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)

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

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

Item 1.

Financial Statements

		September 30, 2023 (unaudited)				June 30, 2023
ASSETS
Current assets:
Cash and cash equivalents		$	7,592,698			$	10,446,532
Restricted cash			5,079,322				5,122,379
Accounts receivable, net			442,693				380,085
Inventory, net			8,263,043				7,476,046
Note receivable			250,000				250,000
Prepaid expenses and other assets			969,440				901,354
Total current assets			22,597,196				24,576,396
Long-term assets:
Inventory, net			19,066,682				19,277,530
Property and equipment, net			2,534,713				2,491,569
Intangible assets, net			315,776				305,703
Operating lease right-of-use assets			2,028,736				2,183,232
Other assets			49,658				49,658
Total long-term assets			23,995,565				24,307,692
TOTAL ASSETS		$	46,592,761			$	48,884,088
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	5,652,218			$	4,786,155
Operating lease liabilities, current portion			886,117				880,126
Accrued expenses and other liabilities			925,385				1,395,479
Total current liabilities			7,463,720				7,061,760
Long-term liabilities:
Noncurrent operating lease liabilities			1,842,468				2,047,742
Total long-term liabilities			1,842,468				2,047,742
Total liabilities			9,306,188				9,109,502
Commitments and contingencies (Note 9)
Shareholders’ equity:
Common stock, no par value; 50,000,000 shares authorized; 30,912,108 shares issued and 30,523,705 shares outstanding at September 30, 2023 and 30,912,108 shares issued and 30,523,705 shares outstanding at June 30, 2023			57,242,211				57,242,211
Additional paid-in capital			26,257,363				26,205,919
Treasury stock, at cost, 388,403 shares at both September 30, 2023 and June 30, 2023			(489,979	)			(489,979	)
Accumulated deficit			(45,723,022	)			(43,183,565	)
Total shareholders’ equity			37,286,573				39,774,586
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	46,592,761			$	48,884,088

		Three Months Ended September 30,
		2023				2022
Net sales		$	4,953,023			$	7,374,083
Costs and expenses:
Cost of goods sold			3,008,507				4,086,010
Sales and marketing			2,721,965				3,107,946
General and administrative			1,854,268				1,413,476
Total costs and expenses			7,584,740				8,607,432
Loss from operations			(2,631,717	)			(1,233,349	)
Other income:
Interest income			92,260				40,201
Total other income			92,260				40,201
Loss before income taxes			(2,539,457	)			(1,193,148	)
Income tax benefit			-				(302,956	)
Net loss		$	(2,539,457	)		$	(890,192	)
Net loss per common share:
Basic		$	(0.08	)		$	(0.03	)
Diluted		$	(0.08	)		$	(0.03	)
Weighted average number of shares used in computing net loss per common share:
Basic			30,444,954				30,433,195
Diluted			30,444,954				30,433,195

		Three Months Ended September 30, 2023
		Common Stock
		Number of Outstanding 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
Stock-based compensation			-				-				51,444				-				-				51,444
Net loss			-				-				-				-				(2,539,457	)			(2,539,457	)
Balance at September 30, 2023			30,523,705				57,242,211				26,257,363				(489,979	)			(45,723,022	)			37,286,573

		Three Months Ended September 30, 2022
		Common Stock
		Number of Outstanding 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
Stock-based compensation			-				-				96,232				-				-				96,232
Cancellation of restricted stock			(44,688	)			-				-				-				-				-
Repurchases of common stock			(358,116	)			-				-				(451,815	)			-				(451,815	)
Net loss			-				-				-				-				(890,192	)			(890,192	)
Balance at September 30, 2022			30,344,955			$	57,242,211			$	26,052,723			$	(489,979	)		$	(24,492,963	)		$	58,311,992

		Three Months Ended September 30,
		2023				2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,539,457	)		$	(890,192	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			178,291				137,711
Stock-based compensation			51,444				96,232
Provision for uncollectible accounts			79,000				-
Recovery of sales returns			(81,000	)			(36,000	)
Inventory write-downs			-				119,000
Provision for accounts receivable discounts			9,996				3,250
Deferred income taxes			-				(302,956	)
Changes in operating assets and liabilities:
Accounts receivable			(70,604	)			695,165
Inventory			(576,149	)			(3,174,668	)
Prepaid expenses and other assets, net			86,410				(36,616	)
Accounts payable			866,063				316,819
Accrued expenses and other liabilities			(669,377	)			(598,883	)
Net cash used in operating activities			(2,665,383	)			(3,671,138	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(217,052	)			(430,400	)
Payments for intangible assets			(14,456	)			(2,214	)
Net cash used in investing activities			(231,508	)			(432,614	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock			-				(451,815	)
Net cash used in financing activities			-				(451,815	)
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH			(2,896,891	)			(4,555,567	)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD			15,568,911				21,179,340
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD		$	12,672,020			$	16,623,773
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes		$	-			$	5,900

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 for sale in the worldwide fine jewelry market.

The Company sells loose moissanite jewels, loose lab grown diamonds, and finished jewelry featuring both moissanite and lab grown diamonds at wholesale prices to distributors, manufacturers, retailers, and designers, including some of the largest distributors and jewelry manufacturers in the world. In addition, in May 2023, the Company launched charlesandcolvarddirect.com, a direct-to-wholesaler sales portal, which is a gemstone product disposition wholesale outlet. The Company’s finished jewelry and loose moissanite jewels and lab grown diamonds that are mounted into fine jewelry by other manufacturers are sold at retail outlets and via the Internet. The Company sells 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, third-party online marketplaces, drop-ship, and other pure-play, exclusively e-commerce outlets. The Company also sells at discount retail prices to end-consumers through moissaniteoutlet.com, LLC, a wholly-owned operating subsidiary of charlesandcolvard.com, LLC, and 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 interim periods presented. The results for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending June 30, 2024.

The condensed consolidated financial statements as of September 30, 2023 and for the three months ended September 30, 2023 and 2022 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of June 30, 2023 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 of the Company’s Annual Report on Form 10-K (the “2023 Annual Report”) for the fiscal year ended June 30, 2023 or Fiscal 2023 filed with the SEC on October 12, 2023.

The accompanying condensed consolidated financial statements as of September 30, 2023 and June 30, 2023 and for the three months ended September 30, 2023 and 2022, include the accounts of the Company and its wholly-owned subsidiaries charlesandcolvard.com, LLC, including its wholly-owned subsidiary, moissaniteoulet.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 three-month periods September 30, 2023 or 2022. All intercompany accounts have been eliminated.

Significant Accounting Policies – In the opinion of the Company’s management, the Company’s significant accounting policies used for the three months ended September 30, 2023, 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 of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates 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 valuation and classification of inventories, accounts receivable reserves, stock-based compensation, and revenue recognition. Changes in estimates are reflected in the consolidated financial statements in the period in which the change in estimate occurs.

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:

		September 30, 2023				June 30, 2023
Cash and cash equivalents		$	7,592,698			$	10,446,532
Restricted cash			5,079,322				5,122,379
Total cash, cash equivalents, and restricted cash		$	12,672,020			$	15,568,911

4.	FAIR VALUE MEASUREMENTS

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.

5.	INVENTORIES

		September 30, 2023				June 30, 2023
Finished jewelry:
Raw materials		$	1,493,987			$	1,288,906
Work-in-process			1,147,154				1,223,670
Finished goods			13,546,994				12,772,611
Finished goods on consignment			2,199,128				2,039,506
Total finished jewelry		$	18,387,263			$	17,324,693
Loose jewels:
Raw materials		$	317,392			$	421,603
Work-in-process			5,712,141				6,131,853
Finished goods			2,338,373				2,294,270
Finished goods on consignment			260,998				254,323
Total loose jewels			8,628,904				9,102,049
Total supplies inventory			313,558				326,834
Total inventory		$	27,329,725			$	26,753,576

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

		September 30, 2023				June 30, 2023
Short-term portion		$	8,263,043			$	7,476,046
Long-term portion			19,066,682				19,277,530
Total		$	27,329,725			$	26,753,576

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 September 30, 2023 and June 30, 2023, work-in-process inventories issued to active production jobs approximated $1.80 million and $1.99 million, 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 and lab grown diamonds. 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 three-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 moissanite fashion jewelry that is available for resale through retail companies and through its Online Channels segment. The Company also carries a limited amount of 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

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 (the “Maturity Date”).

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.

7.	ACCRUED EXPENSES AND OTHER LIABILITIES

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

		September 30, 2023				June 30, 2023
Deferred revenue		$	304,399			$	566,896
Accrued compensation and related benefits			241,124				382,630
Accrued sales taxes and franchise tax			144,434				202,091
Accrued cooperative advertising			235,427				243,861
Other accrued expenses			1				1
Total accrued expenses and other liabilities		$	925,385			$	1,395,479

8.	INCOME TAXES

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 September 30, 2023 is October 31, 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 September 30, 2023, the Company has been reimbursed approximately $506,000 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.

As of September 30, 2023, the Company’s balance sheet classifications of its leases are as follows:

Operating Leases:
Noncurrent operating lease ROU assets		$	2,028,736
Current operating lease liabilities		$	886,117
Noncurrent operating lease liabilities			1,842,468
Total operating lease liabilities		$	2,728,585

As of September 30, 2023, 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 3.08 years.

As of September 30, 2023, the Company’s remaining future payments under operating leases for each fiscal year ending June 30 are as follows:

2024		$	674,267
2025			918,236
2026			943,487
2027			317,327
Total lease payments			2,853,317
Less: imputed interest			124,732
Present value of lease payments			2,728,585
Less: current lease obligations			886,117
Total long-term lease obligations		$	1,842,468

The Company makes cash payments for amounts included in the measurement of its lease liabilities. During the three months ended September 30, 2023 and 2022, cash paid for operating leases was approximately $237,000 and $231,000, respectively.

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.

The 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 September 30, 2023. 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.

During the three months ended September 30, 2023 the Company made no purchases of SiC crystals. For the three-month period ended September 30, 2022, the Company purchased approximately $1.80 million of SiC crystals from Wolfspeed pursuant to the terms of the Supply Agreement, as amended.

The Company has made no purchases of SiC crystals during the twelve-month period ended September 30, 2023. while engaged in discussions regarding the terms of the Supply Agreement.

10.

DEBT

11.	SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Repurchases of Common Stock 

Pursuant to authority granted by the Company’s Board of Directors on April 29, 2022, the Company can 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 generally at the discretion of the Company’s management. As the Company repurchases its common shares, which have no par value, the Company reports such shares held as treasury stock in the accompanying condensed consolidated balance sheets with the purchase price recorded within treasury stock.

 

The Company repurchased no shares of its common stock during the three-month period ended September 30, 2023. During the three-month period ended September 30, 2022, 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 September 30, 2023.

Stock-Based Compensation

For the three months ended September 30, 2023, stock options to purchase approximately 1.77 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 per common share as of September 30, 2023 because the shares are performance-based, and the underlying conditions have not been met as of the period presented and the effects of the inclusion of such shares would be anti-dilutive to net loss per common share.

For the three months ended September 30, 2022, stock options to purchase approximately 1.71 million shares were excluded from the computation of diluted net loss per common share. These shares are excluded from the computation of diluted net loss per common share because the exercise price of the stock options for the period presented herein was greater than the average market price of the common shares or the effect of inclusion of such amounts would be anti-dilutive to net loss per common share.

Item 2.

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

1.

Our business and our results of operations could be materially adversely affected as a result of general economic and market conditions;

2.

Our future financial performance depends upon increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives;

3.

We face intense competition in the worldwide gemstone and jewelry industry;

4.

We have historically been dependent on a single supplier for 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;

5.

Constantly evolving privacy regulatory regimes are creating new legal compliance challenges;

6.

Our information technology, or IT, infrastructure, and our network has been and may be impacted by a cyber-attack or other security incident as a result of the rise of cybersecurity events;

7.

We are subject to certain risks due to our international operations, distribution channels and vendors;

8.

Our business and our results of operations could be materially adversely affected as a result of our inability to fulfill orders on a timely basis;

9.

We are currently dependent on a limited number of distributor and retail partners in our Traditional segment for the sale of our products;

10.

We may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation;

11.

The effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events on our business, operating results, and cash flows are uncertain;

12.

Seasonality of our business may adversely affect our net sales and operating income;

13.

Our operations could be disrupted by natural disasters;

14.

Sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control;

15.

Our current customers may potentially perceive us as a competitor in the finished jewelry business;

16.

If the e-commerce opportunity changes dramatically or if e-commerce technology or providers change their models, our results of operations may be adversely affected;

17.

Governmental regulation and oversight might adversely impact our operations;

18.

The execution of our business plans could significantly impact our liquidity;

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 failure to maintain compliance with The Nasdaq Stock Market’s continued listing requirements could result in the delisting of our common stock;

27.

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

28.

We cannot guarantee that our share repurchase program will be utilized to the full value 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 impact on our available cash balance.

		Three Months Ended September 30,
		2023				2022
Net sales		$	4,953,023			$	7,374,083
Costs and expenses:
Cost of goods sold			3,008,507				4,086,010
Sales and marketing			2,721,965				3,107,946
General and administrative			1,854,268				1,413,476
Total costs and expenses			7,584,740				8,607,432
Loss from operations			(2,631,717	)			(1,233,349	)
Other income:
Interest income			92,260				40,201
Loss before income taxes			(2,539,457	)			(1,193,148	)
Income tax benefit			-				302,956
Net loss		$	(2,539,457	)		$	(890,192	)

		Three Months Ended September 30,								Change
		2023				2022				Dollars				Percent
Finished jewelry		$	4,301,259			$	5,540,406			$	(1,239,147	)			(22	)%
Loose jewels			651,764				1,833,677				(1,181,913	)			(64	)%
Total consolidated net sales		$	4,953,023			$	7,374,083			$	(2,421,060	)			(33	)%

		Three Months Ended September 30,								Change
		2023				2022				Dollars				Percent
Product line cost of goods sold:
Finished jewelry		$	1,959,167			$	2,606,699			$	(647,532	)			(25	)%
Loose jewels			239,374				825,623				(586,249	)			(71	)%
Total product line cost of goods sold			2,198,541				3,432,322				(1,233,781	)			(36	)%
Non-product line cost of goods sold			809,966				653,688				156,278				24	%
Total cost of goods sold		$	3,008,507			$	4,086,010			$	(1,077,503	)			(26	)%

		Three Months Ended September 30,								Change
		2023				2022				Dollars				Percent
Sales and marketing		$	2,721,965			$	3,107,946			$	(385,981	)			(12	)%

		Three Months Ended September 30,								Change
		2023				2022				Dollars				Percent
General and administrative		$	1,854,268			$	1,413,476			$	440,792				31	%

		Three Months Ended September 30,								Change
		2023				2022				Dollars				Percent
Interest income		$	92,260			$	40,201			$	52,059				129	%

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

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
July 1, 2023 – July 31, 2023			-			$	-				-			$	4,510,021
August 1, 2023 – August 31, 2023			-			$	-				-			$	4,510,021
September 1, 2023 – September 30, 2023			-			$	-				-			$	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 6.

Exhibits

Exhibit No.		Description
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

		CHARLES & COLVARD, LTD.
	By:	/s/ Don O’Connell
November 9, 2023		Don O’Connell
		President and Chief Executive Officer
	By:	/s/ Clint J. Pete
November 9, 2023		Clint J. Pete
		Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)