Charles & Colvard Reports Second Quarter Sales Increase 29% Over Prior-Year Period

  Charles & Colvard Reports Second Quarter Sales Increase 29% Over Prior-Year
  Period

   Quarter Demonstrates Investment for Holiday Season and Long Term Growth

Business Wire

MORRISVILLE, N.C. -- August 8, 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 three and six months ended
June 30, 2013 increased 29% and 41%, respectively, over the prior-year
periods.

Financial and Business Highlights:

  *Q2 net sales increase 29% to$6.5 millionvs.$5.1 millionin Q2 2012
  *Q2 net loss of$492,000 after approximate $761,000 incremental
    year-over-year investment in consumer-direct business models vs.
    prior-year period net income of $549,000
  *Increased our capacity to deliver Forever Brilliant^® to meet growing
    demand
  *Recently entered into a wholesale distribution agreement with Amazon.com
  *Announce Kyle Macemore as chief financial officer

Net sales for the three months endedJune 30, 2013increased 29% to
approximately$6.5 million, compared with approximately$5.1 millionin net
sales during the corresponding period of the previous year. Loose moissanite
gemstone net sales were flat compared with the corresponding period of the
previous year at approximately$4.1 million. Finished jewelry net sales
increased 151% to approximately$2.4 million, compared with
approximately$972,000in the corresponding period of the previous year.

Net sales for the six months ended June 30, 2013 increased 41% to
approximately $13.0 million, compared with approximately $9.2 million in net
sales during the corresponding period of the previous year. Loose moissanite
gemstone net sales increased 29% to approximately $8.4 million, compared with
approximately $6.5 million in the corresponding period of the previous year.
Finished jewelry net sales increased 70% to approximately $4.6 million,
compared with approximately $2.7 million in the corresponding period of the
previous year.

The Company recorded a net loss of$492,000, or$0.02per share, in the second
quarter of 2013, compared with net income of$549,000, or$0.03per diluted
share, in the second quarter of 2012. For the first six months of 2013, the
Company recorded a net loss of $185,000, or $0.01 per share, compared with net
income of $173,000, or $0.01 per diluted share, in the corresponding period of
the prior year. The Company sold slow moving inventory at reduced margins,
negatively impacting the Company’s overall gross margin percentage in the
second quarter of 2013.

Operating expenses increased$1.1 million, or 38%, and $1.3 million, or 23%,
during the second quarter and six months ended June 30, 2013, respectively,
when compared to the same periods in 2012. Of these increases, sales and
marketing expenses increased$949,000, or 60%, and $1.7 million, or 55%,
during the second quarter and six months ended June 30, 2013, respectively,
when compared with the same periods in 2012. These increases were 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-consumerMoissanite.come-commerce andLulu Avenue^TMhome
party businesses.

“We continued to take steps in the second quarter to strategically support and
align our growing retail brands for the holiday season and future growth,”
stated Randy N. McCullough, Chief Executive Officer ofCharles & Colvard,
Ltd.“The sale of close-out jewelry during the quarter hampered our gross
margin percentage, but we believe this is a limited occurrence event and an
important step in fine-tuning our inventory and maintenance of our
relationship with key distribution channels, positioning them with the
opportunity for strong sales in the second half of the year.”

Steve Larkin, Chief Operating Officer, shared: “A key step in increasing our
global wholesale distribution channels we believe has been achieved through
our new relationship with the world’s largest Internet retailer, Amazon.com,
which reaches over 17 million visitors a day. This is a testament to our
continued effort to promote moissanite and broaden consumer access to the
brightest gemstone available.”

“The reception of the Forever Brilliant^® gemstone has been extremely positive
and the Company has invested significantly to increase capacity to meet the
growing demand. We continue to receive feedback from consumers who are
delighted with the increased brilliance of our exclusive Forever Brilliant^®
gemstone that stems from the technological advancement in the organic growth
of silicon carbide crystals resulting in up to four color shades improved
natural whiteness throughout,” added McCullough. “We are also seeing increased
traction in our Moissanite.com and Lulu Avenue™ channels with meaningful
increases in web traffic and the enrollment of additional style advisors.”

“The board and the executive team are excited to announce that Kyle Macemore
has joined Charles & Colvard as our chief financial officer,” said McCullough.
“Kyle has significant experience working as a CFO for growing public companies
and we believe he is the best financial officer to lead the company through
its next phase of growth and return shareholder value.”

“I believe our recent investments will propel our company to greater levels of
growth and shareholder value. We are committed to the investments that we
believe will deliver the long term top- and bottom-line growth that is
expected from Charles & Colvard and that we demand of ourselves,” concluded
McCullough.

Financial Position

Cash and liquid long-term investments totaled$9.8 millionatJune 30, 2013,
down from approximately$12.4 millionatDecember 31, 2012, and the Company
had no debt outstanding as ofJune 30, 2013. Cash used in operations totaled
$3.2 million and $2.3 million during the three and six months ended June 30,
2013, respectively. During the second quarter of 2013, the primary drivers of
negative cash flow were a net increase in inventory of $2.8 million, an
increase in trade accounts receivable of $410,000, an increase in prepaid
expenses and other assets of $138,000, and a decrease in trade accounts
payable of $41,000. These factors more than offset a net increase in accrued
liabilities of$185,000, the Company’s net loss of$492,000that
included$527,000of net non-cash expenses, and a decrease in interest
receivable of$3,000.

During the six months ended June 30, 2013, the primary drivers of negative
cash flow were a net increase in inventory of $3.7 million and an increase in
prepaid expenses and other assets of $393,000. These factors more than offset
the Company’s net loss of $185,000 that included $955,000 of net non-cash
expenses, a decrease in trade accounts receivable of $477,000, an increase in
trade accounts payable of $430,000, and a net increase in accrued liabilities
of $73,000.

Total inventory, including long-term and consignment inventory, approximated
$36.4 million as of June 30, 2013, which was up from approximately $32.8
million at the end of 2012 primarily as a result of the purchase of new raw
material silicon carbide crystals and the production of moissanite gemstones
in support of the Company’s whiter Forever Brilliant® gemstone; and purchases
during the quarter of jewelry castings, findings, and other jewelry
components, offset in part by sales during the quarter. Net trade accounts
receivable approximated $7.9 million at the end of the second quarter of 2013,
down $281,000 from the end of 2012.

Investor Conference Call

The Company will host an investor conference call at11:15 a.m.
EDTtoday,August 8, 2013, to discuss its second quarter and first six months
of 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
before11:15 a.m. EDTonThursday, August 8, 2013.The call will also be
broadcast live on the Internet atwww.visualwebcaster.com/event.asp?id=91620.

A replay of the conference call will be available one hour after the call
until9:00 a.m. EDTonFriday, August 23, 2013by dialing 877-344-7529 (U.S.)
or 412-317-0088 (international) and entering the conference ID number
10023607.

The conference call will also be archived for review on the Internet at
www.visualwebcaster.com/event.asp?id=91620 andon the Company’s website at
www.charlesandcolvard.comuntilFriday, August 23, 2013.

AboutCharles & Colvard, Ltd.

Charles & Colvard, Ltd., based in theResearch Triangle Parkarea ofNorth
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^®andForever 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 visitwww.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 onCree, 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
theSecurities and Exchange Commission, or theSEC, including our Annual
Report on Form 10-K for the fiscal year endedDecember 31, 2012and subsequent
reports filed with theSEC.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
theSECthat discuss other factors relevant to our business.

                        (Financial Highlights Follow)

 Charles & Colvard, Ltd.
  Consolidated Statements of Operations
  (unaudited)
                                                  
                   Three Months Ended June 30,       Six Months Ended June 30,
                   2013            2012             2013            2012
  Net sales        $ 6,512,500      $ 5,058,227      $ 13,017,574     $ 9,236,612
  Costs and
  expenses:
  Cost of goods      3,389,315        1,642,759        6,271,293        3,670,445
  sold
  Sales and          2,532,995        1,583,895        4,779,204        3,085,816
  marketing
  General and        1,344,408        1,285,294        2,193,785        2,642,466
  administrative
  Research and       9,041            8,381            15,024           16,789
  development
  Loss on
  abandonment of    95,052          -               95,052          -
  assets
  Total costs       7,370,811       4,520,329       13,354,358      9,415,516
  and expenses
  (Loss) income
  from               (858,311   )     537,898          (336,784   )     (178,904   )
  operations
  Other income
  (expense):
  Interest           6,972            17,823           14,474           41,688
  income
  Interest          (234       )    (127       )    (974       )    (604       )
  expense
  Total other       6,738           17,696          13,500          41,084
  income, net
  (Loss) income
  before income      (851,573   )     555,594          (323,284   )     (137,820   )
  taxes
  Income tax net
  benefit           359,988         (7,022     )    137,972         310,546
  (expense)
  Net (loss)       $ (491,585   )   $ 548,572        $ (185,312   )   $ 172,726
  income
                                                                                   
  Net (loss)
  income per
  common share:
  Basic            $ (0.02      )   $ 0.03           $ (0.01      )   $ 0.01
  Fully diluted    $ (0.02      )   $ 0.03           $ (0.01      )   $ 0.01
                                                                                   
  Weighted
  average number
  of shares used
  in computing
  net (loss)
  income per
  common share:
  Basic              19,812,397       19,564,451       19,736,068       19,517,481
  Fully diluted      19,812,397       19,972,267       19,736,068       19,905,582
                                                                                   

 Charles & Colvard, Ltd.
  Consolidated Balance Sheets
  (unaudited)
                                                             
                                              June 30, 2013     December 31,
                                              (unaudited)       2012
  ASSETS
  Current assets:
  Cash and cash equivalents                   $  9,271,219      $ 11,860,842
  Accounts receivable, net                       7,857,189        8,138,358
  Interest receivable                            1,585            694
  Held-to-maturity investments                   502,362          505,068
  Inventory, net                                 9,031,685        8,442,430
  Prepaid expenses and other assets              1,129,158        737,406
  Deferred income taxes                         1,211,772       1,211,772
  Total current assets                           29,004,970       30,896,570
  Long-term assets:
  Inventory, net                                 27,353,831       24,353,580
  Property and equipment, net                    1,528,557        1,746,792
  Intangible assets, net                         379,454          346,732
  Deferred income taxes                          2,671,650        2,520,818
  Other assets                                  13,266          12,199
  Total long-term assets                        31,946,758      28,980,121
  TOTAL ASSETS                                $  60,951,728     $ 59,876,691
                                                                             
  LIABILITIES AND SHAREHOLDERS’ EQUITY
  Current liabilities:
  Accounts payable                            $  2,542,711      $ 2,112,585
  Accrued cooperative advertising                308,000          200,000
  Accrued expenses and other liabilities        533,902         574,522
  Total current liabilities                      3,384,613        2,887,107
  Long-term liabilities:
  Accrued income taxes                          389,540         383,730
  Total liabilities                             3,774,153       3,270,837
  Commitments and contingencies
  Shareholders’ equity:
  Common stock, no par value                     53,340,844       53,318,044
  Additional paid-in capital – stock-based       9,193,253        8,459,020
  compensation
  Accumulated deficit                           (5,356,522 )    (5,171,210 )
  Total shareholders’ equity                    57,177,575      56,605,854
  TOTAL LIABILITIES AND SHAREHOLDERS’         $  60,951,728     $ 59,876,691
  EQUITY
                                                                             

 Charles & Colvard, Ltd.
  Consolidated Statements of Cash Flows
  (unaudited)
                                             
                                               Six Months Ended June 30,
                                               2013            2012
  CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                            $ (185,312   )   $ 172,726
  Adjustments to reconcile net (loss) income
  to net cash (used in) provided by
  operating activities:
  Depreciation and amortization                  384,749          265,607
  Amortization of bond premium                   2,706            2,652
  Stock-based compensation                       743,633          569,230
  Provision for uncollectible accounts           (60,805    )     245,460
  Provision for sales returns                    (135,000   )     170,000
  Provision for inventory reserves               75,000           26,000
  Benefit for deferred income taxes              (150,832   )     -
  Loss on abandonment of assets                  95,052           -
  Changes in assets and liabilities:
  Accounts receivable                            476,974          215,840
  Interest receivable                            (891       )     10,220
  Inventory                                      (3,664,506 )     734,983
  Prepaid expenses and other assets, net         (392,819   )     (174,519   )
  Accounts payable                               430,126          (316,446   )
  Accrued cooperative advertising                108,000          100,000
  Accrued income taxes                           5,810            (358,493   )
  Other accrued liabilities                     (40,620    )    (247,293   )
  Net cash (used in) provided by operating      (2,308,735 )    1,415,967
  activities
                                                                             
  CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment            (202,610   )     (485,878   )
  Proceeds from call of long-term                -                2,500,000
  investments
  Patent, license rights, and trademark         (91,678    )    (40,498    )
  costs
  Net cash (used in) provided by investing      (294,288   )    1,973,624
  activities
                                                                             
  CASH FLOWS FROM FINANCING ACTIVITIES:
  Stock option exercises                        13,400          119,914
  Net cash provided by financing activities     13,400          119,914
                                                                             
  NET (DECREASE) INCREASE IN CASH AND CASH       (2,589,623 )     3,509,505
  EQUIVALENTS
  CASH AND CASH EQUIVALENTS, BEGINNING OF       11,860,842      6,701,701
  PERIOD
  CASH AND CASH EQUIVALENTS, END OF PERIOD     $ 9,271,219      $ 10,211,206
                                                                             
  Supplemental disclosure of cash flow
  information:
  Cash paid during the year for interest       $ 974            $ 604
  Cash paid during the year for income taxes   $ 7,050          $ 11,800

Contact:

Corporate Communications:
LANE
Ted Lane, 212-302-5948
ted@lanepr.com
 
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