Charles & Colvard Reports First Quarter Sales Increase 56% and Net Income Increases $682,000 over Prior-Year Period

  Charles & Colvard Reports First Quarter Sales Increase 56% and Net Income
  Increases $682,000 over Prior-Year Period

Business Wire

MORRISVILLE, N.C. -- April 25, 2013

Charles & Colvard, Ltd. (NASDAQ Global Select Market: CTHR), the sole
manufacturer of created moissanite gemstones, The Most Brilliant Jewel in the
World^®, today announced that net sales for the first quarter ended March 31,
2013 increased 56% and net income increased $682,000 over the prior-year
period.

Financial Highlights:

  *Q1 net sales increase 56% to $6.5 million vs. $4.2 million in Q1 2012
  *Profitable Q1 – net income of $306,000 after approximate $651,000
    incremental quarter-over-quarter investment in consumer-direct business
    models, vs. prior-year period net loss of $376,000
  *$13.1 million cash and investments and no long-term debt at 3/31/13
  *Positive cash flow from operations in Q1 of $869,000

Net sales for the three months ended March 31, 2013 increased 56% to
approximately $6.5 million, compared with approximately $4.2 million in net
sales during the corresponding period of the previous year. Loose moissanite
gemstone sales increased 77% to approximately $4.3 million, compared with
approximately $2.5 million in the corresponding period of the previous year.
Finished jewelry sales increased 25% to approximately $2.2 million, compared
with approximately $1.7 million in the corresponding period of the previous
year.

The Company recorded net income of $306,000, or $0.02 per diluted share, in
the first quarter of 2013, representing an approximate $682,000 improvement
relative to a net loss of $376,000, or $0.02 per share, in the first quarter
of 2012. First quarter 2012 net loss included an income tax benefit of
approximately $320,000 generated by the reversal of a liability for an
uncertain tax position resulting from a voluntary disclosure agreement the
Company entered into with a taxing authority.

Operating expenses increased $234,000, or 8%, during the first quarter of 2013
when compared to the same period of 2012. Of this increase, sales and
marketing expenses increased $744,000, or 50%, when compared with the same
period in 2012. This increase was primarily due to the Company’s ongoing
investments in marketing and branding initiatives to better position Charles &
Colvard’s product lines in the marketplace, as well as marketing investments
and key strategic personnel additions in support of its direct-to-consumer
Moissanite.com e-commerce and Lulu Avenue^TM home party businesses.

“We are extremely pleased with our first quarter revenue and earnings and cash
flow, which represents Charles & Colvard’s strongest first quarter performance
since my coming on board,” stated Randy N. McCullough, Chief Executive Officer
of Charles & Colvard, Ltd. “With quarterly revenue growth of 56 percent and
profit growth of 181 percent, we’re seeing the results of our innovative
efforts on all fronts.

“Charles & Colvard continues to innovate and execute with insistence across
all our businesses, maintaining an intense focus on our core competencies, our
biggest innovation opportunities and expanding market share. We believe this
will have the greatest impact on getting our company to greater levels of
growth and shareholder value. We anticipate that Steve Larkin, who as recently
announced was appointed as our Chief Operating Officer, will play a key role
in assisting with these initiatives.

“Innovation remains a driving force for Charles & Colvard’s long-term
strategy. We continue to introduce new, exciting, and innovative products like
our premier brand of Charles & Colvard ^ Created Moissanite^®, Forever
Brilliant^®, gemstones with optical properties that are remarkably whiter and
brighter than ever before. Consumers are delighted with the increased
brilliance of our moissanite gemstone that resulted from the up to four color
grades whiter enhancement last year. With the new crystals from Cree, Inc.
providing an even whiter color than before, Charles & Colvard is now able to
produce an organically superior Forever Brilliant^®  gemstone.” McCullough
continued, “The refraction and scintillation are off the charts providing a
brilliance that surpasses anything we’ve seen before in our moissanite gems.

“We are moving forward with urgency, but with balance… balancing developing
market growth, balancing the top and bottom lines, and balancing short- and
long-term returns. I am confident we will deliver the top- and bottom-line
growth that is expected from Charles & Colvard and that we demand of
ourselves.”

Financial Position

Cash and liquid long-term investments totaled $13.1 million at March 31, 2013,
up from approximately $12.4 million at December 31, 2012, and the Company had
no long-term debt outstanding as of March 31, 2013. Cash generated from
operations during the first quarter of 2013 totaled $869,000. The primary
drivers of positive cash flow were the Company’s net income of $306,000 that
included $428,000 of net non-cash expenses, a decrease in trade accounts
receivable of $887,000, and an increase in trade accounts payable of $472,000.
These factors more than offset an increase in interest receivable of $4,000, a
net increase in inventory of $853,000, an increase in prepaid expenses and
other assets of $255,000, and a net decrease in accrued liabilities of
$112,000.

Investor Conference Call

The Company will host an investor conference call at 11:15 a.m. EDT today,
April 25, 2013, to discuss its first quarter 2013 operating results, along
with other topics of interest. Shareholders and other interested parties may
participate in the conference call by dialing 877-317-6789
(international/local participants dial 412-317-6789) and asking to be
connected to the “Charles & Colvard, Ltd. Conference Call” a few minutes
before 11:15 a.m. EDT on Thursday, April 25, 2013. The call will also be
broadcast live on the Internet at www.visualwebcaster.com/event.asp?id=91617.

A replay of the conference call will be available one hour after the call
until 9:00 a.m. EDT on Friday, May 3, 2013 by dialing 877-344-7529 (U.S.) or
412-317-0088 (international) and entering the conference ID number 10023605.

The conference call will also be archived for review on the Internet at
www.visualwebcaster.com/event.asp?id=91617  and  on the Company’s website at
www.charlesandcolvard.com until Friday, May 3, 2013.

About Charles & Colvard, Ltd.

Charles & Colvard, Ltd., based in the Research Triangle Park area of North
Carolina, is the global sole source of moissanite, a unique, near-colorless
created gemstone that is distinct from other gemstones and jewels based on its
exceptional fire, brilliance, luster, durability, and rarity. Charles &
Colvard Created Moissanite^® and Forever Brilliant^® are currently
incorporated into fine jewelry sold through domestic and international
retailers and other sales channels. Charles & Colvard, Ltd.’s common stock is
listed on the NASDAQ Global Select Market under the symbol “CTHR.” For more
information, please visit www.charlesandcolvard.com.

This press release contains forward-looking statements within the meaning of
Section27A of the Securities Act of 1933, as amended, and Section21E of the
Securities Exchange Act of 1934, as amended. Statements expressing
expectations regarding our future and projections relating to products, sales,
revenues, and earnings are typical of such statements and are made under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, representations, and contentions and are not historical facts and
typically are identified by use of terms such as “may,” “will,” “should,”
“could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“continue,” and similar words, although some forward-looking statements are
expressed differently.

All forward-looking statements are subject to the risks and uncertainties
inherent in predicting the future. You should be aware that although the
forward-looking statements included herein represent management’s current
judgment and expectations, our actual results may differ materially from those
projected, stated, or implied in these forward-looking statements as a result
of many factors including, but not limited to, our dependence on consumer
acceptance and growth of sales of our products resulting from our strategic
initiatives; dependence on a limited number of customers; our ability to
fulfill orders on a timely basis; the financial condition of our major
customers; dependence on Cree, Inc. as the sole current supplier of the raw
material; our current wholesale customers’ potential perception of us as a
competitor in the finished jewelry business; intense competition in the
worldwide jewelry industry; general economic and market conditions, including
the current economic environment; risks of conducting business in foreign
countries; the pricing of precious metals, which is beyond our control; the
potential impact of seasonality on our business; our ability to protect our
intellectual property; the risk of a failure of our information technology
infrastructure to protect confidential information and prevent security
breaches; possible adverse effects of governmental regulation and oversight;
and the failure to evaluate and integrate strategic opportunities, in addition
to the other risks and uncertainties described in our filings with the
Securities and Exchange Commission, or the SEC, including our Annual Report on
Form 10-K for the fiscal year ended December 31, 2012 and subsequent reports
filed with the SEC. Forward-looking statements speak only as of the date they
are made. We undertake no obligation to update or revise such statements to
reflect new circumstances or unanticipated events as they occur except as
required by the federal securities laws, and you are urged to review and
consider disclosures that we make in the reports that we file with the SEC
that discuss other factors relevant to our business.

                        (Financial Highlights Follow)

                                              
Charles & Colvard, Ltd.

Consolidated Statements of Operations

(unaudited)
                                                                             
                                                Three Months Ended March 31,
                                               2013            2012
Net sales                                       $  6,505,074    $ 4,178,385
Costs and expenses:
Cost of goods sold                                 2,881,978      2,027,686
Sales and marketing                                2,246,209      1,501,921
General and administrative                         849,377        1,357,172
Research and development                          5,983         8,408
Total costs and expenses                          5,983,547     4,895,187
Income (loss) from operations                      521,527        (716,802   )
Other income (expense):
Interest income                                    7,502          23,865
Interest expense                                  (740       )  (477       )
Total other income                                6,762         23,388
Income (loss) before income taxes                  528,289        (693,414   )
Income tax net (expense) benefit                  (222,016   )  317,568
Net income (loss)                               $  306,273      $ (375,846   )
                                                                             
Net income (loss) per common share:
Basic                                           $  0.02         $ (0.02      )
Fully diluted                                   $  0.02         $ (0.02      )
                                                                             
Weighted average number of shares used in
computing net income (loss) per common share:
Basic                                              19,659,168     19,470,511
Fully diluted                                      20,054,422     19,470,511
                                                                             

                                             
Charles & Colvard, Ltd.

Consolidated Balance Sheets

(unaudited)
                                                                             
                                               March 31, 2013   December 31,
                                                                2012
ASSETS
Current assets:
Cash and cash equivalents                      $  12,641,217    $ 11,860,842
Accounts receivable, net                          7,455,505       8,138,358
Interest receivable                               4,601           694
Held-to-maturity investments                      503,719         505,068
Inventory, net                                    8,466,603       8,442,430
Prepaid expenses and other assets                 991,222         737,406
Deferred income taxes                            1,211,772      1,211,772
Total current assets                              31,274,639      30,896,570
Long-term assets:
Inventory, net                                    25,201,036      24,353,580
Property and equipment, net                       1,669,944       1,746,792
Intangible assets, net                            328,767         346,732
Deferred income taxes                             2,310,240       2,520,818
Other assets                                     13,266         12,199
Total long-term assets                           29,523,253     28,980,121
TOTAL ASSETS                                   $  60,797,892    $ 59,876,691
                                                                             
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                               $  2,584,156     $ 2,112,585
Accrued cooperative advertising                   194,000         200,000
Accrued expenses and other liabilities           463,825        574,522
Total current liabilities                         3,241,981       2,887,107
Long-term liabilities:
Accrued income taxes                             388,118        383,730
Total liabilities                                3,630,099      3,270,837
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value                        53,333,402      53,318,044
Additional paid-in capital – stock-based          8,699,328       8,459,020
compensation
Accumulated deficit                              (4,864,937  )  (5,171,210 )
Total shareholders’ equity                       57,167,793     56,605,854
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY     $  60,797,892    $ 59,876,691
                                                                             

                                              
Charles & Colvard, Ltd.

Consolidated Statements of Cash Flows

(unaudited)
                                                                             
                                                Three Months Ended March 31,
                                                2013             2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                               $  306,273       $ (375,846  )
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization                      192,387         116,600
Amortization of bond premium                       1,349           1,323
Stock-based compensation                           246,666         289,409
Provision for uncollectible accounts               (96,000     )   151,952
Provision for sales returns                        (108,000    )   (42,000   )
Provision for inventory reserves                   (19,000     )   (46,000   )
Provision for deferred income taxes                210,578         -
Changes in assets and liabilities:
Accounts receivable                                886,853         12,809
Interest receivable                                (3,907      )   (2,303    )
Inventory                                          (852,629    )   489,787
Prepaid expenses and other assets, net             (254,883    )   (19,159   )
Accounts payable                                   471,571         506,571
Accrued cooperative advertising                    (6,000      )   (63,000   )
Accrued income taxes                               4,388           (361,198  )
Other accrued liabilities                         (110,697    )  (275,358  )
Net cash provided by operating activities         868,949        383,587
                                                                             
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment                (87,997     )   (351,793  )
Patent, license rights, and trademark costs       (9,577      )  (3,677    )
Net cash used in investing activities             (97,574     )  (355,470  )
                                                                             
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock option exercises                            9,000          106,465
Net cash provided by financing activities         9,000          106,465
                                                                             
NET INCREASE IN CASH AND CASH EQUIVALENTS          780,375         134,582
CASH AND CASH EQUIVALENTS, BEGINNING OF           11,860,842     6,701,701
PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD        $  12,641,217    $ 6,836,283
                                                                             
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest          $  740           $ 477
Cash paid during the year for income taxes      $  7,050         $ 11,800
                                                                             

Contact:

Charles & Colvard, Ltd.
Company Contact:
Timothy Krist,919-468-0399, ext. 295
Chief Financial Officer
tkrist@charlesandcolvard.com
or
Investor Relations:
Taglich Brothers, Inc.
Christopher Schreiber,800-383-8464
Investor Relations Counsel
cs@taglichbrothers.com
 
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