Charles & Colvard Ltd (CTHR) 2011 Q2 法說會逐字稿

Hello and welcome to the Charles & Colvard, Ltd. second quarter of fiscal year 2011 conference call. All participants will be in listen-only mode. (Operator Instructions).

After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

The Company would like to state the following. As you are aware, we may make forward-looking statements, both during the call and in the following question-and-answer session. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from what we discuss here. These risks and uncertainties are available to you in the press release itself as well as in the Company's filings with the Securities and Exchange Commission. You may obtain these documents from the Company's website, www.charlesandcolvard.com. They are also available on the SEC website, www.SEC.gov. I would now like to turn the conference over to Randy McCullough. Please go ahead.

Thank you. Good morning, and thank you for taking the time to join us in recapping the second quarter of 2011 and allowing me to share the continued progress in expanding our business.

Our sales for the second quarter came in about where we expected. And as we discussed in our press release today and Tim will touch upon later, the two nonrecurring transactions that accounted for over $1.2 million of our revenue during the second quarter of 2010 would negatively impact our revenues in the second quarter of 2011.

The fact that we generated $3 million from our other sales to customer base, which includes new customers added in the latter part of 2010 and during the first half of 2011 is a testament that our sales initiatives are working. Excluding the effect of the two nonrecurring transactions, all other sales increased by 42% when compared with reoccurring customer business in the last year's second quarter.

The outlook for the second half of 2011 appears encouraging and should benefit further from our planned launch of new sales and marketing initiatives. Our experience with televised shopping networks has been particularly encouraging with several shows exceeding $100,000 per hour in sales. The two largest networks, ShopNBC and JTV, significantly increased the number of moissanite shows scheduled for the third and fourth quarters. Charles Winston, a known TV shopping talent, will be hosting shows this fall for JTV featuring moissanite set in silver, a precious metal growing in popularity and escalating in fine jewelry sales over the past year.

We are also excited about the targeted launch of our direct to consumer e-commerce website, moissanite.com, later this quarter. The site is now built on the robust Magento e-commerce software platform, which powers websites for many of the world's largest brands, and we are confident that consumers will respond enthusiastically to the broad selection of finished jewelry available through moissanite.com. Our redesigned site is planned to be released to our beta test group today for feedback prior to our official launch.

This group has provided many helpful and insightful comments and suggestions, all of which are helping to shape this critical initiative that we anticipate will not only drive future revenue, but assist in expanding the overall market share awareness of moissanite.

As a result of our first round of testing in May, we recognized the need and added an experienced e-commerce executive to our team. [Craig Lane], our VP of e-commerce and Marketing, is a results-focused professional with over 15 years in leading multi-channel marketing, sales and operations teams. He has a successful track record developing effective and measurable strategies that drive sales, reduce cost, grow profits and expand market share. During his eight-year tenure at ShopNBC as senior vice president media, he directed strategy and tactics for all marketing activities, including e-commerce and established key performance indicators that resulted in Web sales growing from zero to over $150 million.

Numerous meaningful improvements have been made to the website based on our test group feedback, best-of-breed web standards and competitive benchmarking. We are proud of this initial redesign but recognize we are far from done. Our e-commerce team is committed to continuously improving functionality and developing additional features designed to establish our site as the number one destination for purchasing moissanite online.

In addition, our merchants are adding additional and new and exclusive styles to our e-commerce site on an ongoing basis as we ramp up to our goal of providing the best selection of moissanite jewelry on the web. Future planned enhancements include improved images, expanded jewelry assortment, cross-sell and up-sell, more detailed descriptions, social media connectivity, custom packaging, gift messaging and gift wrapping, reviews and ratings, designer section.

Our first feature designer is one of the jewelry industry's leading designers, Judy Evans. Judy Evans has over 17 design awards, recently receiving a 2011 first-place Spectrum award for her earring design. Ms. Evans is known for uniquely blending classical and contemporary styles into a distinctive retail-friendly designs and is one of the jewelry industry's best-kept secrets, having designed several well-known jewelry lines, marketed under various brand names. We believe her talents in the area of fine jewelry -- fashion jewelry will make Judy Evans a perfect match for Charles & Colvard as we continue to expand our finished jewelry lines. Seldom does one find a purse and to match Judy's significant talent and broad industry knowledge. Everyone at Charles & Colvard is enjoying the design idea that Judy has been developing and congratulate her on recently making the United Brands' top 10 jewelry designers in the world.

Featured in Judy's exciting line of jewelry will be Forever Brilliant, Charles & Colvard's career line of loose moissanite gems. We are putting the finishing touches on our marketing campaign for the Forever Brilliant brand to be featured in trade magazines providing support for our distribution partners in the fourth quarter.

Finally, we continue to invest considerable time and resources in developing our jewelry lines, brands and associated collateral materials for our new home party direct sales channel. Interest from the public and our investors has been very positive regarding this initiative and a number of ladies have enthusiastically volunteered to host test parties in a variety of cities across the country. Considerable progress has been made in developing over 200 exclusive jewelry products, blending fashion and find moissanite jewelry, a 24-page catalog and required collateral material to support our test marketing. These test parties are targeted to begin towards the end of the third quarter or early in the fourth quarter of 2011. We believe this venture will provide considerable future sales growth.

Our Company is in the midst of developing and launching a number of exciting sales and marketing initiatives that we believe will significantly increase future sales of created moissanite gemstones and moissanite jewelry. In order to manage this anticipated sales growth most efficiently, it is important for Charles & Colvard to assure that its support infrastructure is dynamic, focused and able to meet the expanding needs of customers, manufacturers, vendors and other strategic partners.

To that end, we are very pleased that Robert Curry joined our management team as VP Merchandise, Production and Distribution. We are confident that Robert Curry's more than 25 years experience in jeweler merchandising, manufacturing and distribution will optimize our production, sourcing, fulfillment and systems management in a timely and cost efficient manner.

In addition, we are upgrading our facility with added vault space and jewelry manufacturing systems enhancements, all of which will provide needed support for the increased merchandise flow expected as a result of the sales and market initiatives discussed. On a longer-term basis, we remain confident in our belief that moissanite is destined to significantly expand its share of the $120 billion global jewelry market that our multi-channel sales and marketing channel will play a key role in the accomplishment of our growth objectives.

Meanwhile, we are well-positioned financially to take advantage of future opportunities with a long-term debt-free balance sheet, healthy operating cash flows and over $14 million available in working capital.

I'm sure by now you are aware of the request to re-examine one of our patents from betterthandiamonds.com and our response. We are confident of the validity of our patent and intend to vigorously defend it. However, rest assured the success of Charles & Colvard will not come from a 13-year-old patent, but from the brands and sales channels that we have built over the years and the new exciting brands and initiatives we are executing to increase customer awareness of moissanite. We have been consistent about our belief of these efforts and will exponentially grow our revenues and profitability. And while this patent support these initiatives, it does not define them.

Regardless of the outcome of any patent re-examination, our exclusivity with the only known supplier of consistent gem quality silicon carbide, Cree, Inc., is in effect until well into 2015.

I would now like to turn over the call to our Chief Financial Officer, Tim Krist, who will review in greater detail the final results of our second quarter.

Thank you Randy, good morning everyone and thank you for joining us today. I will discuss the financial results for the three and six months that ended June 30, 2011.

As announced in today's press release, net sales for the second quarter of 2011 decreased 10% approximately $3 million compared with approximately $3.3 million in net sales during the same period of 2010. This decrease was primarily attributable to two significant sales transactions in the second quarter of 2010 that did not recur in the second quarter of 2011 which I will discuss in more detail.

Domestic sales for the quarter increased 8% from the same period in 2010 to approximately $2 million and represented 66% of total net sales. International sales for the quarter decreased 32% from the same period in 2010 to approximately $1 million and represented 34% of total net sales.

Our loose gemstone sales during the second quarter were down 9% from the same period in 2010 to approximately $2.5 million and represented 83% of total net sales and our finished jewelry sales during the second quarter were down 15% from the same period in 2010 to approximately $521,000 and represented 17% of net sales.

Net sales for the six months ended June 30, 2011 decreased 3% approximately $6 million compared with approximately $6.2 million in net sales during the same period of 2010. Domestic sales for the six-month period decreased 3% from the same period in 2010 to approximately $3.4 million and represented 56% of total net sales. International sales for the six-month period decreased 3% from the same period in 2010 to approximately $2.6 million and represented 44% of total net sales.

Our loose gemstone sales during the six-month period were down 7% from the same period in 2010 to approximately $5 million and represented 84% of total net sales and our finished jewelry sales during the six-month period were 18% from the same period in 2010 to approximately $932,000 and represented 16% of net sales.

As reported in our press release, we had a one-time $889,000 sale to an international customer in the second quarter of 2010 that did not recur in the second quarter of 2011 and we had a $337,000 sale of closeout finished jewelry to a domestic customer in the second quarter of 2010 that did not recur in the second quarter of 2011. Excluding the effect of these two significant sales transactions, all other sales increased by 42% and 20% during the three and six months ended June 30, 2011 respectively, over the corresponding periods of the previous year. All other domestic sales increased by 33% and 7% during the three and six months ended June 30, 2011 respectively, with the improvement primarily due to sales growth quarter over quarter among much of our US customer base, especially our televised Home Shopping Network retailers that are experiencing a high level of success with moissanite gemstones and finished jewelry. All other international sales increased by 74% and 44% during the three and six months ended June 30, 2011 respectively, with the improved improvement primarily due to sales growth quarter over quarter among much of our international customer base, especially in the countries of India and the United Kingdom.

All other loose gemstones sales increased by 35% and 12% during the three and six months ended June 30, 2011 respectively. And all other finished jewelry sales increased by 91% and 107% during the three and six months ended June 30, 2011, respectively over the corresponding periods of the previous year. The message we wish to convey with these statistics is that recurring loose gemstone and finished jewelry sales to our ongoing customer base are growing as we execute our strategies to expand our sales channels and build consumer awareness of moissanite in the marketplace.

Three and six months ended June 30, 2011 comparable sales increased 11% and 10% respectively when compared with the same periods of the previous year, primarily as a result of a general growth in sales across our existing customer base as we expand moissanite's reach and messaging in the marketplace. We define comparable sales as active customers with which we generate revenue during both periods on which we're reporting and we use this as a metric to measure sales growth within our existing customer base.

We recorded a net loss of $103,000 or $0.01 per share during the quarter compared with net income of $336,000 or $0.02 per diluted share during the second quarter of 2010. Included in the second quarter's net loss was a disposal of assets of $94,000, representing manufacturing software modifications to our current ERP system that were abandoned in favor of improved jewelry-specific manufacturing software that we are implementing. We recorded a net loss of $340,000 or $0.02 per share for the first half of 2011 compared with net income of $635,000 or $0.03 per diluted share for the corresponding period of 2010. These net losses were primarily due to lower sales, higher manufacturing overhead and operating expenses involving new business initiatives to support future revenue streams.

Operating expenses totaled approximately $1.7 million in the quarter compared with approximately $1.6 million for the same period 2010, an increase of $111,000 or 7%. Operating expenses totaled approximately $3.6 million in the first half of 2011 compared with approximately $3.3 million for the same period of 2010, an increase of $337,000 or 10%.

We ended the quarter with a higher level of cash and liquid long-term investments on our balance sheet relative to the end of 2010. Cash and liquid long-term investments totaled $9.6 million at June 30, 2011, up from $8.8 million at December 31, 2010. During the first half of 2011, $2.3 million in bonds were called by the issuers which we reinvested in non-callable similar liquid long-term investments. We generated approximately $895,000 and $1.4 million in cash from operations during the three and six months ended June 30, 2011 respectively.

Total inventory, which includes long-term and consignment inventory, approximated $36.1 million at the end of the second quarter, down from $37.4 million at the end of 2010. This decrease was primarily the result of sales offset in part by purchases of jewelry castings, signings and other jewelry components along with limited production of moissanite gemstones. I'd like to now turn the call back to Randy.

This concludes our formal remarks this morning. Now we would like to open the call up to any questions that participants in the call may have. Operator, can you please open the floor for the Q&A session?

(Operator Instructions). Neal Goldman, Goldman Capital Management.

Good morning guys. On that long-term inventory, I assume all that's going to go into these jewelry shows on television, JTV, or are they mainly geared for the retail market?

The majority of our long-term inventory is finished loose gemstones, and those will be used in multiple sales channels. They are being sold to the televised networks? They'll also be mounted in our own jewelry that we will be selling to retailers and the wholesale distributors.

It's really not -- Neal, it's not separated by quality or anything else, it's just a (multiple speakers)

It's an accounting allocation basically.

So the short-term really reflects potentially a year's worth (multiple speakers) --

That's right.

A year's worth of sales, in dollars.

What would represent a year's worth of sales?

Our short-term -- every quarter (multiple speakers)

The short-term stuff.

That's right.

To majorly move the long-term inventory are convert it into cash would be dependent on what the success of the home party plan, or all the different venues?

All of the venues. All of the venues that we are pursuing will utilize our on-hand inventory. However, during the course of our sales growth initiative, we will be investing in gold and labor that we do not currently own. So as we are -- so the short-term portion of inventory does not include those purchases that have not been made yet and will be sold in the same period.

Okay, all right. And obviously it's going to be a function of how successful you are. If you had to sit here today, gut feel you could move that long-term inventory over what time frame?

That's a good question, Neal, but I don't feel comfortable answering that one. I feel very good that all of that inventory is usable. I've looked at every stone in this building, and I have no issues with using that inventory as we increase sales with all these various initiatives.

Okay, thank you.

George Whiteside, SWS Financial Services.

Good morning. As a bit of a follow-up to that inventory question, but not directly, your answer dealt with the various channels and your expansion in direct-to-consumer channel, Internet, home parties etc. How are you going to be deal with the relationship in doing that with your retail and wholesale customers that you serve currently?

That's a great question. Our largest sales volume comes from three distributors -- Stellar, Unique and Quality Gold -- and we have included all three of those in our e-commerce initiatives. They will be handling the lion's share of the fulfillment of the product, so they are actually partners in these expanded sales initiatives.

Obviously you've thought this through very well, and that's a perfect solution. Another question sort of in terms of channels -- Jewelry TV and other TV programs that you participate in. Can you give us any color on revenue that you're generating on a per-episode basis, or other metrics?

The one that we are sharing, they rate it by the hour. JTV just concluded their first two-hour segment, concurrent two hours, that I'm aware of. Typically they run one-hour, and then later in the day or the next day they'll run a second hour so that we maximize the benefit of having someone fly in to host the show. But it's not uncommon for these shows to generate in sales, their sales, in excess of $100,000 an hour. I'm told by the shopping -- NBC folks and the JTV folks, that's at the upper tier of what they normally generate. They must be happy with it, because they are increasing their shows substantially, the number of hours they are allocating to our shows for the third and fourth quarter.

Well, that's certainly solid proof of the fact that that channel is working.

Yes, I think and also a solid proof, George, that when consumers have access to moissanite, they love it, and even more reason that we have to focus and execute on the e-commerce site and the home parties because that gives us the ability to get this out to the consumer. And as a result I'm convinced, absolutely convinced that it creates more market share awareness with consumers. As a result they're going to look for the product more on other websites, and brick-and-mortar stores, and everybody is going to benefit. I really believe that.

In other words, there will be a bleed-over effect in terms of some of these shows, and into other channels.

Absolutely.

Great, I'll get back into queue.

[Paul Johnson], Private Investor.

Good morning. I have a few questions. The first one relates to the share buyback. Can you give us the details on the size of the last one, and how many shares you bought and what the average price paid was?

The previous purchases were approximately 41,000 shares, and it was an average of about $1.21 a share. That was back in December of 2009.

Okay, so the price is certainly great, but 41,000 shares is not really meaningful.

Well, certainly we had -- our Board authorized a share repurchase program to make strategic buys when we felt that it was appropriate. And at that point in time, back in December of 2009, that's what we felt was appropriate. Now we are free to purchase up to -- repurchase up to 1 million shares in total, so we still have that tool available to us.

Well, right, and wouldn't you feel like it's appropriate now? The stock has been basically cut in half since March, when it reached about $4, and the book value is about $2.5. Why would you guys -- let's not mess around with 40,000 -- why don't you guys step out and buy 1 million shares? I don't understand this?

Paul, we are in a blackout period. The blackout profit period lifts 48 hours --

After today's call.

-- after today's call, and I would just say wait and see.

I understand that, Randy, but you've even said in the past on conference calls that the minute your blackout ends you're going to go out and buy like crazy, and you buy like $10,000 worth. I just don't understand if you're trading at less than both, and you've got $9 million in cash, why -- and you still had money available on your last buyback, I thought you were saying.

Paul, we are not going to discuss that. Those are discussions that happen at the Board level, and we're just not going to discuss that. You have any other questions?

I do. Have you had conversations with Stuart Peterson of Artis?

I don't know Stuart Peterson. I've made several reach outs to artists, but (multiple speakers)

No, A-R-T-I-S Capital Management. You should know about him, Randy, he owns 13% of the Company.

I know about him, Paul, I just -- listen to what I am saying. Artis Capital Management started buying into the Company. I reached out to him as I do all of the major investors of this Company, several phone calls, but I have not gotten past the front desk of Artis. I'm very -- I've done all the Google research that you have done, I am not an unintelligent person. And -- trust me, if the guy wants to talk to me, I will certainly be there to talk to him. I am appreciative that they're buying and they are still buying, and I think that's very good.

I appreciate that. I think -- I think one of the frustrations, and I've been in this stock for over four years, and I haven't called, so it's not like I'm a squeaky wheel here. I think part of the frustration here, Randy, is that everything seems to be in small measures. Your -- buying back 40,000 shares is a joke. It trades more than that by a factor of five every day sometimes, and so that's not meaningful. The revenue increase -- I'm thrilled to see it's 42% more if you exclude those sales from -- those one-time sales from 2010. But we are still talking about a $900,000 increase. As you've noted many times, this is a billion-dollar market. It's just really hard to watch the small measures.

And, Paul, I understand your frustration, and I share it, and I've been in this stock as long as you have. I would be much more frustrated just as you are. I can assure you that when we came into the Company we looked at what's it going to take to put this Company on the right track. No different than stepping into an old building, we had to tear it down, rebuild it, and now we are ready to start doing some business, some serious business. And there is no stone being left unturned. There is nothing you can think of that we aren't touching or pursuing in some way or fashion, and we are experiencing some results. It just takes time. Time to do it right.

What we're building is a strong, sustainable business going forward. I don't do quick fixes. Quick fixes don't last. Building a strong foundation and partnering with strong business partners that can provide recurring sales on an annual basis, and it was later in the year that we had made the decision to go consumer direct. I think is going to be one of the smartest decisions we've made.

I think once we get into the results of it, and again, it takes time to get the ball rolling, but once we get into results of it, I think you as well as a lot of old-time shareholders are going to be much more pleased with the direction the Company is headed. And what you'll see happen, we've all seen it, especially those of us who have been around the retail industry for four decades, that once consumers start buying it, direct from the company or whatever, here comes all the retailers now wanting to have it in their shop. Pandora is a great example of this. And now every retailer on the face of the earth is clamoring to get Pandora in their stores. And it's become a billion-dollar business.

John Gay, The Quiet Investor.

Tim, I was wondering what the current status of your tax loss carry-forward is.

The current status of the tax carry-forward?

Yes.

I mean -- I'm not sure I understand the question. But it's not in jeopardy, it secure --

No, no, no, I just wondered how big it was.

There's no change from Q1. It's approximately $1 million of federal tax credits, and -- state NOL carry-forwards, tens of millions.

Okay. Thank you.

Mark Wright, individual investor.

Good morning guys. If I'm hearing this right, the moissanite.com e-commerce site should be up by the end of September?

That's our plan. It will be rolled out today back to the beta group, which consists of 50 or more. And I am hopeful that they can get through it and give us constructive responses within four or five days. And then we've got a rollout sequence, we have a large queue of consumers of moissanite over the years, so we're going to do a controlled rollout to them. Because what want to do is -- once we know the site is working properly, and we've tested it, believe me we've tested this one -- and we feel comfortable with the selection that we are increasing daily, then we want to roll it out and expand the bandwidth, and make sure that it can handle the volume. So the volume will exponentially increase on a weekly basis, and I would say from the time we start, obviously that we don't hit any major glitches, a four- or five-week rollout should put us worldwide.

Okay, I know you had a beta going a few months ago, so you're confident it will be up by the end of September?

I'm confident knowing what I know today, I am personally confident. I absolutely believe we will be.

All right. Can you tell me, do you know what percent of your sales are being done via the home shop channels?

That's a good question. The home shop channels have -- they have increased their hours so dramatically that I would have to forecast, and that would be more of a speculative -- in the past they have ran some shows, they have probably been a smaller percentage, a much smaller percentage than what they will be going forward. I don't have that number at the tip of my fingers. But to the extent that we can put it in the next quarter, we'll consider that and see what we can do there. But I think this next quarter is really going to be more reflective of how important they are to Charles & Colvard. It's a good question.

I think it would be good for you, because it does show other retailers proof of the sales to the consumer because I suspect the home shop channels aren't keeping a large inventory.

They do their fulfillment. We do fulfillment for ShopNBC.

But they're already ahead of the shows (multiple speakers)

Yes, they (multiple speakers) of the shows.

We do it for half, and then they (inaudible).

Good question.

One additional question if I may. Can you share with us the new customers that you have in 2011? You had mentioned earlier that you added on some new customers in late 2010 and 2011. Can you share that with us and are any of them international customers?

We generally don't talk about individual customers in such a format, so no.

There is some international also.

Okay, well, nice to hear there is some international. My last question, do you know -- when do you need to buy more material from Cree? Is there any commitment there?

We don't have a need (multiple speakers)

Is there any contractual agreement that you need to buy more at any certain time?

Our contractual agreement was revised after I got here. We cleared up some issues with them, and the contractual agreement is a very friendly agreement on both sides. I can tell you our focus is, we still have probably 7 million of raw materials -- 6 million, 7 million of raw materials. We are using some of that because we ran out of a few sizes and we -- so we're cutting some new stones.

But where I'm focused with Cree, what I want to see happen, and I really believe it's doable, and we've got engineers on our side working on it, engineers on their side, is to attempt to improve the color of the material. What I don't want to do is get into this artificial enhancement, because I've experienced that in my years in the business. And I know what it does the surface of the stone in making it brittle and subjected to chipping when you set the stone. And I just don't want to subject the consumer to that.

Okay, I think I just heard you say is that you guys are doing some research into getting some colorized moissanite.

Absolutely.

Okay, I think that would be great. I'll get back into queue now, thank you.

(Operator Instructions). George Whiteside, SWS Financial Services.

I want to congratulate you on the fact that you have been accumulating cash, particularly because of the economic environment, but also because that gives you the flexibility to take advantage of opportunities, be they acquisitions or whatever, line extensions etc.

In regard to share buybacks, I can certainly understand doing that in order to cover options and other -- items that might increase your outstanding shares. But hopefully the Company is going -- and I presume that your attitude is, the Company is going to grow, and if that growth takes place at the scale that you have anticipated, you're going to need more working capital. And so in this environment it seems to me very prudent that you've been cautious in terms of your share buybacks. Any comments?

George, I'll just say for my end, obviously you've been a businessman and understand the value of cash flow. Without it, you're dead. We constantly look at not only our business to date, but the forecast. Forecasting cash flow is so important. And one thing you can rest assured from me, I'm always going to make sure I have plenty of cash in order to execute all of our business initiatives, and anticipate that there's always going to be issues that earn a little cash that you don't expect. It's just the nature of the beast.

But at the same time, we are cognizant of the fact that our shares are way below, in my opinion, what the real value is. And if we see the opportunity that we have some cash available, we would certainly take advantage of it, anticipating that there would be a much healthier market down the road.

Well, that's certainly reasonable. Your early comments on the challenge of the patent. It's certainly appears that you're going to be able to handle that situation. And even though you don't know what the allegations are, that will become apparent once the filing is completed by the plaintiff. And it would appear that under those circumstances you will have enough information to be able to defend the patent. Is that your approach?

Yes, that's exactly the way we feel. I couldn't sum it up any better.

Thank you.

Rodney Baber, Morgan Keegan.

Good morning. When you back out the finished goods, nonrecurring number from last year, it appears that you doubled your finished goods sales from about $273,000 to $521,000, which is part of what your strategy has been to grow that business. And then the other revenue is loose stone sales, so it appears that you're about 20% finished goods to 80% loose stones. Where do think that number is going to go over time? If we fast forward a couple years, what kind of finished goods sales do you think we'll have. And what's -- just remind us of what the improvement in gross profit dollars is when you sell the entire product as opposed to just selling the loose stones? And then I've got one other question for you.

I'm going to try to give you some answers but I can't give you forward-looking statements. So bear with me on this one.

Obviously, I believe that the finished goods sales will become a huge component of our future revenue. Obviously finished goods are going to be the primary items sold on the website. Finished goods will be the primary items sold in our home parties, and both of those are going to become a significant part of our future sales. So that's just a result of the initiatives that we've put in place.

I think bringing Judy Evans onboard is phenomenal. And with the styling that she is presenting and bringing her to the public, inasmuch as she's been behind most of -- I shouldn't say most, but a lot of the very successful brands that are out there, and we will leverage all of that in our marketing activity when it's appropriate, is going to increase finished goods potentially for distributors too, because we -- certain collections in her brands will make available through Tom's efforts.

So finished goods are going to become much more significant as -- in my opinion as we grow this revenue base.

So if I remember correctly, a $200 sale on loose stones is like a $1000 sale in finished goods when you sell the -- all the way up and down the food chain. So that -- gross dollars on that would be several times what you had with loose stones. So I'm looking forward to that taking in overtime.

Good.

Second thing, obviously are over in this is going to go up a lot. I remember when you first got into home shopping years ago well before you were with the Company, that did definitely help our awareness. I remember we used to have some awareness figures, but we still -- it seems to me have a lot of work to do there. So I was really curious about a couple things. One is, what you think the awareness of moissanite really is now? And secondly, outside of the new strategies, which you're going to obviously generate new awareness and that kind of thing, what are the other things, and how much money will you try to spend to actually take the awareness up significantly, where it's not 2% or 3%, but it could really be 10% or 20% or something and greatly enlarge the potential market for us? I'd love to hear an update on that.

Let me take a stab at it. The data that was performed for the Company, which was also market share awareness data, was performed in late '08, early '09, the last piece and before I got here. That put it somewhere between 5% and less than 10% -- higher than 5% but less than 10% in the awareness factor. And I think the way they quantified that, the more I read into the detail, was not that they had just heard of moissanite but they really understood what it was, which I think is the appropriate way to identify it.

In the past, the Company did utilize the home shopping networks to reach consumers and increase consumer awareness. There were some efforts that didn't seem to produce much awareness at all, whether it was a billboard somewhere or different magazines or whatever. The trade magazines were very good for the awareness in the B2B world. The trade magazines had a large readership, and to the extent you can leverage the editors to get some articles written about the company along with the ad in the course of the magazine, increased it exponentially. And we feel we'll be able to do that.

But the piece that really wasn't available to the Company and hasn't been leveraged that I think can really move the needle is what we'll have the ability to do on the web. The web is just unbelievably successful in creating consumer awareness. There is -- it would take us the rest of the day to go through all the different initiatives that can be utilized. We have spent untold hours with various marketing gurus, and not just in the jewelry industry but throughout various industries, and continue to talk to others and bringing Craig onboard, who has years and years of experience in the arena, we feel pretty comfortable that we are going to be able to put together a very, very strong campaign, and most of our dollars probably will be focused in the web. Steve Larkin also coming on board brings a wealth of knowledge in that same arena.

So what happens is we are able to fast-forward past all that learning curve, where you go and stub your toe and bruise your knees trying to get a successful path. We're going to leverage these guys who have been there and done that, and we know we can trust and count on them to bring us into the right arena.

All right. Thank you.

Mark Wright, individual investor.

A couple more questions for you. The moissanite.com e-commerce site, I would assume I just wanted to verify that people internationally, Europe, Asia, will be ordered to able from that. You guys would ship internationally and take care of the currency translation?

Not initially. That requires a little more setup that -- again, Steve Larkin being on our board, he already has solutions for that in place because they do international business. And we have -- that's one on our tick list. We're probably a few months out from being there, but anticipate getting there as soon as possible.

So it is September for USA initially, maybe by the end of the year international?

We want to be there for Christmas. I can tell you that e-commerce team, they are so focused on getting the images like as good as they can possibly be. We've made a huge investment in cameras and various things here and are utilizing talent to help us get there. But I would like to see it push higher up on the list. I just know we are going to be there before the Christmas season. That's how I'm going to push it.

All right. Any tests that you can communicate with us going on with any retailers, or any upcoming tests that you know of that would be going on with retailers you can communicate to us?

No, and I can tell you the reason would be most retailers that engage into a test with us, they make us sign a CDA that they just don't want to -- it's just their thing. They don't want to send out a press release or anything like that.

Sure, I can understand that. But no tests that are ongoing currently then. You don't need a name or -- if you have any tests ongoing, you could say yes or no.

We always have tests, yes. Absolutely. That will always be in place.

One final question. The agreement, the manufacturing distribution agreement in April of last year with Frederick Goldman, can you give any examples of some positives that have come out of that?

Ask me that question again, sorry?

Last April there was a manufacturing and distribution agreement with Frederick Goldman for [getting them] into national retailers. Just wondering if you could give us anything that has come from that agreement.

We meet with Jonathan -- I hate to use regularly, but we have discussions. We met with him in Vegas in June at the Jewelers Circular Keystone show. The JCK show is the largest show in the US. And Jonathan -- first off, Jonathan is as you know one of the largest manufacturers in the business. Jonathan has expressed to Tom and I that he really believes in moissanite, he likes the stone, and he sees a real opportunity for it. It's just a matter of cutting through some of the past history with some of the larger retailers that he does a regular business with. And he continues to pursue that.

Okay, thank you.

March, this is Tim. Just to correct something that was said earlier about the colorized gemstones. You had asked -- we are working with Cree to continue R&D efforts to improve the color of the stones, but not necessarily an absolute that we're going to develop colorized stones, just to make that clear.

Okay. What I was getting from that was, you guys were looking into just doing some research on actually generating some colorized moissanite.

No; make a whiter stone.

Okay, thank you for that clarification.

This concludes our question-and-answer session. I would like to turn the conference back over to Randy McCullough for any closing remarks.

Once again, I'd like to thank everyone for taking the time to participate in the call this morning. I hope that you share our enthusiasm for the balance of 2011 and future years. And we look forward to talking to you again in the next quarter. Thanks everyone.

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