UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, ~~2024~~2025

☐ Transition report pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

Commission File Number: 000-23329

Charles & Colvard, Ltd.

(Exact name of registrant as specified in its charter)

North Carolina		56-1928817
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

170 Southport Drive Morrisville, North Carolina		27560
(Address of principal executive offices)		(Zip Code)

(919) 468-0399

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, no par value per share CTHR ~~The~~OTC ~~Nasdaq~~Experts ~~Stock~~ Market ~~LLC~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒☐ No ☐☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒☐ No ~~No ☐~~ ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May~~July 130, ~~2024~~2025, there were 303,~~344~~118,~~955~~273 shares of the registrant’s common stock, no par value per share, outstanding.

EXPLANATORY NOTE

The following Quarterly Report on Form 10-Q (this “Form 10-Q”) for Charles & Colvard, Ltd. (the “Company”), covers the three and nine months ended March 31, 2025, presents the Company and its results of operations for the periods indicated therein. Except as specifically designated therein, this Form 10-Q does not reflect events occurring after March 31, 2025, and the Company has not otherwise updated disclosures contained herein to reflect events that occurred at a later date.

CHARLES & COLVARD, LTD.

FORM 10-Q

For the Quarterly Period Ended March 31, ~~2024~~2025

TABLE OF CONTENTS

		Page Number
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and June 30, 2023	1
	Condensed Consolidated Balance Sheets as of March 31, 2025 (unaudited) and June 30, 2024	1
	Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended March 31, 2024 and 2023	2
	Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended March 31, 2025 and 2024	2
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the three and nine months ended March 31, 2024 and 2023	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the three and nine months ended March 31, 2025 and 2024	3
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended March 31, 2024 and 2023	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended March 31, 2025 and 2024	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1819
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3129
Item 4.	Controls and Procedures	3129
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3230
Item 1A.	Risk Factors	3230
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3330
Item 5.	Other Information	3330
Item 6.	Exhibits	3431
	Signatures	3532

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2024 (unaudited)			June 30, 2023
	March 31, 2025 (unaudited)			June 30, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	31,~~685~~257,~~729~~099		$	104,~~446~~137,~~532~~055
Restricted cash		5447,~~553,873~~557			5,~~122~~328,~~379~~463
Accounts receivable, net		~~566~~707,~~570~~427			~~380~~844,~~085~~747
Inventory, net		105,~~439~~951,~~754~~565			7,~~476~~507,~~046~~303
Note receivable		~~250,000~~-			250,000
Prepaid expenses and other assets		~~794~~678,~~218~~149			~~901~~751,~~354~~476
Total current assets		219,~~290~~041,~~144~~797			2418,~~576~~819,~~396~~044
Long-term assets:
Inventory, net		1416,~~867~~013,~~933~~468			1917,~~277~~423,~~530~~082
Property and equipment, net		2,~~699~~330,~~133~~618			2,~~491~~761,~~569~~618
Intangible assets, net		~~340~~383,~~528~~406			~~305~~370,~~703~~186
Operating lease right-of-use assets		1,715,475			2,183,232
Note receivable – long term		250,000			-
Other assets		49,660			49,658
Operating lease right-of-use assets		1,036,480			1,556,653
Total long-term assets		19,672,729			24,307,692
Other assets		49,658			49,658
TOTAL ASSETS	$	40,962,873		$	48,884,088
Total long-term assets		20,063,630			22,161,197
TOTAL ASSETS	$	29,105,427		$	40,980,241
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	56,~~865~~068,~~435~~683		$	48,~~786~~274,~~155~~284
Short-term borrowings under line of credit		~~500,000~~-			-2,300,000
Operating lease liabilities, current portion		~~898~~922,~~217~~918			~~880~~904,~~126~~330
Accrued expenses and other liabilities		12,~~356~~490,~~264~~351			12,~~395~~650,~~479~~532
Total current liabilities		89,~~619~~481,~~916~~952			714,~~061~~129,~~760~~146
Long-term liabilities:
Noncurrent operating lease liabilities		1534,~~417,478~~923			21,~~047~~201,~~742~~722
Total long-term liabilities		1534,~~417,478~~923			21,~~047~~201,~~742~~722
Total liabilities		10,~~037~~016,~~394~~875			915,~~109~~330,~~502~~868
Commitments and contingencies (Note 9)
Shareholders’ equity:
Common stock, no par value; 50,000,000 shares authorized; 30,733,358 shares issued and 30,344,955 shares outstanding at March 31, 2024 and 30,912,108 shares issued and 30,523,705 shares outstanding at June 30, 2023		57,242,211			57,242,211
Common stock, no par value; 50,000,000 shares authorized; 3,157,114 shares issued and 3,118,273 shares outstanding at March 31, 2025 and 3,157,114 shares issued and 3,118,273 shares outstanding at June 30, 2024		67,233,259			67,233,259
Additional paid-in capital		2616,~~394~~534,~~881~~984			2616,~~205~~452,~~919~~615
Treasury stock, at cost, 388,403 shares at both March 31, 2024 and June 30, 2023		(489,979	)		(489,979	)
Treasury stock, at cost, 38,841 shares at both March 31, 2025 and June 30, 2024		(489,979	)		(489,979	)
Accumulated deficit		(5264,~~221~~189,~~634~~712	)		(4357,~~183~~546,~~565~~522	)
Total shareholders’ equity		3019,~~925~~088,~~479~~552			3925,~~774~~649,~~586~~373
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4029,~~962~~105,~~873~~427		$	4840,~~884~~980,~~088~~241

See Notes to Condensed Consolidated Financial Statements (unaudited).

Table of Contents

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended March 31,						Nine ~~Months~~months Ended March 31,
	2024			2023			2024			2023
	2025			2024			2025			2024
Net sales	$	54,~~261~~049,~~966~~355		$	65,~~641~~261,~~799~~966		$	1811,~~120~~912,~~629~~007		$	2418,~~382~~120,~~003~~629
Costs and expenses:
Cost of goods sold		43,~~076~~118,~~081~~504			4,~~493~~076,~~125~~081			128,~~134~~475,~~535~~175			1412,~~650~~134,~~910~~535
Sales and marketing		31,~~684~~524,~~506~~954			3,~~267~~684,~~436~~506			106,~~702~~174,~~796~~739			10,~~715~~702,~~066~~796
General and administrative		1,~~199~~374,~~511~~082			1,~~053~~199,~~357~~511			43,~~550~~907,~~841~~913			34,~~654~~550,~~788~~841
Total costs and expenses		86,~~960~~017,~~098~~540			8,~~813~~960,~~918~~098			2718,~~388~~557,~~172~~827			2927,~~020~~388,~~764~~172
Loss from operations		(31,~~698~~968,~~132~~185	)		(23,~~172~~698,~~119~~132	)		(96,~~267~~645,~~543~~820	)		(49,~~638~~267,~~761~~543	)
Other income (expense):
Interest income		7416,~~528~~136			6974,~~159~~528			~~244~~97,~~146~~881			~~168~~244,~~935~~146
Interest and other expense		(921,~~103~~098	)		-(9,103	)		(1495,~~672~~251	)		-(14,672	)
Total other income, net		65,425			69,159			229,474			168,935
Total other income (expense), net		(4,962	)		65,425			2,630			229,474
Loss before income taxes		(31,~~632~~973,~~707~~147	)		(23,~~102~~632,~~960~~707	)		(96,~~038~~643,~~069~~190	)		(49,~~469~~038,~~826~~069	)
Income tax expense		-			~~(6,293,048~~-	)		-			~~(5,858,155~~-	)
Net loss	$	(31,~~632~~973,~~707~~147	)	$	(83,~~396~~632,~~008~~707	)	$	(96,~~038~~643,~~069~~190	)	$	(109,~~327~~038,~~981~~069	)
Net loss per common share:
Basic	$	(0.1263	)	$	(01.2820	)	$	(02.3013	)	$	(02.3498	)
Diluted	$	(0.1263	)	$	(01.2820	)	$	(02.3013	)	$	(02.3498	)
Weighted average number of shares used in computing net loss per common share:
Basic		303,~~344~~118,~~955~~273			303,~~344~~034,~~954~~495			303,~~344~~118,~~955~~273			303,~~387~~034,~~303~~495
Diluted		303,~~344~~118,~~955~~273			303,~~344~~034,~~954~~495			303,~~344~~118,~~955~~273			303,~~387~~034,~~303~~495

See Notes to Condensed Consolidated Financial Statements (unaudited).

Table of Contents

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

	Nine Months Ended March 31, 2024
	Nine Months Ended March 31, 2025
	Common Stock
	Number of Shares			Amount		Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Total Shareholders’ Equity
Balance at June 30, 2023		30,523,705		$	57,242,211	$	26,205,919	$	(489,979	)	$	(43,183,565	)	$	39,774,586
Balance at June 30, 2024		3,118,273		$	67,233,259	$	16,452,615	$	(489,979	)	$	(57,546,522	)	$	25,649,373
Stock-based compensation		-			-		5143,~~444~~422		-			-			5143,~~444~~422
Net loss		-			-		-		-			(2,~~539~~133,~~457~~520	)		(2,~~539~~133,~~457~~520	)
Balance at September 30, 2023		30,523,705			57,242,211		26,257,363		(489,979	)		(45,723,022	)		37,286,573
Balance at September 30, 2024		3,118,273		$	67,233,259	$	16,496,037	$	(489,979	)	$	(59,680,042	)	$	23,559,275
Stock-based compensation		-			-		6730,~~174~~981		-			-			6730,~~174~~981
Cancellation of restricted stock		(178,750	)		-		-		-			-			-
Net loss		-			-		-		-			(2,536,523	)		(2,536,523	)
Net loss		-			-		-		-			(2,865,905	)		(2,865,905	)
Balance at December 31, 2024		3,118,273			67,233,259	$	16,527,018	$	(489,979	)	$	(62,216,565	)	$	21,053,733
Balance at December 31, 2023		30,344,955			57,242,211		26,324,537		(489,979	)		(48,588,927	)		34,487,842
Stock-based compensation		-			-		7,966		-			-			7,966
Stock-based compensation		-			-		70,344		-			-			70,344
Net loss		-			-		-		-			(1,973,147	)		(1,973,147	)
Net loss		-			-		-		-			(3,632,707	)		(3,632,707	)
Balance at March 31, 2025		3,118,273			67,233,259	$	16,534,984	$	(489,979	)	$	(64,189,712	)	$	19,088,552
Balance at March 31, 2024		30,344,955		$	57,242,211	$	26,394,881	$	(489,979	)	$	(52,221,634	)	$	30,925,479

	Nine Months Ended March 31, 2023
	Nine Months Ended March 31, 2024
	Common Stock
	Number of Shares			Amount		Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Total Shareholders’ Equity
Balance at June 30, 2022		30,747,759		$	57,242,211	$	25,956,491	$	(38,164	)	$	(23,602,771	)	$	59,557,767
Balance at June 30, 2023		3,052,370		$	57,242,211	$	26,205,919	$	(489,979	)	$	(43,183,565	)	$	39,774,586
Stock-based compensation		-			-		9651,~~232~~444		-			-			9651,~~232~~444
Cancellation of restricted stock		(44,688	)		-		-		-			-			-
Net loss		-			-		-		-			(2,539,457	)		(2,539,457	)
Repurchases of common stock		(358,116	)		-		-		(451,815	)		-			(451,815	)
Balance at September 30, 2023		3,052,370			57,242,211		26,257,363		(489,979	)		(45,723,022	)		37,286,573
Net loss		-			-		-		-			(890,192	)		(890,192	)
Stock-based compensation		-			-		67,174		-			-			67,174
Balance at September 30, 2022		30,344,955			57,242,211		26,052,723		(489,979	)		(24,492,963	)		58,311,992
Issuance of restricted stock		(17,875	)		-		-		-			-			-
Stock-based compensation		-			-		78,493		-			-			78,493
Net loss		-			-		-		-			(2,865,905	)		(2,865,905	)
Issuance of restricted stock		178,750			-		-		-			-			-
Balance at December 31, 2023		3,034,495			57,242,211		26,324,537		(489,979	)		(48,588,927	)		34,487,842
Net loss		-			-		-		-			(1,041,781	)		(1,041,781	)
Stock-based compensation		-			-		70,344		-			-			70,344
Balance at December 31, 2022		30,523,705			57,242,211		26,131,216		(489,979	)		(25,534,744	)		57,348,704
Net loss		-			-		-		-			(3,632,707	)		(3,632,707	)
Stock-based compensation		-			-		34,594		-			-			34,594
Balance at March 31, 2024		3,034,495		$	57,242,211	$	26,394,881	$	(489,979	)	$	(52,221,634	)	$	30,925,479
Net loss		-			-		-		-			(8,396,008	)		(8,396,008	)
Balance at March 31, 2023		30,523,705		$	57,242,211	$	26,165,810	$	(489,979	)	$	(33,930,752	)	$	48,987,290

See Notes to Condensed Consolidated Financial Statements (unaudited).

Table of Contents

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended March 31,
	Nine months Ended March 31,
	2024			2023
	2025			2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(96,~~038~~643,~~069~~190	)	$	(109,~~327~~038,~~981~~069	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		~~530~~651,~~161~~209			~~477~~530,~~285~~161
Stock-based compensation		~~188~~82,~~961~~369			~~209~~188,~~319~~961
(Recovery of) Provision for uncollectible accounts		107,000			(18,000	)
Provision for uncollectible accounts		85,000			107,000
(Recovery of) Provision for sales returns		(160,000	)		59,000
Recovery of sales returns		-			(160,000	)
Inventory write-downs		-			119,000
Provision for accounts receivable discounts		-			11,976
Provision for accounts receivable discounts		11,976			42
Deferred income taxes		-			5,851,904
Changes in operating assets and liabilities:
Accounts receivable		~~(145~~52,~~461~~321	)		1(145,~~246,221~~461	)
Inventory		12,~~445~~965,~~889~~352			641,~~514~~445,889
Prepaid expenses and other assets		~~574~~593,~~892~~500			~~756~~574,~~554~~892
Accounts payable		1(2,~~079~~205,~~280~~602	)		(1,~~284~~079,~~419~~280	)
Accrued expenses and other liabilities		(~~651~~808,~~388~~392	)		(~~980~~651,~~909~~388	)
Net cash used in operating activities		(65,~~056~~227,~~759~~433	)		(36,~~827~~056,~~470~~759	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(~~723~~207,~~256~~754	)		(~~884~~723,~~030~~256	)
Payments for intangible assets		(4925,~~294~~675	)		(4549,~~397~~294	)
Net cash used in investing activities		(~~772~~233,~~550~~429	)		(~~929~~772,~~427~~550	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit		~~500,000~~-			-500,000
Repurchases of common stock		-			(451,815	)
Repayment of the line of credit		(2,300,000	)		-
Net cash provided by (used in) financing activities		~~500~~(2,300,000	)		~~(451~~500,~~815~~000	)
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(67,~~329~~760,~~309~~862	)		(56,~~208~~329,~~712~~309	)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD		159,~~568~~465,~~911~~518			2115,~~179~~568,~~340~~911
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	91,~~239~~704,~~602~~656		$	159,~~970~~239,~~628~~602
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$	~~16,486~~-		$	516,~~900~~486
Cash paid during the period for interest expense	$	1087,~~770~~372		$	-10,770

See Notes to Condensed Consolidated Financial Statements (unaudited).

Table of Contents

CHARLES & COLVARD, LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	DESCRIPTION OF BUSINESS

Charles & Colvard, Ltd. (the “Company”), a North Carolina corporation, was founded in 1995. The Company manufactures, markets, and distributes Charles & Colvard Created Moissanite® (hereinafter referred to as moissanite or moissanite jewels) and finished jewelry featuring moissanite, including Forever One™, the Company’s premium moissanite gemstone brand, for sale in the worldwide fine jewelry market. The Company also markets and distributes Caydia® lab grown diamonds and finished jewelry featuring lab grown diamonds ~~and created color gems~~ for sale in the worldwide fine jewelry market.

The Company sells loose moissanite ~~gems~~jewels, loose lab grown diamonds, and finished jewelry featuring both moissanite, and lab grown diamonds at wholesale prices to distributors, manufacturers, retailers, and ~~created~~designers, ~~color~~including ~~gems~~some toof ~~leading~~the ~~jewelry~~largest distributors, ~~manufacturers,~~ and ~~retailers~~ atjewelry ~~wholesale~~manufacturers ~~prices~~in the world. In addition, in May 2023, the Company launched charlesandcolvarddirect.com, a direct-to-wholesaler ~~wholesale~~ sales portal, ~~servicing~~which ~~independent~~is ~~jewelers~~a ~~and~~gemstone ~~retailers~~product ~~purchasing~~disposition ~~loose~~wholesale ~~gemstones~~outlet. ~~These~~ The Company’s finished jewelry and loose moissanite ~~gems~~jewels ~~are~~and ~~then~~lab grown diamonds that are mounted into fine jewelry by ~~jewelers, retailers, and~~ other manufacturers ~~and~~are sold ~~via~~at ~~their~~retail ~~own~~outlets ~~sales~~and ~~channels.~~via ~~Additionally,~~ the Internet. The Company sells ~~to end-consumers~~ at retail prices to end-consumers through its own Charles & Colvard Signature Showroom, which opened in October 2022, and through its wholly-owned operating subsidiary, charlesandcolvard.com, LLC, ~~which includes the Company’s own transactional website, madeshopping.com,~~ third-party online marketplaces, drop-ship, and other pure-play, exclusively e-commerce outlets. The Company also sells ~~to end-consumers~~ at ~~discounted~~discount retail prices to end-consumers through moissaniteoutlet.com, LLC, a wholly-owned operating subsidiary of charlesandcolvard.com, LLC, and ~~select~~ third-party online marketplaces.

2.	BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation – The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. However, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q include all normal and recurring adjustments necessary for the fair statement of the results for ~~the~~ the interim periods presented. The results for the three and nine months ended March 31, ~~2024~~2025 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, ~~2024~~2025.

The condensed consolidated financial statements as of March 31, ~~2024~~2025 and for the three and nine months ended March 31, ~~2024~~2025 and ~~2023~~2024 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of June 30, ~~2023~~2024 is derived from the audited financial statements as of that date. The accompanying statements should be read in conjunction with the audited financial statements and related notes contained in Item 8 8 of the Company’s Annual Report on Form 10-K (the “~~2023~~2024 Annual Report”) for the fiscal year ended June 30, ~~2023~~2024 or Fiscal ~~2023~~2024 filed with the SEC on ~~October~~April 123, ~~2023~~2025.

The accompanying condensed consolidated financial statements as of March 31, ~~2024~~ 2025 and June 30, ~~2023~~2024 and for the three and nine months ended March 31, ~~2024~~2025 and ~~2023~~2024, include the accounts of the Company and its wholly-owned subsidiaries charlesandcolvard.com, LLC, including its wholly-owned subsidiary, ~~moissaniteoulet~~moissaniteoutlet.com, LLC, which was formed and incorporated as of February 24, 2022; Charles & Colvard Direct, LLC; and Charles & Colvard (HK) Ltd., the Company’s Hong Kong subsidiary, which was entered into dormancy as of September 30, 2020 following its re-activation in December 2017. Charles & Colvard (HK) Ltd. previously became dormant in the second quarter of 2009 and has had no operating activity since 2008. Charles & Colvard Direct, LLC, had no operating activity during the ~~nine~~three- and nine-month periods ended March 31, ~~2024~~2025 or ~~2023~~2024. All intercompany accounts have been eliminated.

~~Nasdaq~~Going ~~Listing~~Concern ~~Notification~~– -The ~~On June 12, 2023, we received a notification letter from Nasdaq~~Company’s ~~Listing~~accompanying ~~Qualifications~~condensed ~~Department~~consolidated ~~indicating~~financial ~~that~~statements wehave been ~~are~~prepared ~~not~~on ina ~~compliance~~going ~~with~~concern ~~Nasdaq~~basis, ~~Listing~~which ~~Rule 5550~~contemplates ~~(a)(2),~~the ~~because~~realization ~~the~~of ~~minimum~~assets ~~bid~~and ~~price~~satisfaction of ~~our~~obligations ~~common~~in ~~stock on~~ the ~~Nasdaq~~normal ~~Capital~~course ~~Market~~of ~~has closed below $1~~business.00 ~~per~~However, ~~share~~ for 30the ~~consecutive~~nine ~~business~~months ~~days.~~ended ~~The~~March ~~notification~~31, ~~letter~~2025, ~~has no immediate effect on~~ the ~~Nasdaq~~Company ~~listing~~had orlosses ~~trading~~of ~~in our common stock~~$6.64 Inmillion ~~accordance~~and ~~with~~cash ~~Nasdaq~~flow ~~Listing~~used ~~Rule~~in ~~5810(c)(3)(A),~~operations weof ~~had~~$5.23 million. ~~180~~These ~~calendar~~factors ~~days,~~and orthe ~~until~~recent ~~December~~Wolfspeed ~~11,~~arbitration ~~2023,~~award toand ~~regain~~related ~~compliance~~settlement ~~with~~agreement ~~the~~of ~~minimum~~ $14.0077 ~~bid~~million ~~price~~raise substantial ~~per~~doubt ~~share~~about ~~requirement. We received notice on December 12, 2023 from~~ the ~~Nasdaq~~Company’s ~~Listing~~ability ~~Qualifications~~to ~~Department~~continue ~~which~~as ~~resulted~~a ingoing anconcern ~~additional 180-day period, or until June 10, 2024,~~ within ~~which~~one toyear ~~regain~~from ~~compliance~~the ~~with~~date the ~~$1.00~~financial ~~minimum~~statements ~~bid~~are ~~price requirement~~issued.

~~Going Concern -~~ The Company’s ~~accompanying~~management ~~condensed~~is ~~consolidated financial~~continuing ~~statements~~to ~~have~~work ~~been prepared~~ on aplans ~~going~~to ~~concern~~fund ~~basis,~~operations ~~which~~to ~~contemplates~~alleviate the ~~realization~~conditions ofthat ~~assets~~raise ~~and~~substantial ~~satisfaction~~doubt ofby ~~obligations~~evaluating inits ~~the normal course of business. However~~financing arrangements, ~~for~~implementing ~~the~~cost ~~nine~~savings ~~months~~actions ~~ended~~to ~~March~~reduce ~~31,~~cash ~~2024~~outflow, ~~the Company had losses of $9.04 million~~ and ~~cash~~evaluating ~~flow~~the ~~used~~liquidation inof ~~operations~~certain ofinventories, ~~$6.1~~if ~~million~~needed. ~~These~~However, ~~factors~~there ~~and~~can ~~particularly~~be ~~our~~no ~~recent~~assurance ~~cash~~that ~~burn~~these ~~rate~~plans ~~when~~will ~~combined~~be ~~with~~successful ~~our~~or ~~existing~~that ~~cash~~additional ~~and cash equivalents and availability of our short-term resources raise~~financing ~~substantial~~will ~~doubt~~be ~~about~~available ~~the~~on ~~Company’s~~terms ~~ability~~acceptable to ~~continue as a going concern for one year from~~ the ~~date the financial statements are issued~~Company.

The Company’s management is continuing to work on plans to fund operations to alleviate the conditions that raise substantial doubt by evaluating its financing arrangements, implementing cost savings actions to reduce cash outflow, and evaluating its ability to liquidate and convert to cash certain of the Company’s existing inventory totaling $25.31 million as of March 31, 2024. However, there can be no assurance that these plans will be successful or that additional financing will be available on terms acceptable to the Company.

In view of these matters, continuation as a going concern is dependent upon continued operations of the Company, which in turn is dependent upon the Company’s ability to meet its financial requirements and the success of its future operations. The financial statements do not include any adjustments to the amount or the classification of assets and liabilities that may be necessary should the Company not continue as a going concern.

Significant Accounting Policies – In the opinion of the Company’s management, the Company’s significant accounting policies used for the three and nine months ended March 31, 2024, are consistent with those used for the fiscal year ended June 30, 2023. Accordingly, please refer to Note 2 to the Consolidated Financial Statements in the 2023 Annual Report for the Company’s significant accounting policies.

~~Use~~Table of ~~Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates~~Contents and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. As future events and their effects cannot be fully determined with precision, actual results of operations, cash flow, and financial position could differ significantly from estimates. The most significant estimates impacting the Company’s consolidated financial statements relate to the valuation and classification of inventories, accounts receivable reserves, stock-based compensation, valuation allowance for deferred income tax assets, and revenue recognition. Changes in estimates are reflected in the consolidated financial statements in the period in which the change in estimate occurs.

~~Restricted Cash –~~ In ~~accordance~~view ~~with the terms~~ of ~~the~~these ~~Company’s cash collateralized $5.00 million credit facility from JPMorgan Chase Bank~~matters, ~~N.A.~~continuation ~~(“JPMorgan~~as ~~Chase”),~~a ~~which~~going ~~expires~~concern byis ~~its~~dependent ~~terms~~upon oncontinued ~~July~~operations ~~31,~~of ~~2024,~~ the Company, iswhich ~~required to keep cash~~ in aturn ~~cash deposit account held by JPMorgan Chase. Such amount~~ is ~~held~~dependent asupon ~~security for~~ the Company’s ability ~~credit~~to ~~facility~~meet ~~from~~its ~~JPMorgan~~financial ~~Chase.~~requirements ~~Accordingly,~~and ~~this~~the ~~cash~~success ~~deposit~~of ~~held~~its byfuture ~~JPMorgan~~operations. ~~Chase~~The isfinancial ~~classified~~statements asdo ~~restricted~~not ~~cash~~include ~~for~~any ~~financial~~adjustments ~~reporting~~to ~~purposes~~the onamount or the ~~Company’s~~classification ~~condensed~~of ~~consolidated~~assets ~~balance~~and ~~sheets.~~liabilities ~~For~~that ~~additional information~~may ~~regarding~~be ~~the~~necessary should the Company’s ~~cash~~not ~~collateralized~~continue ~~credit~~as ~~facility,~~a ~~see~~going ~~Note 10, “Debt~~concern.”

~~Pursuant~~Significant toAccounting ~~the~~Policies ~~terms~~– ~~and~~The ~~conditions of the~~ Company’s ~~broker-dealer agreement with Oppenheimer & Co., Inc. (“Oppenheimer”), with whom the Company has engaged to transact common stock share repurchases in connection with its stock~~ ~~repurchase~~significant ~~program,~~accounting ~~the~~policies ~~Company~~used ~~is required to maintain a funded liquid margin account held by Oppenheimer~~ for the ~~benefit~~three ofand ~~the~~nine ~~Company.~~months ~~The~~ended ~~purpose~~March of31, ~~this~~2025, ~~account~~are isconsistent towith ~~fund~~those ~~the~~used ~~Company’s~~for ~~common stock purchases and any underlying transaction costs and fees. Depending upon~~ the ~~level~~fiscal ~~and~~year ~~timing~~ended ofJune ~~stock repurchase activity~~30, ~~the funded margin account cash balance will fluctuate from time to time~~2024. ~~At March 31~~Accordingly, ~~2024~~please ~~and~~refer ~~June~~to ~~30,~~Note ~~2023,~~2 ~~cash~~to in the ~~amount~~Consolidated ofFinancial ~~approximately $250,000~~Statements ~~and approximately $30,~~in ~~respectively,~~the ~~was~~2024 ~~held~~Annual byReport ~~Oppenheimer. Such cash amount held by Oppenheimer was classified as restricted cash~~ for ~~financial reporting purposes on~~ the Company’s ~~condensed~~significant ~~consolidated~~accounting ~~balance sheets~~policies. ~~For additional information regarding the Company’s stock repurchase program, see Note 11, “Shareholders’ Equity and Stock-Based Compensation.”~~

InUse ~~accordance~~of ~~with~~Estimates ~~the~~– ~~terms~~The preparation of ~~the~~financial ~~Company’s~~statements ~~bank~~in ~~card/security~~conformity ~~agreement,~~with ~~entered~~U.S. ~~into~~GAAP ~~during~~requires ~~the~~management ~~three~~to make estimates ~~months~~ and ~~ended~~assumptions ~~March~~that 31affect the reported amounts of assets and liabilities, ~~2024~~disclosure ~~with~~of acontingent ~~third-party~~assets ~~financial~~and ~~service~~liabilities ~~company~~at ~~that~~the ~~offers~~date ~~business~~of ~~credit~~the ~~cards~~financial statements, and the ~~Company~~reported isamounts ~~required~~of torevenues ~~keep~~and ~~cash~~expenses induring anthe ~~account~~reporting ~~held~~period. byAs future ~~the~~events ~~third-party~~and ~~totaling~~their ~~$250~~effects cannot be fully determined with precision,~~000.~~ ~~Such~~actual ~~amount~~results isof ~~held~~operations, ascash ~~security~~flow, ~~for~~and financial position could differ significantly from estimates. The most significant estimates impacting the Company’s ~~bank~~condensed consolidated ~~card~~financial ~~program~~statements ~~with~~relate ato ~~credit~~the ~~limit~~valuation and classification of ~~$500~~inventories,~~000.~~ ~~Accordingly~~accounts receivable reserves, ~~this~~stock-based ~~cash~~compensation, ~~deposit~~valuation ~~held~~allowance byfor ~~the~~deferred ~~third~~income ~~party~~tax ~~financial~~assets, ~~service~~and ~~company~~revenue isrecognition. ~~classified~~Changes asin ~~restricted~~estimates ~~cash~~are ~~for~~reflected in the condensed consolidated financial ~~reporting~~statements ~~purposes~~in the onperiod in which the ~~Company’s~~ ~~condensed~~change ~~consolidated~~in ~~balance~~estimate ~~sheets~~occurs.

Restricted Cash – In accordance with the terms of the Company’s cash collateralized $5.00 million credit facility from JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), which the Company entered into on July 12, 2021, as amended July 28, 2022, June 21, 2023, July 29, 2024, amended further October 31, 2024, and expired on January 31, 2025, the Company was required to keep $5.1 million in a cash deposit account held by JPMorgan Chase. Such amount was held as security for the Company’s credit facility from JPMorgan Chase. Accordingly, during the term of the JPMorgan Chase credit facility, the cash deposit held by JPMorgan Chase was classified as restricted cash for financial reporting purposes on the Company’s Condensed Consolidated Balance Sheets.

For additional information regarding the Company’s cash collateralized credit facility with JPMorgan Chase, see Note 10, “Debt”.

In accordance with the terms of the Company’s bank card/security agreement, entered into during the fiscal year ended June 30, 2024 with a third-party financial services company that offers business credit cards, the Company is required to keep cash in an account held by the third-party totaling $250,000. Such amount is held as security for the Company’s bank card program with a credit limit of $500,000. Accordingly, this cash deposit held by the third-party financial service company is classified as restricted cash for financial reporting purposes on the Company’s consolidated balance sheets.

The reconciliation of cash, cash equivalents, and restricted cash, as presented on the Condensed Consolidated Statements of Cash Flows, consist of the following as of the dates presented:

	March 31, 2024		June 30, 2023
	March 31, 2025		June 30, 2024
Cash and cash equivalents	$	31,~~685~~257,~~729~~099	$	104,~~446~~137,~~532~~055
Restricted cash		5447,~~553,873~~557		5,~~122~~328,~~379~~463
Total cash, cash equivalents, and restricted cash	$	91,~~239~~704,~~602~~656	$	159,~~568~~465,~~911~~518

Recently Adopted/Issued Accounting Pronouncements – In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant expenses. The updated standard is effective for annual periods beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.

In December 2023, the FASB issued ASU No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires two primary disclosure enhancements: 1) disaggregated information on a reporting entity’s effective tax rate reconciliation and 2) information on income taxes paid. For public business entities, the new requirements will be effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.

3In November 2024, the FASB issued ASU No. ~~SEGMENT~~2024-03 ~~INFORMATION~~“Income Statement—Reporting ~~AND~~Comprehensive ~~GEOGRAPHIC~~Income ~~DATA~~(Topic 220): Expense Disaggregation Disclosures,” which requires disaggregated disclosure of income statement expenses. For public business entities, the new requirements will be effective for annual periods beginning December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU.

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making operating decisions and assessing performance as the source of the Company’s operating and reportable segments.

The Company manages its business through two operating and reportable segments based on its distribution channels to sell its product lines, loose jewels and finished jewelry: its “Online Channels” segment, which consists of e-commerce outlets including charlesandcolvard.com, moissaniteoutlet.com, charlesandcolvarddirect.com, madeshopping.com, third-party online marketplaces, drop-ship retail, and other pure-play, exclusively e-commerce outlets; and its “Traditional” segment, which consists of wholesale and retail customers, including its own Charles & Colvard Signature Showroom. The accounting policies of the Online Channels segment and Traditional segment are the same as those described in Note 2, “Basis of Presentation and Significant Accounting Policies” and in the Notes to the Consolidated Financial Statements in the 2023 Annual Report.

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3.	SEGMENT INFORMATION AND GEOGRAPHIC DATA

The Company manages its business through two operating and reportable segments based on its distribution channels to sell its product lines, loose jewels and finished jewelry: its “Online Channels” segment, which consists of e-commerce outlets including charlesandcolvard.com, moissaniteoutlet.com, charlesandcolvarddirect.com, madenetwork.com, third-party online marketplaces, drop-ship retail, and other pure-play, exclusively e-commerce outlets; and its “Traditional” segment, which consists of wholesale and retail customers, including its own Charles & Colvard Signature Showroom. The accounting policies of the Online Channels segment and Traditional segment are the same as those described in Note 2, “Basis of Presentation and Significant Accounting Policies” and in the Notes to the Consolidated Financial Statements in the 2024 Annual Report.

The Company evaluates the financial performance of its segments based on net sales and product line gross profit, or the excess of product line sales over product line cost of goods sold. The Company’s product line cost of goods sold is defined as product cost of goods sold and excludes certain indirect supporting expenses from the Company’s manufacturing and production control departments, comprising personnel costs, and allocations for depreciation, leases, utilities, and corporate overhead; freight; inventory write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods.

Summary financial information by reportable segment is as follows:

Three Months Ended March 31, 2024

Three Months Ended March 31, 2025

Online Channels

Traditional

Total

Net sales

Finished jewelry

32,~~840~~376,~~382~~826

1,~~044~~552,~~116~~102

43,~~884~~928,~~498~~928

Loose jewels

~~219~~114,~~828~~084

~~157~~6,~~640~~343

~~377~~120,~~468~~427

Total

42,~~060~~490,~~210~~910

1,~~201~~558,~~756~~445

54,~~261~~049,~~966~~355

Product line cost of goods sold

Finished jewelry

1986,~~980,096~~979

~~737~~1,~~957~~195,555

2,~~718~~182,~~053~~534

Loose jewels

7544,~~243~~858

764,~~627~~211

~~151~~49,~~870~~069

Total

21,~~055~~031,~~339~~837

~~814~~1,~~584~~199,766

2,~~869~~231,~~923~~603

Product line gross profit

Finished jewelry

1,~~860~~389,~~286~~847

~~306~~356,~~159~~547

21,~~166~~746,~~445~~394

Loose jewels

~~144~~69,~~585~~226

812,~~013~~132

~~225~~71,~~598~~358

Total

21,~~004~~459,~~871~~073

~~387~~358,~~172~~679

21,~~392~~817,~~043~~752

Depreciation and amortization

4194,~~260~~189

~~131~~122,~~882~~464

~~173~~216,~~142~~653

Capital expenditures

~~142~~41,~~756~~359

852,~~198~~475

~~227~~43,~~954~~834

	Three Months Ended March 31, 2023
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	4,130,314	$	1,190,987	$	5,321,301
Loose jewels		486,084		834,414		1,320,498
Total	$	4,616,398	$	2,025,401	$	6,641,799
Product line cost of goods sold
Finished jewelry	$	1,880,504	$	959,817	$	2,840,321
Loose jewels		197,145		448,114		645,259
Total	$	2,077,649	$	1,407,931	$	3,485,580
Product line gross profit
Finished jewelry	$	2,249,810	$	231,170	$	2,480,980
Loose jewels		288,939		386,300		675,239
Total	$	2,538,749	$	617,470	$	3,156,219
Depreciation and amortization	$	47,876	$	120,509	$	168,385
Capital expenditures	$	14,202	$	252,545	$	266,747

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Nine Months Ended March 31, 2024

Three Months Ended March 31, 2024

Online Channels

Traditional

Total

Net sales

Finished jewelry

133,~~780~~840,~~906~~382

21,~~796~~044,~~204~~116

164,~~577~~884,~~110~~498

Loose jewels

~~850~~219,~~208~~828

~~693~~157,~~311~~640

1377,~~543,519~~468

Total

144,~~631~~060,~~114~~210

31,~~489~~201,~~515~~756

185,~~120~~261,~~629~~966

Product line cost of goods sold

Finished jewelry

61,~~948~~980,~~411~~096

1737,~~647,325~~957

82,~~595~~718,~~736~~053

Loose jewels

~~271~~75,~~669~~243

~~320~~76,~~569~~627

~~592~~151,~~238~~870

Total

72,~~220~~055,~~080~~339

1814,~~967,894~~584

92,~~187~~869,~~974~~923

Product line gross profit

Finished jewelry

61,~~832~~860,~~495~~286

1306,~~148,879~~159

72,~~981~~166,~~374~~445

Loose jewels

~~578~~144,~~539~~585

~~372~~81,~~742~~013

~~951~~225,~~281~~598

Total

72,~~411~~004,~~034~~871

1387,~~521,621~~172

82,~~932~~392,~~655~~043

Depreciation and amortization

~~135~~41,~~411~~260

~~394~~131,~~750~~882

~~530~~173,~~161~~142

Capital expenditures

~~442~~142,~~460~~756

~~280~~85,~~796~~198

~~723~~227,~~256~~954

Nine Months Ended March 31, 2023

Nine months Ended March 31, 2025

Online Channels

Traditional

Total

Net sales

Finished jewelry

158,~~657~~228,~~343~~051

32,~~640~~934,~~572~~998

1911,~~297~~163,~~915~~049

Loose jewels

1554,~~657,369~~702

3194,~~426,719~~256

5748,~~084,088~~958

Total

178,~~314~~782,~~712~~753

73,~~067~~129,~~291~~254

2411,~~382~~912,~~003~~007

Product line cost of goods sold

Finished jewelry

74,~~296~~187,~~812~~357

2,~~335~~406,~~540~~033

96,~~632~~593,~~352~~390

Loose jewels

~~623~~248,~~129~~853

185,~~719,004~~352

2334,~~342,133~~205

Total

74,~~919~~436,~~941~~210

42,~~054~~491,~~544~~385

116,~~974~~927,~~485~~595

Product line gross profit

Finished jewelry

84,~~360~~040,~~531~~694

1528,~~305,032~~965

94,~~665~~569,~~563~~659

Loose jewels

1305,~~034,240~~849

1108,~~707,715~~904

2414,~~741,955~~753

Total

94,~~394~~346,~~771~~543

3637,~~012,747~~869

124,~~407~~984,~~518~~412

Depreciation and amortization

~~167~~281,~~769~~199

~~309~~370,~~516~~010

~~477~~651,~~285~~209

Capital expenditures

~~173~~204,~~810~~454

~~710~~3,~~220~~300

~~884~~207,~~030~~754

The Company does not allocate any assets to the reportable segments, and, therefore, no asset information is reported to the chief operating decision maker or disclosed in the financial information for each segment.

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	Nine months Ended March 31, 2024
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	13,780,906	$	2,796,204	$	16,577,110
Loose jewels		850,208		693,311		1,543,519
Total	$	14,631,114	$	3,489,515	$	18,120,629

Product line cost of goods sold
Finished jewelry	$	6,948,411	$	1,647,325	$	8,595,736
Loose jewels		271,669		320,569		592,238
Total	$	7,220,080	$	1,967,894	$	9,187,974

Product line gross profit
Finished jewelry	$	6,832,495	$	1,148,879	$	7,981,374
Loose jewels		578,539		372,742		951,281
Total	$	7,411,034	$	1,521,621	$	8,932,655

Depreciation and amortization	$	135,411	$	394,750	$	530,161

Capital expenditures	$	442,460	$	280,796	$	723,256

A reconciliation of the Company’s product line cost of goods sold to cost of goods sold as reported in the condensed consolidated financial statements is as follows:

	Three Months Ended March 31,				Nine ~~Months~~months Ended March 31,
	2024		2023		2024		2023
	2025		2024		2025		2024
Product line cost of goods sold	$	2,~~869~~231,~~923~~603	$	32,~~485~~869,~~580~~923	$	96,~~187~~927,~~974~~595	$	119,~~974~~187,~~485~~974
Other indirect manufacturing and production control expenses and period costs		672,373		596,344		1,934,837		1,660,231
Non-product line cost of goods sold: Manufacturing and production control expenses		401,395		672,373		1,118,772		1,934,837
Freight out		~~286~~108,~~526~~782		~~216~~286,~~817~~526		~~828~~392,~~990~~750		~~851~~828,~~171~~990
Inventory write-downs		-		-		-		119,000
Other inventory adjustments		376,724		247,259		36,058		182,734
Other inventory adjustments		247,259		194,384		182,734		46,023
Cost of goods sold	$	3,118,504	$	4,076,081	$	8,475,175	$	12,134,535
Cost of goods sold	$	4,076,081	$	4,493,125	$	12,134,535	$	14,650,910

A reconciliation of the Company’s consolidated product line gross profit to the Company’s consolidated net loss before income taxes is as follows:

	Three Months Ended March 31,						Nine ~~Months~~months Ended March 31,
	2024			2023			2024			2023
	2025			2024			2025			2024
Product line gross profit	$	21,~~392~~817,~~043~~752		$	32,~~156~~392,~~219~~043		$	84,~~932~~984,~~655~~412		$	128,~~407~~932,~~518~~655
Other indirect manufacturing and production control expenses and period costs		(1,206,158	)		(1,007,545	)		(2,946,561	)		(2,676,425	)
Non-allocated cost of goods sold		(886,901	)		(1,206,158	)		(1,547,580	)		(2,946,561	)
Sales and marketing		(31,~~684~~524,~~506~~954	)		(3,~~267~~684,~~436~~506	)		(106,~~702~~174,~~796~~739	)		(10,~~715~~702,~~066~~796	)
General and administrative		(1,~~199~~374,~~511~~082	)		(1,~~053~~199,~~357~~511	)		(43,~~550~~907,~~841~~913	)		(34,~~654~~550,~~788~~841	)
Other income (expense) net		65(4,~~425~~962	)		6965,~~159~~425			~~229~~2,~~474~~630			~~168~~229,~~935~~474
Loss before income taxes	$	(31,~~632~~973,~~707~~147	)	$	(23,~~102~~632,~~960~~707	)	$	(96,~~038~~643,~~069~~190	)	$	(49,~~469~~038,~~826~~069	)

The Company recognizes sales by geographic area based on the country in which the customer is based. Sales to international end consumers made through the Company’s transactional websites, including charlesandcolvard.com, moissaniteoutlet.com, charlesandcolvarddirect.com and madeshopping.com, are included in international sales for financial reporting purposes. A portion of the Company’s Traditional segment sales made to international wholesale distributors represents products sold internationally that may be re-imported to U.S. retailers.

The following presents net sales data by geographic area:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2024		2023		2024		2023
Net sales
United States	$	5,188,939	$	6,545,336	$	17,700,626	$	23,630,410
International		73,027		96,463		420,003		751,593
Total	$	5,261,966	$	6,641,799	$	18,120,629	$	24,382,003

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The following presents net sales data by geographic area:

	Three Months Ended March 31,				Nine months Ended March 31,
	2025		2024		2025		2024
Net sales
United States	$	4,049,355	$	5,188,939	$	11,912,007	$	17,700,626
International		-		73,027		-		420,003
Total	$	4,049,355	$	5,261,966	$	11,912,007	$	18,120,629

4.	FAIR VALUE MEASUREMENTS

Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy consists of three levels based on the reliability of inputs, as follows:

Level 1. Quoted prices in active markets for identical assets and liabilities;

Level 2. Inputs other than Level 1 quoted prices that are directly or indirectly observable; and

Level 3. Unobservable inputs that are not corroborated by market data.

The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by the management of the Company. The financial instruments of the Company are cash and cash equivalents, restricted cash, notes receivable, trade accounts receivable, and trade accounts payable. All financial instruments are reflected in the condensed consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these financial instruments.

The ~~There were~~Company noevaluated its financial assets ~~measured~~and atliabilities subject to fair value measurements on a ~~non-~~recurring basis to determine the appropriate level in which to classify them for each reporting period. The following tables summarize the Company’s financial assets measured at fair value as of March 31, 2025 ~~2024~~and or June 30, ~~2023.~~ 2024:

5. INVENTORIES

	Fair value measurements on a recurring basis March 31, 2025
	Level 1		Level 2		Level 3		Total
Financial Assets:
Money Market Fund (cash equivalents)	$	22,428	$	-	$	-	$	22,428
Total Financial Assets	$	22,428	$	-	$	-	$	22,428

The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:

	Fair value measurements on a recurring basis June 30, 2024
	Level 1		Level 2		Level 3		Total
Financial Assets:
Money Market Fund (cash equivalents)	$	773,613	$	-	$	-	$	773,613
Total Financial Assets	$	773,613	$	-	$	-	$	773,613

	March 31, 2024		June 30, 2023
Finished jewelry:
Raw materials	$	1,413,161	$	1,288,906
Work-in-process		976,263		1,223,670
Finished goods		12,426,496		12,772,611
Finished goods on consignment		2,070,210		2,039,506
Total finished jewelry	$	16,886,130	$	17,324,693
Loose jewels:
Raw materials	$	109,876	$	421,603
Work-in-process		5,149,485		6,131,853
Finished goods		2,715,318		2,294,270
Finished goods on consignment		199,289		254,323
Total loose jewels		8,173,968		9,102,049
Total supplies inventory		247,589		326,834
Total inventory	$	25,307,687	$	26,753,576

As of the dates presented, the Company’s total inventories, net of reserves, are classified as follows:

	March 31, 2024		June 30, 2023
Short-term portion	$	10,439,754	$	7,476,046
Long-term portion		14,867,933		19,277,530
Total	$	25,307,687	$	26,753,576

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The Company’s work-in-process inventories include raw SiC crystals on which processing costs, such as labor and sawing, have been incurred; and components, such as metal castings and finished goods set with moissanite jewels, that have been issued to jobs in the manufacture of finished jewelry5. The Company’s moissanite jewel manufacturing process involves the production of intermediary shapes, called “preforms,” that vary depending upon the expected size and shape of the finished jewel. To maximize manufacturing efficiencies, preforms may be made in advance of current finished inventory needs but remain in work-in-process inventories. As of March 31, 2024 and June 30, 2023, work-in-process inventories issued to active production jobs approximated $1.43 million and $1.99 million, respectively.INVENTORIES

The Company’s total inventories, net, consisted of the following as of the dates presented:

	March 31, 2025		June 30, 2024
Finished jewelry:
Raw materials	$	612,011	$	1,014,072
Work-in-process		855,736		433,150
Finished goods		7,862,669		10,927,372
Finished goods on consignment		1,845,779		2,247,609
Total finished jewelry	$	11,176,195	$	14,622,203
Loose jewels:
Raw materials	$	1,732,876	$	1,908,677
Work-in-process		4,518,231		5,393,035
Finished goods		4,172,797		2,577,648
Finished goods on consignment		196,936		201,345
Total loose jewels		10,620,840		10,080,705
Total supplies inventory		167,998		227,477
Total inventory	$	21,965,033	$	24,930,385

As of the dates presented, the Company’s total inventories, net of reserves, are classified as follows:

	March 31, 2025		June 30, 2024
Short-term portion	$	5,951,565	$	7,507,303
Long-term portion		16,013,468		17,423,082
Total	$	21,965,033	$	24,930,385

The Company’s work-in-process inventories include raw SiC crystals on which processing costs, such as labor and sawing, have been incurred; and components, such as metal castings and finished goods set with moissanite jewels, that have been issued to jobs in the manufacture of finished jewelry. The Company’s moissanite jewel manufacturing process involves the production of intermediary shapes, called “preforms,” that vary depending upon the expected size and shape of the finished jewel. To maximize manufacturing efficiencies, preforms may be made in advance of current finished inventory needs but remain in work-in-process inventories. As of March 31, 2025 and June 30, 2024, work-in-process inventories issued to active production jobs approximated $996,000 and $841,000, respectively.

The Company’s moissanite and lab grown diamond jewels do not degrade in quality over time and inventory generally consists of the shapes and sizes most commonly used in the jewelry industry. Product obsolescence is closely monitored and reviewed by management as of and for each financial reporting period.

The Company manufactures finished jewelry featuring moissanite, lab grown diamonds, and created color gemstones. Relative to loose moissanite jewels and lab grown diamonds, finished jewelry is more fashion-oriented and subject to styling trends that could render certain designs obsolete over time. The majority of the Company’s finished jewelry featuring moissanite and lab grown diamonds is held in inventory for resale and largely consists of such core designs as stud earrings, solitaire and side-stone rings, pendants, and bracelets that tend not to be subject to significant obsolescence risk due to their classic styling. In addition, the Company generally holds smaller quantities of designer-inspired and trend fashion jewelry that is available for resale through retail companies and its Online Channels segment. The Company also carries inventory as part of its sample line that the Company uses in the selling process to its customers.

The Company’s continuing operating subsidiaries carry no net inventories, and inventory is transferred without intercompany markup from the parent entity as product line cost of goods sold when sold to the end consumer.

The Company’s inventories are stated at the lower of cost or net realizable value on an average cost basis. Each accounting period the Company evaluates the valuation and classification of inventories including the need for potential adjustments to inventory-related reserves, which include significant estimates by management, including the effect of market factors and sales trends. Changes to the Company’s inventory reserves and allowances are accounted for in the accounting period in which a change in such reserves and allowances is observed and deemed appropriate, including changes in management’s estimates used in the process to determine such reserves and valuation allowances.

6. NOTE RECEIVABLE

Interest is accrued at a simple rate of 0.14% per annum and will continue to accrue until the Convertible Promissory Note is converted in accordance with the conversion privileges contained within the Convertible Promissory Note or is repaid. Principal outstanding during an event of default accrues interest at the rate of 5% per annum.

Subject to the borrower’s completion of a specified equity financing transaction (an “Equity Financing”) on or prior to the Maturity Date, the unpaid principal amount, including accrued and unpaid interest, automatically converts into equity units of the most senior class of equity securities issued to investors in the Equity Financing at the lesser of 80% of the per unit price of the units purchased by investors or the price equal to $33,500,000 divided by the aggregate number of outstanding units of the borrower immediately prior to the closing of the financing. Unless converted as provided in the Convertible Promissory Note, the principal amount, including accrued and unpaid interest, will, on the Maturity Date, at the Company’s option either (i) become due and payable to the Company, or (ii) convert into equity units at the specified conversion price in accordance with the terms of the Convertible Promissory Note.

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6.	NOTE RECEIVABLE

On March 5, 2021, the Company entered into a $250,000 convertible promissory note agreement (the “Convertible Promissory Note”), with an unrelated third-party strategic marketing partner. The Convertible Promissory Note is unsecured and was scheduled originally to mature on March 5, 2022. In February 2022, the Company entered into an amendment to the Convertible Promissory Note that was effective as of December 9, 2021 and changed the maturity date to September 30, 2022. Effective September 26, 2022, the Company further amended the Convertible Promissory Note (the “September 2022 Amendment”) and changed the maturity date to June 20, 2024. Effective June 20, 2024, the Company further amended the Convertible Promissory Note (the “June 2024 Amendment”) and changed the maturity date to March 31, 2025 (the “Maturity Date”). On March 28, 2025, the Maturity Date was extended (the “March 2025 Extension”) to be the date that the unrelated third-party strategic marketing partner completes its next equity financing round of at least $25 million, which was expected to be in September 2025. On April 18, 2025, the unrelated third-party strategic marketing partner extended the next equity financing round from September 2025 to September 2026. In accordance with the terms of the March 2025 Extension and the revised timing of the equity financing round, the note receivable is classified as a non-current note receivable within the accompanying condensed consolidated financial statements as of March 31, 2025.

7.	ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities, current, consist of the following as of the dates presented:

	March 31, 2024		June 30, 2023
	March 31, 2025		June 30, 2024
Deferred revenue	$	470,075	$	566,896
Legal loss settlement	$	1,474,567	$	1,474,567
Accrued compensation and related benefits		372,223		382,630
Deferred revenue		261,961		301,158
Accrued sales taxes and franchise tax		204,806		202,091
Accrued compensation and related benefits		154,117		145,903
Accrued cooperative advertising		306,174		243,861
Accrued sales taxes and franchise tax		182,410		211,337
Other accrued expenses		2,986		1
Accrued cooperative advertising		277,274		415,324
Total accrued expenses and other liabilities	$	1,356,264	$	1,395,479
Other accrued expenses		140,022		102,243
Total accrued expenses and other liabilities	$	2,490,351	$	2,650,532

8.	INCOME TAXES

For the three and nine months ended March 31, ~~2024~~2025, the Company’s statutory tax rate was 2223.9407% and consisted of the federal income tax rate of 21.00% and a blended state income tax rate of 12.9407%, net of the federal benefit. For both the three and nine months ended March 31, ~~2024~~2025, the Company’s average effective tax rate was zero. ~~Driven~~For by the ~~establishment~~three ofand ~~the~~nine ~~valuation~~months ~~allowance during the quarter~~ ended March 31, ~~2023~~2024, the Company’s effective tax rate ~~for~~was 22.94% and consisted of the ~~nine~~ ~~month~~federal ~~period~~income tax ~~then~~rate ~~ended~~of ~~was~~21.00% and a ~~negative~~blended ~~131~~state income tax rate of 1.0694% net of the federal benefit. The Company’s effective income tax rate reflects the effect of federal and state income taxes on earnings and the impact of differences in book and tax accounting arising primarily from the permanent tax benefits associated with stock-based compensation transactions during the accounting period then ended.

The Company recognized zero net income tax ~~benefit~~benefits for the three and nine months ended March 31, ~~2024,~~2025 ~~compared with a net income tax expense, driven by the establishment of the valuation allowance, of approximately $6.29 million~~ and ~~$5.86 million for the three and nine months ended March 31~~2024, ~~2023,~~ respectively.

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax assets. As of March 31, ~~2024~~2025, the Company’s management determined that sufficient negative evidence continued to exist to conclude it was uncertain that the Company would have sufficient future taxable income to utilize its deferred tax assets, and therefore, the Company maintained a full valuation allowance against its deferred tax assets.

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9.	COMMITMENTS AND CONTINGENCIES

Lease Arrangements

On December 9, 2013, the Company entered into a Lease Agreement, as amended on December 23, 2013, April 15, 2014, and January 29, 2021 (the “Lease Agreement”), for its corporate headquarters, which occupies approximately 36,350 square feet of office, storage and light manufacturing space and is classified as an operating lease for financial reporting purposes. The expiration date of the base term of the Lease Agreement, in effect as of March 31, ~~2024~~2025 is October 31, ~~2026~~ 2026, and the terms of the Lease Agreement contain no early termination provisions. Provided there is no outstanding uncured event of default under the Lease Agreement, the Company has an option to extend the lease term for a period of five years. The Company’s option to extend the term of the Lease Agreement must be exercised in writing on or before 270 days prior to expiration of the then-current term. If the option is exercised, the monthly minimum rent for each of the extended terms will be adjusted to the then prevailing fair market rate.

The Company took possession of the leased property on May 23, 2014, once certain improvements to the leased space were completed and did not have access to the property before this date. Upon execution of the third amendment to the Lease Agreement (the “Lease Amendment”) on January 29, 2021, the Lease Amendment included a rent abatement in the amount of approximately $214,000, which is reflected in the rent payments used in the calculation of the right-of-use (“ROU”) asset and lease liability once remeasured upon the execution of the Lease Amendment to extend the lease term. The Lease Amendment also included an allowance for leasehold improvements offered by the landlord in an amount not to exceed approximately $545,000. As of the quarter ended March 31, ~~2024~~2025, the Company has been reimbursed approximately $~~506~~545,000 by the landlord for qualified leasehold improvements in accordance with the terms of the Lease Amendment. This reimbursement by the landlord reduced the remaining ROU asset by the same amount and is being recognized prospectively over the remaining term of the lease.

The Company has no other material operating leases and is not party to leases that would qualify for classification as a finance lease, variable lease, or short-term lease.

12As of March 31, 2025, the Company’s balance sheet classifications of its leases are as follows:

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Operating Leases:
Noncurrent operating lease ROU assets	$	1,036,480

Current operating lease liabilities	$	922,918
Noncurrent operating lease liabilities		534,923
Total operating lease liabilities	$	1,457,841

AsThe ofCompany’s total operating lease cost for the three months ended March 31, 2025 and 2024 was approximately $205,000 ~~the~~and $175,000 respectively. The Company’s ~~balance~~total ~~sheet~~operating ~~classifications~~lease ofcost ~~its~~for ~~leases~~the ~~are~~nine asmonths ~~follows:~~ended March 31, 2025 and 2024 was approximately $634,000 and $524,000, respectively.

Operating Leases:
Noncurrent operating lease ROU assets	$	1,715,475
Current operating lease liabilities	$	898,217
Noncurrent operating lease liabilities		1,417,478
Total operating lease liabilities	$	2,315,695

As of March 31, 2025, the Company’s estimated incremental borrowing rate used and assumed discount rate with respect to operating leases was 2.81% and the remaining operating lease term was 1.58 years.

~~The~~As ~~Company’s~~of ~~total operating lease cost for the three months ended~~ March 31, ~~2024 and 2023 was approximately $175~~2025,~~000~~ ~~for~~the ~~each period. The~~ Company’s ~~total~~remaining ~~operating~~future ~~lease~~payments ~~cost~~under ~~for~~operating ~~the~~leases ~~nine~~for ~~months~~each ~~ended~~fiscal year ~~March~~ending ~~31,~~June ~~2024~~30 ~~and~~are ~~2023~~as ~~was approximately $524,000 for each period.~~ follows:

As of March 31, 2024, the Company’s estimated incremental borrowing rate used and assumed discount rate with respect to operating leases was 2.81% and the remaining operating lease term was 2.58 years.

2025	$	231,625
2026		943,487
2027		317,327
Total lease payments	$	1,492,439
Less: imputed interest		(34,598	)
Present value of lease payments		1,457,841
Less: current lease obligations		922,918
Total long-term lease obligations	$	534,923

AsThe Company makes cash payments for amounts included in the measurement of its lease liabilities. During the three months ended March 31, 2025 and 2024 cash paid for operating leases was approximately $225,000 and $251,000, respectively. During the ~~Company’s~~nine ~~remaining~~months ~~future~~ended ~~payments~~March ~~under~~31, ~~operating~~2025 ~~leases~~and ~~for~~2024, ~~each~~cash ~~fiscal year~~paid ~~ending~~for ~~June~~operating 30leases ~~are~~was approximately as$606,000 ~~follows:~~and $730,000, respectively.

2024	$	225,426
2025		918,236
2026		943,487
2027		317,327
Total lease payments	$	2,404,476
Less: imputed interest		(88,781	)
Present value of lease payments		2,315,695
Less: current lease obligations		898,217
Total long-term lease obligations	$	1,417,478

The Company makes cash payments for amounts included in the measurement of its lease liabilities. During the three months ended March 31, 2024 and 2023, cash paid for operating leases was approximately $251,000 and $237,000, respectively. During the nine months ended March 31, 2024 and 2023, cash paid for operating leases was approximately $730,000 and $704,000, respectively.

Purchase Commitments

On December 12, 2014, the Company entered into an exclusive supply agreement (the “Supply Agreement”) with Wolfspeed, Inc. (“Wolfspeed”), formerly known as Cree, Inc. Under the Supply Agreement, subject to certain terms and conditions, the Company agreed to exclusively purchase from Wolfspeed, and Wolfspeed agreed to exclusively supply, 100% of the Company’s required SiC materials in quarterly installments that must equal or exceed a set minimum order quantity. The initial term of the Supply Agreement was scheduled to expire on June 24, 2018, unless extended by the parties.

Effective June 22, 2018, the Supply Agreement was amended to extend the expiration date to June 25, 2023. The Supply Agreement was also amended to (i) provide the Company with one option, subject to certain conditions, to unilaterally extend the term of the Supply Agreement for an additional two-year period following expiration of the initial term; (ii) establish a process by which Wolfspeed may begin producing alternate SiC material based on the Company’s specifications that will give the Company the flexibility to use the materials in a broader variety of its products; and (iii) permit the Company to purchase certain amounts of SiC materials from third parties under limited conditions.

Effective June 30, 2020, the Supply Agreement was further amended to extend the expiration date to June 29, 2025, which may be extended again by mutual agreement of the parties. The Supply Agreement was also amended to, among other things, (i) spread the Company’s total purchase commitment under the Supply Agreement in the amount of approximately $52.95 million over the term of the Supply Agreement, as amended; (ii) establish a process by which Wolfspeed has agreed to accept purchase orders in excess of the agreed-upon minimum purchase commitment, subject to certain conditions; and (iii) permit the Company to purchase revised amounts of SiC materials from third parties under limited conditions.

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~~The~~Purchase Company’s total purchase commitment under the Supply Agreement, as amended, until June 2025 is approximately $52.95 million, of which approximately $24.75 million remains to be purchased as of March 31, 2024. Over the life of the Supply Agreement, as amended, the Company’s future minimum annual purchase commitments of SiC crystals range from approximately $4.00 million to $10.00 million each year.Commitments

~~During~~On December 12, 2014, the ~~nine~~Company ~~months~~entered ~~ended~~into ~~March~~an ~~31,~~exclusive ~~2024~~supply agreement (the ~~Company~~“Supply ~~made~~Agreement”) with noWolfspeed, ~~purchases~~Inc., offormerly ~~SiC~~known ~~crystals~~as Cree, Inc. ~~During~~(“Wolfspeed”). Under the ~~nine~~Supply ~~months~~Agreement, ~~ended~~subject ~~March~~to ~~31,~~certain ~~2023~~terms and conditions, the Company ~~purchased~~agreed ~~$1.80~~to ~~million~~exclusively purchase from Wolfspeed, and Wolfspeed agreed to exclusively supply, 100% of the Company’s required SiC ~~crystals~~materials ~~from~~in ~~Wolfspeed~~quarterly ~~pursuant~~installments that were required to equal or exceed a set minimum order quantity, contingent on the ~~terms~~Company submitting purchase orders. The initial term of the Supply Agreement, aswas ~~amended.~~scheduled to expire on June 24, 2018.

~~The~~Effective June 22, 2018, the Company ~~has~~and ~~made~~Wolfspeed noamended ~~purchases~~the ofSupply ~~SiC~~Agreement ~~crystals~~to ~~during~~extend the expiration ~~twelve-month~~date ~~period~~to ~~ended~~June ~~March 31~~25, ~~2024~~2023. This amendment also (i) provided the Company with one option, ~~while~~subject ~~engaged~~to incertain ~~discussions~~conditions, ~~regarding~~to unilaterally extend the ~~terms~~term of the Supply Agreement. for an additional two-year period following expiration of the initial term; (ii) established a process by which Wolfspeed may begin producing alternate SiC material based on the Company’s specifications that will give the Company the flexibility to use the materials in a broader variety of its products; and (iii) permitted the Company to purchase certain amounts of SiC materials from third parties under limited conditions.

OnEffective ~~July~~June 2830, ~~2023~~2020, ~~Wolfspeed~~ ~~initiated~~the aSupply ~~confidential~~Agreement ~~arbitration~~was ~~against~~further ~~the~~amended ~~Company~~to ~~for~~extend ~~breach~~the ofexpiration ~~contract~~date ~~claiming~~to June ~~damages~~29, ~~plus~~2025. ~~interest~~This amendment also, ~~costs~~among other things, ~~and~~(i) ~~attorneys~~spread the Company’s ~~fees.~~total ~~Wolfspeed~~purchase ~~has~~commitment, ~~alleged~~contingent ~~that~~on the Company ~~failed~~submitting toa ~~satisfy the~~ purchase ~~obligations~~order, ~~provided~~under in the Supply Agreement ~~for Fiscal 2023~~ in the amount of approximately $452.2595 million ~~and~~over ~~failed~~the toterm ~~pay~~of ~~for~~the ~~$3.30~~Supply ~~million~~Agreement, ofas ~~SiC~~amended; ~~crystals~~(ii) ~~Wolfspeed~~established ~~delivered~~a toprocess ~~the~~by ~~Company.~~which Wolfspeed ~~further~~agreed ~~alleges~~to ~~that~~accept ~~the~~purchase ~~Company~~orders ~~intends~~in excess toof ~~breach~~the ~~its~~agreed-upon ~~remaining~~minimum purchase ~~obligations~~commitment, ~~under~~subject to certain conditions; and (iii) permitted the ~~Supply~~ ~~Agreement,~~Company ~~representing~~to anpurchase ~~additional~~revised ~~$18.5~~amounts ~~million~~of inSiC ~~alleged~~materials ~~damages~~from third parties under limited conditions.

~~While~~During the ~~Company~~nine ismonths ~~evaluating~~ended ~~Wolfspeed’s~~March ~~claims~~31, ~~the~~2025 ~~Company disputes the amount sought,~~ and ~~intends~~2024 ~~to vigorously defend its position, including by asserting rights and defenses that~~ the Company ~~may~~made ~~have~~no ~~under~~purchases ~~the Supply Agreement at law and in equity. A hearing has been scheduled for September 30, 2024. The final determinations~~ of ~~liability~~SiC ~~arising from this matter will be made following comprehensive investigations, discovery and arbitration processes~~crystals.

On July 28, 2023, Wolfspeed initiated a confidential arbitration against the Company for breach of contract claiming damages, plus interest, costs, and attorneys’ fees. On February 10, 2025, the Company and Wolfspeed entered into a settlement agreement related to the Wolfspeed arbitration. Under the settlement agreement the Company terminated the Supply Agreement and agreed to pay Wolfspeed a total of $4.77 million, which included the purchased and consigned inventory, Wolfspeed’s attorneys’ fees in connection with the arbitration, and interest. As of March 31, 2025, the Company paid $2.33 million of the final settlement to Wolfspeed. The remaining settlement amount of $2.44 million will be paid on or before December 31, 2025.

10.

DEBT

Line of Credit

Effective July 7, 2021, the Company obtained from JPMorgan Chase a $5.00 million cash collateralized line of credit facility (the “JPMorgan Chase Credit Facility”). The JPMorgan Chase Credit Facility may be used for general corporate and working capital purposes, including permitted acquisitions and certain additional indebtedness for borrowed money, installment obligations, and obligations under capital and operating leases. The JPMorgan Chase Credit Facility is secured by a cash deposit in the amount of $5.1 million held by JPMorgan Chase as collateral for the line of credit facility and was scheduled to mature on July 31, 2022. Effective July 28, 2022, the JPMorgan Chase Credit Facility was amended to, among other things, extend the maturity date to July 31, 2023, and append the Company’s obligations under the JPMorgan Chase Credit Facility to be guaranteed by the Company’s wholly- owned subsidiaries, Charles & Colvard Direct, LLC, charlesandcolvard.com, LLC, and moissaniteoutlet.com, LLC. Effective, June 21, 2023, the JPMorgan Chase Credit Facility was amended further to extend the maturity date to July 31, 2024. Effective July 29, 2024, the JPMorgan Chase Credit Facility was amended further to extend the maturity date to October 31, 2024, and effective October 31, 2024, the JPMorgan Chase Credit Facility was amended further to extend the maturity date to January 31, 2025.

Each advance under the JPMorgan Chase Credit Facility, as amended, accrues interest at a rate equal to the sum of JPMorgan Chase’s monthly secured overnight financing rate (“SOFR rate”) to which JPMorgan Chase is subject with respect to the adjusted SOFR rate as established by the U.S. Federal Reserve Board, plus a margin of 1.25% per annum and an unsecured to secured interest rate adjustment of 0.10% per annum. Prior to the July 31, 2022 amendment, each advance under the JPMorgan Chase Credit Facility would have accrued interest at a rate equal to JPMorgan Chase’s monthly LIBOR rate multiplied by a statutory reserve rate for eurocurrency funding to which JPMorgan Chase is subject with respect to the adjusted LIBOR rate as established by the U.S. Federal Reserve Board, plus a margin of 1.25% per annum. Interest is calculated monthly on an actual/360-day basis and payable monthly in arrears. Principal outstanding during an event of default, at JPMorgan Chase’s option, accrues interest at a rate of 3% per annum in excess of the above rate. Any advance may be prepaid in whole or in part without penalty at any time.

The JPMorgan Chase Credit Facility is evidenced by a credit agreement, as amended, between JPMorgan Chase and the Company (the “JPMorgan Chase Credit Agreement”), effective as of June 21, 2023, and customary ancillary documents, in the principal amount not to exceed $5.00 million at any one time outstanding and a line of credit note (the “JPMorgan Chase Line of Credit Note”) in which the Company promises to pay on or before July 31, 2024, the amount of $5.00 million or so much thereof as may be advanced and outstanding. In the event of default, JPMorgan Chase, at its option, may accelerate the maturity of advances outstanding under the JPMorgan Chase Credit Facility. The JPMorgan Chase Credit Agreement and ancillary documents contain customary covenants, representations, fees, debt, contingent obligations, liens, loans, leases, investments, mergers, acquisitions, divestitures, subsidiaries, affiliate transactions, changes in control, as well as indemnity, expense reimbursement, and confidentiality provisions.

In connection with the JPMorgan Chase Credit Facility, effective July 7, 2021, the Company incurred a non-refundable origination fee in the amount of $10,000 that was paid in full to JPMorgan Chase upon execution of the JPMorgan Chase Credit Facility on July 12, 2021. No origination fee was paid to JPMorgan Chase in connection with amending the JPMorgan Chase Credit Facility on July 28, 2022, and June 21, 2023. The Company also agreed to maintain its primary banking depository and disbursement relationship with JPMorgan Chase.

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In connection with the JPMorgan Chase Credit Facility, effective July 7, 2021, the Company incurred a non-refundable origination fee in the amount of $10,000 that was paid in full to JPMorgan Chase upon execution of the JPMorgan Chase Credit Facility on July 12, 2021. No origination fee was paid to JPMorgan Chase in connection with amending the JPMorgan Chase Credit Facility on July 28, 2022, June 21, 2023, July 29, 2024, and October 31, 2024. The Company also agreed to maintain its primary banking depository and disbursement relationship with JPMorgan Chase.

Events of default under the JPMorgan Chase Credit Facility include, without limitation, a default, event of default, or event that would constitute a default or event of default (pending giving notice or lapse of time or both), of any provision of the JPMorgan Chase Credit Agreement, the JPMorgan Chase Line of Credit Note, or any other instrument or document executed in connection with the JPMorgan Chase Credit Agreement or with any of the indebtedness, liabilities, and obligations of the Company to JPMorgan Chase or that would result from the extension of credit by JPMorgan Chase to the Company.

On January 31, 2025, the Company elected not to renew the cash collateralized $5.0 million line of credit facility with JP Morgan Chase Bank, N.A. As of March 31, ~~2024~~2025, the Company had repaid the $2.3 ~~500~~million balance related to the JPMorgan Chase Credit Facility and incurred approximately $95,000 inof ~~short-term~~interest ~~outstanding~~expense ~~debt~~related onto the ~~line~~JPMorgan ofChase ~~credit~~Credit Facility.

11.	SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Common Stock

The Company is authorized to issue 50,000,000 shares of common stock, no par value. As of March 31, 2025 and June 30, 2024, it had 3,118,273 shares of common stock outstanding for each period. Holders of the Company’s common stock are entitled to one vote for each share held.

Preferred Stock

The Board of Directors is authorized, without further shareholder approval, to issue up to 10,000,000 shares of preferred stock, no par value. The preferred stock may be issued from time to time in one or more series. No shares of preferred stock had been issued as of March 31, 2025.

Reverse Stock Split

On May 14, 2024, the Company effected a 1-for-10 reverse stock split of its common stock. Unless otherwise indicated, all share amounts, per share data, share prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.

Repurchases of Common Stock

Pursuant to authority granted by the Company’s Board of Directors on April 29, 2022, the Company ~~can~~could repurchase up to approximately $5.00 million in shares outstanding of the Company’s common stock over the three -year period ending April 29, 2025. Pursuant to the terms of the repurchase authorization, the common stock share repurchases ~~are~~were generally at the discretion of the Company’s management. As the Company repurchases its common shares, which have no par value, the Company ~~reports~~ reported such shares held as treasury stock in the accompanying condensed consolidated balance sheets with the purchase price recorded within treasury stock. The share repurchase agreement expired April 29, 2025.

During the nine -month ~~period~~periods ended March 31, 2025 and 2024 the Company repurchased no shares of its common stock. During the nine month period ended March 31, 2023, the Company repurchased 358,116 shares of the Company’s common stock for an aggregate price of $451,815 pursuant to the repurchase authorization.

Dividends

The Company has paid no cash dividends during the current fiscal year through March 31, ~~2024~~2025.

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Stock-Based Compensation

The following table summarizes the components of the Company’s stock-based compensation included in net income for the periods presented:

	Three Months Ended March 31,					Nine months Ended March 31,	~~Nine Months Ended March 31,~~
	2024		2023				2024		2023
	2025		2024				2025		2024
Employee stock options	$	707,~~343~~966	$	6370,~~383~~343			$	~~188~~82,~~961~~369	$	~~185~~188,~~585~~961
Restricted stock awards		-		(28,789	)			-		23,734
Totals	$	7,966	$	70,343			$	82,369	$	188,961
Totals	$	70,343	$	34,594			$	188,961	$	209,319

No stock-based compensation was capitalized as a cost of inventory during the three and nine months ended March 31, ~~2024~~2025 or ~~2023~~2024.

Stock Options – The following is a summary of the stock option activity for the nine months ended March 31, ~~2024~~2025:

	Shares			Weighted Average Exercise Price
Outstanding, June 30, 2023		1,817,665		$	1.24
Outstanding, June 30, 2024		268,064		$	8.14
Granted		12,~~178,612~~000		$	01.3579
Forfeited		(366,~~500~~778	)	$	15.4777
Expired		(~~100~~33,~~000~~464	)	$	26.0599
Outstanding, March 31, 2024		2,859,777		$	0.84
Outstanding, March 31, 2025		229,822		$	8.32

The weighted average grant date fair value of stock options granted during the nine months ended March 31, ~~2024~~2025 and ~~2023~~2024 was approximately $0.21 87 and $0.5921, respectively. The total fair value of stock options that vested during the nine months ended March 31, ~~2024~~2025 and ~~2023~~2024 was approximately $~~224~~199,~~000~~385 and $~~225~~224,000, respectively.

15The following table summarizes information about stock options outstanding at March 31, 2025:

Options Outstanding						Options Exercisable						Options Vested or Expected to Vest
Balance as of 03/31/2025		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 03/31/2025		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 03/31/2025		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
	229,822		6.19	$	8.32		217,304		6.06	$	8.56		227,605		6.17	$	8.37

As of March 31, 2025, the unrecognized stock-based compensation expense related to unvested stock options was approximately $23,024, which is expected to be recognized over a weighted average period of approximately 15 months.

The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at March 31, 2025 and 2024 was approximately $0 and $22,126 respectively. These amounts are before applicable income taxes and represent the closing market price of the Company’s common stock at March 31, 2025, less the grant price, multiplied by the number of stock options that had a grant price that is less than the closing market price. These values represent the amount that would have been received by the optionees had these stock options been exercised on that date. There were no stock options exercised during the nine-month periods ended March 31, 2025 and 2024.

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The following table summarizes information about stock options outstanding at March 31, 2024:

Options Outstanding						Options Exercisable						Options Vested or Expected to Vest
Balance as of 03/31/2024		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 03/31/2024		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 03/31/2024		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
	2,859,777		7.27	$	0.84		1,793,488		5.90	$	1.07		2,780,376		7.21	$	0.85

As of March 31, 2024, the unrecognized stock-based compensation expense related to unvested stock options was approximately $200,390, which is expected to be recognized over a weighted average period of approximately 15 months.

The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at March 31, 2024 and 2023 was approximately $22,126 and $101,000 respectively. These amounts are before applicable income taxes and represent the closing market price of the Company’s common stock at March 31, 2024, less the grant price, multiplied by the number of stock options that had a grant price that is less than the closing market price. These values represent the amount that would have been received by the optionees had these stock options been exercised on that date. There were no stock options exercised during the nine month periods ended March 31, 2024 and 2023.

Restricted Stock

During the nine month period ended March 31, 2024 there were no restricted stock shares awarded to plan participants. The unvested restricted shares as of September 30, 2023, which totaled 178,750 with a weighted average grant date fair value of $0.97, were all performance-based restricted shares and were scheduled to vest in July 2023, subject to achievement of the underlying performance goals. None of these shares vested during the nine month period ended March 31, 2024, and these shares were canceled in the three month period ended as of December 31, 2023 as the underlying performance goals were not met .

12.	NET LOSS PER COMMON SHARE

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted net loss per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options and unvested restricted shares that are computed using the treasury stock method. Anti-dilutive stock awards consist of stock options that would have been anti-dilutive in the application of the treasury stock method.

~~For~~The ~~the~~following ~~three and nine months ended March 31, 2024, stock options to purchase approximately 2.75~~table ~~million~~ reconciles ~~shares~~the ~~were~~differences ~~excluded~~between ~~from~~ the ~~computation~~basic ofand diluted net loss per ~~common~~ share ~~because the effect of inclusion of such amounts would be anti-dilutive to net loss per common share.~~presentations:

For the three and nine months ended March 31, 2023, stock options to purchase approximately 1.90 million shares were excluded from the computation of diluted net loss per common share because the effect of inclusion of such amounts would be anti-dilutive to net loss per common share. Approximately 179,000 shares of unvested restricted stock are excluded from the computation of diluted net loss for the three and nine months ended March 31, 2023 because the shares were performance-based and the underlying conditions had not been met as of March 31, 2023.

	For the Three Months Ended March 31						For the Nine Months Ended March 31
	2025			2024			2025			2024
Numerator
Net loss	$	(1,973,147	)	$	(3,632,707	)	$	(6,643,190	)	$	(9,038,069	)

Denominator:
Weighted average common shares outstanding:
Basic		3,118,273			3,034,495			3,118,273			3,034,495
Effects of dilutive securities		-			-			-			-
Diluted		3,118,273			3,034,495			3,118,273			3,034,495

Net Loss per Common share:
Basic	$	(0.63	)	$	(1.20	)		(2.13	)	$	(2.98	)
Diluted	$	(0.63	)	$	(1.20	)		(2.13	)	$	(2.98	)

For the three and nine months ended March 31, 2025, stock options to purchase approximately 230,000 shares were excluded from the computation of diluted net loss per common share because the effect of inclusion of such amounts would be anti-dilutive to net loss per common share.

For the three and nine months ended March 31, 2024, stock options to purchase approximately 275,000 shares were excluded from the computation of diluted net loss per common share because the effect of inclusion of such amounts would be anti-dilutive to net loss per common share.

13.	MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash on deposit and cash equivalents held with banks and trade accounts receivable. The Company places cash deposits with federally insured financial institutions and maintains its cash at banks and financial institutions it considers to be of high credit quality. However, the Company’s cash deposits may, at times, exceed the Federal Deposit Insurance Corporation’s insurable limits. Accordingly, balances in excess of federally insured limitations may not be insured. The Company has not experienced losses on these accounts, and management believes that the Company is not exposed to significant risks on such accounts.

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Trade receivables potentially subject the Company to credit risk. Payment terms on trade receivables for the Company’s Traditional segment customers are generally between 30 and 90 days, though it may offer extended terms with specific customers and on significant orders from time to time. The Company extends credit to its customers based upon a number of factors, including an evaluation of the customer’s financial condition and credit history that is verified through trade association reference services, the customer’s payment history with the Company, the customer’s reputation in the trade, and/or an evaluation of the Company’s opportunity to introduce its moissanite jewels or finished jewelry featuring moissanite and lab grown diamonds to new or expanded markets. Collateral is not generally required from customers. The need for an allowance for uncollectible accounts is determined based upon factors surrounding the credit risk of specific customers, historical trends, and other information.

The following are reconciliations of the allowance for uncollectible accounts balances as of the periods presented:

	Nine Months Ended March 31,
	2024			2023
Balance, beginning of period		$	183,000		$	85,000
(Recoveries) Additions charged to operations			107,000			(18,000	)
Balance, end of period		$	290,000		$	67,000

At times, a portion of the Company’s accounts receivable will be due from customers that have individual balances of 10% or more of the Company’s total gross accounts receivable.

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The following is a summary of customers that represent 10% or more of total gross accounts receivable as of the dates presented:

	March 31, 2024			June 30, 2023
	March 31, 2025			June 30, 2024
Customer A		24*	%		**19	%
Customer B		2330	%		2415	%
Customer C		13**	%		**15	%
Customer D		*17	%		1412	%
Customer E		*	%		14	%
Customer F		17	%		***

* ~~Customers~~Customer DA ~~and E~~ did not have a balance that represented 10% or more of total gross accounts receivable as of March 31, ~~2024~~2025.

** ~~Customers~~Customer ~~A and~~ C did not have a balance that represented 10% or more of total gross accounts receivable as of ~~June~~March 3031, ~~2023~~2025.

***	Customer F did not have a balance that represented 10% or more of total gross accounts receivable as of June 30, 2024.

A significant portion of sales is derived from certain customer relationships. The following is a summary of customers that represent 10% or more of total net sales for the periods presented:

	Three Months Ended March 31,	~~Three Months Ended March 31,~~							Nine months Ended March 31,	~~Nine Months Ended March 31,~~
		2024				2023				2024				2023
	2025				2024				2025				2024
Customer C			13	%			13	%			13	%			14	%
Customer B (Online Channels/Traditional Segment)			****				13	%			10	%			13	%
Customer E (Traditional Segment)			17	%			*****				11	%			*******
Customer G (Traditional Segment)			14	%			*****				******				*******

17**** Customer B did not have a balance that represented 10% or more of total net revenue for the three-month period ended March 31, 2025.

*****

Customers E and G did not have a balance that represented 10% or more of total net revenue for the three-month period ended March 31, 2024.

******

Customer G did not have a balance that represented 10% or more of total net revenue for the nine-month period ended March 31, 2025.

*******

Customers E and G did not have a balance that represented 10% or more of total net revenue for the nine-month period ended March 31, 2024.

14.	SUBSEQUENT EVENTS

On June 24, 2025, the Company and Ethara Capital, LLC executed a Convertible Secured Note Purchase Agreement. Under the terms of the agreement, the Company will issue a $2 million secured convertible note to Ethara Capital, LLC and will accrue interest at a rate of 5% annually and is payable monthly. The convertible note matures three months after issuance. Ethara Capital, LLC has the option to extend the maturity of the secured convertible note up to 39 months after issuance. Subject to obtaining Company’s shareholder approval, Ethara Capital, LLC, at its sole discretion can convert the outstanding principal balance and the unpaid interest into the Company’s common stock.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q 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, or the Exchange Act. 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,” “intend,” “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, the following:

1. ~~Our~~The ~~business~~execution ~~and~~of our ~~results~~business ofplans ~~operations~~ could besignificantly ~~materially~~impact ~~adversely~~our ~~affected~~liquidity asand athere ~~result~~is ofsubstantial ~~general~~doubt ~~economic~~about ~~and~~our ~~market~~ability ~~conditions~~to continue as a going concern;

2. Our ~~future~~business ~~financial~~and ~~performance~~our ~~depends~~results ~~upon~~of ~~increased~~operations ~~consumer~~could ~~acceptance,~~be ~~growth~~materially ofadversely ~~sales~~affected ofas ~~our~~a ~~products,~~result ~~and~~of ~~operational~~general ~~execution~~economic ofand ~~our~~market ~~strategic initiatives~~conditions;

3. WeOur ~~face~~future ~~intense~~financial ~~competition~~performance independs ~~the~~upon ~~worldwide~~increased ~~gemstone~~consumer acceptance, growth of sales of our products, and ~~jewelry~~operational ~~industry~~execution of our strategic initiatives;

4. We ~~have~~face ~~historically~~intense ~~been~~competition ~~dependent~~in ~~on a single supplier for substantially all of our silicon carbide, or SiC crystals,~~ the ~~raw~~worldwide ~~materials~~gemstone weand ~~use~~jewelry ~~to produce moissanite jewels~~industry; ~~if our supply of high quality SiC crystals is interrupted, our business may be materially harmed;~~

5. ~~Constantly~~We ~~evolving~~have ~~privacy~~historically ~~regulatory~~been ~~regimes~~dependent ~~are~~on ~~creating~~a ~~new~~single ~~legal~~supplier ~~compliance~~for ~~challenges~~substantially all of our silicon carbide, or SiC, crystals, the raw materials we use to produce moissanite jewels; if our supply of high-quality SiC crystals is interrupted, our business may be materially harmed;

6. ~~Our~~Constantly ~~information~~evolving ~~technology,~~privacy orregulatory ~~IT,~~regimes ~~infrastructure,~~are ~~and~~creating ~~our~~new ~~network~~legal ~~has~~compliance ~~been and may be impacted by a cyber-attack or other security incident as a result of the rise of cybersecurity events~~challenges;

7. WeOur ~~are~~information ~~subject~~technology, toor ~~certain~~IT, ~~risks~~infrastructure, ~~due~~and to our ~~international~~network ~~operations,~~has ~~distribution~~been ~~channels~~ and ~~vendors~~may be impacted by a cyber-attack or other security incident as a result of the rise of cybersecurity events;

8. ~~Our~~We ~~business~~are ~~and~~subject ~~our~~to ~~results~~certain ofrisks ~~operations~~due ~~could~~to ~~be materially adversely affected as a result of~~ our ~~inability~~international tooperations, ~~fulfill~~distribution ~~orders~~channels onand ~~a timely basis~~vendors;

9. WeOur ~~are~~business ~~currently~~and ~~dependent~~our onresults aof ~~limited~~operations ~~number~~could ofbe ~~distributor~~materially ~~and~~adversely ~~retail~~affected ~~partners~~as ina result of our ~~Traditional~~inability ~~segment~~to ~~for~~fulfill ~~the~~orders ~~sale~~on ofa ~~our~~timely ~~products~~basis;

10. We ~~may~~are ~~experience~~currently ~~quality~~dependent ~~control~~on ~~challenges~~a ~~from~~limited ~~time~~number toof ~~time~~distributor ~~that~~and ~~can~~retail ~~result~~partners in ~~lost~~our ~~revenue~~Traditional ~~and~~segment ~~harm~~for tothe ~~our~~sale ~~brands~~of ~~and~~our ~~reputation~~products;

11. ~~Seasonality~~We ofmay ~~our~~experience ~~business~~quality ~~may~~control ~~adversely~~challenges ~~affect~~from ~~our~~time ~~net~~to ~~sales~~time that can result in lost revenue and ~~operating~~harm ~~income~~to our brands and reputation;

12. ~~Our~~Seasonality ~~operations~~of ~~could~~our bebusiness ~~disrupted~~may byadversely ~~natural~~affect ~~disasters~~our net sales and operating income;

13. ~~Sales~~Our ofoperations ~~moissanite and lab grown diamond jewelry~~ could be ~~dependent~~disrupted ~~upon~~by ~~the~~natural ~~pricing of precious metals, which is beyond our control~~disasters;

14. ~~Our~~Sales ~~current~~of ~~customers~~moissanite ~~may~~and ~~potentially~~lab ~~perceive~~grown usdiamond asjewelry acould ~~competitor~~be independent upon the ~~finished~~pricing ~~jewelry~~of ~~business~~precious metals, which is beyond our control;

15. IfOur ~~the~~current ~~e-commerce~~customers ~~opportunity~~may ~~changes~~potentially ~~dramatically~~perceive orus ifas ~~e-commerce~~a ~~technology~~competitor orin ~~providers~~the ~~change~~finished ~~their~~jewelry ~~models, our results of operations may be adversely affected~~business;

16. ~~Governmental~~If ~~regulation~~the ~~and~~e-commerce ~~oversight~~opportunity ~~might~~changes ~~adversely~~dramatically ~~impact~~or if e-commerce technology or providers change their models, our results of operations may be adversely affected;

17. ~~The~~Governmental ~~effects~~regulation ~~of COVID-19~~ and ~~other~~oversight ~~potential~~might ~~future~~adversely ~~public~~impact ~~health crises, epidemics, pandemics or similar events on~~ our ~~business, operating results, and cash flows are uncertain~~operations;

18. The ~~execution~~effects of ~~our~~potential ~~business~~future ~~plans~~public ~~could~~health ~~significantly~~crises, ~~impact~~epidemics, ~~our~~pandemics ~~liquidity~~or ~~and~~similar weevents ~~might~~on ~~not~~our bebusiness, ~~able~~operating toresults, ~~continue~~and ascash aflows ~~going~~are ~~concern~~uncertain;

19.

We are subject to arbitration, litigation and demands, which could result in significant liability and costs, and impact our resources and reputation;

20.

The financial difficulties or insolvency of one or more of our major customers or their lack of willingness and ability to market our products could adversely affect results;

21.

Negative or inaccurate information on social media could adversely impact our brand and reputation;

22.

We rely on assumptions, estimates, and data to calculate certain of our key metrics and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business;

23.

We may not be able to adequately protect our intellectual property, which could harm the value of our products and brands and adversely affect our business;

24.

Environmental, social, and governance matters may impact our business, reputation, financial condition, and results of operations;

25.

If we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer;

26. ~~Our~~As ~~failure~~a public reporting company, we are subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. If we fail to establish and maintain ~~compliance~~effective ~~with~~internal ~~The~~control ~~Nasdaq~~over ~~Stock~~financial ~~Market’s~~reporting ~~continued~~and ~~listing~~disclosure ~~requirements~~controls ~~could~~and ~~result~~procedures, inwe ~~the~~may ~~delisting~~not ofbe able to accurately report our ~~common~~financial ~~stock~~results, or report them in a timely manner;

27. ~~Some~~Our ~~anti-takeover~~recent ~~provisions~~delisting offrom ~~our~~The ~~charter~~Nasdaq ~~documents~~Stock ~~may~~Market ~~delay~~and ormove ~~prevent~~to aover ~~takeover~~the counter (“OTC”) trading could limit the liquidity and price of our ~~Company;~~common ~~and~~stock;

28. We ~~cannot~~could ~~guarantee that our share repurchase program will~~ be ~~utilized~~negatively toaffected ~~the~~as ~~full~~a ~~value~~result ~~approved, or that it will enhance long-term stockholder value and repurchases we consummate could increase the volatility~~ of ~~the price of our common stock and could have~~ a ~~negative~~proxy ~~impact~~contest onor ~~our~~other ~~available~~actions ~~cash~~of ~~balance.~~activist shareholders;

1829. Some anti-takeover provisions of our charter documents may delay or prevent a takeover of our Company;

30.

We cannot guarantee that our share repurchase program will be utilized to the full value approved, or that it will enhance long-term shareholder value and repurchases we consummate could increase the volatility of the price of our common stock and could have a negative impact on our available cash balance, in addition to the other risks and uncertainties described in more detail in “Risk Factors” in Part I, Item 1A, of our 2024 Annual Report.

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 Securities and Exchange Commission (“SEC”) that discuss other factors relevant to our business.

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~~Forward-looking~~The following discussion is designed to provide a better understanding of our unaudited condensed consolidated financial statements, ~~speak~~including ~~only~~a asbrief discussion of ~~the~~our ~~date~~business and ~~they~~products, ~~are~~key ~~made~~factors that impacted our performance, and a summary of our operating results. WeThis ~~undertake~~information noshould ~~obligation~~be toread ~~update~~in orconjunction ~~revise~~with ~~such~~the unaudited condensed consolidated financial statements toand ~~reflect~~notes ~~new~~thereto included in Part I, ~~circumstances~~Item or1 ~~unanticipated~~of ~~events~~this asQuarterly ~~they~~Report ~~occur~~on ~~except~~Form as10-Q, ~~required~~and by the ~~federal~~consolidated ~~securities~~financial ~~laws,~~statements and ~~you~~notes ~~are~~thereto ~~urged~~and toManagement’s ~~review~~Discussion and ~~consider~~Analysis ~~disclosures~~of ~~that~~Financial weCondition ~~make~~and Results of Operations contained in ~~the~~our ~~reports~~Annual ~~that~~Report weon ~~file~~Form ~~with~~10-K for the fiscal ~~Securities~~year ~~and~~ended ~~Exchange~~June ~~Commission~~30, ~~or SEC~~2024, ~~that~~or ~~discuss~~the ~~other~~2024 ~~factors~~Annual ~~relevant~~Report. Historical results and percentage relationships related to ~~our~~any ~~business~~amounts in the condensed consolidated financial statements are not necessarily indicative of trends in operating results for future periods.

The following discussion is designed to provide a better understanding of our unaudited condensed consolidated financial statements, including a brief discussion of our business and products, key factors that impacted our performance, and a summary of our operating results. This information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, or the 2023 Annual Report. Historical results and percentage relationships related to any amounts in the condensed consolidated financial statements are not necessarily indicative of trends in operating results for future periods.

Overview

Our Mission

At Charles & Colvard, Ltd., our mission is to provide a more conscious and conflict-free fine jewelry experience for our customers. We are dedicated to blazing a more brilliant path forward with our Made, not Mined^™ gemstones and are committed to creating fine jewelry with a conscience.

About Charles & Colvard

Charles & Colvard, Ltd., a North Carolina corporation founded in 1995 (which may be referred to as Charles & Colvard, we, us, or our), is a globally recognized fine jewelry company specializing in lab created gemstones. We ~~have manufactured~~manufacture, ~~marketed~~market, and ~~distributed~~distribute Charles & Colvard Created Moissanite® (which we refer to as moissanite or moissanite jewels) since introducing created moissanite to the world ~~nearly~~ three decades ago. After years of perfecting the process, Charles & Colvard debuted the world’s first colorless moissanite and its premium moissanite gemstone brand, Forever One™, in 2015. As an e-commerce and multi-channel destination for fine jewelry featuring lab grown gemstones, we believe the addition of lab grown diamonds is a natural progression for the Charles & Colvard brand. In September 2020, we announced our expansion into the lab grown diamond market with the launch of Caydia®, our brand of premium lab grown diamonds.

We offer gemstones and finished jewelry featuring our proprietary moissanite jewels, premium lab grown diamonds, ~~and~~ created color gemstones, and most recently, lab grown diamonds in color, for sale in the worldwide fine jewelry market through two operating segments: our Online Channels segment, which encompasses our digital properties components, comprised of our charlesandcolvard.com, moissaniteoutlet.com, charlesandcolvarddirect.com, and ~~madeshopping~~ madenetwork.com websites, e-commerce outlets, including marketplaces, drop-ship customers, and other pure-play, exclusively e-commerce customers; and our Traditional segment, which consists of domestic and international distributors and retail customers, including end-consumers through our ~~first~~ Charles & Colvard Signature Showroom, which opened in October 2022. We report segment information based on the “management” approach. This segment reporting approach designates the internal reporting used by management for making operating decisions and assessing performance as the source of our operating and reportable segments. We operate in an e-commerce environment characterized by both complexity in global markets and ongoing economic uncertainties in the U.S. and internationally. Our strategy is to build a globally revered and accessible brand of gemstones and finished fine jewelry products set with moissanite and lab grown diamonds. We believe our goods appeal to a broad consumer audience and leverage our advantage of being the original and leading worldwide source of moissanite and purveyor of premium lab grown diamonds. We believe a direct relationship with consumers is an essential component of this strategy, which entails delivering tailored educational content, engaging in an interactive dialogue with our audience, and positioning our brand to meet the demands of today’s discerning consumer. A significant component of our strategy in this environment is to focus on our core products, improving the quality and predictability of the delivery of our products and services and placing those products quickly into the hands of our U.S. and international customers at affordable prices.

Moreover, recognizing today that our customers and vendors are resource-constrained, we are endeavoring to develop and extend our portfolio of products in a disciplined manner with a focus on domestic markets close to our core capabilities, and growing our global marketplace sales. We continue to focus on affordability initiatives. We also expect to continue innovating and investing in lab created gemstone technologies to fulfill evolving product requirements for our customers and investing in our people so that we have the technical and production skills necessary to succeed without limiting our ability to build sound financial returns to our investors.

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Cybersecurity Event Update

On or about June 28, 2023, we identified a cybersecurity incident that temporarily disrupted the Company’s IT network and resulted in some limited downtime for certain systems. Upon discovery, we took immediate action to activate our incident response and business continuity protocols. We took immediate action to contain the incident and appropriate incident response professionals were engaged to assist in investigating the nature and scope of the event and to further harden the Company’s defenses. Through investigation, we confirmed that this event was related to an apparent ransomware attack involving the unauthorized encryption of some Company files and the deployment of malware.

Our investigation revealed no evidence that any sensitive customer data was compromised as a result of this incident, and our relationship with our customers has not been negatively impacted. We have worked closely with engaged security specialists to assist in the review and assessment of our information technology controls, and we implemented recommended strengthening of our access requirements, and improved our unauthorized access detection.

Additionally, we temporarily implemented manual processes to conduct our operations with as little disruption to production as possible. All major systems, including our enterprise resource planning, or ERP, financial systems and affected manufacturing and service operations, were restored as quickly as possible from available backups, and the incident did not have a material impact on the operations of our business operating segments. No payments were made to the ransomware threat actors.

We have incurred costs in the first nine months of the year ending June 30, 2024 or Fiscal 2024 of approximately $300,000 (of which $232,000 was paid directly by our insurance carrier in the three months ended March 31, 2024 which was previously accrued). In the first nine months of Fiscal 2024, these costs have been primarily comprised of various third-party consulting services, including forensic experts, restoration experts, legal counsel, and other information technology professional expenses, enhancements to our cybersecurity measures, costs to restore our systems and access our data, and employee-related expenses, including with respect to increased overtime. We do not expect to incur these and other additional costs related to this incident in the future.

Reverse Stock Split

On March 28, 2024, the Company filed a preliminary proxy statement with the U.S. Securities and Exchange Commission, for which a definitive proxy statement was filed on April 8, 2024, related to a special meeting of shareholders to be held on May 7, 2024, for: 1) the approval for an amendment to the restated articles of incorporation of the Company to effect a reverse stock split of the issued shares of common stock at a ratio within a range from any whole number between one-for-ten to one-for-fifteen, as determined by the Board of Directors in its sole discretion (the “Reverse Stock Split Proposal”); and 2) to approve one or more adjournments of the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes in favor of the Reverse Stock Split Proposal or to constitute a quorum.

If approved by shareholders, the Reverse Stock Split Proposal will reduce the number of the Company’s shares of common stock outstanding in the condensed consolidated financial statements for the three and twelve months ending June 30, 2024, which reduction would increase the Company’s share price. The Company expects that an increase in the Company’s stock price due to the Reverse Stock Split Proposal will enable the Company to regain compliance with the minimum bid price requirement and continue to trade on the Nasdaq Capital Market. However, there can be no assurance that such action will achieve such result.

Fiscal 2024 Financial Outlook

Our strategic goals for Fiscal 2024 revolve around expanding Charles & Colvard’s brand globally and increasing the size of our business through top-line growth. As emerging generations embrace lab grown gems, we believe our ability to establish the superiority of our moissanite and lab grown diamonds, along with the Charles & Colvard brand directly with conscious consumers, is critical to our future success and ability to fuel our growth. We plan to continue executing our key Fiscal 2024 strategies with an ongoing commitment to spending judiciously with a long-term plan to generate sustainable earnings.

Our key strategic goals for Fiscal 2024 are as follows:

Global Brand Awareness

We plan to continue strengthening the fine jewelry brand we have been building for nearly three decades. As the consumer landscape continues to shift and factors beyond price, craftmanship, and origin drive purchase decisions, brand equity is more important than ever. We will continue investing in paid media campaigns targeting the trade and consumers as we reinforce our Made, not Mined™ provenance. We will also remain steadfast in our quest for sustained top-line organic growth as our brand messaging resonates with new audiences.

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~~Diversified~~Critical ~~Product~~Accounting ~~Categories~~Estimates

WeOur ~~will~~discussion ~~continue~~and toanalysis ~~evaluate~~of ~~opportunities~~our ~~for~~financial ~~growth~~condition and results of operations are based upon our consolidated financial statements, which we prepared in accordance with ~~synergistic~~accounting ~~brands~~principles generally accepted in the United States, ~~products~~or U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and ~~verticals~~expenses ~~beyond~~and ~~our~~related ~~current~~disclosures ~~offerings~~of contingent assets and liabilities. ~~Emerging~~“Critical ~~consumer~~accounting ~~trends~~estimates” are defined as those most important to the financial statement presentation and ~~data~~that ~~will~~require the most difficult, subjective, or complex judgments. We base our estimates on ~~inform~~historical ~~new~~experience ~~product~~and ~~lines,~~on ~~collections~~various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and ~~partnerships~~liabilities ~~with~~that ~~designers~~are not readily apparent from other sources. Under different assumptions and/or ~~influencers~~conditions, those actual results of operations may materially differ. WeThe ~~will~~most ~~explore~~significant ~~strategic~~estimates ~~alliances~~impacting our consolidated financial statements relate to ~~fuel~~the ~~growth~~valuation and ~~deliver~~classification of ~~incremental~~inventories, ~~long-term~~accounts ~~shareholder~~receivable ~~value~~reserves, ~~while~~and ~~prioritizing~~revenue ~~our~~recognition. ~~conscious~~We ~~practices~~also ~~and~~have ~~core~~other policies that we consider key accounting policies, but these policies typically do not require us to make estimates or judgments that are difficult or ~~values~~subjective.

~~Innovative~~We ~~Technology~~have disclosed our critical accounting estimates in our 2024 Annual Report, and that disclosure should be read in conjunction with this Quarterly Report on Form 10-Q. There have been no significant changes in our critical accounting estimates during the first nine months of Fiscal 2025.

Evolving technology continues to shape how consumers discover, research, and ultimately purchase. We will continue to invest strategically in technology to service customers in existing and new outlets. Our investments in innovative technology, artificial intelligence, and predictive analytics are designed to further maximize our ability to be agile and efficient in our business. We will enhance our consumer experience through immersive virtual selling and fully customizable products driven by actionable data.

We will work to capitalize on these strategic goals to deliver top-line growth and strong financial results in this fiscal year. We believe that by implementing innovative technological solutions and developing operational efficiencies, we will position ourselves for scalability and sustained, disciplined growth in the years ahead. We plan to make additional investments in our internal technology-driven systems that lead to further operational efficiencies and improvements that we expect will drive down costs and help us deliver on our profitability targets. We will also remain cognizant of opportunistic strategic alliances and business arrangements that would lead to incremental long-term shareholder value.

As evidenced by our results for the first nine months of Fiscal 2024, domestic and global inflation and rising interest rates, coupled with ongoing fears of recession, continue to erode consumer confidence and present significant challenges for the global retail and e-commerce industry. We face the same challenges as all retailers and those in the e-commerce space. At the same time, however, these same challenges are providing us the opportunity to reevaluate technologies, strategies, and talent to shape a new era of shopping. In many ways, we believe the pandemic and current global economic conditions have opened the door for what we believe may be a long-overdue reset within our industry that could help move retailers and those in the e-commerce space into more stable – and potentially more profitable – positions. We plan to continue to invest in our business and seize current challenges by turning them into opportunities for continued growth and improved profitability.

We discuss our strategic outlook and key strategies for Fiscal 2024 in Part I, Item 1, “Business,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in our 2023 Annual Report.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which we prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent assets and liabilities. “Critical accounting policies and estimates” are defined as those most important to the financial statement presentation and that require the most difficult, subjective, or complex judgments. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Under different assumptions and/or conditions, those actual results of operations may materially differ. The most significant estimates impacting our consolidated financial statements relate to the valuation and classification of inventories, accounts receivable reserves, and revenue recognition. We also have other policies that we consider key accounting policies, but these policies typically do not require us to make estimates or judgments that are difficult or subjective.

We have disclosed our critical accounting policies and estimates in our 2023 Annual Report, and that disclosure should be read in conjunction with this Quarterly Report on Form 10-Q. There have been no significant changes in our critical accounting policies and estimates during the first nine months of Fiscal 2024.

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Results of Operations

The following table sets forth certain consolidated statements of operations data for the three and nine months ended March 31, ~~2024~~2025 and ~~2023~~2024:

Three Months Ended March 31,

Nine Months Ended March 31,

2024

2023

2024

2023

2025

2024

2025

2024

Net sales

54,~~261~~049,~~966~~355

65,~~641~~261,~~799~~966

1811,~~120~~912,~~629~~007

2418,~~382~~120,~~003~~629

Costs and expenses:

Cost of goods sold

43,~~076~~118,~~081~~504

4,~~493~~076,~~125~~081

128,~~134~~475,~~535~~175

1412,~~650~~134,~~910~~535

Sales and marketing

31,~~684~~524,~~506~~954

3,~~267~~684,~~436~~506

106,~~702~~174,~~796~~739

10,~~715~~702,~~066~~796

General and administrative

1,~~199~~374,~~511~~082

1,~~053~~199,~~357~~511

43,~~550~~907,~~841~~913

34,~~654~~550,~~788~~841

Total costs and expenses

86,~~960~~017,~~098~~540

8,~~813~~960,~~918~~098

2718,~~388~~557,~~172~~827

2927,~~020~~388,~~764~~172

Loss from operations

(31,~~698~~968,~~132~~185

)

(23,~~172~~698,~~119~~132

)

(96,~~267~~645,~~543~~820

)

(49,~~638~~267,~~761~~543

)

Other income (expense):

Interest income

7416,~~528~~136

6974,~~159~~528

~~244~~97,~~207~~881

~~168~~244,~~935~~146

Interest and other expense

(921,~~103~~098

)

-(9,103

)

(1495,~~672~~251

)

-(14,672

)

Total other income (expense), net

65(4,~~425~~962

)

6965,~~159~~425

~~229~~2,~~474~~630

~~168~~229,~~935~~474

Loss before income taxes

(31,~~632~~973,~~707~~147

)

(23,~~102~~632,~~960~~707

)

(96,~~038~~643,~~069~~190

)

(49,~~469~~038,~~826~~069

)

Income tax expense

~~(6,293,048~~-

)

~~(5,858,155~~-

)

Net loss

(31,~~632~~973,~~707~~147

)

(83,~~396~~632,~~008~~707

)

(96,~~038~~643,~~069~~190

)

(109,~~327~~038,~~981~~069

)

Consolidated Net Sales

Consolidated net sales for the three and nine months ended March 31, ~~2024~~2025 and ~~2023~~2024 comprise the following:

	Three Months Ended March 31,				Change						Nine Months Ended March 31,				Change
	2024		2023		Dollars			Percent			2024		2023		Dollars			Percent
	2025		2024		Dollars			Percent			2025		2024		Dollars			Percent
Finished jewelry	$	43,~~884~~928,~~498~~928	$	54,~~321~~884,~~301~~498	$	(~~436~~955,~~803~~570	)		(820	)%		1611,~~577~~163,~~110~~049		1916,~~297~~577,~~915~~110	$	(25,~~720~~414,~~805~~061	)		(1433	)%
Loose jewels		~~377~~120,~~468~~427		1377,~~320,498~~468		(~~943~~257,~~030~~041	)		(7168	)%		1748,~~543,519~~958		51,~~084~~543,~~088~~519		(3794,~~540,569~~561	)		(7051	)%
Total consolidated net sales	$	54,~~261~~049,~~966~~355	$	65,~~641~~261,~~799~~966	$	(1,~~379~~212,~~833~~611	)		(2123	)%	$	1811,~~120~~912,~~629~~007	$	2418,~~382~~120,~~003~~629	$	(6,~~261~~208,~~374~~622	)		(2634	)%

Consolidated net sales were $5.26 million for the three months ended March 31, 2024, compared to $6.64 million for the three months ended March 31, 2023, a decrease of approximately $1.38 million, or 21%. Consolidated net sales were $18.12 million for the nine months ended March 31, 2024, compared to $24.38 million for the nine months ended March 31, 2023, a decrease of approximately $6.26 million, or 26%. Overall, consumer confidence has continued to show signs of weakening due to general economic uncertainties, domestic and worldwide inflation, recessionary fears, and rising interest rates. These same general economic conditions also caused weakness in demand for moissanite jewels from our domestic and international distributors, resulting in lower loose jewel and jewelry product net sales during the three and nine months ended March 31, 2024, in both of our operating segments.

~~Sales~~Table of ~~finished jewelry represented 93% and 91% of total consolidated net sales for the three and nine months ended March 31, 2024, respectively,~~Contents compared to 80% and 79%, respectively, of total consolidated net sales for the corresponding periods of the prior year. For the three months ended March 31, 2024, finished jewelry sales were $4.88 million compared to $5.32 million for the corresponding period of the prior year, a decrease of approximately $437,000, or 8%. For the nine months ended March 31, 2024, finished jewelry sales were $16.58 million compared to $19.30 million for the corresponding period of the prior fiscal year, a decrease of $2.72 million, or 14%. These decreases for the three and nine month periods ended March 31, 2024 were due primarily to lower demand across all of our finished jewelry products as a result of adverse global and domestic general economic conditions and increased competition.

Consolidated net sales were $4.05 million for the three months ended March 31, 2025, compared to $5.26 million for the three months ended March 31, 2024, a decrease of approximately $1.21 million, or 23%. Consolidated net sales were $11.91 million for the nine months ended March 31, 2025, compared to $18.12 million for the nine months ended March 31, 2024, a decrease of approximately $6.21 million, or 34%. Overall, consumer confidence has continued to show signs of weakening due to general economic uncertainties, domestic and worldwide inflation, recessionary fears, and high interest rates. These same general economic conditions also caused weakness in demand for moissanite jewels from our domestic and international distributors, resulting in lower loose jewel and jewelry product net sales during the three and nine months ended March 31, 2025, in both of our operating segments.

Sales of finished jewelry represented 97% and 94% of total consolidated net sales for the three and nine months ended March 31, 2025, respectively, compared with 93% and 91%, respectively, of total consolidated net sales for the corresponding periods of the prior year. For the three months ended March 31, 2025, finished jewelry sales were $3.93 million compared to $4.88 million for the corresponding period of the prior year, a decrease of approximately $950,000 or 20%. For the nine months ended March 31, 2025, finished jewelry sales were $11.16 million compared to $16.58 million for the corresponding period of the prior fiscal year, a decrease of approximately $5.42 million, or 33%. These decreases in finished jewelry sales for the three and nine month periods ended March 31, 2025 were due primarily to lower demand across all of our finished jewelry products as a result of adverse global and domestic general economic conditions and increased competition.

Sales of loose jewels represented 3% and 6% of total consolidated net sales for the three and nine months ended March 31, 2025, respectively, compared to 7% and 9%, respectively, of total consolidated net sales for the corresponding periods of the prior year. For the three months ended March 31, 2025, loose jewel sales were $120,000 compared to $377,000 for the corresponding period of the prior year, a decrease of approximately $257,000, or 68%. For the nine months ended March 31, 2025, loose jewel sales were $749,000 compared to $1.54 million for the corresponding period of the prior fiscal year, a decrease of $795,000, or 51%. The decrease for the three and nine month periods ended March 31, 2025 was due primarily to lower sales of loose jewels through our distribution network in our Online Channels segment and Traditional segment as a result of global and domestic general adverse macroeconomic conditions and increased competition coupled with continued downward pricing pressure on mined and lab grown diamonds and in line with our strategic shift to a more direct-to-consumer business model.

U.S. net sales accounted for 100% of total consolidated net sales for each of the three and nine months ended March 31, 2025, compared with 99% and 98% for the three and nine months ended March 31, 2024. U.S. net sales decreased to $4.05 million, or 22%%, during the three months ended March 31, 2025 compared to $5.19 million in the comparable period of the prior fiscal year. U.S. net sales decreased to $11.91 million, or 33%, during the nine months ended March 31, 2025 from $17.70 million during the corresponding period of the prior year. U.S. net sales decreased during the three and nine months ended March 31, 2025 primarily due to decreased sales to U.S. customers in both our Online Channels segment and Traditional segment for the same reasons outlined above.

Our largest U.S. customer during the three and nine months ended March 31, 2025 accounted for 17% and 11% of total consolidated net sales during the periods. For the three month period ended March 31, 2025, we had one additional customer that accounted for 14% of total consolidated net sales. We had another customer that accounted for 10% of our net sales for the nine month period ended March 31, 2025.

Our largest U.S. customer during the three and nine months ended March 31, 2024 accounted for 13% of total consolidated net sales during each of the three and nine month periods ended March 31, 2024. We did not have another U.S. customer account for 10% or more of total consolidated sales during the three and nine months ended March 31, 2024. We expect that we and our customers will remain dependent on our ability to maintain and enhance our customer-related programs. A change in or loss of any of these customer or retailer relationships could have a material adverse effect on our results of operations.

International net sales accounted for 0% of total consolidated net sales for the three and nine month periods ended March 31, 2025, and 1% and 2% for the three and nine month periods ended March 31, 2024, respectively. International net sales decreased by $73,000 and $420,000 or 100% during the three and nine months ended March 31, 2025, compared to the respective periods in the prior year. International sales decreased due to lower demand in our international distributor market as a result of global general adverse macroeconomic conditions and increased competition coupled with continued downward pricing pressure on mined and lab grown diamonds. In light of the effects of ongoing global economic conditions, we continue to evaluate current and other potential distributors in international markets to determine the best long-term partners. As a result, and considering the ongoing international trade challenges, we expect that our sales in these markets may significantly fluctuate with each reporting period.

We did not have an international customer account for 10% or more of total consolidated sales during the three or nine months ended March 31, 2025 or 2024. A portion of our international consolidated sales represents jewels sold internationally that may be re-imported to U.S. retailers.

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Sales of loose jewels represented 7% and 9% of total consolidated net sales for the three and nine months ended March 31, 2024, respectively, compared to 20% and 21%, respectively, of total consolidated net sales for the corresponding periods of the prior year. For the three months ended March 31, 2024, loose jewel sales were $377,000 compared to $1.32 million for the corresponding period of the prior year, a decrease of approximately $943,000, or 71%. For the nine months ended March 31, 2024, loose jewel sales were $1.54 million compared to $5.08 million for the corresponding period of the prior fiscal year, a decrease of $3.54 million, or 70%. The decrease for the three and nine month periods ended March 31, 2024 was due primarily to lower sales of loose jewels through our distribution network in our Online Channels segment and Traditional segment as a result of global and domestic general adverse macroeconomic conditions and increased competition coupled with continued downward pricing pressure on mined and lab grown diamonds and in line with our strategic shift to a more direct-to-consumer business model.

U.S. net sales accounted for approximately 99% and 98%, respectively, of total consolidated net sales for each of the three and nine months ended March 31, 2024, compared with 99% and 97% for the three and nine months ended March 31, 2023. U.S. net sales decreased to $5.19 million, or 21%, during the three months ended March 31, 2024 compared to $6.55 million in the comparable period of the prior fiscal year. U.S. net sales decreased to $17.7 million, or 25%, during the nine months ended March 31, 2024 from the corresponding period of the prior year. U.S. net sales decreased during the three and nine months ended March 31, 2024 primarily due to decreased sales to U.S. customers in both our Online Channels segment and Traditional segment for the same reasons outlined above.

Our largest U.S. customer during the three and nine months ended March 31, 2024 was also our largest customer during the three and nine months ended March 31, 2023, and accounted for 13% of total consolidated net sales during each of the three and nine month periods ended March 31, 2024 and 13% and 14% respectively, for the three and nine month periods ended March 31, 2023. We did not have another U.S. customer account for 10% or more of total consolidated sales during the three and nine months ended March 31, 2024 or 2023. We expect that we and our customers will remain dependent on our ability to maintain and enhance our customer-related programs. A change in or loss of any of these customer or retailer relationships could have a material adverse effect on our results of operations.

International net sales accounted for approximately 1% and 2%, respectively, of total consolidated net sales for the three and nine month periods ended March 31, 2024, and 1% and 3% for the three and nine month periods ended March 31, 2023. International net sales decreased 24% and 44% during the three and nine months ended March 31, 2024, respectively, compared to the respective periods in the prior year. International sales decreased due to lower demand in our international distributor market as a result of global general adverse macroeconomic conditions and increased competition coupled with continued downward pricing pressure on mined and lab grown diamonds. In light of the effects of ongoing global economic conditions, we continue to evaluate current and other potential distributors in international markets to determine the best long-term partners. As a result, and considering the ongoing international trade challenges, we expect that our sales in these markets may significantly fluctuate with each reporting period.

We did not have an international customer account for 10% or more of total consolidated sales during the three or nine months ended March 31, 2024 or 2023. A portion of our international consolidated sales represents jewels sold internationally that may be re-imported to U.S. retailers.

Costs and Expenses

Cost of Goods Sold

Our total cost of goods sold for the three and nine months ended March 31, ~~2024~~2025 and ~~2023~~2024 are as follows:

	Three Months Ended March 31,				Change						Nine Months Ended March 31,				Change
	2024		2023		Dollars			Percent			2024		2023		Dollars			Percent
	2025		2024		Dollars			Percent			2025		2024		Dollars			Percent
Product line cost of goods sold:
Finished jewelry	$	2,~~718~~182,~~053~~534	$	2,~~840~~718,~~321~~053		(~~122~~535,~~268~~519	)		(420	)%	$	86,~~595~~593,~~736~~390		98,~~632~~595,~~352~~736		(12,~~036~~002,~~616~~346	)		(1123	)%
Loose jewels		~~151~~49,~~870~~069		~~645~~151,~~259~~870		(~~493~~102,~~389~~801	)		(7668	)%		~~592~~334,~~238~~205		2592,~~342,133~~238		(1258,~~749,895~~033	)		(7544	)%
Total product line cost of goods sold		2,~~869~~231,~~923~~603		32,~~485~~869,~~580~~923		(~~615~~638,~~657~~320	)		(1822	)%		96,~~187~~927,~~974~~595		119,~~974~~187,~~485~~974		(2,~~786~~260,~~511~~379	)		(2325	)%
Non-product line cost of goods sold		1886,~~206,158~~901		1,~~007~~206,~~545~~158		~~198~~(319,~~613~~257	)		20(26	)%		21,~~946~~547,~~561~~580		2,~~676~~946,~~425~~561		~~270~~(1,~~136~~398,981	)		10(47	)%
Total cost of goods sold	$	43,~~076~~118,~~081~~504	$	4,~~493~~076,~~125~~081		(~~417~~957,~~044~~577	)		(923	)%	$	128,~~134~~475,~~535~~175		1412,~~650~~134,~~910~~535		(23,~~516~~659,~~375~~360	)		(1730	)%

Total cost of goods sold was $3.12 million for the three months ended March 31, 2025, compared to $4.08 million for the three months ended March 31, 2024, a decrease of approximately $960,000, or 23%. The total cost of goods sold was $8.48 million for the nine months ended March 31, 2025, compared to $12.13 million for the nine months ended March 31, 2024, a net decrease of approximately $3.66 million, or 30%. Product line cost of goods sold is defined as product cost of goods sold directly and excludes certain indirect supporting expenses from the manufacturing and production control departments, comprising personnel costs, allocations for depreciation, leases, utilities, and corporate overhead; freight; and period costs associated with other inventory adjustments, comprising costs of quality issues, and damaged goods.

The decrease in total cost of goods sold for the three months ended March 31, 2025, compared to the same period in 2024 was primarily due to decreased sales of loose jewels and finished jewelry during the three months ended March 31, 2025, in our Traditional and Online Channels as a result of lower product demand during the quarter, as well as a decrease in non-product line cost of goods sold.

The net decrease in non-product line cost of goods sold for the three months ended March 31, 2025, comprises: a $178,000 decrease in freight out principally from lower shipments during the period; and an approximate $271,000 decrease in non-capitalized manufacturing production control expenses principally related to the timing of when work-in-process goods are received into inventory and overhead costs are allocated. These decreases were partially offset by a $130,000 increase in other inventory adjustments principally related to changes in production standard cost variances.

The decrease in total cost of goods sold for the nine months ended March 31, 2025 compared to the same period in 2024 was also primarily driven by the decreased sales of finished goods and loose jewels during the nine months ended March 31, 2025 in both of our Online Channels segment and Traditional segment. We experienced lower demand in our Online Channels segment as a result of lower finished jewelry product demand during the nine month period despite the calendar year-end 2024 holiday season. We also and likewise saw lower loose jewel product demand in our Traditional segment throughout the nine month period.

The net decrease in non-product line cost of goods sold for the nine months ended March 31, 2025, comprises: a $816,000 decrease in indirect manufacturing production control expenses; a $436,240 decrease in freight out principally from decreased shipping volume; and a $147,000 decrease in other inventory adjustments principally related to production standard cost variances compared to those in the first nine months of 2024.

For additional disclosure relating to non-product line cost of goods sold, see Note 3 to our condensed consolidated financial statements in Item 1, “Financial Statements”, of this Quarterly Report on Form 10-Q.

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Total cost of goods sold was $4.08 million for the three months ended March 31, 2024, compared to $4.49 million for the three months ended March 31, 2023, a decrease of approximately $417,000, or 9%. The total cost of goods sold was $12.13 million for the nine months ended March 31, 2024, compared to $14.65 million for the nine months ended March 31, 2023, a net decrease of approximately $2.52 million, or 17%. Product line cost of goods sold is defined as product cost of goods sold directly and excludes certain indirect supporting expenses from the manufacturing and production control departments, comprising personnel costs, allocations for depreciation, leases, utilities, and corporate overhead; freight; and period costs associated with inventory write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods.

The decrease in total cost of goods sold for the three months ended March 31, 2024, compared to the same period in 2023, was primarily due to decreased sales of loose jewels and finished jewelry during the three months ended March 31, 2024, in our Traditional and Online Channels as a result of lower product demand during the quarter, offset by an increase in non-product line cost of goods sold. Despite a decline in total cost of goods sold during the three months ended March 31, 2024, the significant increase in gold prices along with greater promotional pricing pressure amid a deeply discounted retail environment driving an increased sale cadence as compared to the same period in 2023, continued to erode profit margins.

The net increase in non-product line cost of goods sold for the three months ended March 31, 2024, comprises a $70,000 increase in freight principally from higher shipping costs during the period; a $76,000 increase in indirect manufacturing production control expenses; and a $53,000 increase in other inventory adjustments for production standard cost variances compared to those in the first three months of Fiscal 2023.

The decrease in total cost of goods sold for the nine months ended March 31, 2024 compared to the same period in 2023 was also primarily driven by the decreased sales of finished goods and loose jewels during the nine months ended March 31, 2024 in both of our Online Channels segment and Traditional segment. We experienced lower demand in our Online Channels segment as a result of lower finished jewelry product demand during the nine month period despite the calendar year-end 2023 holiday season. We also and likewise saw lower loose jewel product demand in our Traditional segment throughout the nine month period.

The net increase in non-product line cost of goods sold for the nine months ended March 31, 2024, comprises a $274,000 increase in indirect manufacturing production control expenses and a $136,000 increase in other inventory adjustments principally related to production standard cost variances compared to those in the first nine months of 2023. These increases were partially offset by a $119,000 decrease in inventory valuation allowances in the first nine months of 2023, compared to those in the comparable prior year period, and a $22,000 decrease in freight out principally from decreased shipping volume during the nine month period.

Sales and Marketing

Sales and marketing expenses for the three and nine months ended March 31, ~~2024~~2025 and ~~2023~~2024 are as follows:

	Three Months Ended March 31,				Change						Nine Months Ended March 31,				Change
	2024		2023		Dollars			Percent			2024		2023		Dollars			Percent
	2025		2024		Dollars			Percent			2025		2024		Dollars			Percent
Sales and marketing	$	31,~~684~~524,~~506~~954	$	3,~~267~~684,~~436~~506	$	~~417~~(2,~~070~~159,552	)		13(59	)%	$	106,~~702~~174,~~796~~739	$	10,~~715~~702,~~066~~796	$	(124,~~270~~528,057	)		0(42	)%

Sales and marketing expenses were $31.6852 million for the three months ended March 31, ~~2024~~2025 compared to $3.2768 million for the three months ended March 31, ~~2023~~2024, ana ~~increase~~decrease of approximately $~~417~~2.16 million,~~000,~~ or 1359%.

The ~~increase~~decrease in sales and marketing expenses for the three months ended March 31, ~~2024~~2025 compared to the same period in ~~2023~~2024 was primarily due to: a $~~255,0000~~1.52 ~~increase~~million decrease in advertising and digital marketing expenses; a $~~115~~278,000 ~~increase~~decrease in ~~professional~~compensation ~~services and marketing support~~expense; a $54257,000 ~~increase~~decrease in ~~compensation~~professional ~~expenses;~~services aand marketing support; an $5185,000 ~~increase~~decrease in software-related costs incurred primarily in connection with software-related agreements; ~~an $8,000 increase in bank fees; an $5,000 net increase in general office-related expenses;~~ a $810,000 ~~increase~~decrease in ~~telephone/fiber-related~~travel ~~communications expenses;~~ and ~~a $3,000 increase in travel and~~ entertainment~~. These increases were partially offset by a $75,000 decrease in general business taxes~~; and a $79,000 decrease in ~~insurance~~general ~~costs~~office-related expenses.

The ~~increase~~decrease in advertising and digital marketing expenses for the three months ended March 31, ~~2024~~2025 compared to the same period in ~~2023~~2024 ~~was~~comprises: ~~primarily~~a ~~due~~$1.36 tomillion andecrease ~~increase~~ in ~~advertising~~online, ~~expense~~television, ofand ~~approximately~~social ~~$325,000~~media expenses; ~~and~~ a $597,000 ~~increase~~decrease in ~~agency~~cooperative ~~fees.~~advertising ~~These~~expense ~~increases~~related ~~were~~to ~~offset~~consideration ~~partially~~of bythese aexpenses ~~$34~~as contra-revenue under ASC 606,~~000~~ ~~decrease~~and are reflected in ~~cooperative~~that ~~advertising;~~manner for Fiscal 2025; a $3315,000 decrease in printed ~~brand~~marketing ~~awareness~~and ~~activities~~advertising costs; and ana $848,000 decrease in ~~print~~advertising ~~media~~agency expenses.

The decrease in compensation expenses for the three months ended March 31, 2025 compared to the same period in 2024 was primarily due to: a $254,000 decrease in salaries and related employee benefits, a $21,000 decrease in bonus expense, and a $2,000 decrease in share-based compensation expense.

The decrease in professional and marketing support expenses for the three months ended March 31, 2025 compared to the same period in 2024 was primarily due to: a $213,000 decrease in marketing consulting expenses; and a $44,000 decrease in public relations expenses.

The decrease in sales and marketing expenses for the nine months ended March 31, 2025 compared to the same period in 2024 was primarily due to: a $3.13 million decrease in advertising and digital marketing expenses; a $603,000 decrease in compensation expense; a $203,000 decrease in general office-related expenses; a $612,000 decrease in professional services and marketing support; a $60,000 decrease in software-related expenses; a $29,000 decrease in travel and entertainment expense; a $19,000 decrease in telephone expense; and a $29,000 decrease in other miscellaneous expenses, mainly comprising recruiting fees. These decreases in sales and marketing expenses were partially offset by a $154,000 increase in depreciation and amortization expense.

The decrease in advertising and digital marketing expenses for the nine months ended March 31, 2025 compared to the same period in 2024 comprises: a $2.74 million decrease in online, television, and social media expenses; a $414,000 decrease in cooperative advertising expense related to consideration of these expenses as contra-revenue under ASC 606, and are reflected in that manner for Fiscal 2025; a $29,000 decrease in agency fees; and a $23,000 decrease in print media fees. These decreases were partially offset by: a $52,000 increase in promotional expense; and a $22,000 increase in trade show expenses.

The decrease in compensation expenses for the nine months ended March 31, 2025 compared to the same period in 2024 was primarily due to: a $588,000 decrease in salaries and related employee benefits, a $4,000 decrease in bonus expense; a $9,000 decrease in share-based compensation; and a $2,000 decrease in severance expense.

The decrease in general office-related expenses for the nine months ended March 31, 2025 compared to the same period in 2024 was primarily due to: a $175,000 decrease in bank fees; a $21,000 decrease in miscellaneous office related expenses; and a $7,000 increase insurance expenses.

The decrease in professional and marketing support expenses for the nine months ended March 31, 2025 compared to the same period in 2024 was primarily due: to a $370,000 decrease in marketing consulting expenses; and a $157,000 decrease in public and investor relations expenses.

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The increase in compensation expenses for the three months ended March 31, 2024 compared to the same period in 2023 was primarily due to a $52,000 increase in bonus expense; and a $13,000 increase in salaries and related employee benefits. These increases were partially offset by a $6,000 decrease in employee stock-based compensation; and a $5,000 decrease in severance expense.

The decrease in sales and marketing expenses for the nine months ended March 31, 2024 compared to the same period in 2023 was primarily due to a $200,000 decrease in general business taxes; a $157,000 decrease in compensation expenses; a $65,000 decrease in bank fees; a $23,000 decrease in insurance costs; a $9,000 decrease in depreciation and amortization expense; and a $4,000 decrease in travel expenses. These decreases were offset partially by a $181,000 increase in professional services principally comprising consulting services for marketing support in the current year period; a $109,000 increase in advertising and digital marketing expenses; a $68,000 increase in software-related costs incurred primarily in connection with new software-related agreements associated with upgraded sales-related operating systems; a $37,000 net increase in customer meetings and general office-related expenses; a $23,000 increase in employee-related recruiting and search fees for new hires; and a $28,000 increase in telephone/fiber-related communications expenses.

Compensation expenses for the nine months ended March 31, 2024 compared to the same period in 2023 decreased primarily as a result of a $91,000 decrease in salaries, commissions, and related employee benefits; a $36,000 decrease in bonus expense; a $28,000 decrease in employee stock-based compensation expense; and a $2,000 decrease in severance costs.

The increase in advertising and digital marketing expenses for the nine months ended March 31, 2024 compared to the same period in 2023 comprises a $379,000 increase in digital advertising expense; a $17,000 increase in agency fees; and a $10,000 increase in print media expenses. These increases were offset partially by a $191,000 decrease in sponsorships; an $81,000 decrease in cooperative advertising; and a decrease of $25,000 in trade show expenses.

General and Administrative

General and administrative expenses for the three and nine months ended March 31, ~~2024~~2025 and ~~2023~~2024 are as follows:

	Three Months Ended March 31,				Change					Nine Months Ended March 31,				Change
	2024		2023		Dollars		Percent			2024		2023		Dollars			Percent
	2025		2024		Dollars		Percent			2025		2024		Dollars			Percent
General and administrative	$	1,~~199~~374,~~511~~082	$	1,~~053~~199,~~357~~511	$	~~146~~174,~~154~~571		1415	%	$	43,~~550~~907,~~841~~913	$	34,~~654~~550,~~788~~841	$	~~896~~(642,~~053~~928	)		25(14	)%

General and administrative expenses were $1.2037 million for the three months ended March 31, ~~2024~~2025 compared to $1.0520 million for the three months ended March 31, ~~2023~~2024, an increase of approximately $~~146~~175,000, or 1415%.

The increase in general and administrative expenses for the three months ended March 31, ~~2024~~2025 compared to the same period in ~~2023~~2024 was primarily due to a $~~122~~502,000 increase in professional fees;. aThis ~~$45,000~~ increase inwas ~~general~~partially ~~business~~offset ~~taxes~~by: ~~and licenses;~~ a $36170,000 ~~increase~~decrease in ~~travel-related~~compensation ~~expenditures; an $8,000 increase in bad debt~~ expense; a $465,000 ~~increase~~decrease in ~~depreciation~~travel and ~~amortization~~entertainment expense; a $247,000 ~~increase~~ decrease in ~~overall~~board ~~rent~~retainer ~~expense~~fees; and a $245,000 ~~increase in insurance expense. These increases were partially offset by a $24,000~~ decrease in ~~bank~~general ~~fees; a $17,000 decrease in compensation-related expenses; and a net decrease of $32,000 in other~~business ~~administrative-related~~taxes ~~expenses~~and licenses.

~~The~~Professional ~~decrease~~services ~~in compensation~~ expenses increased for the three months ended March 31, ~~2024~~2025 compared to the same period in ~~2023~~2024 ~~was~~ primarily due to: a net increase of $78301,000 ~~decrease~~ in ~~salaries~~corporate ~~and~~professional services, ~~benefits;~~which ~~and~~the aprior ~~decrease~~year included the reimbursement of ~~$4,000~~certain inprofessional ~~severance~~fees ~~expense.~~by ~~The~~our ~~decrease~~insurance ~~was~~carrier ~~partially~~totaling ~~offset~~$232,000 byrelated to the 2023 cybersecurity event; a $40131,000 increase in ~~employee~~contract ~~stock-based compensation expense~~labor; and a $2571,000 increase in ~~bonus~~audit ~~expense~~and tax related services.

~~Professional~~The ~~services~~decrease ~~expenses~~in ~~increased~~compensation expenses for the three months ended March 31, ~~2024~~2025 compared to the same period in ~~2023~~2024 was primarily due to: a $~~121~~111,000 ~~increase~~decrease in ~~legal~~salaries ~~fees~~and ~~associated with various corporate matters~~benefits; a $9550,000 ~~increase in fees associated with audit and tax services; and a $71,000 increase in temporary labor. These decreases were offset by a $151,000~~ decrease in ~~other~~share-based ~~professional fees due to the payment of certain professional fees by our insurance carrier totaling $232,000 previously accrued related to the prior period cybersecurity event~~compensation; and a $149,000 decrease in ~~investor~~bonus ~~relations fees~~expense.

The decrease in general and administrative expenses for the nine months ended March 31, 2025 compared to the same period in 2024 was primarily due to: a $482,000 decrease in compensation expense; a $130,000 decrease in general business taxes and licenses; a $123,000 decrease in board retainer fees; a $64,000 decrease in insurance expense; a $57,000 decrease in travel and entertainment expense; a $22,000 decrease in bad debt expense; and a $73,000 decrease in other administrative expenses. These decreases were partially offset by: a $256,000 increase in professional service expense; and a $37,000 increase in bank fees.

Compensation expenses decreased for the nine months ended March 31, 2025, compared to the same period in 2024 principally due to: a $354,000 net decrease in salaries and related employee benefits; a $49,000 decrease in bonus expenses; and a $78,000 decrease in employee stock-based compensation expense.

Professional services fees increased for the nine months ended March 31, 2025, compared to the same period in 2024, primarily due to: a $319,000 increase in corporate professional consulting services, which the prior year included the reimbursement of certain professional fees by our insurance carrier totaling $232,000 related to the 2023 cybersecurity event; and a $165,000 increase in professional tax and audit services. These increases were partially offset by: a $150,000 decrease in legal fees; and $78,000 decrease in investor relations fees.

Interest Income

Interest income for the three and nine months ended March 31, 2025 and 2024 is as follows:

	Three Months Ended March 31,				Change						Nine Months Ended March 31,				Change
	2025		2024		Dollars			Percent			2025		2024		Dollars			Percent
Interest income	$	16,136	$	74,528	$	(58,392	)		(78	)%	$	97,881	$	244,146	$	(146,265	)		(60	)%

Certain cash balances in excess of operating needs are deposited into and maintained in an interest-bearing account with a federally insured commercial bank. Accordingly, during the three and nine months ended March 31, 2025 and 2024, we earned interest from cash on deposit in this interest-bearing account. The decrease in earned interest for the three and nine month periods ended March 31, 2025 reflects a lower cash balance in interest bearing accounts and lower interest rates during the first three and nine month periods of Fiscal 2025 compared with Fiscal 2024.

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The increase in general and administrative expenses for the nine months ended March 31, 2024 compared to the same period in 2023 was primarily due to a $1.06 million increase in professional services expenses; a $125,000 increase in bad debt expense; a $66,000 increase in depreciation and amortization; and a $19,000 increase in insurance expense. These increases were partially offset by a $269,000 decrease in compensation-related costs; a $29,000 decrease in bank fees; a $36,000 decrease in travel and entertainment expense; a $29,000 net decrease in miscellaneous other general and administrative expenses; and an $11,000 decrease in overall rent expense.

Compensation expenses decreased for the nine months ended March 31, 2024, compared to the same period in 2023 principally due to a $221,000 net decrease in salaries and related employee benefits; a $63,000 decrease in bonus expenses; and a $4,000 decrease in severance expenses. These decreases were partially offset by a $19,000 increase in employee stock-based compensation expense.

Professional services fees increased for the nine months ended March 31, 2024, compared to the same period in 2023, primarily due to a $595,000 increase in legal fees associated with the cybersecurity event on June 28, 2023, and other corporate matters; a $164,000 increase in temporary labor; a $148,000 increase in fees associated with audit and tax services; a $111,000 increase in professional fees due to various strategic consulting projects and a pay versus performance analysis; and a $40,000 increase in investor relations fees.

Interest Income

Interest income for the three and nine months ended March 31, 2024 and 2023 is as follows:

	Three Months Ended March 31,				Change					Nine Months Ended March 31,				Change
	2024		2023		Dollars		Percent			2024		2023		Dollars		Percent
Interest income	$	74,528	$	69,159	$	5,369		7	%	$	244,146	$	168,935	$	75,211		46	%

Certain cash balances in excess of operating needs are deposited into and maintained in an interest-bearing account with a federally insured commercial bank. Accordingly, during the three and nine months ended March 31, 2024 and 2023, we earned interest from cash on deposit in this interest-bearing account. The increase in earned interest for the three and nine month periods ended March 31, 2024 reflects the higher interest rates during the first three and nine month periods of Fiscal 2024 compared with Fiscal 2023.

Interest and Other Expense

Interest and other expense for the three and nine months ended March 31, ~~2024~~2025 and ~~2023~~2024 is as follows:

	Three Months Ended March 31,				Change	~~Change~~					Nine Months Ended March 31,	~~Nine Months Ended March 31,~~				Change	~~Change~~
	2024		2023			Dollars		Percent				2024					Dollars		Percent
		2025	2024			Dollars		Percent				2025		2024			Dollars		Percent
Interest and other expense	$	921,~~103~~098	$	-9,103		$	911,~~103~~995		~~100~~132	%		$	1495,~~672~~251	$	-14,672		$	1480,~~672~~579		~~100~~549	%

Interest and other expense incurred for the three and nine months ended March 31, ~~2024~~2025, was primarily a result of the drawdown on the Company’s line of credit.

Provision for Income Taxes

For the three and nine months ended March 31, ~~2024~~2025, the Company’s statutory tax rate was 2223.9407% and consisted of the federal income tax rate of 21.00% and a blended state income tax rate of 12.9407%, net of the federal ~~federal~~ benefit. For both the three and nine months ended March 31, ~~2024~~2025, the Company’s average effective tax rate was zero. For the three and nine months ended March 31, ~~2023,~~2024 the Company’s ~~effective~~statutory tax rate was 22.94% 11and consisted of the federal income tax rate of 21.2400% and 18a blended state income tax rate of 1.3794%, ~~respectively~~ net of the federal benefit. For the three and nine months ended March 31, 2024, the Company’s effective tax rate was 0%. The Company’s effective income tax rate reflects the effect of federal and state income taxes on earnings and the impact of differences in book and tax accounting arising primarily from the permanent tax benefits associated with stock-based compensation transactions during the accounting period then ended.

The Company recognized zero net income tax benefit for the three and nine months ended March 31, ~~2024,~~2025 ~~compared with a net income tax expense of approximately $6.29 million~~ and $52024.~~86 million, driven by the establishment of the valuation allowance, for the three and nine months ended March 31, 2023, respectively.~~

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax assets. As of March 31, 2025, the Company’s management determined that sufficient negative evidence continued to exist to conclude it was uncertain that the Company would have sufficient future taxable income to utilize its deferred tax assets, and therefore, the Company maintained a full valuation allowance against its deferred tax assets.

Liquidity and Capital Resources

Liquidity and Capital Trends

We have concluded that our existing cash and cash equivalents and availability of other resources combined will not be sufficient to meet our working capital and capital expenditure needs over the next twelve months, and therefore, there is substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. We are continuing to work on plans to fund operations and address the recent Wolfspeed arbitration award and settlement agreement to alleviate the conditions that raise substantial doubt by evaluating our financing arrangements, implementing cost savings actions to reduce cash outflow, and evaluating the liquidation of certain inventories, if needed. However, there can be no assurance that these plans will be successful or that additional financing will be available on terms acceptable to the Company. A more detailed description of our going concern is included in Note 2 to our condensed consolidated financial statements in Item 1, “Financial Statements”, of this Quarterly Report on Form 10-Q.

Access to Capital Markets

Our access to the capital markets may be limited. Although we have an effective shelf registration statement on Form S-3 on file with the SEC that allows us to periodically offer and sell securities up to a total of $25.00 million, the shelf registration statement is currently not available to offer or sell shares of common stock due to the Company’s late periodic filings, including this Form 10-Q. Additionally, even if we regain compliance with the SEC, we will only be able to raise one-third of our public float in the event that the aggregate market value of our outstanding common stock held by non-affiliates is less than $75 million over the sixty days prior to any offer or sale. As of July 30, 2025, our public float was approximately $800,000.

In addition to the foregoing, the Company’s stock was delisted from the Nasdaq Stock Market on April 25, 2025 and is now traded on the OTC Expert Market.

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As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax assets. As of March 31, 2024, the Company’s management determined that sufficient negative evidence continued to exist to conclude it was uncertain that the Company would have sufficient future taxable income to utilize its deferred tax assets, and therefore, the Company maintained a full valuation allowance against its deferred tax assets.

Liquidity and Capital Resources

Liquidity, Capital Resources and Going Concern

We have concluded that our existing cash and cash equivalents and availability of our short-term resources combined will not be sufficient to meet our working capital and capital expenditure needs over the next twelve months, and therefore, there is substantial doubt about the Company’s ability to continue as a going concern. A more detailed description of our going concern is included in Note 2 to our condensed consolidated financial statements in Part I, Item 1, “Financial Statements”, of this Quarterly Report on Form 10-Q.

Capital Structure and Debt

Long-Term Liquidity and Capital Structure

We have an effective shelf registration statement on Form S-3 on file with the SEC, with an expiration date of June 2, 2024, that allows us to periodically offer and sell, individually or in any combination, shares of common stock, shares of preferred stock, warrants to purchase shares of common stock or preferred stock, and units consisting of any combination of the foregoing types of securities, up to a total of $25.00 million, of which all is available. However, we may offer and sell no more than one-third of our public float (which is the aggregate market value of our outstanding common stock held by non-affiliates) in any twelve-month period. Our ability to issue equity securities under the shelf registration statement is subject to market conditions, which may be in turn, subject to, among other things, the potential disruption and volatility that may be caused by ongoing effects of rising inflation rates and fear of recession. Any capital raise is not assured and may not be at terms that would be acceptable to us.

In addition, on June 12, 2023, we received a notification letter from Nasdaq’s Listing Qualifications Department indicating that we are not in compliance with Nasdaq Listing Rule 5550 (a)(2), because the minimum bid price of our common stock on the Nasdaq Capital Market has closed below $1.00 per share for 30 consecutive business days. The notification letter has no immediate effect on the Nasdaq listing or trading in our common stock. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days, or until December 11, 2023, to regain compliance with the minimum $1.00 bid price per share requirement. We received notice on December 12, 2023 from the Nasdaq’s Listing Qualifications Department which resulted in an additional 180-day period, or until June 10, 2024, within which to regain compliance with the $1.00 minimum bid price requirement.

While we intend to engage in efforts to regain compliance, and thus maintain our listing, including by carrying out a reverse stock split, there can be no assurance that we will be able to regain compliance during the applicable time periods set forth above. If we fail to continue to meet all applicable listing requirements in the future and Nasdaq determines to delist our common stock, the delisting could substantially decrease trading in our common stock and adversely affect the market liquidity of our common stock; adversely affect our ability to obtain financing on acceptable terms, if at all; and may result in the potential loss of confidence by investors, suppliers, customers, employees, and fewer business development opportunities. Additionally, the market price of our common stock may decline further, and shareholders may lose some or all of their investment.

On March 28, 2024, we filed a preliminary proxy statement with the U.S. Securities and Exchange Commission, for which a definitive proxy statement was filed on April 8, 2024, related to a special meeting of shareholders to be held on May 7, 2024, for: 1) the approval for an amendment to our restated articles of incorporation to effect a reverse stock split of the issued shares of common stock at a ratio within a range from any whole number between one-for-ten to one-for-fifteen, as determined by the Board of Directors in its sole discretion (the “Reverse Stock Split Proposal”); and 2) to approve one or more adjournments of the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes in favor of the Reverse Stock Split Proposal or to constitute a quorum.

The Reverse Stock Split Proposal, if approved by the shareholders, will reduce the number of our shares of common stock outstanding in the condensed consolidated financial statements for the three and twelve-months ending June 30, 2024, which reduction would increase our stock price. We expect that an increase in our share price due to the Reverse Stock Split Proposal will enable us to regain compliance with the minimum bid price requirement and continue to trade on the Nasdaq Capital Market, though there can be no assurance that such action will achieve such result.

Debt

WeOn ~~had~~June ~~$500~~24,~~000~~ in2025, ~~short-term~~the ~~borrowings~~Company onand ~~our~~Ethara ~~line~~Capital, ofLLC ~~credit~~executed asa Convertible Secured Note Purchase Agreement. Under the terms of ~~March~~the 31agreement, ~~2024~~the Company will issue a $2 million secured convertible note to Ethara Capital, LLC and will accrue interest at a rate of 5% annually and is payable monthly. WeThe ~~have~~convertible nonote ~~long-term~~matures ~~outstanding~~three ~~debt~~months asafter issuance. Ethara Capital, LLC has the option to extend the maturity of ~~March~~the 31secured convertible note up to 39 months after issuance. Subject to obtaining Company’s shareholder approval, ~~2024~~Ethara Capital, LLC, at its sole discretion can convert the outstanding principal balance and the unpaid interest into the Company’s common stock.

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Financing Activities

Long-Term Financing Activities

In accordance with authority granted by our Board of Directors on April 29, 2022, we ~~can~~could repurchase up to $5.00 million in shares outstanding of our common stock over the three -year period ending April 29, 2025. Pursuant to the terms of the repurchase authorization, the common stock share repurchases ~~are~~were generally at the discretion of management. As we ~~repurchase~~ repurchased our common shares, which have no par value, we reported ~~report~~ such shares held as treasury stock on our condensed consolidated balance sheets, with the purchase price recorded within treasury stock. The Company’s share repurchase program expired at the end of the term.

We repurchased no shares of our common stock during the three ~~and nine~~ -month periods ended March 31, ~~2024.~~2025 ~~During the~~and ~~three month period ended March 31, 2023, we repurchased no shares of our common stock~~2024. During the nine month period ended March 31, 2023 we purchased approximately 358,000 shares of our common stock for an aggregate price of approximately $452,000 pursuant to the repurchase authorization.

Operating Activities and Cash Flows

We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures. As of March 31, ~~2024~~2025, our principal sources of liquidity were cash and cash equivalents totaling $91.226 million, trade accounts receivable of $~~567~~707,000, and net current inventory of $105.44 95 million, as compared to cash and cash equivalents totaling $~~10.~~4.14 million, trade accounts receivable of $~~380~~845,000, and net current inventory of $7.4851 million as of June 30, ~~2023. We also had access during the three month period ended March 31,~~ 2024 ~~to a $5~~.00 million cash collateralized line of credit facility, with an available balance of $4.5 million, or the JPMorgan Chase Credit Facility, that we obtained effective July 9, 2021, as amended July 28, 2022 and amended further effective June 21, 2023, from JPMorgan Chase Bank, N.A., or JPMorgan Chase.

During the nine months ended March 31, ~~2024~~ 2025, our working capital decreased by approximately $45.8413 million to $~~12.67~~(440,000) ~~million~~ from $174.5169 million at June 30, ~~2023~~2024. As described more fully below, the decrease in working capital at March 31, ~~2024~~2025 is primarily attributable to: a net decrease in our cash, cash equivalents, and restricted cash,; a decrease in our prepaid expenses and other assets,; an increase in our accounts payable,; and an increase in the current portion of our operating lease liabilities. These factors were offset partially by: an increase in our allocation of inventory from long-term to short-term due to a higher expected sell through of inventory on hand in the upcoming period,; an increase in our accounts receivables,; and a decrease in our accrued expenses and other liabilities. Our cash used for investing activities were principally used for the purchase of property and equipment.

During the nine months ended March 31, ~~2024~~2025, approximately $65.0623 million of cash was used in our operations. The primary drivers of our use of cash were: a net loss in the amount of approximately $96.0464 million; a $~~145,000~~2.21 ~~increase~~million decrease in accounts ~~receivable~~payables; and a decrease in accrued expenses and other liabilities of approximately $~~650~~808,000. These factors were offset partially by: a decrease in inventory of approximately $12.4497 million; ana ~~increase~~decrease in accounts ~~payable~~receivable of ~~$1.08~~approximately ~~million~~$52,000; non-cash expenditures of approximately $~~678~~819,000; and a $~~574~~594,000 decrease in prepaid expense and other assets.

From time to time, we have offered extended Traditional segment customer payment terms beyond 90 days to certain credit-worthy customers, the extension of which may not immediately increase liquidity as a result of ongoing current-period sales. In addition, we believe our competitors and other vendors in the wholesale jewelry industry have expanded their use of extended payment terms and, in aggregate, we believe that, through our use of extended payment terms, we provide a competitive response in our market during the current global economic environment. We believe that we are unable to estimate the impact of these actions on our net sales, but we believe that if we ceased providing extended payment terms, we would be at a competitive disadvantage for some Traditional segment customers in the marketplace during this economic period and our net sales and profits would likely be adversely impacted.

We manufactured approximately $~~1.09~~578,000 ~~million~~ and $51.0809 million in loose jewels and $~~7.96~~924,000 ~~million~~ and $107.5796 million in finished jewelry, which includes the cost of the loose jewels and the purchase of precious metals and labor in connection with jewelry production, during the nine months ended March 31, ~~2024~~2025 and ~~2023~~2024, respectively. We expect our purchases of precious metals and labor to fluctuate in conjunction with the levels of our finished jewelry business. In addition, the price of gold has fluctuated significantly over the past decade, resulting in higher retail price points for gold jewelry. Because the market prices of gold and other precious metals are beyond our control, upward price trends could have a negative impact on our operating cash flow as we manufacture finished jewelry.

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Historically, our raw material inventories of SiC crystals had been purchased under exclusive supply agreements with a limited number of suppliers. Because the supply agreements ~~agreements~~ restricted the sale of these crystals exclusively to us, the suppliers negotiated minimum purchase commitments with us that, when combined with reduced sales levels during prior periods in which the purchase commitments were in effect, have ~~have~~ resulted in levels of inventories that are higher than we might otherwise maintain. As of March 31, ~~2024~~2025 and June 30, ~~2023~~2024, $1416.8701 million and $1917.2842 million of our inventories were classified as long-term assets, respectively. Loose jewel sales and finished jewelry that we manufacture will utilize both the finished goods loose jewels currently on-hand and, as we deplete certain shapes and sizes, our on-hand raw material SiC crystals of $110,000 and new raw material that we may purchase pursuant to the Supply Agreement.

~~Our~~A more detailed description of our inventories is included in Note 5 to our condensed consolidated financial statements in Part I, Item 1, “Financial Statements”, of this Quarterly Report on Form 10-Q.

As of March 31, ~~2024~~2025, all of our remaining federal income tax credits had expired or been utilized, and therefore, are not available to be carried forward to offset future income taxes. As of ~~June~~March 3031, ~~2023~~2025, we also had federal tax net operating loss ~~carryforward~~carryforwards of approximately $24.76 million expiring between 2034 and 2037, or that have no expiration, which can be used to offset against future federal taxable income; North Carolina tax net operating loss carryforwards of approximately $20.01 million expiring between 2023 and 2035; and various other state tax net operating loss carryforwards expiring between 2023 and 2040, which can be used to offset against future state taxable income.

Short-Term Capital Resources

Line of Credit

Effective July 7, 2021, we obtained from JPMorgan Chase our $5.00 million cash collateralized JPMorgan Chase Credit Facility. ~~The~~On ~~JPMorgan~~January ~~Chase~~31, ~~Credit~~2025, ~~Facility~~we ~~may~~elected benot ~~used for~~to ~~general~~renew ~~corporate~~the ~~and~~JP Morgan ~~working~~Chase ~~capital~~Credit ~~purposes,~~Facility ~~including permitted acquisitions~~ and ~~certain~~as ~~additional~~of ~~indebtedness~~March ~~for borrowed money~~31, ~~installment obligations~~2025, ~~and~~the ~~obligations~~Company ~~under~~had ~~capital~~repaid ~~and operating leases. The JPMorgan Chase Credit Facility is secured by a cash deposit in~~ the ~~amount of~~ $52.103 million ~~held~~balance byrelated ~~JPMorgan~~to ~~Chase as collateral for~~ the ~~line~~JPMorgan ofChase ~~credit~~Credit ~~facility~~Facility.

~~Effective~~Convertible ~~July~~Secured 28, 2022, the JPMorgan Chase Credit Facility was amended to, among other things, extend the maturity date to July 31, 2023, and append our obligations under the JPMorgan Chase Credit Facility to be guaranteed by our wholly-owned subsidiaries, Charles & Colvard Direct, LLC, charlesandcolvard.com, LLC, and moissaniteoutlet.com, LLC. Effective June 21, 2023, the JPMorgan Chase Credit Facility was amended further to extend the maturity date to July 31, 2024.Note

~~Each~~On ~~advance~~June ~~under~~24, 2025, the ~~JPMorgan~~Company ~~Chase~~and ~~Credit~~Ethara ~~Facility~~Capital, asLLC ~~amended,~~executed ~~accrues~~a ~~interest~~Convertible atSecured aNote ~~rate~~Purchase ~~equal~~Agreement. toUnder the ~~sum~~terms of ~~JPMorgan~~the ~~Chase’s monthly secured overnight financing rate~~agreement, or the ~~SOFR~~Company ~~rate,~~will toissue ~~which~~a ~~JPMorgan~~$2 ~~Chase~~million issecured ~~subject~~convertible ~~with~~note ~~respect~~ to ~~the~~Ethara Capital, ~~adjusted~~LLC ~~SOFR~~and ~~rate~~will asaccrue ~~established~~interest byat ~~the U.S. Federal Reserve Board, plus~~ a ~~margin~~rate of ~~1.25~~5% ~~per~~annually ~~annum~~ and anis ~~unsecured~~payable tomonthly. ~~secured~~The ~~interest~~convertible ~~rate~~note ~~adjustment~~matures ofthree ~~0.10%~~months ~~per~~after ~~annum~~issuance. ~~Interest~~ isEthara ~~calculated~~Capital, ~~monthly~~LLC onhas anthe ~~actual/360-day~~option ~~basis~~to ~~and~~extend ~~payable~~the ~~monthly~~maturity inof ~~arrears.~~the ~~Principal~~secured ~~outstanding~~convertible ~~during~~note anup ~~event~~to of39 months ~~default,~~after atissuance. ~~JPMorgan~~Subject ~~Chase~~to obtaining Company’s ~~option~~shareholder approval, ~~accrues~~Ethara ~~interest~~Capital, LLC, at aits ~~rate~~sole ofdiscretion 3%can ~~per~~convert ~~annum in excess of~~ the ~~above~~outstanding ~~rate.~~principal ~~Any advance~~balance ~~may~~and bethe ~~prepaid~~unpaid ininterest ~~whole~~into orthe inCompany’s ~~part~~common ~~at any time~~stock.

The JPMorgan Chase Credit Facility is evidenced by a credit agreement, as amended, between us and JPMorgan Chase, or the JPMorgan Chase Credit Agreement, dated as of June 21, 2023, and customary ancillary documents, in the principal amount not to exceed $5.00 million at any one time outstanding and a line of credit note, or the JPMorgan Chase Line of Credit Note, in which we promise to pay on or before July 31, 2024, the amount of $5.00 million or so much thereof as may be advanced and outstanding. In the event of default, JPMorgan Chase, at its option, may accelerate the maturity of advances outstanding under the JPMorgan Chase Credit Facility. The JPMorgan Chase Credit Agreement and ancillary documents contain customary covenants, representations, fees, debt, contingent obligations, liens, loans, leases, investments, mergers, acquisitions, divestitures, subsidiaries, affiliate transactions, changes in control, as well as indemnity, expense reimbursement, and confidentiality provisions.

In connection with the JPMorgan Chase Credit Facility, effective July 7, 2021, we incurred a non-refundable origination fee in the amount of $10,000 that was paid in full to JPMorgan Chase upon execution of the JPMorgan Chase Credit Facility on July 12, 2021. There was no origination fee paid to JPMorgan Chase in connection with the amended JPMorgan Chase Credit Facility, dated July 28, 2022 and June 21, 2023.

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Events of default under the JPMorgan Chase Credit Facility include, without limitation, a default, event of default, or event that would constitute a default or event of default (pending giving notice or lapse of time or both), of any provision of the JPMorgan Chase Credit Agreement, the JPMorgan Chase Line of Credit Note, or any other instrument or document executed in connection with the JPMorgan Chase Credit Agreement or with any of our indebtedness, liabilities, and obligations to JPMorgan Chase or would result from the extension of credit to us by JPMorgan Chase.

As of March 31, 2024, we had a $500,000 outstanding balance against the JPMorgan Chase Credit Facility.

Long-Term Capital Commitments

Contractual Agreement

On December 12, 2014, wethe Company entered into an exclusive supply agreement (the “Supply Agreement”) with Wolfspeed, Inc., formerly known as Cree, Inc. (“Wolfspeed”). Under the Supply Agreement, subject to certain terms and conditions, wethe Company agreed to exclusively purchase from Wolfspeed, and Wolfspeed agreed to exclusively supply, 100% of ~~our~~the Company’s required SiC materials in quarterly installments that ~~must~~were required to equal or exceed a set minimum order ~~quantity. The initial term of the Supply Agreement was scheduled to~~ ~~expire on June 24~~quantity, ~~2018,~~contingent ~~unless~~on ~~extended by~~ the ~~parties.~~Company ~~Effective~~submitting ~~June~~purchase ~~22, 2018, the Supply Agreement was amended to extend the expiration date to June 25, 2023~~orders. The Supply Agreement, as amended, provides for the exclusive production of our premium moissanite product, Forever One™, and provides us with one option, subject to certain conditions, to unilaterally extend the term of the Supply Agreement for an additional two-year period following the expiration of the initial term. In addition, the amendment to the Supply Agreement established a process by which Wolfspeed may begin producing alternate SiC material based on our specifications that will give us the flexibility to use the materials in a broader variety of ~~our products, as well as to permit us to purchase certain amounts of SiC materials from third parties under limited conditions. On August 26, 2020,~~ the Supply Agreement was ~~further~~scheduled ~~amended, effective June 30, 2020,~~ to ~~extend~~expire ~~the~~on ~~expiration date to~~ June 29, 2025, which may be further extended by mutual agreement of the parties. The Supply Agreement was also amended to, among other things, (i) spread our total purchase commitment under the Supply Agreement in the amount of approximately $52.95 million over the term of the Supply Agreement, as amended; (ii) establish a process by which Wolfspeed has agreed to accept purchase orders in excess of the agreed-upon minimum purchase commitment, subject to certain conditions; and (iii) permit us to purchase revised amounts of SiC materials from third parties under limited conditions. Our total purchase commitment under the Supply Agreement, as amended, until June 2025 is approximately $52.95 million, of which approximately $24~~.75 million remains to be purchased as of March 31~~, ~~2024~~2018.

~~During~~Effective June 22, 2018, the ~~nine~~Company ~~months~~and ~~ended~~Wolfspeed ~~March~~amended ~~31,~~the ~~2024~~Supply weAgreement ~~made~~to noextend ~~purchases~~the ofexpiration ~~SiC~~date ~~crystals~~to June 25, 2023. ~~For~~This ~~the~~amendment ~~nine~~also ~~month~~(i) ~~period~~provided ~~ended~~the Company with ~~March~~ one 31option, ~~2023~~subject weto ~~purchased~~certain ~~approximately~~conditions, ~~$1.80~~to ~~million~~unilaterally extend the term of ~~SiC~~the ~~crystals~~Supply ~~from~~Agreement for an additional two-year period following expiration of the initial term; (ii) established a process by which Wolfspeed ~~pursuant~~may begin producing alternate SiC material based on the Company’s specifications that will give the Company the flexibility to use the ~~terms~~materials in a broader variety of its products; and (iii) permitted the ~~Supply~~Company ~~Agreement,~~to aspurchase ~~amended~~certain amounts of SiC materials from third parties under limited conditions.

OnEffective ~~July~~June 2830, ~~2023~~2020, the Company and Wolfspeed ~~initiated~~further aamended ~~confidential~~the ~~arbitration~~Supply ~~against~~Agreement usto ~~for~~extend ~~breach~~the ofexpiration ~~contract~~date ~~claiming~~to ~~damages~~June 29, ~~plus~~2025. ~~interest,~~This ~~costs~~amendment also, ~~and~~among ~~attorneys’~~other ~~fees.~~things, ~~Wolfspeed has~~(i) ~~alleged~~spread ~~that~~the weCompany’s ~~failed~~total topurchase ~~satisfy~~commitment, contingent on the ~~purchase~~Company ~~obligations~~submitting ~~provided~~a inpurchase order, under the Supply Agreement ~~for Fiscal 2023~~ in the amount of approximately $452.2595 million ~~and~~over ~~failed~~the toterm ~~pay~~of ~~for~~the ~~$3.30~~Supply ~~million~~Agreement, ofas ~~SiC~~amended; ~~crystals~~(ii) ~~Wolfspeed~~established ~~delivered~~a toprocess ~~us.~~by which Wolfspeed ~~further~~has ~~alleges~~agreed ~~that we~~to ~~intend~~accept topurchase ~~breach~~orders ~~our~~in ~~remaining~~excess of the agreed-upon minimum purchase ~~obligations~~commitment, ~~under~~subject to certain conditions; and (iii) permitted the ~~Supply~~Company ~~Agreement,~~to ~~representing~~purchase anrevised ~~additional~~amounts ~~$18.5~~of ~~million~~SiC inmaterials ~~alleged~~from ~~damages~~third parties under limited conditions.

~~While~~During the ~~Company~~nine-months isended ~~evaluating~~March ~~Wolfspeed’s claims~~31, we2025 ~~dispute the amount sought,~~ and we2024 ~~intend to vigorously defend our position, including by asserting rights and defenses that we may have under~~ the ~~Supply~~Company ~~Agreement,~~made atno ~~law~~purchases ~~and in equity. A hearing has been scheduled for September 30, 2024. The final determinations~~ of ~~liability~~SiC ~~arising from this matter will be made following comprehensive investigations, discovery and arbitration processes~~crystals.

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InOn ~~connection~~July ~~with~~28, ~~our short-term capital resources~~2023, weWolfspeed ~~have~~initiated ana ~~effective~~confidential ~~shelf~~arbitration ~~registration~~against ~~statement~~the onCompany ~~Form~~for ~~S-3~~breach onof ~~file~~contract ~~with~~claiming ~~the SEC~~damages, ~~with~~plus ~~an expiration date of June 2~~interest, ~~2024~~costs, ~~that~~and ~~allows~~attorneys’ usfees. toOn ~~periodically~~February ~~offer and sell~~10, ~~individually or in any combination~~2025, ~~shares~~the ofCompany ~~common~~and ~~stock,~~Wolfspeed ~~shares~~entered ofinto ~~preferred~~a ~~stock,~~settlement agreement ~~warrants~~related to ~~purchase~~the ~~shares~~Wolfspeed ofarbitration. ~~common~~Under ~~stock~~the orsettlement ~~preferred~~agreement ~~stock,~~the ~~and~~Company ~~units consisting~~terminated ~~of any combination of~~ the ~~foregoing~~Supply ~~types~~Agreement ofand ~~securities,~~agreed up to pay Wolfspeed a total of $254.0077 million, of which ~~all~~included isthe ~~available.~~purchased ~~However, we may offer~~ and ~~sell~~consigned noinventory, ~~more than one-third of our public float (which is the aggregate market value of~~Wolfspeed’s ~~our~~ attorneys’ ~~outstanding~~fees ~~common stock held by non-affiliates)~~ in ~~any~~connection ~~twelve-month~~with ~~period. Our ability to issue equity securities under~~ the ~~shelf registration statement is subject to market conditions~~arbitration, ~~which~~and ~~may~~interest. beAs inof ~~turn,~~March ~~subject to~~31, ~~among other things~~2025, the ~~potential~~Company ~~disruption~~paid ~~and~~$2.33 ~~volatility~~million ~~that may be caused by ongoing effects~~ of ~~rising inflation and fears of recession and~~ the ~~risks~~final ~~associated~~settlement ~~with the potential delisting of our common stock on the Nasdaq Capital Market if we fail~~ to ~~regain~~Wolfspeed. ~~compliance~~The ~~with~~remaining ~~applicable~~settlement ~~Nasdaq~~amount ~~Listing Rules within the periods~~ of ~~time described therein~~$2.44 ~~Any~~million ~~capital raise~~ is ~~not~~to ~~assured and may not~~ be atpaid ~~terms~~on ~~that~~or ~~would~~before beDecember ~~acceptable to us~~31, 2025.

~~Our~~For ~~future~~more ~~capital~~information requirements and the adequacy of available funds will depend on many factors, including the ongoing uncertainty surrounding rising inflation and fears of recession that could lead to further disruption and volatility in the global capital markets as well as its impact on our rate of sales growth; the expansion of our sales and marketing activities; the timing and extent of raw materials and labor purchases in connection with ~~loose~~the ~~jewel~~Wolfspeed ~~production~~arbitration, tosee ~~support~~Part ~~our~~II, ~~moissanite~~Item ~~jewels~~2, ~~and~~“Legal ~~lab~~Proceedings” ~~grown diamond business~~ and ~~precious~~Note ~~metals and~~9 ~~labor purchases in connection with jewelry production~~ to ~~support~~ our ~~finished~~condensed ~~jewelry~~consolidated ~~business;~~financial ~~the~~statements ~~timing of capital expenditures; and the risk factors described~~ in ~~more~~Item ~~detail~~1, in “~~Risk~~Financial ~~Factors~~Statements” ~~in Part II~~, ~~Item 1A,~~ of this Quarterly Report on Form 10-Q ~~and in Part I, Item 1A, of our 2023 Annual Report~~.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the ~~the~~ end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed ~~designed~~ to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and ~~and~~ communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes ~~recognizes~~ that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily applies its judgment in evaluating ~~evaluating~~ the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that, as of ~~the~~March ~~end~~31, ~~of the period covered by this Quarterly Report on Form 10-Q~~2025, our disclosure controls and procedures were not effective atdue to the ~~reasonable~~material ~~assurance~~weaknesses ~~level~~in internal control over financial reporting, described below.

Material Weaknesses in Internal Control over Financial Reporting

During the fiscal year ended June 30, 2024, management identified a material weakness related to the design and maintenance of information technology general controls (“ITGCs”) related to user access and logical access, over the Company’s key financial reporting systems.

During the fiscal year ended June 30, 2024, management also identified a deficiency constituting a material weakness related to the design and maintenance of effective controls for substantially all business processes. Specifically, management did not design certain review controls with sufficient precision to meet the control objective or retain sufficient evidence of the operation of controls.

The material weaknesses identified above did not result in any identified misstatements to our consolidated interim financial statements, and our management has concluded that the consolidated financial statements present fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with U.S. GAAP.

Remediation Efforts

We have commenced measures to remediate the identified material weaknesses. Management has been and will continue designing and implementing an improved process for requesting, authorizing, and reviewing user access to key systems which impact our financial reporting, as well as enhancing the precision of management review controls. The material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient period of time for management to conclude, through testing, that the controls are operating effectively. The identified material weaknesses are not considered remediated as of March 31, 2025 as remediation efforts are ongoing.

Changes in Internal Control Over Financial Reporting

WeOther ~~routinely~~than ~~review~~the ~~our~~remediation ~~internal~~efforts ~~control~~described ~~over~~above, ~~financial~~there ~~reporting~~were ~~and~~no ~~from time to time make~~ changes ~~intended~~in ~~to enhance the effectiveness of~~ our internal control over ~~financial~~ ~~reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over~~ financial reporting onthat anoccurred ~~ongoing~~during ~~basis and will take action as appropriate. During~~ the ~~three~~quarter ~~months~~ ended March 31, ~~2024~~2025, ~~we made no changes to our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act,~~ that wehave ~~believe~~ materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time, we may be involved in legal proceedings or subject to claims incident to the ordinary course of business. The outcome of litigation is inherently uncertain, and there can be no assurances that favorable outcomes will be obtained. In addition, regardless of the outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors.

On July 28, 2023, Wolfspeed initiated a confidential arbitration against us for breach of contract claiming damages, plus interest, costs, and attorneys’ fees. On ~~Wolfspeed~~February ~~has~~10, ~~alleged~~2025, ~~that~~the weCompany ~~failed~~and Wolfspeed entered into a settlement agreement related to ~~satisfy~~the Wolfspeed arbitration. Under the ~~purchase~~settlement ~~obligations~~agreement ~~provided~~the inCompany terminated the Supply Agreement ~~for~~and ~~Fiscal~~agreed ~~2023~~to inpay ~~the~~Wolfspeed ~~amount~~a total of $4.2577 million, which includes the purchased and ~~failed~~consigned toinventory, ~~pay~~Wolfspeed’s ~~for~~attorneys’ $3fees in connection with the arbitration, and interest.30 ~~million~~As of ~~SiC~~March ~~crystals~~31, ~~Wolfspeed~~2025, ~~delivered~~the toCompany uspaid $2.33 ~~Wolfspeed~~million ~~further~~of ~~alleges~~the ~~that we~~final ~~intend~~settlement to ~~breach~~Wolfspeed. ~~our~~The remaining ~~purchase~~settlement ~~obligations~~amount of ~~under~~$2.44 ~~the~~million ~~Supply~~is ~~Agreement,~~to ~~representing~~be anpaid ~~additional~~on ~~$18.5~~or ~~million~~before inDecember ~~alleged~~31, ~~damages~~2025.

While the Company is evaluating Wolfspeed’s claims, we dispute the amount sought, and we intend to vigorously defend our position, including asserting rights and defenses that the Company may have under the Supply Agreement, at law and in equity. A hearing has been scheduled for September 30, 2024. The final determinations of liability arising from this matter will be made following comprehensive investigations, discovery and arbitration processes.

Item 1A.

Risk Factors

WeAs ~~discussed~~of ~~these~~March 31, 2025, there were no material changes to the risks discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2023~~2024. There have been no material changes to such risks, ~~except~~other than as disclosed ~~set~~in ~~forth~~this ~~below~~Quarterly Report on Form 10-Q.

The execution of our business plans could significantly impact our liquidity and we might not be able to continue as a going concern. The execution of our business plans to expand our Online Channels segment and global market opportunities, as well as to create required inventory of our Forever One™, Moissanite by Charles &Colvard®, and Caydia® gemstones, requires significant investment of our resources, which may reduce our cash position. Should we fail to execute our business plans, we could see delays in the return of cash from our investments, resulting in a decrease in our liquidity. Under our$5.00 million cash collateralized line of credit facility, or the JPMorgan Chase Credit Facility that we obtained from JPMorgan Chase Bank, N.A., effective July 7, 2021,as amended July 28, 2022 and amended further effective June 21, 2023, failure to comply with the covenants and defaults contained in the JPMorgan Chase Credit Facility or any other instrument or document executed in connection with the JPMorgan Chase Credit Facility could restrict our ability to draw on such facility. In addition, we currently have an effective shelf registration statement on Form S-3 on file with the SEC that allows us to periodically offer and sell, individually or in any combination, shares of common stock, shares of preferred stock, warrants to purchase shares of common stock or preferred stock, and units consisting of any combination of the foregoing types of securities, up to a total of $25.00 million, of which all is available. However, we may offer and sell no more than one-third of our public float (which is the aggregate market value of our outstanding common stock held by non-affiliates) in any 12-month period. Further, if we would be unable to access the capital markets or issue equity securities on terms that are acceptable to us or at all, our cash, cash equivalents, and restricted cash and other working capital may be constrained to meet our working capital and capital expenditure needs. Given our current liquidity position, it is unlikely that we would not be able to draw on the JPMorgan Chase Credit Facility, as amended, which matures on July 31, 2024. There is no guarantee of extension or renewal in connection with the terms and conditions of the JPMorgan Chase Credit Facility.

Further, our condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of obligations in the normal course of business. However, for the nine months ended March 31, 2024, we had losses of $9.04 million and cash flow used in operations of $6.1 million. These factors raise substantial doubt about our ability to continue as a going concern for one year from the date the financial statements are issued.

We are continuing to work on plans to fund operations to alleviate the conditions that raise substantial doubt by evaluating our financing arrangements, implementing cost savings actions to reduce cash outflow, and evaluating our ability to liquidate and convert to cash certain of our existing inventory totaling $25.31 million as of March 31, 2024.

In view of these matters, continuation as a going concern is dependent upon our continued operations, which in turn is dependent upon our ability to meet our financial requirements and the success of our future operations. The financial statements do not include any adjustments to the amount or the classification of assets and liabilities that may be necessary should we not continue as a going concern.

We believe that these plans may provide an opportunity for us to meet our obligations for the twelve month period from the date the financial statements are issued and to continue as a going concern. If, however, we are unable to successfully implement these plans, it may have a material adverse effect on our business, results of operations, and financial condition.

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Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of our common stock. Our common stock is currently listed on The Nasdaq Capital Market. In order to maintain this listing, we must satisfy minimum financial and other requirements. On June 12, 2023, we received a notification letter from Nasdaq’s Listing Qualifications Department indicating that we are not in compliance with Nasdaq Listing Rule 5550 (a)(2), because the minimum bid price of our common stock on the Nasdaq Capital Market has closed below $1.00 per share for 30 consecutive business days. The notification letter has no immediate effect on the Nasdaq listing or trading in our common stock. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days, or until December 11, 2023, to regain compliance with the minimum $1.00 bid price per share requirement. We received notice on December 12, 2023 from the Nasdaq’s Listing Qualifications Department which resulted in an additional 180-day period, or until June 10, 2024, within which to regain compliance with the $1.00 minimum bid price requirement.

On March 28, 2024, we filed a preliminary proxy statement with the U. S. Securities and Exchange Commission, for which a definitive proxy statement was filed on April 8, 2024, related to a special meeting of shareholders to be held on May 7, 2024, for: 1) the approval for an amendment to our restated articles of incorporation to effect a reverse stock split of the issued shares of common stock at a ratio within a range from any whole number between one-for-ten to one-for-fifteen, as determined by the Board of Directors in its sole discretion (the “Reverse Stock Split Proposal”); and 2) to approve one or more adjournments of the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes in favor of the Reverse Stock Split Proposal or to constitute a quorum.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per share		Total Number of shares Purchased as Part of Publicly Announced Plans or Programs(1)		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
January 1, 2024 – January 31, 2024		-	$	-		-	$	4,510,021
January 1, 2025 – January 31, 2025		-	$	-		-	$	4,510,021
February 1, 2024 – February 29, 2024		-	$	-		-	$	4,510,021
February 1, 2025 – February 29, 2025		-	$	-		-	$	4,510,021
March 1, 2024 – March 31, 2024		-	$	-		-	$	4,510,021
March 1, 2025 – March 31, 2025		-	$	-		-	$	4,510,021
Total		-	$	-		-	$	4,510,021

(1)	On May 5, 2022, we announced that our Board of Directors had approved a share repurchase program to permit us to repurchase up to $5.00 million worth of our issued and outstanding common stock over the three year period ending April 29, 2025.

Item 5.

Other Information

During the three months ended March 31, ~~2024~~2025, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6.

Exhibits

The following exhibits are being filed herewith and are numbered in accordance with Item 601 of Regulation S-K:

Exhibit No.		Description
3.1		Restated Articles of Incorporation of Charles & Colvard, Ltd. (incorporated herein by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 2004).
3.2		Articles of Amendment to Restated Articles of Incorporation of Charles & Colvard, Ltd. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K, as filed with the SEC on May 15, 2024).
3.3		Bylaws of Charles & Colvard, Ltd., as amended and restated, effective on May 19, 2011 (incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K, as filed with the SEC on May 24, 2011).
3.4		Articles of Amendment to Bylaws of Charles & Colvard, Ltd., as amended and restated, effective May 19, 2011 (incorporated herein by reference to Exhibit 3.1 to our Current Report on Form 8-K, as filed with the SEC on January 24, 2025).
10.1		Settlement Agreement, dated February 10, 2025 by and between Charles & Colvard Ltd. and Wolfspeed, Inc.
10.2		Second Amendment to 2020 Amended and Restated Employment Agreement, dated March 18, 2025, by and between Charles & Colvard, Ltd. and Don O’Connell (incorporated herein by reference to Exhibit 10.1 to our Current Report on Form 8-K, as filed with the SEC on March 20, 2025).
10.3		Line of Credit Note, dated as of November 6, 2024 (effective October 31, 2024) by Charles & Colvard, Ltd. to JPMorgan Chase Bank (incorporated herein by reference Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on November 12, 2024).
31.1		Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase document
104		Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CHARLES & COLVARD, LTD.
	By:	/s/ Don O’Connell
May 6, 2024		Don O’Connell
August 4, 2025		Don O’Connell
		President and Chief Executive Officer
	By:	/s/ Clint J. Pete
May 6, 2024		Clint J. Pete
August 4, 2025		Clint J. Pete
		Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

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