financial results for the quarter ended September 30, 2020 ("First Quarter Fiscal 2021"), with net sales of $7.9 million and net income of $874,000, or $0.03 earnings per diluted share.

"This quarter demonstrated our team's ability to execute on our plan to drive revenue growth successfully while maintaining a strong gross margin and delivering profitability," said Don O'Connell, President and CEO of Charles & Colvard. "We expanded our product line with the launch of CaydiaTM, our specially curated assortment of premium lab grown diamonds exclusively available from Charles & Colvard. We rolled out an enhanced website experience that provides more functionality, eliminates complexity and showcases our premium Forever OneTM moissanite gems and our exclusive Caydia lab grown diamonds set in fine jewelry. We also grew our omnichannel retail footprint with the launch of our Moissanite by Charles & Colvard(r) fine jewelry in 50 Macy's stores."

"Our recent product expansion was a natural progression for the business as we were able to utilize existing resources, components, and infrastructure to reach a broader variety of consumers. We believe this now allows us to tap into the estimated $5.2 billion lab grown diamond space. We've adapted to changing consumer behavior and continue to remain agile across all functional areas of the business. We are making strategic decisions based on our data in order to drive revenue and growth for the Company. We feel good about the trajectory we're on given the current environment and will continue to strive to increase our brand equity and shareholder value," Mr. O'Connell concluded.

Recent Corporate Highlights

* Launched Caydia(tm), an exclusive brand of premium lab grown diamonds, available in bridal and fine jewelry styles including engagement rings, wedding bands, earrings, necklaces and bracelets; * Expanded Charles & Colvard's retail partnership with Macy's, the iconic American department store, launching an assortment of moissanite fine jewelry in 50 stores, including flagships Herald Square in New York City, Union Square in San Francisco and State Street in Chicago; * Received an annual Design Excellence Award from the Accessories Council, a not-for-profit, international trade organization, winning the Sustainability Award for Charles & Colvard's Forever One moissanite emerald-cut ring; and * Featured in multiple media articles, including Forbes, Women's Wear Daily, JCK and National Jeweler.

Financial Summary for First Quarter Fiscal 2021(Quarter Ended September 30, 2020 Compared to Quarter Ended September 30, 2019)

* Net sales were $7.9 million for the quarter, an increase of 4% compared with $7.6 million in the year-ago quarter. * In the Online Channels segment, which consists of e-commerce outlets including charlesandcolvard.com, third-party online marketplaces, drop-ship retail and other pure-play, exclusively e-commerce outlets, net sales totaled $4.5 million, a year over year increase of 21%, representing 56% of total net sales for the quarter, compared with $3.7 million, or 49% of total net sales in the year-ago quarter. * In the Traditional segment, which consists of wholesale and brick and mortar customers, net sales totaled $3.5 million, a year over year decrease of 11%, representing 44% of total net sales for the quarter, compared with $3.9 million, or 51% of total net sales, in the year-ago quarter. * Finished jewelry net sales were $4.3 million for the quarter, an increase of 12% compared with * $3.9 million in the year-ago quarter. * Loose jewel net sales were $3.6 million for the quarter, a decrease of 4% compared with $3.8 million in the year-ago quarter. * Operating expenses decreased 20% to $2.9 million for the quarter, compared to $3.6 million in the year-ago quarter. * Net income was $874,000, or $0.03 earnings per diluted share for the quarter, compared to net income of $207,000, or $0.01 earnings per diluted share, in the year-ago quarter. * Weighted average shares outstanding on a diluted basis was 28.8 million for the quarter, compared to 29.2 million in the year-ago quarter.

Financial Position

Cash, cash equivalents and restricted cash totaled $13.9 million as of September 30, 2020, representing a decrease of $0.8 million from $14.6 million as of June 30, 2020. Total inventory was $29.7 million as of September 30, 2020, compared with $30.6 million as of June 30, 2020. Total debt outstanding was $1.0 million as of September 30, 2020 and June 30, 2020.

Investor Conference Call

Charles & Colvard will host an investor conference call and webcast presentation to discuss its financial results for the quarter ended September 30, 2020 ("First Quarter Fiscal Year 2021") at 4:30 p.m. ET on Thursday, November 5, 2020. The investor conference call and accompanying presentation slides will be webcast live and can be accessed in the Investor Relations section of the Company's website at https://ir.charlesandcolvard.com/events.

To participate via telephone, callers should dial 844-875-6912 (U.S. toll-free) or 412-317-6708 (international) and ask to be connected to the "Charles & Colvard, Ltd. Conference Call" a few minutes before 4:30 p.m. ET on Thursday, November 5, 2020.

A replay of this conference call will be available until November 12, 2020 at 877-344-7529 (U.S. toll-free) or 412-317-0088 (international). The replay conference ID is 10148971. The call will also be available for replay in the Investor Relations section of the Company's website at https://ir.charlesandcolvard.com/events.

About Charles & Colvard, Ltd.

Charles & Colvard, Ltd. (Nasdaq: CTHR) believes fine jewelry can be accessible, beautiful and conscientious. Charles & Colvard is the original pioneer of lab-created moissanite, a rare gemstone formed from silicon carbide. The Company brings revolutionary gemstones and jewelry to market through its pinnacle Forever OneTM moissanite brand and its newly introduced CaydiaTM lab grown diamond brand. Consumers seek Charles & Colvard fashion, bridal and fine jewelry because of its exceptional quality, incredible value and shared beliefs in environmental and social responsibility. Charles & Colvard was founded in 1995 and is based in North Carolina'sResearch Triangle Park. For more information, please visit www.charlesandcolvard.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements expressing expectations regarding our future and projections relating to our products, sales, revenues, and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations, and contentions and are not historical facts and typically are identified by use of terms such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "continue," and similar words, although some forward-looking statements are expressed differently.

All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. You should be aware that although the forward-looking statements included herein represent management's current judgment and expectations, our actual results may differ materially from those projected, stated, or implied in these forward-looking statements as a result of many factors including, but not limited to, (1) our business, financial condition and results of operations could continue to be adversely affected by an ongoing COVID-19 pandemic and related global economic conditions; (2) our future financial performance depends upon increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives; (3) the execution of our business plans could significantly impact our liquidity; (4) our business and our results of operations could be materially adversely affected as a result of general and economic conditions; (5) 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; (6) we face intense competition in the worldwide gemstone and jewelry industry; (7) we are subject to certain risks due to our international operations, distribution channels and vendors; (8) 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; (9) we are currently dependent on a limited number of distributor and retail partners in our Traditional segment for the sale of our products; (10) we rely on assumptions, estimates, and data to calculate certain of our key metrics and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business; (11) our failure to maintain compliance with The Nasdaq Stock Market's continued listing requirements could result in the delisting of our common stock; (12) we may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation; (13) seasonality of our business may adversely affect our net sales and operating income; (14) our operations could be disrupted by natural disasters; (15) our loan, pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act as administered by the U.S. Small Business Administration may not be forgiven or may subject us to challenges and investigations regarding qualification for the loan; (16) 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; (17) negative or inaccurate information on social media could adversely impact our brand and reputation; (18) sales of moissanite jewelry could be dependent upon the pricing of precious metals, which is beyond our control; (19) our current customers may potentially perceive us as a competitor in the finished jewelry business; (20) we depend on an exclusive supply agreement, or the Supply Agreement, with Cree, Inc., for substantially all of our silicon carbide, or SiC, crystals, the raw materials we use to produce moissanite jewels; if our supply of high-quality SiC crystals is interrupted, our business may be materially harmed; (21) 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; (22) 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; (23) if we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer; (24) governmental regulation and oversight might adversely impact our operations; and (25) some anti-takeover provisions of our charter documents may delay or prevent a takeover of our company, in addition to the other risks and uncertainties described in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 and subsequent reports filed with the U.S. Securities and Exchange Commission (the "SEC"). Forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur except as required by the federal securities laws, and you are urged to review and consider disclosures that we make in the reports that we file with the SEC that discuss other factors relevant to our business.

-Financial Tables Follow-

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Three Months Ended September 30,

2020 2019

Net sales $ 7,926,293 $ 7,608,421

Costs and expenses:

Cost of goods sold 4,196,055 3,876,624

Sales and marketing 1,647,933 2,229,591

General and administrative 1,208,035 1,349,501

Total costs and expenses 7,052,023 7,455,716

Income from operations 874,270 152,705

Other income (expense):

Interest income 3,459 61,379

Interest expense (2,439) (142)

Loss on foreign currency exchange (530) (538)

Total other income (expense), net 490 60,699

Income before income taxes 874,760 213,404

Income tax expense (494) (6,085)

Net Income $ 874,266 $ 207,319

Net income per common share:

Basic $ 0.03 $ 0.01

Diluted $ 0.03 $ 0.01

Weighted average number of shares used incomputing net income per common share:

Basic 28,786,910 28,563,688

Diluted 28,839,897 29,222,936

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2020 June 30, 2020 (unaudited)

ASSETS

Current assets:

Cash and cash equivalents $ 13,756,695 $ 13,993,032

Restricted cash 105,014 624,202

Accounts receivable, net 1,625,515 670,718

Inventory, net 8,975,998 7,443,257

Prepaid expenses and other assets 1,260,322 1,177,860

Total current assets 25,723,544 23,909,069

Long-term assets:

Inventory, net 20,748,762 23,190,702

Property and equipment, net 969,635 999,061

Intangible assets, net 180,722 170,151

Operating lease right-of-use assets 475,113 584,143

Other assets 50,109 51,461

Total long-term assets 22,424,341 24,995,518

TOTAL ASSETS $ 48,147,885 $ 48,904,587

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 2,582,538 $ 3,748,235

Operating lease liabilities 626,763 622,493

Current maturity of long-term debt 386,000 193,000

Accrued expenses and other liabilities 1,496,755 1,922,332

Total current liabilities 5,092,056 6,486,060

Long-term liabilities:

Long-term debt 579,000 772,000

Noncurrent operating lease liabilities 51,190 203,003

Accrued income taxes 8,441 7,947

Total long-term liabilities 638,631 982,950

Total liabilities 5,730,687 7,469,010

Commitments and contingencies

Shareholders' equity:

Common stock, no par value; 50,000,000shares authorized; 28,965,660 and28,949,410 shares issued and outstanding at 54,342,864 54,342,864September 30, 2020 and June 30, 2020,respectively

Additional paid-in capital 25,987,520 25,880,165

Accumulated deficit (37,913,186) (38,787,452)

Total shareholders' equity 42,417,198 41,435,577

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 48,147,885 $ 48,904,587

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Three Months Ended September 30,

2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 874,266 $ 207,319

Adjustments to reconcile net income to netcash used in operating activities:

Depreciation and amortization 132,456 124,637

Stock-based compensation 107,355 212,380

Provision for (Recovery of) uncollectible 32,514 (28,000)accounts

Provision for (Recovery of) sales returns 96,000 (31,000)

Inventory write-off 80,000 23,000

Provision for accounts receivable discounts 1,688 12,476

Changes in operating assets and liabilities:

Accounts receivable (1,084,999) 8,382

Inventory 829,199 (2,254,855)

Prepaid expenses and other assets, net 27,920 (417,147)

Accounts payable (1,165,697) 1,048,990

Accrued income taxes 494 6,085

Accrued expenses and other liabilities (573,120) (135,743)

Net cash used in operating activities (641,924) (1,223,476)

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment (101,459) (111,317)

Payments for intangible assets (12,142) (4,322)

Net cash used in investing (113,601) (115,639)activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Issuance of common stock, net of offering - 932,480costs

Net cash provided by financing - 932,480activities

NET DECREASE IN CASH, CASH EQUIVALENTS AND (755,525) (406,635)RESTRICTED CASH

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, 14,617,234 13,006,545BEGINNING OF PERIOD

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, $ 13,861,709 $ 12,599,910END OF PERIOD

Supplemental disclosure of cash flowinformation:

Cash paid during the period for $ 2,439 $ 142interest

Cash paid during the period for income $ 3,350 $ 2,050taxes

Reconciliation to Condensed Consolidated Balance September 30, June 30,Sheets: 2020 2020

Cash and cash equivalents $ 13,756,695 $ 13,993,032

Restricted cash 105,014 624,202

CASH, CASH EQUIVALENTS AND $ 13,861,709 $ 14,617,234RESTRICTED CASH

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SOURCE Charles & Colvard, Ltd.