Suzanne Miglucci – President and Chief Executive Officer Clint Pete – Chief Financial Officer.

Colin Noble – Private Investor Preston Foulks – Lincoln Financial Advisors Bill Chain – Private Investor.

Good afternoon and welcome to the Charles & Colvard Second Quarter Earnings Conference Call. All participants will be in listen-only mode.

[Operator Instructions] This webcast may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made.

These forward-looking statements are based largely on our company's expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond our control.

Future developments and actual results could differ materially from those set forth in contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate.

This webcast does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the company's stockholders. Please note this event is being recorded. I would now like to turn the conference over to Suzanne Miglucci, President and CEO..

Thank you, Garry. Good afternoon and thank you for joining us as we summarize Charles & Colvard's 2017 second quarter and first half results. For today's agenda, I'll first discuss recent strategic developments on our leadership team designed to bolster our industry and operational strengths.

Then I'll highlight Q2 and first half of 2017 outcome from the ongoing execution of our strategic plan. I'll turn the call over to Clint Pete, Chief Financial Officer for a detailed financial review and then I'll wrap up with our discussion with our ongoing go-to-market initiative.

I'm pleased to begin today's discussion highlighting the recent appointment of Benedetta Casamento to Charles & Colvard's Board of Directors. The addition of Benedetta to our board bolsters our retail industry, brand marketing and financial expertise.

Benedetta is a renowned retail, fashion and jewelry expert having served as Executive Vice President of Finance and Operations at Talbots at an executive roles with Liz Claiborne, Saks Fifth Avenue and Ellen Tracy and Dana Buchman bands.

As president of Liz Claiborne and Claiborne & Monet brands, Benedetta was responsible for all aspects of worldwide brand management and implemented several key turnaround strategies including organizational restructuring and cost reduction program to strengthen and revitalize the business.

This is an excellent time for Benedetta to join Charles & Colvard as we live into our new branding and focus our global sales and marketing efforts. Also given her significant financial experience, Benedetta serves on our audit committee.

In addition to bolstering our board with industry expertise, we also strengthened our C-Suite with two recent promotion. First, Don O'Connell was promoted to Chief Operating Officer and Senior Vice President of Supply Chain.

Don is a highly accomplished jewelry manufacturing supply chain and distribution executive with over 25 years of jewelry industry expertise with organizations such as Berkshire Hathaway of Richline Group.

During his tenure at Charles & Colvard, Don has positively impacted the organization supply chain efficiencies by reducing redundancies and optimizing vendor relationships. We have leveraged Don's global operational experience as we expand Charles & Colvard's international footprint. Clint Pete was promoted to Chief Financial Officer.

Since joining Charles & Colvard in June of 2015 as Corporate Controller, Clint has mastered progressively expanding responsibilities while positively impacting Charles & Colvard's financial management.

Clint stepped into the interim CFO role in December 2016 and has seamlessly taken on full responsibility for the company's financial operation as Chief Financial Officer. Both Don and Clint have been deeply involved in Charles & Colvard's transformation over the past year and pivotal to the progress we've made, both operationally and fiscally.

We believe their proven capabilities, experience and knowledge will provide us with invaluable leadership and continuity as we continue to grow the business. Now let's turn to Q2 and first half of 2017 highlights.

Throughout the first half of this year, we have seen positive momentum as the outcomes of our strategic plan and rebranding efforts continue to take hold. We remain highly focused on our direct-to-consumer touch points, aiming to ensure that our branded products are readily available to the consumer everywhere they're searching and shopping.

One of the ways for measuring the outcomes of these efforts is the performance of our online channel segment.

At Charles & Colvard, our online channels are comprised of e-commerce outlets including charlesandcolvard.com, marketplaces such Amazon and eBay, drop-ship customers such as Overstock.com, and other pure play exclusively e-commerce customers such as Gemvara. Net sales in our online channels grew 10% in Q2 compared to the same period last year.

One of our fastest growing areas in online channel is marketplaces. In the year-ago second quarter, we had a minimal presence on marketplaces. Today, we're on multiple platforms with Amazon being our lead performing marketplace channel.

We're learning how to take full advantage of this important sales outlet and it will continue to be a primary focus of our online channels team. As we've been articulating since we began this pivot in 2016, online channels are a critical success factor in Charles & Colvard's future.

As you are evaluating and modeling our progress, steady the growth in performance of this segment, as we believe it should be a leading indicator of our successful pivot and market stronghold. One of the core tenets of our strategic plan is further growth for everyone. Our premium product in the world first colorless moissanite gemstone.

I'm pleased to report that we continue to see significant market acceptance of this outstanding product. Forever One gemstones represented 86% of our overall finished jewelry and loose gemstone net sales in Q2 and for the first half of 2017.

For comparative purposes, Forever One represented just 27% of finished jewelry and loose gemstone net sales in the first half of 2016. Innovation is a cornerstone of our business practice and with Forever One as our playground, I can tell you it's one of the most rewarding aspects of what we do at Charles & Colvard.

In Q2, we brought forward two new gemstone shapes, Princess and Baguette that expand our innovative Forever One portfolio of gemstones to 11 cut in a multitude of sizes, which gives our customers a breadth of offering to choose from.

As we have noted for time and again, gemstones alone are an insufficient product line if we expect to fully engage a consumer. For that reason, we are continually evolving our jewelry line with the intention of delivering fashion, bridal and fine jewelry options that appeal to a wide range of consumers.

In June, we gave you many of our new style and JCK, North America's largest annual jewelry trade events. This was our 17th year at the event and we hosted the presence beyond any prior year, in addition to introducing new jewelry options to our customers to prime the pump for holiday offerings. We also had a little bit of fun.

We featured six exotic cuts of Forever One gemstones set in spectacular jewelry such as a cocktail ring featuring in a 11 by 17 radiant cut center with side-stones that tops the scale at over 18 total carats. And this ring with retail at nearly a $0.5 million incomparable diamond, while our moissanite option would be under $20,000.

We exhibited these exotics in order to inspire the market with what's possible in moissanite, remarkable options that would otherwise be unattainable in any other gemstones. This wow factor garnered a significant interest from various media outlets and we have editorial opportunities lining up, thanks to this year's phenomenal presence.

Our traditional retail presence continues to experience growth through our partnership with Helzberg Diamond. You may recall our Q3 2016 announcement of a brick and mortar pilot program with Helzberg in which Charles & Colvard's Forever One moissanite was introduced to 26 stores.

In Q4 2016, we announced the doubling our presence by the height of the holiday season. And in Q1 2017, we discussed our expanded presence to 100 total Helzberg Diamond stores in time for Mother's Day. We successfully delivered on all fronts and are reaping the rewards at this program with expanded sales through the significant partner.

It's still very early days for overall market awareness of moissanite. And we're thrilled to send prospective customers to Helzberg stores to experience first hand the fire and brilliance our gemstone. Another key traditional channel for Charles & Colvard is television. We believe it's the perfect medium to demonstrate the beauty of our gemstone.

In Q2, we announced a joint initiative with EVINE to elevate the quality and style forever moissanite jewelry on this television shopping network. Forever moissanite is Evine's curated collection of Charles & Colvard created moissanite.

And I personally debuted this unique assortment of jewelry on air, June 13 and again for a four year anniversary show on July 23. We continue to work closely with Evine to promote from one jewelry into over 87 million homes. And I look forward to future shows throughout the second half of the year.

Our digital marketing and public relations efforts continue with a focus on both awareness and customer engagement. We are seeing continued growth in our reach with double-digit percentage growth in social channel polymers in Q2 over just last quarter, thanks to these efforts.

We also called web traffic from social channels to charlesandcolvard.com increase 75% over the last quarter. This is in line with our continued effort to convert our audience from awareness to engagement and ultimately purchase. And I'm pleased to announce that in Q2, we've launched our presence on Snapchat.

This mobile application is all about photographs and videos. So we believe it's a great medium for consumers to see the fire and brilliance of our moissanite product. Visit our website, charlesandcolvard.com, scroll to the bottom of any page and click on the Snapchat icon in the lower-right corner to join us on Snapchat.

In Q2 we enjoy coverage in People Style, dailymail.com and other media outlets. Be sure to visit our ads seen in page on charlesandcolvard.com to view all of our coverage. And finally, on the awareness front, we gained meaningful exposure in the gemstone world in Q2 with the American Gem Society or AGS, recognizing moissanite at a unique gemstones.

We worked closely with AGS in the month of June to collaboratively educate the market about our gemstones. According to Katherine Bodoh, CEO of the American Gem Society and AGS laboratories, their goal is to be a resource for consumers on gemstones. And they believe information on moissanite plays an important role in that mix.

We're pleased to have AGS as a partner, and as an independent validator in our unique gemstone. In summary, we're making calculated investments and strong strides as we execute on our strategic plan.

Awareness of our brand continues to grow and Forever One is performing as the world's most brilliant gem, leading the chart with 86% of our overall net sales. We have an exceptional leadership team at the helm and new insights on our board of directors to help us navigate what we believe is a very bright future.

We're forging ahead with a strong balance sheet, meaningful margin and a steady cash position all while remaining debt free. To provide further detail behind these numbers, I'd like to turn the call over to Clint Pete, our Chief Financial Officer. Then I'll return to close out the call with the discussion of our ongoing strategic initiative.

Clint?.

supplemental, summary, financial information by reportable segment recast for each quarter, cumulative six and nine month periods and for the full year 2016. This allows investors to view historical information based on our new reporting framework. Now let's review our product line results.

The company's net sales of loose jewels of $4.7 million for the quarter, a decrease of 4% compared with $5 million for the year-ago second quarter, due to lower international sales. Finished jewelry net sales were $1.9 million for the quarter, a 21% increase compared with $1.6 million in the year-ago second quarter.

As we leveraged our omni-channel strategy to drive sales through multiple channels including our expanded presence in 100 Helzberg Diamonds stores. Gross margins in the second quarter 2017 was 42% up from 40% in the second quarter 2016.

This improvement was primarily due to the higher margin Forever One sales in the quarter and from operational efficiencies we have implemented. Operating expenses for the second quarter 2017 was $3.2 million, down 11% compared with $3.6 million in the year-ago quarter.

Sales and marketing expenses for the second quarter 2017 were $1.9 million, which is relatively flat to the second quarter of 2016. G&A expenses for the second quarter 2017 decreased by approximately $270,000 primarily due to a decrease in Executive salaries and related benefits.

During the second quarter of 2017, G&A expenses included annual bank fees of $150,000 attributable to our credit facility. Net loss of continuing operations for the second quarter of 2017 was approximately $403,000 or $0.02 per share, compared with the net loss of $983,000 or $0.05 per share in the year ago quarter.

The company ended the second quarter, 2017 with $6.3 million of cash and cash equivalents on the balance sheet, compared to $7.4 million at the end of 2016. The company anticipates, continuing to invest some of this cash in marketing, branding and engagement efforts during the upcoming quarters.

Inventory at the end of the second quarter of 2017 was $29.2 million, a slight increase of approximately $1.1 million from $28.1 million at the end of 2016. The second quarter 2017 inventory level was up as we expanded our rollout in the Helzberg and continued to add elevated finished jewelry to charlesandcolvard.com.

At the end of the second quarter of 2017, loose jewels inventory was $22.6 million, flat from the year-end 2016 and finished jewelry was at $6.6 million up from $5.5 million at the end of 2016. The company has no long-term debt and has not utilized a $10 million credit facility we entered into with Wells at the end of June 2014.

As of June 22, 2017 we extended the maturity of this credit facility to June 2018 providing for bonding continued access to funds if needed. In summary, at the halfway point in 2017, we have made a significant progress in executing our strategic plan for the year and has seen positive financial results from our actions.

Our sales generation efforts, in particularly in the online channel segments are supported by prudent financial management, which has led to the continued improvement in our bottom line.

You will note our net loss from continuing operations for the second quarter of 2017 was the lowest net loss from continuing operations over the trailing eight quarters. I'd now like to turn back the call over to Suzanne..

Thank you, Clint. With the first half of 2017 behind us, it's time for us to ramp up for the coming holiday season. That means preparing jewelry selection, filling our distributor partners shelves with Forever One gemstones and buttoning up our entire supply chain, so we're ready to perform at peak capacity this coming season.

Let's review our five key strategies for 2017 and that's been the strategic initiatives we're working on in the second half of the year. Number one, expand our jewelry line and continue to innovate our Forever One gemstone products. The holiday season is an important time to be on our A-game.

We're focused on delivering a robust collection of jewelry and gemstones that will delight the consumer with refreshed selections throughout the holiday season. And our marketing engine is ready to expand our reach and engage the consumer with timely and compelling promotional campaign.

Our second strategy is to intensify our omni-channel sales effort. We are constantly expanding our assortment on existing channels and working to secure new partners, so we can be everywhere the consumer is when they're exploring jewelry option. Number three, expand our e-commerce initiative to new channels.

We believe the second half of 2017 represents a likely time to explore new international channels. And we believe that e-commerce channels and specifically marketplaces are the most cost effective and agile way to introduce our presence in new geographies.

We are currently evaluating the best opportunities for revenue impact and the most attractive geographical targets. Number four, evolve our customer service function. Our net promoter scores are on a high end for our peer group, but there is always room for improvement.

We're continually improving our customer service function with the intention of delivering world-class service to our wholesale partners and direct consumers. And finally, number five, amplify our global marketing efforts.

As we consider expansion into new territories, leading with messaging that properly introduces our brand and our moissanite gemstones into these new geographies will be important.

We're taking our learnings from the past two quarters as we rolled out our new brand and researching how it should be modified to localize it for different audiences around the globe.

And we're constantly striving to further our reach on social media through public relations efforts on advertising platform essentially on every front we can to get our message heard. To support all of these strategic initiatives, the executive team is constantly evaluating the people, processes and technology needed to optimize our business.

I served over 20 years in the technology industry and I witnessed first hand how the right technology executed in the right way can create a compelling competitive advantage, whether it's e-commerce, ERP or cyber security, we are continually innovating our systems and processes to optimize our supply chain, shorten delivery times, improve the customer experience and save time and money.

Lastly, we're focused on our continued advancement towards profitability. As you heard from Clint, we made meaningful strides in that direction in the first half of 2017 and it's top of mind in everyone of our investment decisions. We believe we're making carefully calculated and judicious investment with an eye towards growth and profitability.

This concludes our formal remarks for this afternoon. And we'll now open the call to answer a few participant questions. Garry, would you please open the lines for Q&A session..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Colin Noble, a Private Investor. Please go ahead..

How do you feel about a shift away from solitaire and cater toward $4,000 plus buyers that might want to have – make custom jewelry that involves multiple moissanite gems?.

Colin, thanks for calling and I appreciate it. I will say that solitaires will always be a staple in our jewelry selections. They are some of our best sellers, especially in the round shape and they aren't going away anytime soon.

So they will be here to stay, that said going to large $4000 pieces with multiple stones, that's absolutely something that we also sell.

And we're finding that there is a customer for the Solitaire and there's a customer for the very complex and larger piece, and we are here to bring a breadth of jewelry to ensure that we have something that appeals to every audience. We're continually expanding our product selection and that in turn helps us with our reach out to the audience.

And we have a merchandising team that really measures carefully how each and everyone of those pieces are performing, so that we can iterate the product mix. Hopefully, that make sense..

I’m not able to respond..

Sure, you may go ahead..

I'd say that, I had a customed jeweler, I'm just looking putting together a piece of nine of your gems with the total carat weigh of 7, and it looks absolutely fabulous.

I think it's in a realm or a product of its own right, when you compare to simple solitaire type rings and so I think that's really something that should be explored from a marketing standpoint that I think you really miss in the bode on..

Yes, well, we certainly appreciate the endorsement calling and we are absolutely exploring big and bold, is what we call it, large center stones with large and many side stones, so watch in the coming holiday season.

I think you might be delighted with some of the new styles that we put up on charlesandcolvard.com and perhaps that will inspire some of our independent jeweler customers as well with some new ideas. I will say, however, we continue to be very interested in and focused on a millennial audience as well.

So I would say that big and bold really caters nicely to a sort of a self-purchasing women, someone that may be as independently wealthy and has lots of dollars to spend, but the millennial audiences have very large demographic and they're challenged with their pocket book because they are fraught with student debt and other things that cause them to watch the size of your purchases.

And so being able to still bring forward those very simple, but beautiful solitaires set in a lovely goal setting is attracted to that audience as well. So I think the watchword here is variety in the assortment that we bring to market..

[Operator Instructions] We have a follow-up question from Colin Noble, a Private Investor. Please go ahead..

So again I would reiterate that – I think that best use of and see gems would be using multiple stones, you can create a piece that is out of this world for a fraction of the cost using diamonds, millennials that are concerned about eco-friendly and conflict free gems should embrace this and I really think the even though solitaire might make up a large portion of traditional purchases, the focus in my opinion, should be on setting yourself apart from that purchase option, because you can always downgrade a solitaire by color or clarity and producer doesn't really understand the impact of the degration, and I think it would be a smart move to move away from that and to set yourself apart by exemplifying or exaggerating the brilliance that could be achieved through multiple gems and a piece?.

You know what Colin I agree and we're going to put you on the salesforce with that pitch. We really do appreciate it. And thank you for calling in. We do appreciate your thoughts and guidance on the value proposition of our moissanite gemstones.

Gary back to you, anyone else in the queue?.

The next question comes from Preston Foulks with Lincoln Financial Advisors..

This question I have is for Suzanne. When you're over a year in position, lab – you're coming in, lot excitement, maybe this far be the chance. I'm impressed with the dotcoms, you have Amazon, Google and when I Google you have Amazon, eBay, I guess Wal-Mart, so I go back to just like Fit-bit and GoPro, they were wonders.

If you don't get this out in the store for the public to see, it could kind of beating a dead horse here, trying to get online, trying to get on the online shows, young people got to see this to believe in it, and you got to get out to the stores.

I know you got a few presence, but what is the push getting this into Wal-Mart or getting it into that of course getting in front of people to see, and now people are saying retail is failing, but still people go to shop for things and look for things, especially for weddings?.

Hi, Preston, thanks for calling in, we appreciate it. So we do you believe that there is absolutely a play for traditional retail. And it is for exactly that reason that we are in Helzberg stores. We do, we anticipate or hope that being there in Helzberg is a great draw for people to go into a store and see the fire and brilliance of the gemstone.

It is specifically the reason that we do it. We are always entertaining additional retail options and we're always entertaining additional online options. It's different by audience where people shop. If you look at the demographics, the Gen X and Boomer audiences are absolutely mall-goers and there still is absolutely a need for retail.

You'll find that millennial audiences very often will air on the side of buying something online. They have a comfort level question, we're buying something online because they know they can simply return it and get it refunded.

So it's a different mentality in this age group with this demographic and there are less mall-goers than their peers in other age groups. So this harkens back to our omni-channel strategy. We want to be in all of those places. And you're right, we're actually on Google.

So we are on Amazon and Wal-Mart and eBay, and in all of these online presence, we're on on-search engines such as Google, so that when someone searches for something they'll find us there and then those Google searches will lead you to all the places you can buy moissanite, including Helzberg Diamond stores.

So it really is that we played in all places, but we have to be very careful and prudent with your money and our investment here in this company, so we balance very carefully, the cost during each one of these outlets versus the return that we get and the speed at which we get that return as we want to get to profitability.

So the more dollars we spend and the more inventory we build to get into these additional outlets, the further away from profitability we are until those sales start coming through. So this management team each and every day, sits and balances all of these various options together..

I'll just make a last comment, at the jewelry business the market is huge compared to the market share you guys have. The numbers are saying it could be 4 times, 10 times, what you guys are bringing in.

I just say that somewhere I guess some traction somehow, get the people to see it and then they want to go on these websites and do – go to Google and go to Amazon, but they've never seen it – half the country never seen – there are more than half or 100% start to buy something that no one ever saw before?.

Yes, I agree. And so seeing is yes, in-stores, but seeing is also on your search engines and seeing is on our Facebook page and seeing is in various online channels like our YouTube channel where you can actually see video and watch our gemstones spin and watch it sparkle.

So we are working on being seen, and all of those channels, which then bring interest and interest drive people to stores and online. So I totally agree with you, there is a lot of market out there. We believe that the global diamond jewelry market is an $80 billion market.

The folks at Morgan Stanley anticipate that by 2020, 10% of that market is going to move to lab created and we are positioning ourselves to take our share of that wallet..

[Operator Instructions] The next question is another follow-up from Colin Noble, a Private Investor. Please go ahead..

Again, I wanted to comment that I'm having a ring made presently seven total carrot, weight, three Emeralds and six square cuts. I looked at the Emerald under a microscope, it was absolutely flawless and I compared that to a diamond emerald cut and there is almost no difference between the two, it looked absolutely stunning.

I guess my question was, I noticed on research and development last year, it was sharply reduced, I think it was like $20 million or something down to $5 million.

Is that because you've hit a wall, the ability to use silicon carbide as a gem, and now just your sole focus is now on operation and delivery or service and sales?.

Collin, our entire business is about silicon carbide as a moissanite gemstones. It is our entire focus. So every day we are innovating new cuts, every day we are innovating new jewelry to put around it.

The good news for us here at Charles & Colvard is that we have perfected silicon carbide to the point where we can have you on this phone telling this audience that we can compete directly with diamond, because we have been able to achieve DEF quality, gemstone grade that we're bringing to market. It can't get any better than DEF.

Now what we can do is, we can expand that DEF gemstone into lots of different shapes and sizes in order to innovate further the collection of stones to bring to market.

The only wall that we're hitting here is our ability to go fast enough to get more people in the market interested in moissanite and to engage and buy our product, that's where we're focused. Let's just get it out there and get awareness for it..

The next question comes from Bill Chain, a Private Investor. Please go ahead..

Suzanne and Clint, good afternoon..

Hey, Bill..

Hey, Bill..

Hello, congratulations on a fine quarter and also glad to see that you've the loss dropping and I want to ask – if you covered this, my apologies, but your R&D, while that go up from Q1 to Q2 and how does that look for the future?.

Great. Thanks, Bill.

Yes, it went up slightly as you noted as we continue to as Suzanne mentioned, kind of looking at alternatives and cuts and shapes and looking at the actual activities that we did from an R&D that did spike up a little bit, albeit again, this is not big dollars, but again, we continue to want to look at alternatives, whether it's cuts and gems and will continue to see probably about this level or maybe slightly more in the future as we expand those R&D practices..

Okay. Thank you very much..

You got it.

Gary anyone else?.

There are no further questions in the queue.

Would you like me to turn it back over?.

That would be fine. Thank you..

This does conclude our question-and-answer session. I'd like to turn the conference back over to Suzanne Miglucci for any closing remarks..

Thanks, Gary. Once again, I'd like to thank everyone for taking the time to participate in our call today. I want to thank our team at Charles & Colvard for all of their hard work and their continued dedication.

We have a wonderful team of hardworking, dedicated employees and I sincerely appreciate everything they do to make Charles & Colvard a great place to work. And finally, my most sincere thanks to all of our shareholders for their continued belief in the opportunity we have at Charles & Colvard. Thank you and good evening..

The conference call will be archived for review on the company's website at http://www.charlesandcolvard.com/investor-relations/events. To access the digital replay of this conference, you may dial 1877-344-7529 or 1412-317-0088 beginning approximately one hour from now. You will be prompted to enter a conference number, which will be 10111208.

Please record your name and company when joining. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..