USA : Charles & Colvard reports record Q4 sales

February 22, 2008

Charles & Colvard Ltd, the global source of moissanite, a created jewel available for use in fine jewelry reported fourth quarter and 2007 operating results.

For the three months ended December 31, 2007, net sales decreased 35% to $7.9 million as compared to $12.1 million in the fourth quarter of 2006. Gross profit decreased 42% to $5.4 million compared to $9.3 million in the prior year period. Gross profit margins decreased 830 basis points to 68.6% in the fourth quarter of 2007 from 76.9% in the comparable quarter of 2006 primarily as a result of higher production costs during the period being relieved from inventory.

The Company had an operating loss for the three months ended December 31, 2007 of $1.7 million compared to an operating profit of $1.9 million in the same period in 2006. The decline in operating results was primarily attributable to lower sales, which resulted in Marketing and Sales expense being 62% of Net sales in the fourth quarter of 2007 as compared to 52% in the same quarter of 2006, and a $1.1 million increase in General and Administrative expense resulting from a $1.1 million increase in bad debt expense.

The Company committed to substantially all of its marketing and sales expenses prior to the commencement of the fourth quarter and could not adjust its spending as sales growth did not materialize. The increase in bad debt expense is a result of a reserve recorded for customers with significantly past due accounts, JewelNet Corporation d/b/a K&G Creations and Reeves Park. K&G accounted for 5% and 11% of sales during the fourth quarter of 2007 and fiscal 2007, respectively, and the Company is in the process of winding up its relationship with this customer and assisting its retailers in obtaining new manufacturing vendors.

Reeves Park accounted for 14% and 20% of sales during the fourth quarter of 2007 and fiscal 2007, respectively. The Company and Reeves Park are negotiating to bring this account current.

The Company incurred a net loss for the fourth quarter 2007 of $1.1 million, or $0.06 per diluted share as compared to net income of $1.3 million, or $0.07 per diluted share in the fourth quarter of 2006.

Charles & Colvard Ltd