Document_and_Entity_Informatio
Document and Entity Information | 3 Months Ended | |
Mar. 31, 2015 | Apr. 27, 2015 | |
Document and Entity Information [Abstract] | ||
Entity Registrant Name | CHARLES & COLVARD LTD | |
Entity Central Index Key | 1015155 | |
Current Fiscal Year End Date | -19 | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 20,554,833 | |
Document Fiscal Year Focus | 2015 | |
Document Fiscal Period Focus | Q1 | |
Document Type | 10-Q | |
Amendment Flag | FALSE | |
Document Period End Date | 31-Mar-15 |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash and cash equivalents | $5,234,683 | $4,007,341 |
Accounts receivable, net | 5,124,509 | 5,510,253 |
Inventory, net | 13,927,427 | 13,320,639 |
Prepaid expenses and other assets | 809,870 | 602,850 |
Total current assets | 25,096,489 | 23,441,083 |
Long-term assets: | ||
Inventory, net | 23,596,889 | 25,617,990 |
Property and equipment, net | 1,800,466 | 1,859,355 |
Intangible assets, net | 180,701 | 216,947 |
Other assets | 271,914 | 291,022 |
Total long-term assets | 25,849,970 | 27,985,314 |
TOTAL ASSETS | 50,946,459 | 51,426,397 |
Current liabilities: | ||
Accounts payable | 3,857,363 | 3,286,086 |
Accrued cooperative advertising | 57,000 | 220,000 |
Accrued expenses and other liabilities | 1,056,148 | 684,577 |
Total current liabilities | 4,970,511 | 4,190,663 |
Long-term liabilities: | ||
Accrued expenses and other liabilities | 787,212 | 809,879 |
Accrued income taxes | 410,775 | 407,682 |
Total long-term liabilities | 1,197,987 | 1,217,561 |
Total liabilities | 6,168,498 | 5,408,224 |
Commitments and contingencies | ||
Shareholders' equity: | ||
Common stock, no par value | 54,045,875 | 53,949,001 |
Additional paid-in capital - stock-based compensation | 11,970,868 | 11,628,503 |
Accumulated deficit | -21,238,782 | -19,559,331 |
Total shareholders' equity | 44,777,961 | 46,018,173 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $50,946,459 | $51,426,397 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) (USD $) | Mar. 31, 2015 | Dec. 31, 2014 |
Shareholders' equity | ||
Common stock, par value (in dollars per share) | $0 | $0 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) [Abstract] | ||
Net sales | $8,377,064 | $6,067,553 |
Costs and expenses: | ||
Cost of goods sold | 4,843,903 | 3,663,042 |
Sales and marketing | 2,973,364 | 2,194,611 |
General and administrative | 2,234,213 | 1,376,215 |
Research and development | 2,061 | 1,987 |
Loss on abandonment of assets | 0 | 2,201 |
Total costs and expenses | 10,053,541 | 7,238,056 |
Loss from operations | -1,676,477 | -1,170,503 |
Other income (expense): | ||
Interest income | 11 | 29 |
Interest expense | -17 | -130 |
Gain on sale of long-term assets | 125 | 0 |
Total other income (expense), net | 119 | -101 |
Loss before income taxes | -1,676,358 | -1,170,604 |
Income tax net (expense) benefit | -3,093 | 107,210 |
Net loss | ($1,679,451) | ($1,063,394) |
Net loss per common share: | ||
Basic (in dollars per share) | ($0.08) | ($0.05) |
Diluted (in dollars per share) | ($0.08) | ($0.05) |
Weighted average number of shares used in computing net loss per common share: | ||
Basic (in shares) | 20,107,504 | 20,197,301 |
Diluted (in shares) | 20,107,504 | 20,197,301 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | ($1,679,451) | ($1,063,394) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 218,728 | 277,798 |
Stock-based compensation | 379,239 | 376,511 |
Provision for uncollectible accounts | 1,000 | 0 |
Provision for sales returns | -579,000 | -810,600 |
Provision for inventory reserves | 204,000 | 24,000 |
Provision for deferred income taxes | 0 | -110,171 |
Loss on abandonment of assets | 0 | 2,201 |
Gain on sale of long-term assets | -125 | 0 |
Changes in assets and liabilities: | ||
Accounts receivable | 963,744 | 2,251,972 |
Inventory | 1,210,313 | -1,347,239 |
Prepaid expenses and other assets, net | -187,912 | -21,111 |
Accounts payable | 571,277 | 340,080 |
Accrued cooperative advertising | -163,000 | 106,356 |
Accrued income taxes | 3,093 | 2,961 |
Other accrued liabilities | 348,904 | -91,051 |
Net cash provided by (used in) operating activities | 1,290,810 | -61,687 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property and equipment | -117,104 | -28,325 |
Patent, license rights, and trademark costs | -6,539 | -7,668 |
Proceeds from sale of long-term assets | 175 | 0 |
Net cash used in investing activities | -123,468 | -35,993 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Stock option exercises | 60,000 | 0 |
Net cash provided by financing activities | 60,000 | 0 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,227,342 | -97,680 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 4,007,341 | 2,573,405 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | 5,234,683 | 2,475,725 |
Supplemental disclosures of cash flow information: | ||
Cash paid during the period for interest | 17 | 130 |
Cash paid during the period for income taxes | $0 | $0 |
DESCRIPTION_OF_BUSINESS
DESCRIPTION OF BUSINESS | 3 Months Ended | |
Mar. 31, 2015 | ||
DESCRIPTION OF BUSINESS [Abstract] | ||
DESCRIPTION OF BUSINESS | 1 | DESCRIPTION OF BUSINESS |
Charles & Colvard, Ltd. (the “Company”), a North Carolina corporation founded in 1995, manufactures, markets, and distributes Charles & Colvard Created Moissanite® jewels (hereinafter referred to as moissanite or moissanite jewels), finished jewelry featuring moissanite, and fashion finished jewelry for sale in the worldwide jewelry market. Moissanite, also known by its chemical name of silicon carbide (“SiC”), is a rare mineral first discovered in a meteor crater. Because naturally occurring SiC crystals are too small for commercial use, larger crystals must be grown in a laboratory. Leveraging its advantage of being the original and leading worldwide source of created moissanite jewels, the Company’s strategy is to establish itself with reputable, high-quality, and sophisticated brands and to position moissanite as an affordable, luxurious alternative to other gemstones, such as diamond. The Company believes this is possible due to moissanite’s exceptional brilliance, fire, durability, and rarity like no other jewel available on the market. The Company sells loose moissanite jewels and finished jewelry at wholesale to distributors, manufacturers, and retailers and at retail to end consumers through its wholly owned operating subsidiaries Moissanite.com, LLC and Charles & Colvard Direct, LLC. |
BASIS_OF_PRESENTATION_AND_SIGN
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended | |
Mar. 31, 2015 | ||
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ||
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 2 | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation and Principles of Consolidation - The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. However, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, the unaudited statements in this Quarterly Report on Form 10-Q include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2015. | ||
The condensed consolidated financial statements as of and for the three months ended March 31, 2015 and 2014 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2014 is derived from the audited financial statements as of that date. The accompanying statements should be read in conjunction with the audited financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 13, 2015 (the “2014 Annual Report”). | ||
The accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2015 and 2014 include the accounts of the Company and its wholly owned subsidiaries Moissanite.com, LLC, formed in 2011; Charles & Colvard Direct, LLC, formed in 2011; and Charles & Colvard (HK) Ltd., the Company’s Hong Kong subsidiary that became a dormant entity in the second quarter of 2009 and the operations of which ceased in 2008. All intercompany accounts have been eliminated. | ||
Significant Accounting Policies - In the opinion of the Company’s management, the significant accounting policies used for the three months ended March 31, 2015 are consistent with those used for the year ended December 31, 2014. Accordingly, please refer to the 2014 Annual Report for the Company’s significant accounting policies. | ||
Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates impacting the Company’s condensed consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, deferred tax assets, uncertain tax positions, stock compensation expense, and cooperative advertising. Actual results could differ materially from those estimates. | ||
Reclassifications - Certain amounts in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current year presentation, primarily amounts described in Note 3, “Segment Information and Geographic Data” related to changes in the Company’s reportable segments. | ||
Recently Adopted/Issued Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard in 2017. | ||
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15). The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. This standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect this ASU will have a material impact on its consolidated financial statements. | ||
All other new and recently issued, but not yet effective, accounting pronouncements have been deemed to be not relevant to the Company and therefore are not expected to have any impact once adopted. |
SEGMENT_INFORMATION_AND_GEOGRA
SEGMENT INFORMATION AND GEOGRAPHIC DATA | 3 Months Ended | ||||||||||||||||
Mar. 31, 2015 | |||||||||||||||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |||||||||||||||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA | 3 | SEGMENT INFORMATION AND GEOGRAPHIC DATA | |||||||||||||||
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making operating decisions and assessing performance as the source of the Company’s operating and reportable segments. | |||||||||||||||||
During 2014, the Company began managing its business primarily through the three distribution channels that it uses to sell its product lines, loose jewels and finished jewelry. Accordingly, the Company determined its three operating and reportable segments to be wholesale distribution transacted through the parent entity, and the two direct-to-consumer distribution channels transacted through the Company’s wholly owned operating subsidiaries, Moissanite.com, LLC and Charles & Colvard Direct, LLC. The accounting policies of these three segments are the same as those described in Note 2, “Basis of Presentation and Significant Accounting Policies” of this Quarterly Report on Form 10-Q and in the Notes to the Consolidated Financial Statements in the 2014 Annual Report. | |||||||||||||||||
Previously, the Company determined it managed its business through two distribution channels, wholesale distribution and direct-to-consumer. While the Company has always managed its businesses as three separate operating segments, it previously aggregated the Moissanite.com, LLC and Charles & Colvard Direct, LLC operating segments into a single reportable segment for reporting purposes. The two wholly owned operating subsidiaries that previously were aggregated under the direct-to-consumer segment are now each being presented as a separate reportable segment. The Company believes aggregation of the two subsidiaries into one reportable segment for reporting purposes is no longer warranted due to changes in how it sources product and sells directly to consumers, including changes in the management structure, strategic initiatives and changes in sales models, made during the year ended December 31, 2014 for each of the two wholly owned subsidiaries. Certain amounts for the three months ended March 31, 2014 have been reclassified to conform to the current period presentation as a result of this change in reportable segments. | |||||||||||||||||
The Company evaluates the financial performance of its segments based on net sales; product line gross profit, or the excess of product line sales over product line cost of goods sold; and operating income (loss). Product line cost of goods sold is defined as product cost of goods sold in each of the Company’s wholesale distribution and two direct-to-consumer distribution operating segments excluding non-capitalized expenses from the Company’s manufacturing and production control departments, comprising personnel costs, depreciation, rent, utilities, and corporate overhead allocations; freight out; inventory valuation allowance adjustments; and other inventory adjustments, comprising costs of quality issues, damaged goods, and inventory write-offs. | |||||||||||||||||
The Company allocates certain general and administrative expenses from its parent entity to its two direct-to-consumer distribution segments primarily based on net sales and number of employees. Unallocated expenses, which also include interest and taxes, remain in the parent entity’s wholesale distribution segment. | |||||||||||||||||
Summary financial information by reportable segment is as follows: | |||||||||||||||||
Three Months Ended March 31, 2015 | |||||||||||||||||
Wholesale | Moissanite.com | Charles & | Total | ||||||||||||||
Colvard Direct | |||||||||||||||||
Net sales | |||||||||||||||||
Loose jewels | $ | 3,687,893 | $ | 133,266 | $ | - | $ | 3,821,159 | |||||||||
Finished jewelry | 2,224,267 | 970,660 | 1,360,978 | 4,555,905 | |||||||||||||
Total | $ | 5,912,160 | $ | 1,103,926 | 1,360,978 | 8,377,064 | |||||||||||
Product line cost of goods sold | |||||||||||||||||
Loose jewels | $ | 2,202,103 | $ | 19,071 | $ | - | $ | 2,221,174 | |||||||||
Finished jewelry | 1,227,810 | 480,360 | 319,775 | 2,027,945 | |||||||||||||
Total | $ | 3,429,913 | $ | 499,431 | $ | 319,775 | $ | 4,249,119 | |||||||||
Product line gross profit | |||||||||||||||||
Loose jewels | $ | 1,485,790 | $ | 114,195 | $ | - | $ | 1,599,985 | |||||||||
Finished jewelry | 996,457 | 490,300 | 1,041,203 | 2,527,960 | |||||||||||||
Total | $ | 2,482,247 | $ | 604,495 | $ | 1,041,203 | $ | 4,127,945 | |||||||||
Operating loss | $ | (234,485 | ) | (403,420 | ) | (1,038,572 | ) | $ | (1,676,477 | ) | |||||||
Depreciation and amortization | $ | 160,640 | 31,707 | 26,381 | $ | 218,728 | |||||||||||
Capital expenditures | $ | 109,564 | 533 | 7,007 | $ | 117,104 | |||||||||||
Three Months Ended March 31, 2014 | |||||||||||||||||
Wholesale | Moissanite.com | Charles & | Total | ||||||||||||||
Colvard Direct | |||||||||||||||||
Net sales | |||||||||||||||||
Loose jewels | $ | 3,533,784 | $ | 146,940 | $ | - | $ | 3,680,724 | |||||||||
Finished jewelry | 1,619,831 | 561,268 | 205,730 | 2,386,829 | |||||||||||||
Total | $ | 5,153,615 | $ | 708,208 | $ | 205,730 | $ | 6,067,553 | |||||||||
Product line cost of goods sold | |||||||||||||||||
Loose jewels | $ | 1,775,135 | $ | 22,272 | $ | - | $ | 1,797,407 | |||||||||
Finished jewelry | 1,280,101 | 294,886 | 63,262 | 1,638,249 | |||||||||||||
Total | $ | 3,055,236 | $ | 317,158 | $ | 63,262 | $ | 3,435,656 | |||||||||
Product line gross profit | |||||||||||||||||
Loose jewels | $ | 1,758,649 | $ | 124,668 | $ | - | $ | 1,883,317 | |||||||||
Finished jewelry | 339,730 | 266,382 | 142,468 | 748,580 | |||||||||||||
Total | $ | 2,098,379 | $ | 391,050 | $ | 142,468 | $ | 2,631,897 | |||||||||
Operating loss | $ | (124,858 | ) | (404,771 | ) | (640,874 | ) | $ | (1,170,503 | ) | |||||||
Depreciation and amortization | $ | 179,673 | 73,159 | 24,966 | $ | 277,798 | |||||||||||
Capital expenditures | $ | 28,325 | - | - | $ | 28,325 | |||||||||||
31-Mar-15 | |||||||||||||||||
Wholesale | Moissanite.com | Charles & | Total | ||||||||||||||
Colvard Direct | |||||||||||||||||
Total assets | $ | 50,746,106 | 106,794 | 93,559 | $ | 50,946,459 | |||||||||||
31-Dec-14 | |||||||||||||||||
Wholesale | Moissanite.com | Charles & | Total | ||||||||||||||
Colvard Direct | |||||||||||||||||
Total assets | $ | 51,183,888 | 128,049 | 114,460 | $ | 51,426,397 | |||||||||||
A reconciliation of the Company’s product line cost of goods sold to cost of goods sold as reported in the condensed consolidated financial statements is as follows: | |||||||||||||||||
Three months ended March 31, | |||||||||||||||||
2015 | 2014 | ||||||||||||||||
Product line cost of goods sold | $ | 4,249,119 | $ | 3,435,656 | |||||||||||||
Non-capitalized manufacturing and production control expenses | 147,112 | 155,023 | |||||||||||||||
Freight out | 90,734 | 59,899 | |||||||||||||||
Inventory valuation allowances | 204,000 | 24,000 | |||||||||||||||
Other inventory adjustments | 152,938 | (11,536 | ) | ||||||||||||||
Cost of goods sold | $ | 4,843,903 | $ | 3,663,042 | |||||||||||||
The Company’s net inventories by product line maintained in the parent entity’s wholesale distribution segment are as follows: | |||||||||||||||||
31-Mar-15 | 31-Dec-14 | ||||||||||||||||
Loose jewels | |||||||||||||||||
Raw materials | $ | 5,156,656 | $ | 4,658,692 | |||||||||||||
Work-in-process | 5,615,277 | 5,752,103 | |||||||||||||||
Finished goods | 20,192,696 | 21,495,873 | |||||||||||||||
Finished goods on consignment | 3,585 | 46,284 | |||||||||||||||
Total | $ | 30,968,214 | $ | 31,952,952 | |||||||||||||
Finished jewelry | |||||||||||||||||
Raw materials | $ | 253,360 | $ | 258,707 | |||||||||||||
Work-in-process | 526,334 | 540,576 | |||||||||||||||
Finished goods | 5,533,173 | 5,557,417 | |||||||||||||||
Finished goods on consignment | 190,184 | 578,200 | |||||||||||||||
Total | $ | 6,503,051 | $ | 6,934,900 | |||||||||||||
Supplies inventories of approximately $53,000 and $51,000 at March 31, 2015 and December 31, 2014, respectively, included in finished goods inventories in the condensed consolidated financial statements are omitted from inventories by product line because they are used in both product lines and are not maintained separately. The Company’s two operating subsidiaries comprising the two direct-to-consumer distribution segments carry no net inventories, and inventory is transferred without intercompany markup from the parent entity’s wholesale distribution segment as product line cost of goods sold when sold to the end consumer. | |||||||||||||||||
The Company recognizes sales by geographic area based on the country in which the customer is based. A portion of the Company’s international wholesale distribution segment sales represents products sold internationally that may be re-imported to United States (“U.S.”) retailers. Sales to international end consumers made by the Company’s two direct-to-consumer distribution segments are included in U.S. sales because products are shipped and invoiced to a U.S.-based intermediary party that assumes all international shipping and credit risks. The following presents certain data by geographic area: | |||||||||||||||||
Three Months Ended March 31, | |||||||||||||||||
2015 | 2014 | ||||||||||||||||
Net sales | |||||||||||||||||
United States | $ | 7,762,346 | $ | 5,709,033 | |||||||||||||
International | 614,718 | 358,520 | |||||||||||||||
Total | $ | 8,377,064 | $ | 6,067,553 | |||||||||||||
31-Mar-15 | 31-Dec-14 | ||||||||||||||||
Property and equipment, net | |||||||||||||||||
United States | $ | 1,800,466 | $ | 1,859,355 | |||||||||||||
International | - | - | |||||||||||||||
Total | $ | 1,800,466 | $ | 1,859,355 | |||||||||||||
31-Mar-15 | 31-Dec-14 | ||||||||||||||||
Intangible assets, net | |||||||||||||||||
United States | $ | 31,907 | $ | 39,050 | |||||||||||||
International | 148,794 | 177,897 | |||||||||||||||
Total | $ | 180,701 | $ | 216,947 |
FAIR_VALUE_MEASUREMENTS
FAIR VALUE MEASUREMENTS | 3 Months Ended | ||
Mar. 31, 2015 | |||
FAIR VALUE MEASUREMENTS [Abstract] | |||
FAIR VALUE MEASUREMENTS | 4 | FAIR VALUE MEASUREMENTS | |
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy consists of three levels based on the reliability of inputs, as follows: | |||
· | 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 | ||
The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by management of the Company. The instruments identified as subject to fair value measurements on a recurring basis are cash and cash equivalents, trade accounts receivable, trade accounts payable, and accrued expenses. All instruments are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. | |||
Assets that are measured at fair value on a non-recurring basis include property and equipment, leasehold improvements, and intangible assets, comprising patents, license rights, and trademarks. These items are recognized at fair value when they are considered to be impaired. Level 3 inputs are primarily based on the estimated future cash flows of the asset determined by market inquiries to establish fair market value of used machinery or future revenue expected to be generated with the assistance of patents, license rights, and trademarks. |
INVENTORIES
INVENTORIES | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
INVENTORIES [Abstract] | |||||||||
INVENTORIES | 5 | INVENTORIES | |||||||
The Company’s total inventories, net of reserves, consisted of the following as of March 31, 2015 and December 31, 2014: | |||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Raw materials | $ | 5,410,016 | $ | 4,917,399 | |||||
Work-in-process | 6,141,611 | 6,292,679 | |||||||
Finished goods | 26,890,920 | 27,985,067 | |||||||
Finished goods on consignment | 219,769 | 677,484 | |||||||
Less inventory reserves | (1,138,000 | ) | (934,000 | ) | |||||
Total | $ | 37,524,316 | $ | 38,938,629 | |||||
Current portion | $ | 13,927,427 | $ | 13,320,639 | |||||
Long-term portion | 23,596,889 | 25,617,990 | |||||||
Total | $ | 37,524,316 | $ | 38,938,629 | |||||
Inventories are stated at the lower of cost or market on an average cost basis. Inventory costs include direct material and labor, inbound freight, purchasing and receiving costs, inspection costs, and warehousing costs. Any inventory on hand at the measurement date in excess of the Company’s current requirements based on historical and anticipated levels of sales is classified as long-term on the Company’s consolidated balance sheets. The Company’s classification of long-term inventory requires it to estimate the portion of on-hand inventory that can be realized over the next 12 months and does not include precious metal, labor, and other inventory purchases expected to be both purchased and realized over the next 12 months. | |||||||||
The Company’s work-in-process inventories include raw SiC crystals on which processing costs, such as labor and sawing, have been incurred; and components, such as metal castings and finished good moissanite jewels, that have been issued to jobs in the manufacture of finished jewelry. The Company’s moissanite jewel manufacturing process involves the production of intermediary shapes, called “preforms,” that vary depending upon the size and shape of the finished jewel. To maximize manufacturing efficiencies, preforms may be made in advance of current finished inventory needs but remain in work-in-process inventories. As of March 31, 2015 and December 31, 2014, work-in-process inventories issued to active production jobs approximated $1.61 million and $2.05 million, respectively. | |||||||||
The Company’s jewels do not degrade in quality over time and inventory generally consists of the shapes and sizes most commonly used in the jewelry industry. In addition, the majority of jewel inventory is not mounted in finished jewelry settings and is therefore not subject to fashion trends nor is obsolescence a significant factor. The Company has very small market penetration in the worldwide jewelry market, and the Company has the exclusive right in the U.S. through mid-2015 and in many other countries through mid-2016 to produce and sell created SiC for use in jewelry applications. In view of the foregoing factors, management has concluded that no excess or obsolete loose jewel inventory reserve requirements existed as of March 31, 2015. | |||||||||
The Company manufactures finished jewelry featuring moissanite. Relative to loose moissanite jewels, finished jewelry is more fashion oriented and subject to styling trends that could render certain designs obsolete. The majority of the Company’s finished jewelry featuring moissanite is held in inventory for resale and consists of such basic designs as stud earrings, solitaire and three-stone rings, pendants, and bracelets that tend not to be subject to significant obsolescence risk due to their classic styling. In addition, the Company manufactures small individual quantities of designer-inspired moissanite fashion jewelry as part of its sample line that are used in the selling process to its wholesale customers. | |||||||||
In 2011, the Company began purchasing fashion finished jewelry comprised of base metals and non-precious gemstones for sale through Lulu Avenue®, the direct-to-consumer home party division of its wholly owned operating subsidiary, Charles & Colvard Direct, LLC. This finished jewelry is fashion oriented and subject to styling trends that may change with each catalog season, of which there are several each year. Typically in the jewelry industry, slow-moving or discontinued lines are sold as closeouts or liquidated in alternative sales channels. The Company reviews the finished jewelry inventory on an ongoing basis for any lower of cost or market and obsolescence issues. The Company identified certain fashion finished jewelry inventory that could not be sold due to damage or branding issues and established an obsolescence reserve of $429,000 as of March 31, 2015 and $250,000 as of December 31, 2014, for the carrying costs in excess of any estimated scrap values. As of December 31, 2014, the Company identified $31,000 of finished jewelry featuring moissanite that required an obsolescence reserve. | |||||||||
Periodically, the Company ships finished goods inventory to wholesale customers on consignment terms. Under these terms, the customer assumes the risk of loss and has an absolute right of return for a specified period. Finished goods on consignment at March 31, 2015 and December 31, 2014 are net of shrinkage reserves of $26,000 and $53,000, respectively, to allow for certain loose jewels and finished jewelry on consignment with wholesale customers that may not be returned or may be returned in a condition that does not meet the Company’s current grading or quality standards. | |||||||||
Total net loose jewel inventories at March 31, 2015 and December 31, 2014, including inventory on consignment net of reserves, were $30.97 million and $31.95 million, respectively. The loose jewel inventories at March 31, 2015 and December 31, 2014 include shrinkage reserves of $9,000 and $17,000, respectively, with $8,000 and $17,000 of shrinkage reserves on inventory on consignment at March 31, 2015 and December 31, 2014, respectively. Loose jewel inventories at March 31, 2015 and December 31, 2014 also include recuts reserves of $216,000. | |||||||||
Total net jewelry inventories at March 31, 2015 and December 31, 2014, including inventory on consignment net of reserves, finished jewelry featuring moissanite manufactured by the Company since entering the finished jewelry business in 2010, and fashion finished jewelry purchased by the Company for sale through Lulu Avenue®, were $6.50 million and $6.93 million, respectively. Jewelry inventories consist primarily of finished goods, a portion of which the Company acquired as part of a January 2009 settlement agreement with a former manufacturer customer to reduce the outstanding receivable to the Company. Due to the lack of a plan to market this inventory at that time, a jewelry inventory reserve was established to reduce the majority of the acquired jewelry inventory value to scrap value, or the amount the Company would expect to obtain by melting the gold in the jewelry and returning to loose-jewel finished goods inventory those jewels that meet grading standards. The scrap reserve established for this acquired inventory at the time of the agreement is adjusted at each reporting period for the market price of gold and has generally declined as the associated jewelry is sold down. At March 31, 2015, the balance decreased to $96,000 from $101,000 at December 31, 2014 as a result of sell down of the inventory during the quarter and change in gold prices. Because the finished jewelry the Company began manufacturing in 2010 after it entered that business was made pursuant to an operational plan to market and sell the inventory, it is not subject to this reserve. The finished jewelry inventories at March 31, 2015 and December 31, 2014 also include shrinkage reserves of $231,000 and $192,000, respectively, including shrinkage reserves of $18,000 and $36,000 on inventory on consignment, respectively; and a repairs reserve of $157,000 and $127,000, respectively. | |||||||||
The need for adjustments to inventory reserves is evaluated on a period-by-period basis. |
INCOME_TAXES
INCOME TAXES | 3 Months Ended | |
Mar. 31, 2015 | ||
INCOME TAXES [Abstract] | ||
INCOME TAXES | 6 | INCOME TAXES |
The Company recognized an income tax net expense of approximately $3,000 for the three months ended March 31, 2015 compared to an income tax net benefit of approximately $107,000 for the three months ended March 31, 2014. | ||
As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax assets. As of March 31, 2014, the Company’s management determined that sufficient positive evidence existed to conclude that it is more likely than not that deferred tax assets of $4.15 million were realizable, and it adjusted its valuation allowance accordingly to reflect the estimated net realizable value. A valuation allowance remained at March 31, 2014 against certain deferred tax assets relating to state net operating loss carryforwards from the Company’s e-commerce and home party operating subsidiaries due to the timing uncertainty of when the subsidiaries would generate cumulative positive taxable income to utilize the associated deferred tax assets. A valuation allowance also remained at March 31, 2014 against certain deferred tax assets relating to investment loss carryforwards because the Company did not anticipate it would generate sufficient investment income to utilize the carryforwards. | ||
The Company also previously considered various strategic alternatives, resulting in management determining that a valuation allowance was not necessary at that time. During the three months ended June 30, 2014, the Company’s management determined that such strategic alternatives were no longer in the best interest of the Company. Accordingly, the Company’s management concluded that the positive evidence was no longer sufficient to offset available negative evidence, primarily as a result of the pre-tax operating losses incurred during the six months ended June 30, 2014, and forecasted to continue through the remainder of 2014. As a result, the Company’s management concluded that it was uncertain that the Company would have sufficient future taxable income to utilize its deferred tax assets, and therefore, the Company established a valuation allowance against its deferred tax assets during the year which remained as of March 31, 2015. | ||
For the three months ended March 31, 2015, the Company recognized $3,000 of income tax expense for estimated tax, penalties, and interest associated with uncertain tax positions. | ||
For the three months ended March 31, 2014, the Company recognized $110,000 of current period income tax benefit, which represents an effective tax rate of 9.4% on the current period pre-tax book income. The effective tax rate for the three months ended March 31, 2014 differs from the federal statutory rate of 34.0% primarily due to the impact of state income taxes, stock-based compensation expense that is not deductible for tax purposes, and other book-to-tax reconciling items. During the three months ended March 31, 2014, the Company also recognized approximately $3,000 of income tax expense for estimated tax, penalties, and interest associated with uncertain tax positions. |
COMMITMENTS_AND_CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended | ||||
Mar. 31, 2015 | |||||
COMMITMENTS AND CONTINGENCIES [Abstract] | |||||
COMMITMENTS AND CONTINGENCIES | 7 | COMMITMENTS AND CONTINGENCIES | |||
Lease Commitments | |||||
In March 2004, the Company entered into a seven-year lease, for approximately 16,500 square feet of mixed-use space from an unaffiliated third party. In January 2011, the Company amended the lease to extend the term through January 2017 with a one-time option to terminate the lease effective as of July 31, 2014. The Company exercised this right to terminate the lease by giving notice to the lessor prior to October 31, 2013. The cost to terminate the lease effective July 31, 2014 was approximately $112,000, which the Company paid at the time notice was given to terminate the lease. This amount reflects all unamortized lease transaction costs, including, without limitation, all rent abated since January 1, 2011, plus two months’ rent at the then-current rental rate. On December 9, 2013, the Company entered into a Lease Agreement, as amended on December 23, 2013 and April 15, 2014 (the “Lease Agreement”), for a new corporate headquarters, which occupies approximately 36,350 square feet of office, storage, and light manufacturing space. The Company took possession of the leased property on May 23, 2014 once certain improvements to the leased space were completed, and did not have access to the property before this date. These improvements and other lease signing and moving incentives offered by the landlord totaled approximately $550,000 and $73,000, respectively, which will be amortized over the life of the lease until October 31, 2021. Included in the Lease Agreement is a seven-month rent abatement period effective June 2014 through December 2014. | |||||
The Company recognizes rent expense on a straight-line basis, giving consideration to the rent holidays and escalations, the lease signing and moving allowance paid to the Company, and the rent abatement. | |||||
As of March 31, 2015, the Company’s future minimum payments under the operating leases were as follows: | |||||
2015 | $ | 417,615 | |||
2016 | 569,138 | ||||
2017 | 584,789 | ||||
2018 | 600,871 | ||||
2019 | 617,395 | ||||
Thereafter | 1,176,330 | ||||
Total | $ | 3,966,138 | |||
Rent expense for the three months ended March 31, 2015 and 2014 was approximately $128,000 and $31,000, respectively. | |||||
Purchase Commitments | |||||
On June 6, 1997, the Company entered into an amended and restated exclusive supply agreement with Cree, Inc. (“Cree”). The exclusive supply agreement had an initial term of ten years that was extended in January 2005 to July 2015. In connection with the amended and restated exclusive supply agreement, the Company committed to purchase from Cree a minimum of 50%, by dollar volume, of its raw material SiC crystal requirements. If the Company’s orders required Cree to expand beyond specified production levels, the Company committed to purchase certain minimum quantities. Effective February 8, 2013, the Company entered into an amendment to a prior letter agreement with Cree, which provided a framework for the Company’s purchases of SiC crystals under the amended and restated exclusive supply agreement. Pursuant to this amendment, the Company agreed to purchase at least $4.00 million of SiC crystals in an initial new order. After the initial new order, the Company agreed to issue non-cancellable, quarterly orders that must equal or exceed a set minimum order quantity. The total purchase commitment under the amendment (as subsequently amended) until July 2015, including the initial new order, was dependent upon the grade of the material and ranged between approximately $7.64 million and approximately $18.56 million. | |||||
On December 12, 2014, the Company entered into a new exclusive supply agreement with Cree (the “New Supply Agreement”), which superseded and replaced (with respect to materials ordered subsequent to the effective date of the New Supply Agreement) the exclusive supply agreement that was set to expire in 2015. Under the New Supply Agreement, subject to certain terms and conditions, the Company agreed to exclusively purchase from Cree, and Cree agreed to exclusively supply, 100% of the Company’s required SiC materials in quarterly installments that must equal or exceed a set minimum order quantity. The initial term of the New Supply Agreement will expire on June 24, 2018, unless extended by the parties. The Company also has one option to unilaterally extend the term of the agreement for an additional two-year period, subject to certain conditions. The Company’s total purchase commitment under the New Supply Agreement until June 2018 is dependent upon the size of the SiC material and ranges between approximately $29.6 million and approximately $31.5 million. | |||||
During the three months ended March 31, 2015 and 2014, the Company purchased approximately $1.44 million and $2.55 million, respectively, of SiC crystals from Cree. |
LINE_OF_CREDIT
LINE OF CREDIT | 3 Months Ended | |
Mar. 31, 2015 | ||
LINE OF CREDIT [Abstract] | ||
LINE OF CREDIT | 8 | LINE OF CREDIT |
On September 20, 2013, the Company obtained a $10,000,000 revolving line of credit (the “Line of Credit”) from PNC Bank, National Association (“PNC Bank”) for general corporate and working capital purposes. The Line of Credit was evidenced by a Committed Line of Credit Note, dated September 20, 2013 (the “Note”), which was set to mature on June 15, 2015. The interest rate under the Note was the one-month LIBOR rate (adjusted daily) plus 1.50%, calculated on an actual/360 basis. | ||
The Line of Credit was also governed by a loan agreement, dated September 20, 2013, and was guaranteed by Charles & Colvard Direct, LLC, and Moissanite.com, LLC. The Line of Credit was secured by a lien on substantially all assets of the Company and its subsidiaries. | ||
Effective June 25, 2014, the Line of Credit was terminated concurrent with the Company entering into a new banking relationship with Wells Fargo Bank, National Association (“Wells Fargo”). The Company had not utilized the Line of Credit. The Company recognized the remaining $19,000 of deferred legal expenses associated with this Line of Credit upon termination. | ||
On June 25, 2014, the Company and its wholly owned subsidiaries, Charles & Colvard Direct, LLC, and Moissanite.com, LLC (collectively, the “Borrowers”), obtained a $10,000,000 asset-based revolving credit facility (the “Credit Facility”) from Wells Fargo. The Credit Facility will be used for general corporate and working capital purposes, including transaction fees and expenses incurred in connection therewith and the issuance of letters of credit up to a $1,000,000 sublimit. The Credit Facility will mature on June 25, 2017. | ||
The Credit Facility includes a $5,000,000 sublimit for advances that are supported by a 90% guaranty provided by the U.S. Export-Import Bank. Advances under the Credit Facility are limited to a borrowing base, which is computed by applying specified advance rates to the value of the Borrowers’ eligible accounts and inventory, less reserves. Advances against inventory are further subject to an initial $3,000,000 maximum. The Borrowers must maintain a minimum of $1,000,000 in excess availability at all times. There are no other financial covenants. | ||
Each advance accrues interest at a rate equal to Wells Fargo’s 3-month LIBOR rate plus 2.50%, calculated on an actual/360 basis and payable monthly in arrears. Principal outstanding during an event of default accrues interest at a rate of 3% in excess of the above rate. Any advance may be prepaid in whole or in part at any time. In addition, the maximum line amount may be reduced by the Company in whole or part at any time, subject to a fee equal to 2% of any reduction in the first year after closing, 1% of any reduction in the second year after closing, and 0% thereafter. There are no mandatory prepayments or line reductions. | ||
The Credit Facility is secured by a lien on substantially all assets of the Borrowers, each of which is jointly and severally liable for all obligations thereunder. Wells Fargo’s security interest in certain SiC materials is subordinate to Cree’s security interest in such materials pursuant to the New Supply Agreement and an Intercreditor Agreement with Wells Fargo. | ||
The Credit Facility is evidenced by a credit and security agreement, dated as of June 25, 2014 and amended as of September 16, 2014 and December 12, 2014 (collectively, the “Credit Agreement”), and customary ancillary documents. The Credit Agreement contains customary covenants, representations and cash dominion provisions, including a financial reporting covenant and limitations on dividends, distributions, debt, contingent obligations, liens, loans, investments, mergers, acquisitions, divestitures, subsidiaries, affiliate transactions, and changes in control. | ||
Events of default under the Credit Facility include, without limitation, (1) any impairment of the Export-Import Bank guaranty, unless the guaranteed advances are repaid within two business days, (2) an event of default under any other indebtedness of the Borrowers in excess of $200,000, and (3) a material adverse change in the ability of the Borrowers to perform their obligations under the Credit Agreement or in the Borrowers’ assets, liabilities, businesses or prospects, or other circumstances that Wells Fargo believes may impair the prospect of repayment. If an event of default occurs, Wells Fargo is entitled to take enforcement action, including acceleration of amounts due under the Credit Agreement and foreclosure upon collateral. | ||
The Credit Agreement contains other customary terms, including indemnity, expense reimbursement, yield protection, and confidentiality provisions. Wells Fargo is permitted to assign the Credit Facility. | ||
As of March 31, 2015, the Company had not borrowed against the Credit Facility. |
STOCKBASED_COMPENSATION
STOCK-BASED COMPENSATION | 3 Months Ended | ||||||||||||||||||||||||||||||||
Mar. 31, 2015 | |||||||||||||||||||||||||||||||||
STOCK- BASED COMPENSATION [Abstract] | |||||||||||||||||||||||||||||||||
STOCK- BASED COMPENSATION | 9 | STOCK-BASED COMPENSATION | |||||||||||||||||||||||||||||||
The following table summarizes the components of the Company’s stock-based compensation included in net loss: | |||||||||||||||||||||||||||||||||
Three Months Ended March 31, | |||||||||||||||||||||||||||||||||
2015 | 2014 | ||||||||||||||||||||||||||||||||
Employee stock options | $ | 186,471 | $ | 182,724 | |||||||||||||||||||||||||||||
Restricted stock awards | 176,523 | 193,787 | |||||||||||||||||||||||||||||||
Consultant stock options | 16,245 | - | |||||||||||||||||||||||||||||||
Income tax benefit | - | (67,697 | ) | ||||||||||||||||||||||||||||||
Totals | $ | 379,239 | $ | 308,814 | |||||||||||||||||||||||||||||
No stock-based compensation was capitalized as a cost of inventory during the three months ended March 31, 2015 and 2014. | |||||||||||||||||||||||||||||||||
Stock Options - The following is a summary of the stock option activity for the three months ended March 31, 2015: | |||||||||||||||||||||||||||||||||
Shares | Weighted Average Exercise Price | ||||||||||||||||||||||||||||||||
Outstanding, December 31, 2014 | 1,665,946 | $ | 2.93 | ||||||||||||||||||||||||||||||
Granted | 376,500 | $ | 1.39 | ||||||||||||||||||||||||||||||
Exercised | (50,000 | ) | $ | 1.2 | |||||||||||||||||||||||||||||
Forfeited | (34,684 | ) | $ | 4.67 | |||||||||||||||||||||||||||||
Expired | (9,843 | ) | $ | 7.24 | |||||||||||||||||||||||||||||
Outstanding, March 31, 2015 | 1,947,919 | $ | 2.63 | ||||||||||||||||||||||||||||||
The weighted average grant-date fair value of stock options granted during the three months ended March 31, 2015 was $0.92. The total fair value of stock options that vested during the three months ended March 31, 2015 was approximately $202,000. The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions for stock options granted during the three months ended March 31, 2015: | |||||||||||||||||||||||||||||||||
Dividend yield | 0 | % | |||||||||||||||||||||||||||||||
Expected volatility | 72.4 | % | |||||||||||||||||||||||||||||||
Risk-free interest rate | 1.61 | % | |||||||||||||||||||||||||||||||
Expected lives (years) | 5.75 | ||||||||||||||||||||||||||||||||
Although the Company issued dividends in prior years, a dividend yield of zero was used due to the uncertainty of future dividend payments. 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. 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. The expected lives of the stock options represent the estimated period of time until exercise or forfeiture and are based on historical experience of similar awards. | |||||||||||||||||||||||||||||||||
The following table summarizes information about stock options outstanding at March 31, 2015: | |||||||||||||||||||||||||||||||||
Options Outstanding | Options Exercisable | Options Vested or Expected to Vest | |||||||||||||||||||||||||||||||
Balance | Weighted | Weighted | Balance | Weighted | Weighted | Balance | Weighted | Weighted | |||||||||||||||||||||||||
as of | Average Remaining | Average Exercise | as of | Average Remaining | Average | as of | Average Remaining | Average Exercise | |||||||||||||||||||||||||
3/31/15 | Contractual Life | Price | 3/31/15 | Contractual Life | Exercise | 3/31/15 | Contractual Life | Price | |||||||||||||||||||||||||
(Years) | (Years) | Price | (Years) | ||||||||||||||||||||||||||||||
1,947,919 | 7.61 | $ | 2.63 | 1,135,660 | 6.43 | $ | 2.69 | 1,852,134 | 7.51 | $ | 2.64 | ||||||||||||||||||||||
As of March 31, 2015, the unrecognized stock-based compensation expense related to unvested stock options was approximately $1.09 million, which is expected to be recognized over a weighted average period of approximately 22 months. | |||||||||||||||||||||||||||||||||
The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at March 31, 2015 were each approximately $129,000. This amount is before applicable income taxes and represents the closing market price of the Company’s common stock at March 31, 2015 less the grant price, multiplied by the number of stock options that had a grant price that is less than the closing market price. This amount represents the amount that would have been received by the optionees had these stock options been exercised on that date. During the three months ended March 31, 2015, the aggregate intrinsic value of stock options exercised was approximately ($2,000). | |||||||||||||||||||||||||||||||||
Restricted Stock - The following is a summary of the restricted stock activity for the three months ended March 31, 2015: | |||||||||||||||||||||||||||||||||
Shares | Weighted | ||||||||||||||||||||||||||||||||
Average | |||||||||||||||||||||||||||||||||
Grant Date | |||||||||||||||||||||||||||||||||
Fair Value | |||||||||||||||||||||||||||||||||
Unvested, December 31, 2014 | 287,006 | $ | 3.29 | ||||||||||||||||||||||||||||||
Granted | 122,500 | $ | 1.28 | ||||||||||||||||||||||||||||||
Vested | (62,247 | ) | $ | 2.53 | |||||||||||||||||||||||||||||
Canceled | - | $ | - | ||||||||||||||||||||||||||||||
Unvested, March 31, 2015 | 347,259 | $ | 2.71 | ||||||||||||||||||||||||||||||
As of March 31, 2015, the unrecognized stock-based compensation expense related to unvested restricted stock was approximately $515,000, which is expected to be recognized over a weighted average period of approximately 12 months. | |||||||||||||||||||||||||||||||||
Dividends - The Company has not paid any cash dividends in the current year through March 31, 2015. |
NET_LOSS_PER_COMMON_SHARE
NET LOSS PER COMMON SHARE | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
NET LOSS PER COMMON SHARE [Abstract] | |||||||||
NET LOSS PER COMMON SHARE | 10 | NET LOSS PER COMMON SHARE | |||||||
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted net loss per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options that are computed using the treasury stock method. Antidilutive stock awards are comprised of stock options and unvested restricted shares which would have been antidilutive in the application of the treasury stock method in accordance with the “Earnings Per Share” topic of the Financial Accounting Standard Board Accounting Standards Codification. | |||||||||
The following table reconciles the differences between the basic and diluted earnings per share presentations: | |||||||||
Three Months Ended March 31, | |||||||||
2015 | 2014 | ||||||||
Numerator: | |||||||||
Net loss | $ | (1,679,451 | ) | $ | (1,063,394 | ) | |||
Denominator: | |||||||||
Weighted average common shares outstanding: | |||||||||
Basic | 20,107,504 | 20,197,301 | |||||||
Stock options | - | - | |||||||
Diluted | 20,107,504 | 20,197,301 | |||||||
Net loss per common share: | |||||||||
Basic | $ | (0.08 | ) | $ | (0.05 | ) | |||
Diluted | $ | (0.08 | ) | $ | (0.05 | ) | |||
For the three months ended March 31, 2015 and 2014, stock options to purchase approximately 1.95 and 1.25 million shares, respectively, were excluded from the computation of diluted net loss per common share because the exercise price of the stock options was greater than the average market price of the common shares or the effect of inclusion of such amounts would be anti-dilutive to net loss per common share. For the three months ended March 31, 2015, approximately 347,000 non-vested restricted shares were excluded because the inclusion of such amounts would be anti-dilutive to net loss per common share. |
MAJOR_CUSTOMERS_AND_CONCENTRAT
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | |||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | 11 | MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | |||||||
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and trade accounts receivable. The Company maintains cash and cash equivalents and investments with high-quality financial institutions and invests in low-risk securities, primarily money market funds or long-term U.S. government agency obligations. At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurable limits of $250,000 per depositor at each financial institution. Amounts on deposit in excess of FDIC insurable limits at March 31, 2015 and December 31, 2014 approximated $4.89 million and $3.70 million, respectively. | |||||||||
Trade receivables potentially subject the Company to credit risk. The Company’s standard wholesale customer payment terms on trade receivables are generally between 30 and 90 days, though it may offer extended terms with specific customers and on significant orders from time to time. The Company believes its competitors and other vendors in the wholesale jewelry industry have also expanded their use of extended payment terms and, in aggregate, the Company believes that by expanding its use of extended payment terms, it has provided a competitive response in its market and that its net sales have been favorably impacted. The Company is unable to estimate the impact of this program on its net sales, but if it ceased providing extended payment terms in select instances, the Company believes it would not be competitive for some wholesale customers in the marketplace and that its net sales and profits would likely decrease. The Company extends credit to its customers based upon a number of factors, including an evaluation of the customer’s financial condition and credit history, the customer’s payment history with the Company, the customer’s reputation in the trade, and/or an evaluation of the Company’s opportunity to introduce its moissanite jewels or finished jewelry featuring moissanite to new or expanded markets. Collateral is not generally required from customers. The need for an allowance for doubtful accounts is determined based upon factors surrounding the credit risk of specific customers, historical trends, and other information. The Company has not experienced any significant accounts receivable write-offs related to revenue arrangements with extended payment terms. The Company‘s allowance for doubtful accounts includes approximately $800,000 related to one customer that has become past due on its payment arrangement. | |||||||||
At times, a portion of the Company’s accounts receivable will be due from customers that have individual balances in excess of 10% of the Company’s total net accounts receivable. The following is a summary of customers that represent greater than or equal to 10% of total net accounts receivable: | |||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Customer A | 33 | % | 28 | % | |||||
Customer B | 16 | % | 2 | % | |||||
Customer C | 13 | % | 11 | % | |||||
A significant portion of sales is derived from certain customer relationships. The following is a summary of customers that represent greater than or equal to 10% of total gross sales: | |||||||||
Three Months Ended March 31, | |||||||||
2015 | 2014 | ||||||||
Customer A | 24 | % | 23 | % | |||||
Customer B | 17 | % | 25 | % | |||||
Customer C | -3 | % | 20 | % | |||||
The Company records its sales return allowance at the corporate level based on several factors including historical sales return activity and specific allowances for known customer returns. For this disclosure, the Company reports the customer activity without effect of specific sales return allowances. Customer C returned goods in excess of its purchases during the period; however, these returns did not affect current period revenue as these returns had been specifically reserved as of December 31, 2014. As these returns were received from Customer C, the Company reduced its sales return allowance related to these returns. |
BASIS_OF_PRESENTATION_AND_SIGN1
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2015 | |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |
Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation - The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. However, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, the unaudited statements in this Quarterly Report on Form 10-Q include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2015. |
The condensed consolidated financial statements as of and for the three months ended March 31, 2015 and 2014 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2014 is derived from the audited financial statements as of that date. The accompanying statements should be read in conjunction with the audited financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 13, 2015 (the “2014 Annual Report”). | |
The accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2015 and 2014 include the accounts of the Company and its wholly owned subsidiaries Moissanite.com, LLC, formed in 2011; Charles & Colvard Direct, LLC, formed in 2011; and Charles & Colvard (HK) Ltd., the Company’s Hong Kong subsidiary that became a dormant entity in the second quarter of 2009 and the operations of which ceased in 2008. All intercompany accounts have been eliminated. | |
Significant Accounting Policies | Significant Accounting Policies - In the opinion of the Company’s management, the significant accounting policies used for the three months ended March 31, 2015 are consistent with those used for the year ended December 31, 2014. Accordingly, please refer to the 2014 Annual Report for the Company’s significant accounting policies. |
Use of Estimates | Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates impacting the Company’s condensed consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, deferred tax assets, uncertain tax positions, stock compensation expense, and cooperative advertising. Actual results could differ materially from those estimates. |
Reclassifications | Reclassifications - Certain amounts in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current year presentation, primarily amounts described in Note 3, “Segment Information and Geographic Data” related to changes in the Company’s reportable segments. |
Recently Adopted/Issued Accounting Pronouncements | Recently Adopted/Issued Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard in 2017. |
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15). The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. This standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect this ASU will have a material impact on its consolidated financial statements. | |
All other new and recently issued, but not yet effective, accounting pronouncements have been deemed to be not relevant to the Company and therefore are not expected to have any impact once adopted. |
SEGMENT_INFORMATION_AND_GEOGRA1
SEGMENT INFORMATION AND GEOGRAPHIC DATA (Tables) | 3 Months Ended | ||||||||||||||||
Mar. 31, 2015 | |||||||||||||||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |||||||||||||||||
Summary information by segment | Summary financial information by reportable segment is as follows: | ||||||||||||||||
Three Months Ended March 31, 2015 | |||||||||||||||||
Wholesale | Moissanite.com | Charles & | Total | ||||||||||||||
Colvard Direct | |||||||||||||||||
Net sales | |||||||||||||||||
Loose jewels | $ | 3,687,893 | $ | 133,266 | $ | - | $ | 3,821,159 | |||||||||
Finished jewelry | 2,224,267 | 970,660 | 1,360,978 | 4,555,905 | |||||||||||||
Total | $ | 5,912,160 | $ | 1,103,926 | 1,360,978 | 8,377,064 | |||||||||||
Product line cost of goods sold | |||||||||||||||||
Loose jewels | $ | 2,202,103 | $ | 19,071 | $ | - | $ | 2,221,174 | |||||||||
Finished jewelry | 1,227,810 | 480,360 | 319,775 | 2,027,945 | |||||||||||||
Total | $ | 3,429,913 | $ | 499,431 | $ | 319,775 | $ | 4,249,119 | |||||||||
Product line gross profit | |||||||||||||||||
Loose jewels | $ | 1,485,790 | $ | 114,195 | $ | - | $ | 1,599,985 | |||||||||
Finished jewelry | 996,457 | 490,300 | 1,041,203 | 2,527,960 | |||||||||||||
Total | $ | 2,482,247 | $ | 604,495 | $ | 1,041,203 | $ | 4,127,945 | |||||||||
Operating loss | $ | (234,485 | ) | (403,420 | ) | (1,038,572 | ) | $ | (1,676,477 | ) | |||||||
Depreciation and amortization | $ | 160,640 | 31,707 | 26,381 | $ | 218,728 | |||||||||||
Capital expenditures | $ | 109,564 | 533 | 7,007 | $ | 117,104 | |||||||||||
Three Months Ended March 31, 2014 | |||||||||||||||||
Wholesale | Moissanite.com | Charles & | Total | ||||||||||||||
Colvard Direct | |||||||||||||||||
Net sales | |||||||||||||||||
Loose jewels | $ | 3,533,784 | $ | 146,940 | $ | - | $ | 3,680,724 | |||||||||
Finished jewelry | 1,619,831 | 561,268 | 205,730 | 2,386,829 | |||||||||||||
Total | $ | 5,153,615 | $ | 708,208 | $ | 205,730 | $ | 6,067,553 | |||||||||
Product line cost of goods sold | |||||||||||||||||
Loose jewels | $ | 1,775,135 | $ | 22,272 | $ | - | $ | 1,797,407 | |||||||||
Finished jewelry | 1,280,101 | 294,886 | 63,262 | 1,638,249 | |||||||||||||
Total | $ | 3,055,236 | $ | 317,158 | $ | 63,262 | $ | 3,435,656 | |||||||||
Product line gross profit | |||||||||||||||||
Loose jewels | $ | 1,758,649 | $ | 124,668 | $ | - | $ | 1,883,317 | |||||||||
Finished jewelry | 339,730 | 266,382 | 142,468 | 748,580 | |||||||||||||
Total | $ | 2,098,379 | $ | 391,050 | $ | 142,468 | $ | 2,631,897 | |||||||||
Operating loss | $ | (124,858 | ) | (404,771 | ) | (640,874 | ) | $ | (1,170,503 | ) | |||||||
Depreciation and amortization | $ | 179,673 | 73,159 | 24,966 | $ | 277,798 | |||||||||||
Capital expenditures | $ | 28,325 | - | - | $ | 28,325 | |||||||||||
31-Mar-15 | |||||||||||||||||
Wholesale | Moissanite.com | Charles & | Total | ||||||||||||||
Colvard Direct | |||||||||||||||||
Total assets | $ | 50,746,106 | 106,794 | 93,559 | $ | 50,946,459 | |||||||||||
31-Dec-14 | |||||||||||||||||
Wholesale | Moissanite.com | Charles & | Total | ||||||||||||||
Colvard Direct | |||||||||||||||||
Total assets | $ | 51,183,888 | 128,049 | 114,460 | $ | 51,426,397 | |||||||||||
Schedule of reconciliation of product line cost of goods sold to cost of goods sold as reported in consolidated financial statements | A reconciliation of the Company’s product line cost of goods sold to cost of goods sold as reported in the condensed consolidated financial statements is as follows: | ||||||||||||||||
Three months ended March 31, | |||||||||||||||||
2015 | 2014 | ||||||||||||||||
Product line cost of goods sold | $ | 4,249,119 | $ | 3,435,656 | |||||||||||||
Non-capitalized manufacturing and production control expenses | 147,112 | 155,023 | |||||||||||||||
Freight out | 90,734 | 59,899 | |||||||||||||||
Inventory valuation allowances | 204,000 | 24,000 | |||||||||||||||
Other inventory adjustments | 152,938 | (11,536 | ) | ||||||||||||||
Cost of goods sold | $ | 4,843,903 | $ | 3,663,042 | |||||||||||||
Schedule of inventories by product line maintained in its wholesale distribution segment | The Company’s net inventories by product line maintained in the parent entity’s wholesale distribution segment are as follows: | ||||||||||||||||
31-Mar-15 | 31-Dec-14 | ||||||||||||||||
Loose jewels | |||||||||||||||||
Raw materials | $ | 5,156,656 | $ | 4,658,692 | |||||||||||||
Work-in-process | 5,615,277 | 5,752,103 | |||||||||||||||
Finished goods | 20,192,696 | 21,495,873 | |||||||||||||||
Finished goods on consignment | 3,585 | 46,284 | |||||||||||||||
Total | $ | 30,968,214 | $ | 31,952,952 | |||||||||||||
Finished jewelry | |||||||||||||||||
Raw materials | $ | 253,360 | $ | 258,707 | |||||||||||||
Work-in-process | 526,334 | 540,576 | |||||||||||||||
Finished goods | 5,533,173 | 5,557,417 | |||||||||||||||
Finished goods on consignment | 190,184 | 578,200 | |||||||||||||||
Total | $ | 6,503,051 | $ | 6,934,900 | |||||||||||||
Data by geographic area | The following presents certain data by geographic area: | ||||||||||||||||
Three Months Ended March 31, | |||||||||||||||||
2015 | 2014 | ||||||||||||||||
Net sales | |||||||||||||||||
United States | $ | 7,762,346 | $ | 5,709,033 | |||||||||||||
International | 614,718 | 358,520 | |||||||||||||||
Total | $ | 8,377,064 | $ | 6,067,553 | |||||||||||||
31-Mar-15 | 31-Dec-14 | ||||||||||||||||
Property and equipment, net | |||||||||||||||||
United States | $ | 1,800,466 | $ | 1,859,355 | |||||||||||||
International | - | - | |||||||||||||||
Total | $ | 1,800,466 | $ | 1,859,355 | |||||||||||||
31-Mar-15 | 31-Dec-14 | ||||||||||||||||
Intangible assets, net | |||||||||||||||||
United States | $ | 31,907 | $ | 39,050 | |||||||||||||
International | 148,794 | 177,897 | |||||||||||||||
Total | $ | 180,701 | $ | 216,947 |
INVENTORIES_Tables
INVENTORIES (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
INVENTORIES [Abstract] | |||||||||
Schedule of inventory, net of reserves | The Company’s total inventories, net of reserves, consisted of the following as of March 31, 2015 and December 31, 2014: | ||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Raw materials | $ | 5,410,016 | $ | 4,917,399 | |||||
Work-in-process | 6,141,611 | 6,292,679 | |||||||
Finished goods | 26,890,920 | 27,985,067 | |||||||
Finished goods on consignment | 219,769 | 677,484 | |||||||
Less inventory reserves | (1,138,000 | ) | (934,000 | ) | |||||
Total | $ | 37,524,316 | $ | 38,938,629 | |||||
Current portion | $ | 13,927,427 | $ | 13,320,639 | |||||
Long-term portion | 23,596,889 | 25,617,990 | |||||||
Total | $ | 37,524,316 | $ | 38,938,629 |
COMMITMENTS_AND_CONTINGENCIES_
COMMITMENTS AND CONTINGENCIES (Tables) | 3 Months Ended | ||||
Mar. 31, 2015 | |||||
COMMITMENTS AND CONTINGENCIES [Abstract] | |||||
Future minimum payments under operating lease | As of March 31, 2015, the Company’s future minimum payments under the operating leases were as follows: | ||||
2015 | $ | 417,615 | |||
2016 | 569,138 | ||||
2017 | 584,789 | ||||
2018 | 600,871 | ||||
2019 | 617,395 | ||||
Thereafter | 1,176,330 | ||||
Total | $ | 3,966,138 |
STOCKBASED_COMPENSATION_Tables
STOCK-BASED COMPENSATION (Tables) | 3 Months Ended | ||||||||||||||||||||||||||||||||
Mar. 31, 2015 | |||||||||||||||||||||||||||||||||
STOCK- BASED COMPENSATION [Abstract] | |||||||||||||||||||||||||||||||||
Schedule for components of stock based compensation | The following table summarizes the components of the Company’s stock-based compensation included in net loss: | ||||||||||||||||||||||||||||||||
Three Months Ended March 31, | |||||||||||||||||||||||||||||||||
2015 | 2014 | ||||||||||||||||||||||||||||||||
Employee stock options | $ | 186,471 | $ | 182,724 | |||||||||||||||||||||||||||||
Restricted stock awards | 176,523 | 193,787 | |||||||||||||||||||||||||||||||
Consultant stock options | 16,245 | - | |||||||||||||||||||||||||||||||
Income tax benefit | - | (67,697 | ) | ||||||||||||||||||||||||||||||
Totals | $ | 379,239 | $ | 308,814 | |||||||||||||||||||||||||||||
Summary of the stock option activity | The following is a summary of the stock option activity for the three months ended March 31, 2015: | ||||||||||||||||||||||||||||||||
Shares | Weighted Average Exercise Price | ||||||||||||||||||||||||||||||||
Outstanding, December 31, 2014 | 1,665,946 | $ | 2.93 | ||||||||||||||||||||||||||||||
Granted | 376,500 | $ | 1.39 | ||||||||||||||||||||||||||||||
Exercised | (50,000 | ) | $ | 1.2 | |||||||||||||||||||||||||||||
Forfeited | (34,684 | ) | $ | 4.67 | |||||||||||||||||||||||||||||
Expired | (9,843 | ) | $ | 7.24 | |||||||||||||||||||||||||||||
Outstanding, March 31, 2015 | 1,947,919 | $ | 2.63 | ||||||||||||||||||||||||||||||
Weighted average assumptions for stock options granted | The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions for stock options granted during the three months ended March 31, 2015: | ||||||||||||||||||||||||||||||||
Dividend yield | 0 | % | |||||||||||||||||||||||||||||||
Expected volatility | 72.4 | % | |||||||||||||||||||||||||||||||
Risk-free interest rate | 1.61 | % | |||||||||||||||||||||||||||||||
Expected lives (years) | 5.75 | ||||||||||||||||||||||||||||||||
Information about stock options outstanding | The following table summarizes information about stock options outstanding at March 31, 2015: | ||||||||||||||||||||||||||||||||
Options Outstanding | Options Exercisable | Options Vested or Expected to Vest | |||||||||||||||||||||||||||||||
Balance | Weighted | Weighted | Balance | Weighted | Weighted | Balance | Weighted | Weighted | |||||||||||||||||||||||||
as of | Average Remaining | Average Exercise | as of | Average Remaining | Average | as of | Average Remaining | Average Exercise | |||||||||||||||||||||||||
3/31/15 | Contractual Life | Price | 3/31/15 | Contractual Life | Exercise | 3/31/15 | Contractual Life | Price | |||||||||||||||||||||||||
(Years) | (Years) | Price | (Years) | ||||||||||||||||||||||||||||||
1,947,919 | 7.61 | $ | 2.63 | 1,135,660 | 6.43 | $ | 2.69 | 1,852,134 | 7.51 | $ | 2.64 | ||||||||||||||||||||||
Restricted stock activity | The following is a summary of the restricted stock activity for the three months ended March 31, 2015: | ||||||||||||||||||||||||||||||||
Shares | Weighted | ||||||||||||||||||||||||||||||||
Average | |||||||||||||||||||||||||||||||||
Grant Date | |||||||||||||||||||||||||||||||||
Fair Value | |||||||||||||||||||||||||||||||||
Unvested, December 31, 2014 | 287,006 | $ | 3.29 | ||||||||||||||||||||||||||||||
Granted | 122,500 | $ | 1.28 | ||||||||||||||||||||||||||||||
Vested | (62,247 | ) | $ | 2.53 | |||||||||||||||||||||||||||||
Canceled | - | $ | - | ||||||||||||||||||||||||||||||
Unvested, March 31, 2015 | 347,259 | $ | 2.71 |
NET_LOSS_PER_COMMON_SHARE_Tabl
NET LOSS PER COMMON SHARE (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
NET LOSS PER COMMON SHARE [Abstract] | |||||||||
Reconciliation of the differences between the basic and fully diluted earnings per share | The following table reconciles the differences between the basic and diluted earnings per share presentations: | ||||||||
Three Months Ended March 31, | |||||||||
2015 | 2014 | ||||||||
Numerator: | |||||||||
Net loss | $ | (1,679,451 | ) | $ | (1,063,394 | ) | |||
Denominator: | |||||||||
Weighted average common shares outstanding: | |||||||||
Basic | 20,107,504 | 20,197,301 | |||||||
Stock options | - | - | |||||||
Diluted | 20,107,504 | 20,197,301 | |||||||
Net loss per common share: | |||||||||
Basic | $ | (0.08 | ) | $ | (0.05 | ) | |||
Diluted | $ | (0.08 | ) | $ | (0.05 | ) |
MAJOR_CUSTOMERS_AND_CONCENTRAT1
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Tables) | 3 Months Ended | ||||||||
Mar. 31, 2015 | |||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | |||||||||
Summary of customers that represent greater than or equal to 10% of total gross sales | The following is a summary of customers that represent greater than or equal to 10% of total net accounts receivable: | ||||||||
31-Mar-15 | 31-Dec-14 | ||||||||
Customer A | 33 | % | 28 | % | |||||
Customer B | 16 | % | 2 | % | |||||
Customer C | 13 | % | 11 | % | |||||
The following is a summary of customers that represent greater than or equal to 10% of total gross sales: | |||||||||
Three Months Ended March 31, | |||||||||
2015 | 2014 | ||||||||
Customer A | 24 | % | 23 | % | |||||
Customer B | 17 | % | 25 | % | |||||
Customer C | -3 | % | 20 | % |
SEGMENT_INFORMATION_AND_GEOGRA2
SEGMENT INFORMATION AND GEOGRAPHIC DATA (Details) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Segment | |||
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |||
Number of operating segments | 3 | ||
Number of reportable segments | 3 | ||
Summary information by segment [Abstract] | |||
Net sales | $8,377,064 | $6,067,553 | |
Product line cost of goods sold | 4,249,119 | 3,435,656 | |
Product line gross profit | 4,127,945 | 2,631,897 | |
Operating loss | -1,676,477 | -1,170,503 | |
Depreciation and amortization | 218,728 | 277,798 | |
Capital expenditures | 117,104 | 28,325 | |
Total assets | 50,946,459 | 51,426,397 | |
Cost of Goods Sold [Abstract] | |||
Cost of goods sold | 4,843,903 | 3,663,042 | |
Inventories, net [Abstract] | |||
Raw materials | 5,410,016 | 4,917,399 | |
Work-in-process | 6,141,611 | 6,292,679 | |
Supplies inventories | 53,000 | 51,000 | |
Loose Jewels [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 3,821,159 | 3,680,724 | |
Product line cost of goods sold | 2,221,174 | 1,797,407 | |
Product line gross profit | 1,599,985 | 1,883,317 | |
Inventories, net [Abstract] | |||
Raw materials | 5,156,656 | 4,658,692 | |
Work-in-process | 5,615,277 | 5,752,103 | |
Finished goods | 20,192,696 | 21,495,873 | |
Finished goods on consignment | 3,585 | 46,284 | |
Total | 30,968,214 | 31,952,952 | |
Finished Jewelry [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 4,555,905 | 2,386,829 | |
Product line cost of goods sold | 2,027,945 | 1,638,249 | |
Product line gross profit | 2,527,960 | 748,580 | |
Inventories, net [Abstract] | |||
Raw materials | 253,360 | 258,707 | |
Work-in-process | 526,334 | 540,576 | |
Finished goods | 5,533,173 | 5,557,417 | |
Finished goods on consignment | 190,184 | 578,200 | |
Total | 6,503,051 | 6,934,900 | |
Operating and Reporting Segments [Member] | Wholesale [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 5,912,160 | 5,153,615 | |
Product line cost of goods sold | 3,429,913 | 3,055,236 | |
Product line gross profit | 2,482,247 | 2,098,379 | |
Operating loss | -234,485 | -124,858 | |
Depreciation and amortization | 160,640 | 179,673 | |
Capital expenditures | 109,564 | 28,325 | |
Total assets | 50,746,106 | 51,183,888 | |
Operating and Reporting Segments [Member] | Wholesale [Member] | Loose Jewels [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 3,687,893 | 3,533,784 | |
Product line cost of goods sold | 2,202,103 | 1,775,135 | |
Product line gross profit | 1,485,790 | 1,758,649 | |
Operating and Reporting Segments [Member] | Wholesale [Member] | Finished Jewelry [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 2,224,267 | 1,619,831 | |
Product line cost of goods sold | 1,227,810 | 1,280,101 | |
Product line gross profit | 996,457 | 339,730 | |
Operating and Reporting Segments [Member] | Moissanite.com [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 1,103,926 | 708,208 | |
Product line cost of goods sold | 499,431 | 317,158 | |
Product line gross profit | 604,495 | 391,050 | |
Operating loss | -403,420 | -404,771 | |
Depreciation and amortization | 31,707 | 73,159 | |
Capital expenditures | 533 | 0 | |
Total assets | 106,794 | 128,049 | |
Operating and Reporting Segments [Member] | Moissanite.com [Member] | Loose Jewels [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 133,266 | 146,940 | |
Product line cost of goods sold | 19,071 | 22,272 | |
Product line gross profit | 114,195 | 124,668 | |
Operating and Reporting Segments [Member] | Moissanite.com [Member] | Finished Jewelry [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 970,660 | 561,268 | |
Product line cost of goods sold | 480,360 | 294,886 | |
Product line gross profit | 490,300 | 266,382 | |
Operating and Reporting Segments [Member] | Charles & Colvard Direct [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 1,360,978 | 205,730 | |
Product line cost of goods sold | 319,775 | 63,262 | |
Product line gross profit | 1,041,203 | 142,468 | |
Operating loss | -1,038,572 | -640,874 | |
Depreciation and amortization | 26,381 | 24,966 | |
Capital expenditures | 7,007 | 0 | |
Total assets | 93,559 | 114,460 | |
Operating and Reporting Segments [Member] | Charles & Colvard Direct [Member] | Loose Jewels [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 0 | 0 | |
Product line cost of goods sold | 0 | 0 | |
Product line gross profit | 0 | 0 | |
Operating and Reporting Segments [Member] | Charles & Colvard Direct [Member] | Finished Jewelry [Member] | |||
Summary information by segment [Abstract] | |||
Net sales | 1,360,978 | 205,730 | |
Product line cost of goods sold | 319,775 | 63,262 | |
Product line gross profit | 1,041,203 | 142,468 | |
Segment Reconciling Items [Member] | |||
Cost of Goods Sold [Abstract] | |||
Non-capitalized manufacturing and production control expenses | 147,112 | 155,023 | |
Freight out | 90,734 | 59,899 | |
Inventory valuation allowances | 204,000 | 24,000 | |
Other inventory adjustments | $152,938 | ($11,536) |
SEGMENT_INFORMATION_AND_GEOGRA3
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Data by Geographic Area (Details) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Net sales [Abstract] | |||
Net sales | $8,377,064 | $6,067,553 | |
Property and Equipment, Net [Member] | |||
Assets by geographical area [Abstract] | |||
Total | 1,800,466 | 1,859,355 | |
Intangible Assets, Net [Member] | |||
Assets by geographical area [Abstract] | |||
Total | 180,701 | 216,947 | |
Reportable Geographical Components [Member] | United States [Member] | |||
Net sales [Abstract] | |||
Net sales | 7,762,346 | 5,709,033 | |
Reportable Geographical Components [Member] | United States [Member] | Property and Equipment, Net [Member] | |||
Assets by geographical area [Abstract] | |||
Total | 1,800,466 | 1,859,355 | |
Reportable Geographical Components [Member] | United States [Member] | Intangible Assets, Net [Member] | |||
Assets by geographical area [Abstract] | |||
Total | 31,907 | 39,050 | |
Reportable Geographical Components [Member] | International [Member] | |||
Net sales [Abstract] | |||
Net sales | 614,718 | 358,520 | |
Reportable Geographical Components [Member] | International [Member] | Property and Equipment, Net [Member] | |||
Assets by geographical area [Abstract] | |||
Total | 0 | 0 | |
Reportable Geographical Components [Member] | International [Member] | Intangible Assets, Net [Member] | |||
Assets by geographical area [Abstract] | |||
Total | $148,794 | $177,897 |
INVENTORIES_Details
INVENTORIES (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Dec. 31, 2014 | |
Total inventories, net of reserves [Abstract] | ||
Raw materials | $5,410,016 | $4,917,399 |
Work-in-process | 6,141,611 | 6,292,679 |
Finished goods | 26,890,920 | 27,985,067 |
Finished goods on consignment | 219,769 | 677,484 |
Less inventory reserves | -1,138,000 | -934,000 |
Total | 37,524,316 | 38,938,629 |
Current portion | 13,927,427 | 13,320,639 |
Long-term portion | 23,596,889 | 25,617,990 |
Period considered for classification of long term inventory | 12 months | |
Work-in-process inventories issued to active production jobs | 1,610,000 | 2,050,000 |
Inventory reserve for obsolescence | 429,000 | 250,000 |
Carrying value of inventory reserve for obsolescence of moissanite | 31,000 | |
Shrinkage reserve for finished goods on consignment | 26,000 | 53,000 |
Inventory of net loose jewels | 30,970,000 | 31,950,000 |
Inventory reserve for shrinkage of loose jewels | 9,000 | 17,000 |
Inventory reserve for shrinkage of loose jewels on consignment | 8,000 | 17,000 |
Inventory reserve for recuts | 216,000 | 216,000 |
Inventory of net jewelry | 6,500,000 | 6,930,000 |
Scrap reserve | 96,000 | 101,000 |
Inventory reserve for shrinkage of finished jewelry | 231,000 | 192,000 |
Inventory reserve for shrinkage of finished jewelry on consignment | 18,000 | 36,000 |
Inventory reserve for shrinkage of finished jewelry on repairs | $157,000 | $127,000 |
INCOME_TAXES_Details
INCOME TAXES (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
INCOME TAXES [Abstract] | ||
Income tax expense (benefit) | $3,093 | ($107,210) |
Deferred tax assets | 4,150,000 | |
Income tax expense for estimated tax, penalties, and interest for other uncertain tax positions | 3,000 | 3,000 |
Current period income tax expense (benefit) | ($110,000) | |
Effective income tax rate (in hundredths) | 9.40% | |
Federal statutory income tax rate (in hundredths) | 34.00% |
COMMITMENTS_AND_CONTINGENCIES_1
COMMITMENTS AND CONTINGENCIES (Details) (USD $) | 0 Months Ended | 3 Months Ended | |||||
Dec. 12, 2014 | Dec. 09, 2013 | Mar. 31, 2015 | Mar. 31, 2014 | Dec. 12, 2014 | 23-May-14 | Oct. 31, 2013 | |
Option | sqft | sqft | |||||
Lease Commitments [Abstract] | |||||||
Period of lease | 7 years | ||||||
Land subject to leases (in square feet) | 36,350 | 16,500 | |||||
Number of months included in costs to terminate lease | 2 months | ||||||
Cost to terminate lease | $112,000 | ||||||
Leasehold improvements offered by landlord | 550,000 | ||||||
Lease signing and moving incentives offered by landlord | 73,000 | ||||||
Period for which rent is abated | 7 months | ||||||
Future minimum payments under operating lease [Abstract] | |||||||
2015 | 417,615 | ||||||
2016 | 569,138 | ||||||
2017 | 584,789 | ||||||
2018 | 600,871 | ||||||
2019 | 617,395 | ||||||
Thereafter | 1,176,330 | ||||||
Total | 3,966,138 | ||||||
Rent expense | 128,000 | 31,000 | |||||
Purchase Commitments [Abstract] | |||||||
Period of exclusive supply agreement | 2 years | 10 years | |||||
Percentage committed to be purchased (in hundredths) | 100.00% | 50.00% | |||||
Number of option to unilaterally extend the term | 1 | ||||||
Minimum purchase commitment in initial new order | 4,000,000 | 29,600,000 | |||||
Maximum purchase commitment in initial new order | 31,500,000 | ||||||
Minimum purchase commitment under the amendment | 7,640,000 | ||||||
Maximum purchase commitment under amendment | 18,560,000 | ||||||
Actual purchases under purchase amendment | $1,440,000 | $2,550,000 |
LINE_OF_CREDIT_Details
LINE OF CREDIT (Details) (USD $) | 0 Months Ended | 3 Months Ended | |
Sep. 20, 2013 | Jun. 25, 2014 | Mar. 31, 2015 | |
PNC Bank [Member] | Line of Credit Note [Member] | |||
Line of Credit Facility [Line Items] | |||
Revolving line of credit | $10,000,000 | ||
Line of credit maturity date | 15-Jun-15 | ||
Line of credit, description of variable rate basis | One-month LIBOR rate | ||
Line of credit, spread on variable rate (in hundredths) | 1.50% | ||
Basis for calculation of LIBOR rate (adjusted daily) | actual / 360 | ||
Wells Fargo [Member] | Line of Credit [Member] | |||
Line of Credit Facility [Line Items] | |||
Revolving line of credit | 10,000,000 | ||
Line of credit maturity date | 25-Jun-17 | ||
Line of credit, description of variable rate basis | Wells Fargobs 3-month LIBOR rate | ||
Line of credit, spread on variable rate (in hundredths) | 2.50% | ||
Basis for calculation of LIBOR rate (adjusted daily) | actual / 360 | ||
Legal fees | 19,000 | ||
Line of credit facility, sublimit for letter of credit | 1,000,000 | ||
Line of credit facility, sublimit for advances | 5,000,000 | ||
Percentage of advances, guaranteed by bank (in hundredths) | 90.00% | ||
Maximum advances against inventory | 3,000,000 | ||
Minimum excess availability of inventory at all times required for advances | 1,000,000 | ||
Interest rate in event of default in excess of standard rate (in hundredths) | 3.00% | ||
Prepaid advance fee for reduction in first year after closing (in hundredths) | 2.00% | ||
Prepaid advance fee for reduction in Second year after closing (in hundredths) | 1.00% | ||
Prepaid advance fee for reduction, thereafter (in hundredths) | 0.00% | ||
Number of business day within which guaranteed advances to be repaid | 2 days | ||
Maximum indebtedness to be maintained in the event of default to avoid triggering of default terms | 200,000 | ||
Advances against line of credit | $0 |
STOCKBASED_COMPENSATION_Detail
STOCK-BASED COMPENSATION (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Components of the Company's stock based compensation included in net income [Abstract] | ||
Income tax benefit | $0 | ($67,697) |
Totals | 379,239 | 308,814 |
Employee Stock Options [Member] | ||
Components of the Company's stock based compensation included in net income [Abstract] | ||
Allocated share-based compensation expense | 186,471 | 182,724 |
Stock-based compensation capitalized as a cost of inventory | 0 | 0 |
Shares [Roll Forward] | ||
Outstanding, December 31, 2014 | 1,665,946 | |
Granted (in shares) | 376,500 | |
Exercised (in shares) | -50,000 | |
Forfeited (in shares) | -34,684 | |
Expired (in shares) | -9,843 | |
Outstanding, March 31, 2015 | 1,947,919 | |
Weighted Average Exercise Price [Roll Forward] | ||
Outstanding, December 31, 2014 (in dollars per share) | $2.93 | |
Granted (in dollars per share) | $1.39 | |
Exercised (in dollars per share) | $1.20 | |
Forfeited (in dollars per share) | $4.67 | |
Expired (in dollars per share) | $7.24 | |
Outstanding, March 31, 2015 (in dollars per share) | $2.63 | |
Fair value of stock options (in dollars per share) | $0.92 | |
Fair value of stock options vested | 202,000 | |
Weighted average assumptions for stock options [Abstract] | ||
Dividend yield (in hundredths) | 0.00% | |
Expected volatility (in hundredths) | 72.40% | |
Risk-free interest rate (in hundredths) | 1.61% | |
Expected lives | 5 years 9 months | |
Options Outstanding [Abstract] | ||
Balance as of 3/31/2015 (in shares) | 1,947,919 | |
Weighted Average Remaining Contractual Life (Years) | 7 years 7 months 10 days | |
Weighted Average Exercise Price (in dollars per share) | $2.63 | |
Options Exercisable [Abstract] | ||
Balance as of 3/31/2015 (in shares) | 1,135,660 | |
Weighted Average Remaining Contractual Life (Years) | 6 years 5 months 5 days | |
Weighted Average Exercise Price (in dollars per share) | $2.69 | |
Options Vested or Expected to Vest [Abstract] | ||
Balance as of 3/31/2015 (in shares) | 1,852,134 | |
Weighted Average Remaining Contractual Life (Years) | 7 years 6 months 4 days | |
Weighted Average Exercise Price (in dollars per share) | $2.64 | |
Unrecognized stock-based compensation expense related to unvested awards | 1,090,000 | |
Total compensation cost not yet recognized, period for recognition | 22 months | |
Aggregate intrinsic value of stock options outstanding | 129,000 | |
Aggregate intrinsic value of stock options exercisable | 129,000 | |
Aggregate intrinsic value of stock options vested and expected to vest | 129,000 | |
Aggregate intrinsic value of stock options exercised | 2,000 | |
Restricted Stock [Member] | ||
Components of the Company's stock based compensation included in net income [Abstract] | ||
Allocated share-based compensation expense | 176,523 | 193,787 |
Options Vested or Expected to Vest [Abstract] | ||
Unrecognized stock-based compensation expense related to unvested awards | 515,000 | |
Total compensation cost not yet recognized, period for recognition | 12 months | |
Shares [Roll Forward] | ||
Unvested, December 31, 2014 (in shares) | 287,006 | |
Granted (in shares) | 122,500 | |
Vested (in shares) | -62,247 | |
Canceled (in shares) | 0 | |
Unvested, March 31, 2015 (in shares) | 347,259 | |
Weighted Average Grant Date Fair Value [Roll Forward] | ||
Unvested, December 31, 2014 (in dollars per share) | $3.29 | |
Granted (in dollars per share) | $1.28 | |
Vested (in dollars per share) | $2.53 | |
Canceled (in dollars per share) | $0 | |
Unvested, March 31, 2015 (in dollars per share) | $2.71 | |
Consultant stock options [Member] | ||
Components of the Company's stock based compensation included in net income [Abstract] | ||
Allocated share-based compensation expense | $16,245 | $0 |
NET_LOSS_PER_COMMON_SHARE_Deta
NET LOSS PER COMMON SHARE (Details) (USD $) | 3 Months Ended | |
Mar. 31, 2015 | Mar. 31, 2014 | |
Numerator [Abstract] | ||
Net loss | ($1,679,451) | ($1,063,394) |
Weighted average common shares outstanding [Abstract] | ||
Basic (in shares) | 20,107,504 | 20,197,301 |
Stock options (in shares) | 0 | 0 |
Fully diluted (in shares) | 20,107,504 | 20,197,301 |
Net loss per common share [Abstract] | ||
Basic (in dollars per share) | ($0.08) | ($0.05) |
Diluted (in dollars per share) | ($0.08) | ($0.05) |
Stock Options [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Stock options to purchase shares and non vested restricted shares (in shares) | 1,950,000 | 1,250,000 |
Restricted Stock [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Stock options to purchase shares and non vested restricted shares (in shares) | 347,000 |
MAJOR_CUSTOMERS_AND_CONCENTRAT2
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details) (USD $) | 3 Months Ended | ||
Mar. 31, 2015 | Mar. 31, 2014 | Dec. 31, 2014 | |
Concentration Risk [Line Items] | |||
Insurance coverage per depositor at each financial institution | $250,000 | ||
Interest-bearing amounts on deposit in excess of FDIC insurable limits | 4,890,000 | 3,700,000 | |
Increase in allowance for doubtful accounts | $800,000 | ||
Minimum [Member] | |||
Concentration Risk [Line Items] | |||
Period of customer payments on trade receivables | 30 days | ||
Maximum [Member] | |||
Concentration Risk [Line Items] | |||
Period of customer payments on trade receivables | 90 days | ||
Trade Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer A [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk, percentage (in hundredths) | 33.00% | 28.00% | |
Trade Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer B [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk, percentage (in hundredths) | 16.00% | 2.00% | |
Trade Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer C [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk, percentage (in hundredths) | 13.00% | 11.00% | |
Total Gross Sales [Member] | |||
Concentration Risk [Line Items] | |||
Percentage of gross sales used as benchmark (in hundredths) | 10.00% | ||
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer A [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk, percentage (in hundredths) | 24.00% | 23.00% | |
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer B [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk, percentage (in hundredths) | 17.00% | 25.00% | |
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer C [Member] | |||
Concentration Risk [Line Items] | |||
Concentration risk, percentage (in hundredths) | -3.00% | 20.00% |