Nov 15 2007
Charles & Colvard, Ltd., the global source of moissanite, a created jewel available for use in fine jewelry, entered into a letter agreement with Cree Inc. (“Cree”) that provides a framework for the Company’s quarterly purchases of silicon carbide crystals during 2008. Silicon carbide crystals are the raw material used by the Company to manufacture moissanite jewels and Cree provides the substantial majority of the raw material purchased by the Company.
Under the letter agreement, the Company has committed to purchase approximately $710,000 of crystals for each quarter during 2008, assuming Cree meets certain minimum quality levels. During the first nine months of 2007, the Company purchased $9.7 million of crystals from Cree and is committed to purchase $1.7 million from Cree during the fourth quarter of 2007. The price per gram paid to Cree during 2008 will increase approximately 22% over the price paid to Cree for purchases during the fourth quarter of 2007. The reduced purchases will not limit our ability to service our customer’s needs in 2008.
Bob Thomas, Chairman and Chief Executive Officer commented, “The significantly reduced commitment to Cree during 2008 gives us more flexibility to manage cash flow and enables us to focus our resources during 2008 on elements like building awareness, while maintaining the manufacturing infrastructure that we believe will be necessary in future periods. Cree continues to be a reliable supplier of quality raw material and we appreciate their willingness to accommodate our reduced level of purchases in 2008. The price increase on the markedly lower volume should have no impact on our gross margins in 2008 based on our current inventory position and sales projections, but will marginally impact gross margins in the future periods in which it is relieved from inventory.”