Charles and Colvard manufacture market and distribute moissanitejewels for sale in the worldwide jewelry market. Moissanite also known by its chemical name silicon carbide is a rare naturally occurring mineral found primarily in meteorites. The Company is the sole manufacturer of scientifically-made moissanite jewels. Their strategy is to create a unique brand image which positions moissanite as a jewel in its ownright distinct from all other jewels based on its fire brilliance luster durability and rarity. Charles & Colvard Ltd has a market cap of $9.8 million; its shares were traded at around $0.54 with and P/S ratio of 0.8. Highlight of Business Operations: Sales for the first quarter of 2009 were 27% less than sales during the same period of 2008 primarily due to a significant slowdown in the retail environment and reduced purchases from jewelry manufacturers serving major retailers that sell moissanite jewelry. A $0.7 million reduction in operating expenses resulted from very tight cost control and decreased expenses for sales and marketing programs. Net loss for the first quarter was $1.3 million, or $0.07 per diluted share, compared with a net loss of $0.7 million, or $0.04 per diluted share, for the first quarter of 2008. The 2008 first quarter net loss benefited from a $0.4 million income tax benefit. We did not recognize an income tax benefit for our operating losses during the first quarter of 2009 due to the uncertainty of sufficient future taxable income to utilize our deferred tax assets.
Marketing and sales expenses were $333,966 for the three months ended March 31, 2009 compared to $1,917,912 for the three months ended March 31, 2008, a decrease of $1,583,946 or 83%. As a percentage of sales, these expenses decreased to 13% from 56% in the same period of 2008. The primary reasons for the decrease in expenses were a $723,000 decrease in advertising expenses and a $539,000 decrease in compensation costs. Our direct advertising costs decreased by $457,000 and our co-op advertising expense decreased by $266,000. We reduced marketing activities as we assessed the effectiveness of our marketing and sales strategies. Our co-op advertising program reimburses a portion of our customers marketing costs based on the amount of their purchases from us, and is subject to the customer providing us documentation of all advertising copy that includes our products. Our co-op advertising expense decreased due to lower sales and due to our customers using less of their earned 2008 co-op than we estimated at 2008 year end. The decrease in compensation costs can be attributed to decreased salary expense and $180,000 of previously recorded share-based compensation that was reversed during the three months ended March 31, 2009 due to certain stock options not vesting for two terminated executive officers.
General and administrative expenses were $2,108,392 for the three months ended March 31, 2009 compared to $1,424,378 for the three months ended March 31, 2008, an increase of $684,014 or 48%. As a percentage of sales these expenses increased to 85% from 42% in the same period of 2008. The increase in expenses is primarily due to $306,000 of increased fees for professional services and $250,000 of accrued expenses for the estimated liability due to a dispute with three former executive officers. Professional services increased mostly due to $350,000 of fees paid to Bird Capital Group under the February 2009 Management Services Agreement and $149,000 of increased legal fees, partially offset by $187,000 of fees incurred during the three months ended March 31, 2008 associated with the services rendered in conjunction with a review of our business strategy. On February 5, 2009, the Company ended its employment relationship with three executive officers. The former executive officers have individually disputed the Companys belief that no severance obligations are due under the terms of their respective employment agreements. The Company has negotiated in good faith with each of the executive officers to resolve
At March 31, 2009, we had approximately $5.8 million of cash and equivalents and $16.7 million of working capital as compared to $5.6 million of cash and equivalents and $18.8 million of working capital at December 31, 2008. As further described below, cash and equivalents increased during the three months ended March 31, 2009 primarily as a result of $0.2 million of cash provided by operations. The decrease in working capital is primarily attributable to the decrease in accounts receivable and the reclassification of inventory between current and long-term assets, partially offset by the decrease in accounts payable.
Our principal sources of liquidity are cash on-hand and cash expected to be generated by operations in future periods. In April 2009, we received the $2.1 million income tax receivable from the IRS. During the three months ended March 31, 2009, $0.2 million of cash was provided by operations primarily as a result of a $1.8 million decrease in accounts receivable (excluding the impact of the change in reserves), a $0.9 million decrease in inventory, partially offset by a $1.1 million decrease in accounts payable and our $1.3 million net loss. Accounts receivable were down primarily due to cash collections and the impact of our settlement with Reeves Park. While total inventory increased by $0.3 million, there was a $1.2 million non-cash purchase of jewelry inventory under the terms of our settlement agreement with Reeves Park. Our accounts payable are typically at their highest level at December 31 of each year due to our increased expenses for sales and marketing during the fourth quarter holiday season, and our decrease in accounts payable is due to payments made on these expenses as well as due to the overall reduction in expenses and inventory purchase commitments consistent with our efforts to reduce costs and inventory while conserving cash.
As of March 31, 2009, we had trade accounts receivable from Reeves Park of $0.7 million, or 25% of receivables (not considering our allowances for uncollectible accounts or returns). As of December 31, 2008, we had trade accounts receivable from Reeves Park of $4.9 million, or 62% of receivables (not considering our allowances for uncollectible accounts or returns). In January 2009, we entered into a settlement agreement with Reeves Park to settle the outstanding balance by accepting a return of inventory, the receipt of certain cash payments due to Reeves Park from its customers, and the payment of a settlement fee to the Company by Reeves Park. Based on the $2.3 million estimated net realizable value of the transactions under the settlement agreement, the Company increased its allowance for uncollectible accounts at December 31, 2008 for Reeves Park to $2.6 million. The transactions under the settlement agreement are substantially complete as of March 31, 2009. The allowance for uncollectible accounts at March 31, 2009 attributable to Reeves Park is $0.6 million. As of March 31, 2009, trade accounts receivable from Reeves Park, net of the allowances for uncollectible accounts is $0.1 million, or 17% of net receivables compared to $2.3 million, or 61% of net receivables at December 31, 2008.
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