Charles & Colvard Reports Fourth Quarter Sales Increase 13% as Full Year Sales Increase 40% over Pri

Charles & Colvard Reports Fourth Quarter Sales Increase 13% as Full Year Sales Increase 40% over Prior-Year

MORRISVILLE, N.C.--(BUSINESS WIRE)-- 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 fourth quarter and year ended December 31, 2012, increased 13% and 40%, respectively, over the prior-year periods.

Financial Highlights:

• Q4 net sales increase 13% to $8.1 million vs. $7.2 million in Q4 2011, and full year net sales increase 40% to $22.4 million vs. $16.0 million in 2011

• Profitable Q4 and full year - Q4 net income of $4.2 million after approximate $471,000 incremental quarter-over-quarter investment in consumer-direct business models, vs. prior-year period net income of $1.8 million; full year net income of $4.4 million after approximate $2.7 million incremental year-over-year investment in consumer-direct business models, vs. prior-year net income of $1.6 million

• Income tax benefit in Q4 of $3.8 million and full year of $4.1 million

• $12.4 million cash and investments and no long-term debt at 12/31/12

• Positive cash flow from operations in Q4 of $679,000 and full year of $2.8 million

Net sales for the three months ended December 31, 2012, increased 13% to approximately $8.1 million, compared with approximately $7.2 million in net sales during the corresponding period of the previous year. Loose moissanite gemstone sales decreased 3% to approximately $4.7 million, compared with approximately $4.8 million in the corresponding period of the previous year. Finished jewelry sales increased 45% to approximately $3.4 million, compared with approximately $2.4 million in the corresponding period of the previous year.

Net sales for the year ended December 31, 2012, increased 40% to approximately $22.4 million, compared with approximately $16.0 million in net sales during the year ending December 31, 2011. Loose moissanite gemstone sales increased 24% to approximately $15.0 million, compared with approximately $12.1 million in the previous year. Finished jewelry sales increased 87% to approximately $7.4 million, compared with approximately $4.0 million in the previous year.

The Company recorded net income of $4.2 million, or $0.21 per diluted share, in the fourth quarter of 2012, representing an approximate $2.4 million improvement relative to net income of $1.8 million, or $0.09 per diluted share, in the fourth quarter of 2011. For the year ended December 31, 2012, the Company recorded net income of $4.4 million, or $0.22 per diluted share, representing an approximate $2.8 million improvement relative to net income of $1.6 million, or $0.08 per diluted share, in the previous year. Fourth quarter 2012 net income included a $3.8 million tax benefit resulting from the Company's reduction of a valuation allowance on certain deferred tax assets based on management's expectation of their future utilization. In addition to this, full year 2012 net income also 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 $1.3 million, or 56%, and $4.0 million, or 49%, during the fourth quarter and year ended December 31, 2012, respectively, when compared with the same periods of 2011. Of these increases, sales and marketing expenses increased $1.6 million, or 150%, and $4.1 million, or 125%, during the fourth quarter and year ended December 31, 2012, respectively, when compared with the same periods in 2011. 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-consumer Moissanite.com e-commerce and Lulu Avenue^TM home party businesses.

"Our continued success growing our business at Charles & Colvard is a tribute to the many initiatives put in place over the past three years. We are very pleased with our results in the fourth quarter and for the year," stated Randy N. McCullough, Chief Executive Officer of Charles & Colvard, Ltd. "Our wholesale business executed exceptionally throughout the year, providing significant increases in sales of loose jewels and finished jewelry; both providing the necessary cash flow to grow our consumer-direct businesses as we invest in our future. In addition to this, finishing the year with a $2.8 million positive cash flow after approximate $2.7 million incremental year-over-year investment in our consumer-direct business models highlights our strong financial performance, making our results even more gratifying to us.

"In addition, investments in improving our information technology infrastructure paid off as the volume of transactions increased with sales, thereby validating our ability to operationally execute during the ramp up. Continuous process improvement is top of mind throughout our company as we focus on 2013.

"Moissanite.com launched a new software platform in the fourth quarter, providing many site functionality improvements that resulted in considerable revenue growth that we expect, with annual traffic of over one million visitors, will continue to increase. Also during the fourth quarter, our Lulu Avenue^TM direct sales initiative underwent a significant remake with the addition of the JudeFrances team developing an exclusive product line and creating catalogs and marketing collateral targeting second quarter of 2013. Several improvements in both the front-end and back-office system are designed to better support our Lulu Avenue^TM field personnel in their businesses while providing operational support to drive the business forward. We believe our investment in Lulu Avenue^TM will begin to yield higher revenues in 2013 while significantly increasing our market exposure and our revenue streams for years to come.

"We recently announced the production of new raw material providing the opportunity for continued enhancements in our manufacturing processes as our team works closely in a collaborative effort with a designated team at Cree. Initial results are very promising, providing the opportunity to further explore the gemstone enhancement process for our products, Charles & Colvard Created Moissanite^® and Forever Brilliant^®, beginning with the initial growth of the SiC crystal. Everyone at Charles & Colvard is excited to work together with Cree, the world's leading producer of SiC crystals, on this ongoing strategic initiative."

"Our expectations for the first quarter of 2013, based on the to-date execution of our direct and wholesale businesses, are for continued stronger sales. Our objectives are focused on steadily building a solid foundation, now and for the long term health of our business...to win with consumers by providing a superior gem backed with world class service; and to deliver total shareholder return that ranks Charles & Colvard among the best performing companies in our industry. We are confident that we are doing what is right and necessary to achieve these objectives," concluded McCullough.

Financial Position

Cash and liquid long-term investments totaled $12.4 million at December 31, 2012, up from approximately $10.5 million at December 31, 2011, and the Company had no long-term debt outstanding as of December 31, 2012. Cash generated from operations totaled $679,000 and $2.8 million during the three months and year ended December 31, 2012, respectively. During the fourth quarter of 2012, the primary drivers of positive cash flow were the Company's net income of $4.2 million that included $3.4 million of net non-cash benefit, an increase in interest receivable of $8,000, a net decrease in inventory of $782,000, an increase in trade accounts payable of $1.2 million, and a net increase in accrued liabilities of $87,000. These factors more than offset an increase in trade accounts receivable of $2.1 million and an increase in prepaid expenses and other assets of $34,000.

During the year ended December 31, 2012, the primary drivers of positive cash flow were the Company's net income of $4.4 million that included $1.6 million of net non-cash benefit, an increase in interest receivable of $11,000, a net decrease in inventory of $2.1 million, and an increase in trade accounts payable of $1.1 million. These factors more than offset an increase in trade accounts receivable of $2.6 million, an increase in prepaid expenses and other assets of $316,000, and a net decrease in accrued liabilities of $353,000.

Total inventory, including long-term and consignment inventory, approximated $32.8 million as of December 31, 2012, which was down from approximately $35.0 million at the end of 2011 primarily as a result of sales, offset in part by purchases during the year of jewelry castings, findings, and other jewelry components; fashion finished jewelry in support of the Company's home party direct sales business; and production of moissanite gemstones. Net trade accounts receivable approximated $8.1 million at December 31, 2012, up $2.0 million from December 31, 2011.

Investor Conference Call

The Company will host an investor conference call at 11:15 a.m. EST today, February 26, 2013, to discuss its fourth quarter and full year 2012 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. EST on Tuesday, February 26, 2013.The call will also be broadcast live on the Internet atwww.visualwebcaster.com/event.asp?id=91612.

A replay of the conference call will be available one hour after the call until 9:00 a.m. EST on Friday, March 8, 2013, by dialing 877-344-7529 (U.S.) or 412-317-0088 (international) and entering the conference ID number 10023598.

The conference call will also be archived for review on the Internet at www.visualwebcaster.com/event.asp?id=91612andon the Company's website at www.charlesandcolvard.com until Friday, March 8, 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. is headquartered in Morrisville, North Carolina, and its 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 Section 27A of the Securities Act of 1933, as amended, and Section 21E 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; our ability to fulfill orders on a timely basis; dependence on a limited number of customers; our current wholesale customers' potential perception of us as a competitor in the finished jewelry business; dependence on Cree, Inc. as the sole current supplier of the raw material; intense competition in the worldwide jewelry industry; general economic and market conditions, including the current economic environment; the financial condition of our major customers; 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; and possible adverse effects of governmental regulation and oversight, 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, 2011 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.