UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended June 30, ~~2023~~2024

☐ 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 Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 ☐

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 has filed a report on and attestation to its management’s assessment of its effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant computed by reference to the closing ~~sales~~ sales price of such stock as reported on The Nasdaq Capital Market, as of the last business day of the registrant’s most recently completed second fiscal quarter, which was December 31, ~~2022~~2023, was $2012,~~668~~441,~~921~~431.

There were 303,~~523~~118,~~705~~273 shares of ~~our~~ our common stock, no par value per share, outstanding as of March ~~October 6~~25, ~~2023~~2025.

DOCUMENT INCORPORATED BY REFERENCE

~~Certain portions of the Definitive Proxy Statement for Charles & Colvard, Ltd~~None., are incorporated by reference into Part III of this Form 10-K. The 2023 Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

CHARLES & COLVARD, LTD.

FORM 10-K

For the Fiscal Year Ended June 30, ~~2023~~2024

TABLE OF CONTENTS

		Page Number
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	2120
Item 1B.	Unresolved Staff Comments	3231
Item 2.	Properties	32
Item 1C.	Cybersecurity	31
Item 3.	Legal Proceedings	32
Item 2.	Properties	33
Item 4.	Mine Safety Disclosures	32
Item 3.	Legal Proceedings	33
Item 4.	Mine Safety Disclosures	33
PART II
Item 5.	Market for Registrant’s Common Equity, Related ~~Stockholder~~Shareholder Matters and Issuer Purchases of Equity Securities	3334
Item 6.	[Reserved]	3334
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3435
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	4948
Item 8.	Financial Statements and Supplementary Data	5049
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	7879
Item 9A.	Controls and Procedures	7879
Item 9B.	Other Information	7980
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	7980
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	7981
Item 11.	Executive Compensation	7984
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related ~~Stockholder~~Shareholder Matters	7989
Item 13.	Certain Relationships and Related Transactions, and Director Independence	7990
Item 14.	Principal Accounting Fees and Services	7991
PART IV
Item 15.	Exhibits, Financial Statement Schedules	8092
Item 16.	Form 10-K Summary	8395
SIGNATURES		8496

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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~~ many factors including, but not limited to, (1) the execution of our business plans could significantly impact our liquidity and there is substantial doubt about our ability to continue as a going concern; (2) our business and our results of operations could be materially adversely affected as a result of general economic and market conditions; (23) our future financial performance depends upon ~~increased~~ increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives; (34) we face intense competition in the worldwide gemstone and jewelry industry; (4 )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; (5) ~~constantly evolving privacy regulatory regimes are creating new legal compliance challenges; (6)~~ 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; (6) constantly evolving privacy regulatory regimes are creating new legal compliance challenges; (7) 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; (8) we are subject to certain risks due to our international operations, distribution channels and vendors; (89) 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; (910) we are currently dependent on a limited number of distributor and retail partners in our Traditional segment for the sale of our products; (1011) 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~~effects of potential future public health crises, epidemics, pandemics or similar events on our business ~~plans~~, ~~could~~operating ~~significantly~~results, ~~impact~~and ~~our~~cash ~~liquidity~~flows are 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) as a public reporting company, we are subject to rules and regulations established from time to time by the SEC and Nasdaq regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner; (27) our failure to maintain compliance with The Nasdaq Stock Market’s continued listing requirements could result in the delisting of our common stock; (2728) we could be negatively affected as a result of a proxy contest and the actions of activist shareholders; (29) some anti-takeover provisions of our charter documents may delay or prevent a takeover of ~~our~~ our Company; and (2830) we cannot guarantee that our share repurchase program will be utilized to the full value approved, or that it will enhance long-term ~~stockholder~~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 this Annual Report on Form 10-K. 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, or (“SEC,”) that discuss other factors relevant to our business.

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PART I

Item 1.

Business

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 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 manufacture, market, and distribute Charles & Colvard Created Moissanite® (which we refer to as moissanite or moissanite jewels) ~~and in~~since ~~September~~introducing ~~2020,~~created wemoissanite ~~announced~~to ~~our expansion into~~ the ~~lab~~world ~~grown~~nearly ~~diamond~~three ~~market~~decades ~~with~~ago. ~~the launch of Caydia®, an exclusive~~After ~~brand~~ years of ~~premium~~perfecting ~~lab grown diamonds. We offer gemstones and finished jewelry featuring our proprietary moissanite jewels and premium lab grown diamonds for sale in~~ the ~~worldwide~~process, ~~fine jewelry market.~~ Charles & Colvard isdebuted the ~~original~~world’s ~~source~~first ~~of created~~colorless moissanite, and inits ~~2015,~~premium wemoissanite ~~debuted~~gemstone brand, Forever One™, ~~our~~in ~~premium moissanite gemstone brand~~2015. As an e-commerce and multi-channel destination for fine jewelry featuring lab grown gemstones, we believe ~~that~~ 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.

~~One~~We ofoffer ~~our~~gemstones ~~unique~~and ~~differentiators,~~finished jewelry featuring our proprietary moissanite –jewels, ~~The~~premium ~~World’s~~lab ~~Most~~grown ~~Brilliant~~diamonds, ~~Gem®~~created –color isgemstones, ~~core~~and tomost ~~our~~recently, ~~ambition~~lab togrown ~~create~~diamonds ~~a movement~~in ~~around~~color, ~~environmentally~~for ~~and~~sale ~~socially~~in ~~responsible~~the worldwide fine jewelry ~~that~~market isthrough astwo ~~exquisite~~operating assegments: itour isOnline ~~ethical.~~Channels Wesegment, ~~believe~~which ~~that~~encompasses weour ~~are~~digital ~~leading~~properties ~~the~~components, ~~way~~comprised inof ~~delivering~~our ~~the~~charlesandcolvard.com, ~~premium~~moissaniteoutlet.com, ~~moissanite~~charlesandcolvarddirect.com, ~~brand~~and madenetwork.com ~~through~~websites, ~~technological~~e-commerce ~~advances~~outlets, inincluding ~~gemstone~~marketplaces, ~~manufacturing~~drop-ship customers, ~~cutting,~~ ~~polishing~~and other pure-play, exclusively e-commerce customers; and ~~setting.~~our ByTraditional ~~coupling~~segment, ~~what~~which weconsists ~~believe~~of todomestic beand ~~unprecedented~~international ~~moissanite~~distributors ~~jewels~~and ~~with~~retail customers, ~~responsibly~~including ~~sourced~~end-consumers ~~precious~~through ~~metals~~our first Charles & Colvard Signature Showroom, wewhich ~~are~~opened ~~delivering~~in aOctober ~~uniquely~~2022. ~~positioned~~We ~~product~~report ~~line~~segment information ~~for~~based on the ~~conscientious~~“management” ~~consumer~~approach. ~~Our~~This ~~Caydia®~~segment ~~lab~~reporting ~~grown~~approach ~~diamonds~~designates ~~are~~the ~~hand~~internal ~~selected~~reporting used by ~~our~~management ~~Gemological~~for ~~Institute~~making ofoperating ~~America,~~decisions orand ~~GIA,~~assessing ~~certified~~performance ~~gemologists~~as tothe ~~meet~~source of our operating and reportable segments. ~~Charles~~We &operate ~~Colvard’s~~in ~~uncompromising~~an ~~standards~~e-commerce ~~and~~environment ~~validated~~characterized by ~~independent~~both ~~third-party~~complexity ~~experts~~in global markets and ongoing economic uncertainties in the U.S. and internationally. Our ~~Caydia®~~strategy ~~lab~~is ~~grown~~to build a globally revered and accessible brand of gemstones and finished fine jewelry products set with moissanite and lab grown diamonds. ~~are~~We ~~available~~believe ~~currently~~our ingoods E,appeal F,to a broad consumer audience and Gleverage ~~color~~our ~~grades~~advantage ~~(based~~of onbeing the original ~~GIA’s~~and ~~color~~leading ~~grading~~worldwide ~~scale)~~source ~~with~~of moissanite and purveyor of premium lab grown diamonds. We believe a ~~minimum~~direct ~~clarity~~relationship with consumers is an essential component of this strategy, which entails delivering tailored educational content, engaging in ~~accordance~~an interactive dialogue with our audience, and positioning our brand to meet the ~~GIA~~demands of today’s ~~VS1~~discerning ~~clarity~~consumer. ~~classification~~A ~~along~~significant ~~with~~component ~~excellent~~of ~~polish~~our strategy in this environment is to focus on our core products, improving the quality and ~~symmetry.~~predictability ~~All~~of the delivery of our ~~Caydia®~~products ~~lab~~and ~~grown~~services ~~diamonds~~and asplacing ~~well~~those asproducts ~~our~~quickly ~~moissanite~~into ~~gemstones~~the ~~are~~hands ~~set~~of ~~with~~our ~~responsibly-sourced,~~U.S. ~~mostly~~and international ~~recycled~~customers ~~precious~~at ~~metals~~affordable prices.

~~Our~~Moreover, ~~strategy~~recognizing istoday tothat ~~build~~our acustomers ~~globally~~and ~~revered~~vendors ~~and~~are ~~ethical~~resource-constrained, ~~brand~~we ofare ~~lab~~endeavoring ~~created~~to ~~gemstones~~develop and ~~finished~~extend ~~jewelry~~our ~~that~~portfolio ~~appeal~~of toproducts in a ~~wide~~disciplined ~~consumer~~manner ~~audience.~~with a Wefocus ~~believe~~on ~~this~~domestic ~~strategy~~markets ~~leverages~~close to our ~~advantages~~core ofcapabilities, ~~being~~and ~~the~~growing ~~original~~our ~~and~~global ~~leading~~marketplace ~~worldwide source~~sales. ofWe ~~Charles~~continue &to ~~Colvard~~focus ~~Created~~on ~~Moissanite®~~affordability ~~and~~initiatives. ~~offering~~We aalso ~~curated~~expect ~~assortment~~to ofcontinue innovating ~~jewelry~~and ~~featuring~~investing ~~Caydia®~~in lab ~~grown~~created ~~diamonds,~~gemstone ~~which~~technologies ~~together~~to wefulfill ~~believe~~evolving ~~offers~~product anrequirements ~~ideal~~for ~~combination~~our ofcustomers ~~ethics, quality,~~ and ~~value.~~investing Wein ~~believe~~our ~~a direct~~people ~~relationship~~so ~~with~~that ~~consumers~~we ishave ~~important~~the totechnical ~~this~~and production ~~strategy,~~skills ~~which~~necessary ~~entails~~to ~~delivering~~succeed ~~tailored~~without ~~educational~~limiting ~~content, engaging in dialogue with~~ our ~~audience,~~ability ~~and positioning our brand~~ to ~~meet~~build ~~the~~sound ~~demands~~financial ofreturns ~~today’s~~to ~~conscious~~our ~~and ethically minded consumer~~investors.

We believe our expanding application of an omni-channel sales strategy across the jewelry trade and to the end consumer with accessible lab created gemstones and value branded finished jewelry featuring Charles & Colvard moissanite and lab grown diamonds positions our goods at the many touchpoints where consumers are when they are making their buying decisions – thereby creating greater exposure for our brand and increasing consumer demand.

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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. For more information about our operating segments, see Note 3 to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

Cybersecurity Event

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, subsequent to June 30, 2023, we implemented recommended strengthening of our access requirements, and improved our unauthorized access detection.2

Subsequent to June 30, 2023, 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 quarter of the fiscal year ending June 30, 2024, or Fiscal 2024, and expect to continue to incur costs in connection with this incident. In the first quarter of 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 expect to incur these, and other costs related to this incident in the future.

Additional information on the risks we face related to this event and other potential cybersecurity incidents is included in Part I, Item 1A., “Risk Factors.”

Inflation

Heightened levels of inflation and the worsening of macroeconomic conditions present a risk for us, our suppliers, and the stability of the broader retail and e-commerce industry. During the fiscal year ended June 30, 2023, or Fiscal 2023, we have experienced impacts to our labor and overhead rates and suppliers have signaled inflation-related cost pressures, which have flowed, and we expect will continue to flow through to our costs and pricing. While we have seen adverse impact from inflation on our financial results in Fiscal 2023, if inflation remains at current levels for an extended period, or increases further, and we are unable to successfully mitigate the impact, our costs are likely to continue to increase, resulting in further pressure on our revenues, margins, and cash flows in Fiscal 2024. In addition, inflation, and the increases in the cost of borrowing from rising interest rates could constrain the overall purchasing power of our customers for our products and services, in particular in the near term to the extent inflation assumptions are less than current inflationary pressures. We remain committed to our ongoing efforts to increase the efficiency of our operations and improve the cost competitiveness and affordability of our products and services, which may, in part, offset cost increases and the adverse effects from inflation.

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

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~~COVID-19~~Our ~~Update~~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.

~~The~~Additionally, ~~ultimate~~we ~~impact~~temporarily ofimplemented ~~COVID-19~~manual onprocesses to conduct our operations ~~and~~with ~~financial~~as ~~performance~~little indisruption ~~future~~to ~~periods,~~production ~~including~~as ~~management’s~~possible. ~~ability~~All tomajor ~~execute~~systems, ~~its~~including ~~strategic~~our ~~initiatives~~enterprise inresource ~~the~~planning, ~~expected~~or ~~timeframes~~ERP, financial ~~remains~~systems ~~uncertain~~ and ~~will~~affected ~~depend~~manufacturing onand ~~future~~service ~~pandemic related developments~~operations, ~~including~~were ~~the~~restored ~~duration~~as ofquickly ~~the~~as ~~pandemic,~~possible ~~any~~from ~~potential~~available ~~subsequent~~backups, ~~waves~~and ofthe ~~COVID-19~~incident ~~and~~did ~~its~~not ~~variant~~have ~~viral~~a ~~infections,~~material ~~the~~impact ~~effectiveness,~~on ~~distribution~~the ~~and~~operations ~~acceptance~~ of ~~COVID-19~~our ~~vaccines,~~business ~~and~~operating ~~related~~segments. ~~government~~No ~~actions~~payments towere ~~prevent~~made ~~and~~to ~~manage~~the ~~disease~~ransomware ~~spread,~~threat ~~all of which are uncertain and cannot be predicted~~actors.

~~For~~We ~~additional~~have ~~risks~~incurred tocosts in the ~~Company~~fiscal ~~related~~year toending ~~the~~June ~~COVID~~30, 2024, or Fiscal 2024, of approximately $300,000 (of which $232,000 was paid directly by our insurance carrier). These costs have been primarily comprised of various third-19party ~~pandemic~~consulting services, ~~see~~including ~~“Part~~forensic Iexperts, ~~Item~~restoration 1Aexperts, 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. ~~Risk~~We ~~Factors”~~do not expect to incur these and other additional costs related to this incident in the future.

Additional information on the risks we face related to this event and other potential cybersecurity incidents is included in Part I, Item 1A., “Risk Factors.”, and Part I, Item 1C., “Cybersecurity”.

Reverse Stock Split

On May 14, 2024, the Company filed an Articles of Amendment to its Articles of Incorporation (the “Amendment”) with the North Carolina Secretary of State to effect the 1-for-10 reverse stock split of the Company’s shares of common stock (“Reverse Stock Split”). As a result of the Reverse Stock Split, every 10 shares of common stock issued and outstanding immediately prior to the effectiveness of the Reverse Stock Split were combined and converted into one share of common stock. The Reverse Stock Split became effective May 17, 2024, and the common stock was quoted on the Nasdaq Stock Market (“Nasdaq”) on a post-split basis at the open of business on that same day. No fractional shares were issued in connection with the Reverse Stock Split. Shareholders who would have otherwise been entitled to a fraction of one share of common stock as a result of the Reverse Stock Split instead received one whole share of common stock.

All share amounts, per share data, share prices and conversion rates set forth herein have, where applicable, been adjusted retroactively to reflect this reverse stock split.

Our Market Opportunity

According to ana ~~April~~July ~~2022~~2024 global U.S. retail e-commerce sales report from eMarketer, an independent worldwide source of digital marketing data, ~~approximately 20% of total global~~ retail e-commerce sales isare ~~expected~~anticipated to ~~come~~grow ~~from~~approximately ~~e-commerce~~8.5 ~~and~~to ~~online~~9% ~~purchases~~per inyear ~~2022~~through 2028. In this same report, eMarketer isprojected ~~projecting~~ that ~~global~~U.S. retail e-commerce sales are on pace to hit $51.57 trillion ~~for~~by calendar year-end ~~2022~~2028. This represents an annual global e-commerce growth rate for 2022 forecasted to be at just over 12%. While this is a deceleration from the 2021 and 2020 calendar year-end growth rates of 16% and 26%, respectively, those years reflected the largest year-over-year increases that the eMarketer analysts have seen and expect over the five-calendar-year period ending 2025 and those increases can be attributed to consumer spending habits during the pandemic.

By ~~2026~~2029, the ~~value~~“jewelry” segment of the ~~worldwide~~accessories ~~fashion jewelry~~ market is ~~expected~~forecast to ~~drive~~reach ~~approximately~~ $~~307~~446 billion inU.S. ~~worldwide~~dollars ~~sales~~in revenue according to aan ~~February~~October ~~2022~~2024 report from Statista, a global provider of retail market and consumer driven data. WeAlthough inflation, economic headwinds and an evolving competitive landscape have negatively impacted the jewelry and gemstone industry in recent years, we continue to believe that the convergence of the online jewelry consumer, coupled with the ~~emergence~~ acceptance of lab-created gemstones, ~~is a solution for the ethically minded customer that~~ continues to present what we believe is a ~~sizeable~~compelling ~~market~~ opportunity for the Charles & Colvard brand.

Our Strategic Outlook

~~Our~~In ~~key~~Fiscal ~~strategic~~2024, ~~goals~~due ~~for~~to ~~Fiscal~~inflationary ~~2024~~concerns, ~~are~~continued economic headwinds and an evolving competitive landscape that continued to negatively impact the jewelry industry as ~~follows:~~a whole, we took steps to mitigate the effects on our business. These strategic measures included a reduction in headcount, a review and renegotiation of vendor contracts, consolidation of our supply chain, and a shift to a more cost-effective freight partner.

~~Global~~As ~~Brand~~we ~~Awareness~~look ahead to the fiscal year ending June 30, 2025, or Fiscal 2025, Charles & Colvard is positioned to navigate a jewelry market that continues to face economic headwinds, including inflationary pressures and rising commodity prices. Additionally, the jewelry sector is undergoing a significant transformation with the growing acceptance of lab-grown diamonds and alternative gemstones, such as moissanite. This strategic outlook aims to outline the Company’s response to these challenges and growth opportunities by focusing on understanding and appealing to the new consumer base.

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 are driving decisions to purchase, 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.3

Diversified Product Categories

We will continue to evaluate opportunities for growth with synergistic brands, products, and verticals beyond our current offerings. Emerging consumer trends and data will inform new product lines, collections, and partnerships with designers and influencers. We will explore strategic alliances to fuel growth and deliver incremental long-term shareholder value while prioritizing our sustainable practices and core values.

Innovative Technology

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 will 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.

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WeOur ~~will~~key ~~work to capitalize on these~~ strategic goals to deliver top-line growth and strong financial results in the coming fiscal year. We believe that by implementing innovative technological solutions and developing operational efficiencies, we will position ourselves for ~~scalability~~Fiscal ~~and~~2025 ~~sustained,~~are ~~disciplined~~as 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.follows:

Stabilize Operations

We plan to achieve financial stability by continued disciplined spending, improved cost management, and evaluation of strategic opportunities for the Company; this will require a multifaceted approach that addresses both the immediate operational challenges and the Company’s long-term financial health, with the aim of securing the Company’s immediate future while laying the groundwork for long-term success through strategic repositioning.

Enhance Operational Efficiency and Foster Agility

We will continue to evaluate opportunities to streamline processes in order to reduce spend and to increase adaptability to market changes. Key initiatives include: process optimization, such as conducting a comprehensive audit of business processes in order to identify redundancies and inefficiencies, and evaluation of methodologies in order to streamline workflows and improve productivity; continued technology integration and evaluation, including automation of routine tasks, enhancement of data analytics capabilities with a keen eye on enabling quicker responses to customer needs and market shifts; and customer-centric innovation, underscoring the Company’s customer-first approach by using feedback and data analytics to drive product development and service offerings, to help ensure that the Company remains relevant and competitive while adapting to market trends and today’s customer needs.

Expand Product Differentiation and Innovation

The ongoing economic environment is likely to affect consumer spending on luxury items. We anticipate that customers will remain price-sensitive, requiring us to adjust strategies to maintain competitiveness while ensuring value. In addition, higher prices for precious metals used in fine jewelry production may lead consumers to seek more cost-effective yet valuable alternatives, such as moissanite, lab-grown diamonds and created color gemstones. The increased acceptance of lab-grown gemstones is reshaping consumer preferences, especially among Millennials and Gen Z, who prioritize ethical and sustainable purchases, and we believe that this is where Charles & Colvard offers a unique value proposition.

Distributing to the Online Channels Segment

Driven by continuously updating our understanding of our audience, through e-commerce and online retail data analytics as well as research through social media and customer service channels, we proactively engage our consumers through a multi-channel digital marketing strategy, including live streaming marketing content from the broadcast studio in our corporate headquarters. We believe that this approach is an online extension of the sales team and a valuable tool that our marketing team utilizes for video content production, live-stream shopping, ~~designer~~ and ~~influencer interviews, and~~ fashion photography. Our goal is to continue growing our direct relationship and personal contact with the consumer which we believe will drive consumer interest across all of our direct-to-consumer selling channels. Due to cash preservation and cost-cutting measures, we streamlined our live streaming marketing operations.

Our approach for marketing directly to the consumer in our Online Channels segment includes the following types of communication channels: (i) organic social media; (ii) paid advertising (including, but not limited to, search engine marketing, display ads, video ads, and social media advertising); (iii) live-streaming marketing content ~~and video shopping opportunities (through our own broadcast studio)~~; (iv) email; (v) public relations; (vi) product and style influencers; (vii) digital content creators; and (viii) our own websites. In addition, our marketing approach comprises the following content types: (i) photography; (ii) videos; (iii) interactive immersive experiences (including but not limited to, online personal concierge shopping assistance); and (iv) user-generated content.

Equally as important to us as marketing to our direct consumer audience is encouraging our customers to move through the process of engaging with our brand and eventually converting them into a lifetime Charles & Colvard customer. Throughout our marketing tactics, we employ measures that drive the consumer to the many virtual and actual locations where they can view our products, initiate, and complete their buying journey. We utilize a centralized distribution and fulfillment facility in Research Triangle Park, North Carolina, to fulfill Online Channels segment orders.

~~Following are our principal online transactional channels:~~4

~~charlesandcolvard.com.~~ ~~We believe that we will continue to enhance our primary transactional website to optimize the platform for the online mobile~~Table consumer – whether shopping on a computer at home or a mobile device – and to improve our customers’ experiences. Programs such as free shipping, a 30-day returns policy, and an enhanced and personalized shopping experience have been and will continue to be improved and rolled out over time. With data collected through web analytics and through user surveys that reveal how consumers use the site, we are in a continual state of optimizing the buying experience, thereby making it easier for shoppers to browse, sort, and compare. Where possible, we utilize these data to inform the selection of new, innovative technologies to further enhance our users’ experience, including technologies provided by such partners as Amazon Pay, ~~Affirm, Inc., and PayPal Holdings, Inc., or PayPal, for financing purchases, Braintree, a service~~ of PayPal, for ease of transfer, and Flow Commerce, Inc., or Flow, which is a company that specializes in facilitating cross-border global trade and e-commerce services. Our goal is to remain continually focused on improving our customers’ experience.Contents

~~moissaniteoutlet.com.~~The Infollowing ~~2021,~~are ~~we launched a second direct-to-consumer website, moissaniteoutlet.com, which is a product disposition channel that we believe complements~~ our ~~global~~principal positioning and what we believe is our dominance in the moissanite gemstone market. With this launch, we introduced our moissaniteoutlet.com product assortments to end-consumers, drop-ship retail partners, and the third-party marketplace, Amazon.com. Our website, moissaniteoutlet.com, is an e-commerce shopping destination that caters to the opportunistic and bargain-seeking consumer base for our moissanite products. We believe this new online ~~property~~transactional allows us to monetize our raw material and finished goods inventory, thus minimizing product shrinkage and waste. As a unique online shopping destination with a very different product offering strategy, we believe moissaniteoutlet.com rounds out our product offerings with quality discounted jewelry products allowing us to serve a broader range of demographics and consumers. Our product assortment on moissaniteoutlet.com includes moissanite rings, earrings, pendants, and bracelets, as well as jewelry set with colored moissanite, and other lab created colored gemstones. From time to time, we plan to continue featuring daily pricing deals and flash product sales on moissaniteoutlet.com to encourage consumers to take advantage of favorable pricing opportunities.channels:

charlesandcolvard.com. We believe that we will continue to enhance our primary transactional website to optimize the platform for the online mobile consumer – whether shopping on a computer at home or on a mobile device anywhere – and to improve our customers’ experiences. Programs such as free shipping, a 30-day returns policy, and an enhanced and personalized shopping experience have been and will continue to be improved and rolled out over time. With data collected through web analytics that reveal how consumers use the site, we are in a continual state of optimizing the buying experience, thereby making it easier for shoppers to browse, sort, and compare. Where possible, we utilize these data to inform the selection of new, innovative technologies to further enhance our users’ experience, including technologies provided by such partners as Amazon Pay, Affirm, Inc., and PayPal Holdings, Inc., or PayPal, for financing purchases, and Braintree, a service of PayPal, for ease of transfer. Our goal is to remain continually focused on improving our customers’ experience. We believe that consumers are responding positively to our patented Signature Collection designs as well as a wide assortment of Forever One™ moissanite and Caydia^® lab grown diamond fine jewelry.

moissaniteoutlet.com. In 2021, we launched a second direct-to-consumer website, moissaniteoutlet.com, which is a product disposition channel that we believe complements our global positioning and what we believe is critical in remaining relevant and competitive in the moissanite gemstone market, given the growing acceptance of lab-grown diamonds and downward pressure on moissanite pricing. With this launch, we introduced our moissaniteoutlet.com product assortments to end-consumers, drop-ship retail partners, and the third-party marketplace, Amazon.com. Our website, moissaniteoutlet.com, is an e-commerce shopping destination that caters to the opportunistic and bargain-seeking consumer base for our moissanite products. We believe this new online property allows us to monetize our raw material and finished goods inventory, thus minimizing product shrinkage and waste. As a unique online shopping destination with a very different product offering strategy, we believe moissaniteoutlet.com rounds out our product offerings with quality discounted jewelry products allowing us to serve a broader range of demographics and consumers. Our product assortment on moissaniteoutlet.com includes moissanite rings, earrings, pendants, and bracelets, as well as jewelry set with colored moissanite, and other lab created colored gemstones. From time to time, we plan to continue featuring daily pricing deals and flash product sales on moissaniteoutlet.com to encourage consumers to take advantage of favorable pricing opportunities.

Charles & Colvard Direct. In May 2023, we launched charlesandcolvarddirect.com, a direct-to-wholesaler online sales portal, which is currently our wholesale outlet for our loose Forever Bright^TM and Forever One^TM moissanite gemstones. With this launch, we introduced access to our gemstone product brands to a broader group of domestic and international gemstone retailers and distributors. We believe this presents a growth opportunity to expand our wholesale customer base and enhance our global brand presence.

Marketplaces. We continue to see a large majority of buyers start their online shopping experience utilizing a worldwide web search. We have made a point to maintain a prominent presence on Amazon, achieving Seller-Fulfilled Prime status, which means we have the option of fulfilling orders with the same benefits of Amazon Prime. This continues to enable us to be positioned more prominently in Amazon’s search platform and to take advantage of their negotiated shipping rates and service levels that, in turn, lowers our overall shipping costs. This status is available through Amazon to only those sellers who have a history of fulfilling orders quickly and maintaining appropriate levels of stock. Our marketplace relationship with Amazon includes, in addition to domestic websites, international locations, including websites in the United Kingdom, or U.K., and Western Europe. We also continue to have a market presence on eBay, Walmart, and a multitude of other specialty marketplaces, allowing us to meet our customers when and where they want to buy. Our goal remains to continue optimizing our presence on these marketplaces and to continue expanding into new untapped regions and platforms where we have identified cost-effective opportunities.

Pure-Play E-tailers. As consumers continue maintaining an online shopping presence and become more digitally savvy, new businesses have gained traction by tailoring their products, services, and experiences to specific consumer preferences. We believe that these pure-play e-tailers offer unique opportunities for us to feature our gemstones and fine jewelry and connect with their loyal consumer audiences.

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~~Charles~~Drop &Ship ~~Colvard Direct~~Retail. In ~~May~~an ~~2023,~~effort weto ~~launched~~expand ~~charlesandcolvarddirect.com~~their product offerings and assortments, amany retailers utilize direct- fulfillment from their vendors to~~-wholesaler~~ ~~sales~~their ~~portal~~consumers, ~~which~~or isdrop-ship, as it enables them to offer a ~~gemstone~~more ~~product disposition~~robust ~~wholesale~~assortment ~~outlet,~~online ~~that~~without wehaving ~~believe~~to ~~complements~~physically ~~our~~take ~~standing~~ownership inof the ~~wholesale~~goods ~~moissanite~~in their warehouse. These retailers often seek socially and ~~lab~~environmentally ~~grown~~responsible brands ~~diamond~~to ~~gemstone~~serve ~~market~~the demand for conscientious product selection from their audiences. ~~With~~Since ~~this~~we ~~launch~~began direct-to-consumer drop-shipping products in 2013, we ~~introduced~~have refined our ~~gemstone~~digital ~~product~~information ~~assortments~~technology toand aoperations ~~broader~~capabilities ~~group~~to ofsupport ~~domestic and~~these ~~international~~partnering ~~gemstone~~arrangements ~~wholesalers.~~in ~~Our~~multiple ~~product~~ways, ~~assortment~~including onfully ~~charlesandcolvarddirect.com~~integrated ~~includes~~electronic ~~moissanite~~data ~~and~~interchange, ~~lab~~or ~~grown~~EDI, ~~diamond~~solutions ~~rings~~for inventory management, ~~earrings~~order processing, ~~pendants~~and invoicing. Operationally, we continue maintaining in-stock rates and ~~bracelets~~leveraging our centralized distribution and fulfillment facility to meet partner service-level agreements, or SLAs, for shipments and returns. We plan to continue seeking new and strategic alliance relationships as well as ~~jewelry~~optimizing ~~set~~existing ~~with~~arrangements throughout ~~other~~Fiscal ~~lab~~2025 ~~created~~and ~~colored gemstones~~beyond.

~~Cross-Border~~Our ~~Trade.~~internet ~~Through~~websites ~~the~~listed ~~ongoing~~above ~~application~~and ofthe ~~cross-border~~information ~~trade,~~contained therein or ~~CBT,~~connected ~~technology,~~thereto ~~such~~are asnot ~~building~~intended ~~our relationship with Flow, we believe CBT continues~~ to be an ongoing opportunity in Fiscal 2024 and beyond. We believe that Flow’s technological platform helps such global enterprises create a positive and localized shopping experience for their international customers while helping toincorporated ~~provide~~ into athis ~~complete~~Annual ~~and~~Report ~~accurate~~on ~~record~~Form ~~of CBT transactions for the enterprise~~10-K.

Marketplaces. We continue to see a large majority of buyers start their online shopping experience utilizing a worldwide web search. In fact, according to jumpshot®, a global content management and digital intelligence firm that tracks marketplace data, more than 50% of those web searches continue to originate on Amazon. That number continues skewing even higher within the Millennial demographic in that Amazon is the online search brand Millennials continue to identify as most relevant based on a finding by the Pew Research Center, a nonpartisan fact-based think tank. Therefore, we have made a point to maintain a prominent presence on Amazon, achieving Seller-Fulfilled Prime status, which means we have the option of fulfilling orders with the same benefits of Amazon Prime. This continues to enable us to be positioned more prominently in Amazon’s search platform and to take advantage of their negotiated shipping rates and service levels that, in turn, lowers our overall shipping costs. This status is available through Amazon to only those sellers who have a history of fulfilling orders quickly and maintaining appropriate levels of stock. Our marketplace relationship with Amazon includes, in addition to domestic websites, international locations, including websites in the United Kingdom, or U.K., and Western Europe. We also continue to have a market presence on eBay and a multitude of other specialty marketplaces, allowing us to meet our customers when and where they want to buy. Our goal remains to continue optimizing our presence on these marketplaces and to continue expanding into new untapped regions and platforms where we have identified cost-effective opportunities.

Pure-Play E-tailers. According to a July 2022 report from Statista, a global provider of retail market and consumer driven data, approximately 25% of total retail sales worldwide are forecasted to become e-commerce centric by 2025. As consumers continue maintaining an online shopping presence and become more digitally savvy, new businesses have gained traction by tailoring their products, services, and experiences to specific consumer preferences. We believe that these pure-play e-tailers offer unique opportunities for us to feature our gemstones and fine jewelry and connect with their loyal consumer audiences.

Charles & Colvard Signature Showrooms. In October 2022, we opened our first Charles & Colvard Signature Showroom, which we believe complements and expands our omnichannel brand strategy in the fine jewelry space. This showroom is located in our corporate headquarters in North Carolina’s Research Triangle Park. We believe that consumers are responding positively to our patented Signature Collection designs as well as a wide assortment of Forever One™ moissanite and Caydia® lab grown diamond fine jewelry.

Drop Ship Retail. In an effort to expand their product offerings and assortments, many retailers utilize direct fulfillment from their vendors to their consumers, or drop-ship, as it enables them to offer a more robust assortment online without having to physically take ownership of the goods in their warehouse. These retailers often seek socially and environmentally responsible brands to serve the demand for conscientious product selection from their audiences. Since we began direct-to-consumer drop-shipping products in 2013, we have refined our digital information technology and operations capabilities to support these partnering arrangements in multiple ways, including fully integrated electronic data interchange, or EDI, solutions for inventory management, order processing, and invoicing. Operationally, we continue maintaining in-stock rates and leveraging our centralized distribution and fulfillment facility to meet partner service-level agreements, or SLAs, for shipments and returns. We plan to continue seeking new and strategic alliance relationships as well as optimizing existing arrangements throughout Fiscal 2024 and beyond.

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Distributing to the Traditional Segment

The Traditional segment is our legacy business segment that is represented by such outlets as manufacturers, distributors, and brick-and-mortar retailers. Going forward, these market channels remain important avenues for us to drive our products to market and to have a presence in the many places the consumer takes his or her shopping journey.

Our approach for marketing to customers and strategic partners within our Traditional segment includes the following types of communication channels: (i) trade advertising; (ii) industry associations; (iii) trade shows; and (iv) cooperative advertising.

We utilize a centralized distribution and fulfillment facility in Research Triangle Park, North Carolina, to fill bulk orders to manufacturer, distributor, and retail customers.

~~Retail.~~Charles In& ~~order~~Colvard toSignature ~~create~~Showroom. ~~awareness~~In ~~and~~October ~~exposure for our gemstones~~2022, ~~jewelry, and brands,~~ we ~~sell~~opened ~~loose~~our ~~moissanite~~Charles ~~jewels~~& ~~and~~Colvard ~~finished~~Signature ~~jewelry~~Showroom, ~~featuring~~which we ~~moissanite~~believe atcomplements ~~wholesale prices to nationally recognized~~ and ~~emerging~~expands ~~retail~~our ~~customers~~omnichannel ~~through~~brand astrategy ~~broad~~in ~~range~~the offine ~~channels including~~ jewelry ~~chains and department stores~~space. ~~Wholesale~~This ~~orders~~showroom ~~are~~is ~~received~~located byin ~~way of purchase orders and fulfilled from~~ our ~~centralized~~ ~~fulfillment~~corporate ~~center.~~headquarters ~~In many cases, we have placed loose moissanite jewels and finished jewelry inventory~~ in ~~stores~~North onCarolina’s aResearch ~~consignment~~Triangle ~~basis~~Park. ~~Under~~We ~~this~~believe ~~consignment~~that ~~model,~~consumers inare ~~accordance~~responding ~~with~~positively ~~our~~to ~~revenue recognition accounting policy, we~~our ~~recognize~~patented ~~the~~Signature ~~revenue~~Collection ~~for~~designs ~~these~~as ~~transactions~~well ~~after~~as ~~the retail partner has sold an item to~~ a ~~consumer~~wide orassortment ~~other contractual conditions are met. In other cases, a retailer purchases the goods, or a portion~~ of ~~the~~Forever ~~goods,~~One™ ~~under~~moissanite ~~what we call an asset purchase model. Under our asset model, we recognize the sale~~ and ~~related~~Caydia® ~~revenue~~lab ~~upon~~grown ~~transfer~~diamond offine ~~the goods to the retailer~~jewelry. Due to the maturity of certain retail relationships, we have migrated select brick-and mortar partners to a blended asset and consignment model account structure, which affords us more favorable customer payment terms that result in more favorable cash flow. We will continue to evolve our retail channel strategy as we optimize our methods and partnering arrangements.

~~Domestic Manufacturers and Distributors~~Retail. In order to ~~service~~create ~~the~~awareness ~~vast~~and ~~number~~exposure offor ~~independent~~our ~~jewelers~~gemstones, jewelry ~~stores~~, and ~~smaller jewelry chains~~brands, we sell ~~our~~ loose moissanite jewels and finished jewelry tofeaturing ~~domestic~~moissanite at wholesale ~~distributors~~prices ~~and~~to ~~finished~~nationally ~~jewelry~~recognized ~~manufacturers~~and atemerging ~~distributor~~retail ~~prices,~~customers ~~that~~through ina ~~turn~~broad ~~resell~~range ~~the~~of ~~loose~~channels ~~jewels~~including orjewelry ~~finished~~chains ~~jewelry~~and atdepartment astores. ~~markup~~Wholesale toorders ~~independent~~are ~~jewelers~~received ~~and jewelry~~by ~~stores~~way –of ~~whether~~purchase ~~brick-~~orders and~~-mortar,~~ ~~online,~~fulfilled orfrom ~~both~~our centralized fulfillment center. In ~~limited~~many ~~circumstances~~cases, we have placed loose moissanite jewels and finished jewelry inventory ~~with~~in ~~select~~stores ~~domestic distributors~~ on a consignment basis. WeUnder ~~continue~~this toconsignment ~~evaluate~~model, in accordance with our revenue recognition accounting policy, we recognize the ~~channel~~revenue ~~strategy~~ for ~~domestic~~these ~~distributors~~transactions after the retail partner has sold an item to a consumer or other contractual conditions are met. In other cases, a retailer purchases the goods, or a portion of the goods, under what we call an asset purchase model. Under our asset model, we recognize the sale and related revenue upon transfer of the goods to the retailer. Due to the maturity of certain retail relationships, we have migrated select brick-and-mortar partners to a blended asset and consignment model account structure, which ~~may~~affords us more favorable customer payment terms that result in ~~changes~~more favorable cash flow. We will continue to evolve our ~~historical~~retail ~~domestic~~channel ~~distributor~~strategy as we optimize our methods and ~~business~~partnering ~~partners~~arrangements.

~~International~~Domestic Manufacturers and Distributors. In order to ~~create~~service ~~global~~the ~~awareness~~vast ~~and~~number ~~exposure~~of ~~for~~independent ~~our lab created gemstones~~jewelers, jewelry, ~~and brands~~stores, ~~we sell loose moissanite~~ and ~~lab~~smaller ~~created~~jewelry ~~diamond gems~~chains, aswe ~~well~~have ashistorically sold ~~finished~~our ~~jewelry~~loose ~~featuring~~moissanite ~~these~~jewels ~~gemstones,~~ to ~~international~~domestic wholesale distributors ~~and finished jewelry manufacturers at distributor prices,~~ that in turn ~~sell~~resell the ~~actual~~ loose jewels or ~~set~~at ~~the~~a ~~loose~~markup ~~jewels~~to inindependent ~~mountings~~jewelers and ~~sell the finished~~ jewelry tostores whether brick-and-mortar, ~~and~~ online, ~~retailers~~or both. We ~~currently~~ have ~~numerous~~evaluated ~~international~~our ~~wholesale~~channel ~~distributors~~strategy ~~based in the U.K., Western Europe, Australia, Canada, Hong Kong, India,~~for ~~Japan,~~domestic ~~China, the Netherlands, Singapore, and South Africa. Some of these~~ distributors ~~typically~~as ~~sell into neighboring countries and the extended geographic regions where they may be located. Additionally, from time to time,~~ we ~~have~~expand ~~placed loose moissanite jewels and finished jewelry inventory with select international distributors on a consignment basis~~charlesandcolvarddirect. ~~We continue to evaluate our channel strategy for international distributors~~com, which ~~may~~has ~~result~~resulted in achanges ~~change~~ to our historical ~~international~~ domestic distributor methods and ~~strategic~~business partners. ~~A portion of our international sales consists of finished jewels sold internationally that may be re-imported to U.S. retailers.~~

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~~For~~International aManufacturers ~~discussion~~and Distributors. ofIn ~~our~~order ~~largest~~to ~~customers~~create global awareness and exposure for ~~the~~our ~~fiscal~~lab-created ~~years~~gemstones, ~~ended~~jewelry, ~~June~~and 30brands, ~~2023~~we sell loose moissanite and ~~2022~~lab-created diamond gems to international wholesale distributors at wholesale distributor prices, ~~see~~that ~~Note~~in 14turn sell the actual loose jewels or set the loose jewels in mountings and sell the finished jewelry to ~~our~~brick-and-mortar ~~consolidated~~and ~~financial~~online ~~statements~~retailers. We currently have numerous international wholesale distributors based in ~~Item~~the 8U.K., ~~“Financial~~Western ~~Statements~~Europe, ~~and~~Australia, ~~Supplementary~~Canada, ~~Data”~~Hong Kong, India, Japan, China, the Netherlands, Singapore, and South Africa. Some of ~~this~~these ~~Annual~~distributors typically sell into neighboring countries and the extended geographic regions where they may be located. Additionally, from time to time, we have placed loose moissanite jewels ~~Report~~and finished jewelry inventory with select international distributors on ~~Form~~a 10consignment basis. We continue to evaluate our channel strategy for international distributors, which may result in a change to our historical international distributor methods and strategic partners. A portion of our international sales consists of finished jewels sold internationally that may be re-Kimported to U.S. retailers.

For a discussion of our largest customers for the fiscal years ended June 30, 2024 and 2023, see Note 14 to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

Seasonality

Sales in the retail jewelry industry are typically seasonal due to increased consumer purchases during the calendar year-end holiday season and during other holiday periods such as Valentine’s Day and Mother’s Day. Because historically we have primarily sold our loose moissanite gemstones and finished jewelry featuring moissanite, at wholesale pricing to distributors, manufacturers, and retailers, our sales to support the holiday season have largely taken place during the beginning of the fourth calendar quarter, depending on the sales channel and the level of advanced planning and production our customers undertook. However, the effect of seasonality on our business is also impacted by the timing of orders we receive to support new or expanded distribution and the level of current inventory positions held by our customers. In recent years, we experience a higher degree of seasonality in the fourth calendar quarter than we have experienced in prior years primarily as a result of the increased calendar year-end holiday season sales to end consumers through our Online Channels segment. In future periods, we expect direct to consumer sales of our finished jewelry featuring both moissanite and lab grown diamonds to increase as a percentage of total sales. We anticipate a seasonality trend more typical with the retail jewelry industry, and these factors may significantly affect our results of operations in a given quarter.

Moissanite

Over 120 years ago, Nobel Prize-winning chemist, Henri Moissan, Ph.D., first discovered the extremely rare mineral SiC in a meteorite crater in Arizona. Over a century after the discovery of SiC, and after years of experimentation, researchers from the Research Triangle Park in North Carolina developed and patented a thermal growing process for creating pure SiC crystals in a controlled laboratory environment. This long-sought-after breakthrough made possible the world’s first lab-created moissanite gemstone – posthumously named after its discoverer. With hardness rivaling any mineral on earth, and optical properties exceeding all mined and created gemstones, we believe moissanite is a brilliant jewel that is free from environmental and ethical issues, and capable of disrupting traditional definitions of fine jewelry.

Naturally occurring moissanite is generally very small in size, dark green or black in color, and not a commercially viable source of gemstone material. Therefore, in order to create high quality moissanite material in desirable colors and across a range of carat sizes that will appeal to a consumer audience, we expect only lab-grown SiC crystals to provide a sustainable source of moissanite for gemstones.

In addition to carat size, important characteristics of a gemstone are beauty, durability, and rarity. The beauty of a colorless or near-colorless gemstone is characterized by its color, brilliance, and fire. The brilliance of a gemstone is measured by its refractive index, or the extent to which, when coupled with the facet design, the gemstone reflects light. The fire of a gemstone, or the breaking of light rays into spectral colors, is measured by its dispersion. Durability is determined by a gemstone’s hardness, or resistance to scratching and toughness, or resistance to chipping or cleaving. Rarity is the availability or perceived availability of a gemstone. Moissanite jewels have a unique combination of brilliance, fire, durability, and rarity.

Moissanite’s beauty is objectively derived from its refractive index, which is higher than that of any other gemstone, including diamond. And its hardness is greater than all minerals, and all known gemstone materials with the exception of diamond. As a result, moissanite jewels, like diamonds, can be cut with sharp, well-defined, and highly polished facets that accentuate their brilliance and fire. The cutting specifications (i.e., facet arrangement and proportion) for moissanite jewels are different than any other gemstone and designed to maximize the brilliance and fire of the underlying raw material.

We evaluate the finished gems to exacting standards with automated video-imaging equipment using internal and independent third-party certified gemologists. Due to the rare natural occurrence of moissanite and both the proprietary and technical limitations in producing mass quantities of gem-grade moissanite, we believe that moissanite is among the rarest of jewels.7

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We evaluate the finished gems to exacting standards with automated video-imaging equipment using internal and independent third-party certified International Gemological Institute (IGI) gemologists. Due to the rare natural occurrence of moissanite and both the proprietary and technical limitations in producing mass quantities of gem-grade moissanite, we believe that moissanite is among the rarest of jewels.

The following table compares the physical properties of our created moissanite jewels with other fine gemstone materials, including lab grown diamonds:


Description	Refractive Index	Dispersion	Hardness⁽¹⁾	Toughness
Charles & Colvard Created Moissanite^®	2.65-2.69	0.104	9.25 – 9.5	Excellent
Diamond (including mined and lab grown diamonds)	2.42	0.044	10	Good to Excellent ⁽²⁾
Ruby	1.77	0.018	9	Excellent ⁽³⁾
Sapphire	1.77	0.018	9	Excellent ⁽³⁾
Emerald	1.58	0.014	7.50	Poor to Good

⁽¹⁾

For purposes of this table, “hardness” is based on the Mohs Scale, which is a relative scale only. Quantitative comparisons of different gemstone materials cannot be made directly using the Mohs Scale. Moissanite jewels, while harder than all other known gemstones, are approximately one-half as hard as diamond.

⁽²⁾	In cleavage direction, toughness is “good”.

⁽³⁾	Except twinned stones

Sources: Gemological Institute of America, Gem Reference Guide for GIA Colored Stones, Gem Identification and Colored Stone Grading Courses 32-35, 65-82, 87-90 (1995); Cornelius S. Hurlburt, Jr. & Robert C. Kammerling, Gemology 320-324 (2d Ed. 1991); Kirk-Othmer, Encyclopedia of Chemical Technology 524-541 (5^th Ed. 2004); Institution of Electrical Engineers, Properties of Silicon Carbide (Gary L. Harris, Ed., 1995); Robert Webster, Gems: Their Sources, Descriptions and Identification, 889-940 (5^th Ed. 1994); W. von Muench, Silicon Carbide in Landolt-Börnstein - Numerical Data and Functional Relationships in Science and Technology, New Series, Group III, Vol. 17C, pp. 403-416 and 585-592 (M. Schultz and H. Weiss, Eds., 1984); Kurt Nassau, Shane F. McClure, Shane Ellen & James E. Shigley, Synthetic Moissanite: A New Diamond Substitute, Gems & Gemology, Winter 1997, 260-275; Kurt Nassau. Moissanite: A New Synthetic Gemstone Material, Journal of Gemology, 425-438 (1999); Mindat.org (a project of the Hudson Institute of Technology), “Moissanite” (https://www.mindat.org); and Wikipedia.org, “Moissanite” (https://en.wikipedia.org/wiki/Moissanite).

Lab Grown Diamond

Lab grown diamond materials have been synthesized since the early 1940s and eventually made their way into industrial applications during the next decade. Originally, this process was used mainly for producing diamond products used in industrial applications such as diamond-tipped drill bits and commercial-grade abrasives as well as products used for unique specialized surgical equipment within the medical field. In 1955, scientists discovered a way to duplicate the conditions in a laboratory setting under which diamonds may be naturally developed. Inside a high-pressure cell, carbon atoms are subjected to intense levels of heat and pressure, until the atoms grow and crystalize on seed crystals as a man-made diamond. More recently, an advanced technological method for creating diamonds, known as chemical vapor deposition, or CVD, mimics the method of natural diamond formations. CVD uses extreme pressure and a heated mixture of methane and hydrogen gases to produce gem-quality lab grown diamonds that are used in the fine jewelry industry. Lab grown diamonds may be cut and polished in the same manner as natural diamonds, producing ~~identically~~identical optical, physical, and chemical ~~chemical~~ properties as their mined diamond counterpart. The gemstone physical properties table set forth above denotes the range of physical attributes that are consistent for both mined and lab grown diamonds.

Many misconceptions exist surrounding lab grown diamonds. The most-asked question we receive regarding lab grown diamonds is whether or not lab grown diamonds are considered to be real diamonds. In response to this question, we unequivocally believe that lab grown diamonds are 100% real. We contend that the main difference between lab grown diamonds and those that are mined is simply the origin of the diamond itself. The critical characteristics of a diamond, those being its appearance, its chemical composition, and its physical properties are exactly the same in both a diamond that is mined versus one that is grown in a laboratory. A lab grown diamond can only be distinguished from natural diamonds using specialized equipment that can detect the minor differences in trace elements and crystal growth.

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Products and Product Development

Moissanite Jewels

Historically, we primarily sold legacy moissanite jewels including Forever Classic^™ and Forever Brilliant^®. In 2015, we announced availability of our premier product, the first colorless moissanite jewel, Forever One^™, which grades from colorless (D-E-F) to near-colorless (G-H) using the GIA’s color grading scale. With the sales growth we experienced from this product launch, we have continued to expand our Forever One^™ product line with additional shapes and sizes. Today, we offer Forever One^™ in more than 30 cuts, and a multitude of sizes ranging from melee accent stones as small as 0.002 carats to gemstones up to 6.32 carats, and our Exotics line of products that are as large as 15.55 carats diamond equivalent weight, or DEW.

In 2018, we announced the availability of a new grade of gemstone, Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™. We believe that, with the exception of our own colorless moissanite jewel, Forever One™ our latest gemstone, is a cut above other moissanite on the market. The distinction between Forever One™ and Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, is made through our applied expertise throughout the design and manufacturing process summarized below and described in more detail in “Manufacturing and Quality Assurance”. We believe that due to the discerning approach we take to ensure the quality of Forever One™, it remains far above any other comparable gemstone offering available today. By closely evaluating clarity, color, and cut, we are able to determine which gemstones meet our quality standards for Forever One™, and those that fit within one of the classifications for our multiple grade Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, gemstones.

Our manufacturing process starts with SiC material primarily manufactured by Wolfspeed through its patented process. This proprietary growing process creates a SiC material that is nearly free of micropipes – a type of inclusion sometimes found in lab-grown SiC material. However, based on the terms of the amended Supply Agreement with our strategic partner, we are permitted to purchase certain amounts of SiC materials from third parties under limited conditions. Either way, the SiC material comes to us as a boule, or a formed mass, that has the atomic structure of a single crystal. After beginning our manufacturing process, each boule is carefully inspected by our certified gemologists to ensure it meets our minimum standards for Charles & Colvard Created Moissanite® gemstones, including those for clarity and color grades. The products that meet appropriate minimum quality standards move forward on the journey to become our Charles & Colvard Created Moissanite® gemstones. From this point, as the product continues to move through our manufacturing process, it is subjected to further processing steps, such as cutting, faceting, and finishing. At the end of our manufacturing process, it’s the clarity and color designation, coupled with further inspection by our certified gemologists and in partnership with International Gemological Institute (IGI) regarding the quality levels of the cutting, faceting, and finishing processes, that will ultimately determine if the product becomes one of our premier Forever One™ gemstones or one of our multiple grade Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, gemstones.

Moissanite Finished Jewelry

We began selling finished jewelry featuring moissanite in 2010. Our core designs included stud earrings, solitaire and three-stone rings, pendants, and bracelets. We are now selling an expanded selection of fashion-oriented, designer-inspired moissanite jewelry that we offer as an expansion to the core line of jewelry. The primary components of our moissanite finished jewelry are loose moissanite jewels that we have on hand as part of our finished goods inventory, precious metal settings, and labor to mount the jewels into the settings.

Source of Moissanite Raw Material

Our moissanite jewels are made from gem-grade SiC crystals. Our primary supplier of SiC crystals iswas previously Wolfspeed with which we ~~have~~had certain exclusive supply rights for SiC crystals to be used for gemstone applications. In addition, based on the terms of the Supply Agreement with Wolfspeed, as amended, described below, we ~~are~~were permitted to purchase certain amounts of SiC materials from third parties under limited conditions. We source the metals used for our finished jewelry, ~~including~~ including white, yellow, and rose gold, platinum, tantalum, titanium, and sterling silver, from a number of domestic and international manufacturers located in the U.S., China, India, Mexico, Costa Rica, Hong Kong, Vietnam, or Portugal. In line with our goal of providing socially and ethically sourced products, we require suppliers to adhere to our stringent supplier guidelines, as well as to certify that their gold and tantalum are coming from conflict-free sources and that all precious metals supplied to us are responsibly sourced.

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Exclusive Supply Agreement with Wolfspeed

On December 12, 2014, wethe Company entered into an exclusive supply agreement, or (the “Supply Agreement,”) with Wolfspeed, Inc., ~~or Wolfspeed,~~ formerly known as Cree, Inc., ~~which superseded and replaced our prior agreement with~~ (“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 were ~~must~~required to equal or exceed a set minimum order quantity., ~~The~~contingent ~~initial term of the Supply Agreement was scheduled to expire~~ on ~~June 24, 2018. Effective June 22, 2018,~~ the ~~Supply~~Company ~~Agreement~~submitting ~~was~~purchase ~~amended to extend the expiration date to June 25, 2023~~orders. The Supply Agreement was also amended to (i) provide us 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 our specifications that will give us the flexibility to use the materials in a broader variety~~ of ~~our products; and (iii) 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 expiration~~on ~~date to~~ June 2924, ~~2025, which may be further extended by mutual written agreement of the parties~~2018. 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~~Effective ~~total~~June ~~purchase~~22, ~~commitment~~2018, ~~under~~the Company and Wolfspeed amended the Supply Agreement, asto ~~amended,~~extend ~~until~~the ~~June~~expiration ~~2025~~date isto ~~approximately~~June ~~$52~~25, 2023.95 ~~million~~This amendment also (i) provided 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) established a process by which ~~approximately~~Wolfspeed ~~$24.75~~may ~~million~~begin ~~remains~~producing alternate SiC material based on the Company’s specifications that will give the Company the flexibility to beuse ~~purchased~~the asmaterials in a broader variety of ~~June~~its ~~30,~~products; ~~2023~~and (iii) permitted the Company to purchase certain amounts of SiC materials from third parties under limited conditions.

~~During~~Effective ~~the fiscal years ended~~ June 30, ~~2023~~2020, the Company and ~~2022,~~Wolfspeed further amended the ~~Company~~Supply ~~purchased~~Agreement ~~approximately~~to ~~$1.80~~extend ~~million~~the ~~and~~expiration ~~$6.29~~date ~~million~~to June 29, ~~respectively~~2025. This amendment also, ofamong ~~SiC~~other ~~crystals~~things, ~~from~~(i) ~~Wolfspeed.~~spread ~~The~~the Company’s ~~has~~total ~~made~~purchase nocommitment, ~~purchases~~contingent ofon ~~SiC~~the ~~crystals~~Company ~~during~~submitting ~~the~~a ~~nine-month~~purchase order, under the ~~period~~Supply ~~ended~~Agreement ~~June~~in ~~30,~~the ~~2023~~amount ~~while~~of inapproximately ~~discussions~~$52.95 ~~regarding~~million over the ~~terms~~term of the Supply Agreement., ~~Such~~as ~~discussions~~amended; ~~included~~(ii) ~~potential~~established ~~renegotiation~~a process by which Wolfspeed has agreed to accept purchase orders in excess of the ~~Supply~~agreed-upon ~~Agreement~~minimum purchase commitment, ~~but~~subject ~~the~~to ~~parties~~certain ~~have~~conditions; ~~not~~and ~~come~~(iii) permitted the Company to anpurchase ~~agreement~~revised amounts of SiC materials from third parties under limited conditions.

OnApproximately ~~July~~$24.75 ~~28,~~million ~~2023,~~of ~~Wolfspeed~~the ~~initiated~~Company’s acommitment ~~confidential~~under ~~arbitration~~the ~~against~~Supply usAgreement ~~for~~was ~~breach~~available ofto ~~contract~~be ~~claiming~~purchased ~~damages,~~as ~~plus~~of ~~interest,~~June ~~costs~~30, ~~and attorneys’ fees~~2024. ~~Wolfspeed has alleged that the Company~~Over ~~failed to satisfy~~ the ~~purchase~~life ~~obligations~~of ~~provided in~~ the Supply Agreement, ~~for~~as ~~Fiscal~~amended, ~~2023 in~~ the ~~amount~~Company’s offuture ~~$4.25~~minimum ~~million~~annual ~~and~~purchase ~~failed~~commitments ~~to pay for $3.30 million~~ of SiC crystals ~~Wolfspeed~~ranged ~~delivered~~from toapproximately us$4.00 ~~Wolfspeed~~million ~~further alleges that the Company intends~~ to ~~breach our remaining purchase obligations under the Supply Agreement, representing an additional~~ $1810.500 million ineach ~~alleged damages~~year.

~~While~~During the ~~Company~~fiscal isyears ~~evaluating~~ended ~~Wolfspeed’s~~June ~~claims~~30, we2024 ~~dispute the amount sought,~~ and ~~we intend to vigorously defend our position~~2023, ~~including asserting rights and defenses that~~ the Company ~~may~~purchased ~~have under~~approximately ~~the~~$2.00 ~~Supply Agreement, at law~~ and ~~in equity~~$1.80 Amillion, ~~hearing~~respectively, ~~has not yet been scheduled. The final determinations~~ of ~~liability~~SiC ~~arising~~crystals from ~~this~~Wolfspeed ~~matter~~pursuant to ~~will~~the ~~only~~terms beof ~~made~~the ~~following~~Supply ~~comprehensive investigations~~Agreement, ~~discovery~~as ~~and arbitration processes~~amended.

~~For~~On ~~more~~July ~~information~~28, ~~regarding~~2023, Wolfspeed initiated a confidential arbitration against the ~~second~~Company ~~amendment~~for tobreach ~~our~~of ~~Supply~~contract ~~Agreement~~claiming damages, ~~executed~~plus oninterest, ~~August~~costs, 26and attorneys’ fees. On February 10, ~~2020~~2025, the Company and Wolfspeed entered into a settlement agreement related to the Wolfspeed arbitration. ~~Arbitration~~Under ~~Matter,~~the ~~see~~settlement ~~Item~~agreement 3,the ~~“Legal~~Company ~~Proceedings”,~~terminated ~~Part~~the IIexclusive supply agreement and agreed to pay Wolfspeed a total of $4.77 million, ~~Item~~which 7includes the purchased and consigned inventory, ~~“Management~~Wolfspeed’s ~~Discussion~~attorneys’ ~~and~~fees ~~Analysis~~in connection ofwith ~~Financial Condition~~the arbitration, and ~~Results~~interest. ofThe ~~Operations”~~final settlement amount is to be paid $500,000 on February 11, 2025, $1.83 million on or before February 28, 2025, and ~~Note~~$2.44 10million toon ~~our~~or ~~consolidated~~before ~~financial~~December ~~statements~~31, in2025. As ~~Item~~of 8June 30, ~~“Financial~~2024, ~~Statements~~the Company accrued $4.77 million related to the final settlement and ~~Supplementary~~expected ~~Data”~~payments, of ~~this~~which ~~Annual~~$2.33 ~~Report~~million onwas ~~Form~~paid ~~10-K~~as of February 28, 2025.

For more information regarding the second amendment to our Supply Agreement, executed on August 26, 2020, and the Wolfspeed arbitration see Item 3, “Legal Proceedings”, Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Note 10 to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

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Lab Grown Diamonds

In September 2020, we announced our expansion into the lab grown diamond product market business with the launch of Caydia^®, an exclusive brand of premium lab grown diamonds. Our Caydia^® lab grown diamonds are hand selected by our GIA certified gemologists to meet Charles & Colvard’s standards and validated by independent third-party experts. Our Caydia^® lab grown diamonds are currently available in E, F, and G color grades (based on the GIA’s color grading scale) with a minimum clarity in accordance with the GIA’s VS1 clarity classification along with excellent cut, polish, and symmetry.

11Lab Grown Diamond and Lab Grown Diamond in Color Finished Jewelry

~~Table~~We began offering finished jewelry featuring our Caydia® premium lab grown diamonds in September 2020. In addition to our core designs that include stud earrings, solitaire and multiple-gemstone rings, pendants, and bracelets, we are also selling a curated assortment of ~~Contents~~designer inspired luxury fashion finished jewelry featuring our Caydia® premium lab grown diamonds. We began offering finished jewelry featuring our Caydia® premium lab grown diamonds in color in August 2024. The primary components of our Caydia® lab grown diamond finished jewelry are loose lab grown diamonds set with responsibly sourced precious metals. We source the metals used for finished jewelry set with our Caydia® lab grown diamonds, including white, yellow, and rose gold, platinum, tantalum, titanium, and sterling silver, from a number of domestic and international manufacturers located in the U.S., China, India, Mexico, Costa Rica, Hong Kong, or Thailand. In line with our goal of providing socially and ethically sourced products, we require suppliers to adhere to our stringent supplier guidelines, as well as to certify that their gold and tantalum are coming from conflict-free sources and that all precious metals supplied to us are responsibly sourced.

Lab Grown Diamond Finished Jewelry

We began offering finished jewelry featuring our Caydia® premium lab grown diamonds in September 2020. In addition to our core designs that include stud earrings, solitaire and multiple-gemstone rings, pendants, and bracelets, we are also selling a curated assortment of designer inspired luxury fashion finished jewelry featuring our Caydia® premium lab grown diamonds. The primary components of our Caydia® lab grown diamond finished jewelry are loose lab grown diamonds set with responsibly sourced precious metals. We source the metals used for finished jewelry set with our Caydia® lab grown diamonds, including white, yellow, and rose gold, platinum, tantalum, titanium, and sterling silver, from a number of domestic and international manufacturers located in the U.S., China, India, Mexico, Costa Rica, Hong Kong, Vietnam, Thailand, or Portugal. In line with our goal of providing socially and ethically sourced products, we require suppliers to adhere to our stringent supplier guidelines, as well as to certify that their gold and tantalum are coming from conflict-free sources and that all precious metals supplied to us are responsibly sourced.

Sources of Lab Grown Diamond Raw Material

Our premium lab grown diamonds are made by a select group of third-party manufacturers from what we believe is the most technologically advanced method for lab grown gem-quality diamonds used in the fine jewelry industry. We purchase both rough and faceted lab grown diamonds from established foreign and domestic suppliers that comprise a supply chain which we believe meets our rigid quality standards.

Intellectual Property

We have certain trademarks and pending trademark applications that support our moissanite and lab grown diamond branding strategy. In addition, we have certain issued design patents that we believe will differentiate our products in the jewelry industry. Previously, we held several U.S. product and production process patents for moissanite jewels that expired in 2015. We also held these same patents in 25 foreign jurisdictions, primarily across Asia and Europe, that expired in 2016, with one in Mexico that expired in ~~Fiscal~~the fiscal year ending June 30, 2021. Since the expiration of our patents, we have noted new providers of moissanite entering the market. We know how challenging it is to create high-quality moissanite and achieving the capacity to consistently produce a high-quality moissanite product at mass scale requires a careful balance of SiC-specific faceting skills and a well-tuned global supply chain.

Our success and our ability to compete successfully depends in part upon our proprietary technology, which includes, among others, cutting and faceting. In addition to our design patents, we rely on trade secret laws and employee, consultant, and customer confidentiality agreements to protect certain aspects of our technology. We currently are not subject to any claims that our products or processes infringe on the proprietary rights of third parties.

Manufacturing and Quality Assurance

Moissanite Jewels

The production of Charles & Colvard Created Moissanite^® jewels is an elaborate process developed over a number of years of collaborative research and development, acquired and learned knowledge from scientists, and considerable investment expense.

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The key steps involved in the manufacturing processes of our moissanite jewels are as follows:

Growing Gem-Grade Raw SiC Crystals. SiC crystal growth suitable for gem-grade usage at commercial quantities is proprietary both in design and in operational methodology. To date, Wolfspeed has grown the majority of our SiC crystals in accordance with the terms of the Supply Agreement; in addition, we have the ability to source and develop alternative SiC material should the need arise. We routinely evaluate the yield and quality of saleable moissanite jewels from SiC crystals. The yield of saleable jewels from each crystal is one of the most significant factors affecting the volume and cost of moissanite jewels available for sale. Yield is dependent on the quality of the crystals, and variations in crystal quality can adversely affect our gross margin percentage.

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Manufacturing Rough Preforms. We have made considerable investment in the design, development, and customization of a proprietary manufacturing process that includes equipment, software, and procedures to maximize raw material yield. The result is production of intermediary shapes, called “preforms,” that vary depending upon the size and shape of the desired finished jewel. Currently, we are not spending research and development funds in connection with these processes. However, when potential technology aligns with our production business model, we intend to explore and potentially invest in such research and development resources to improve raw material yield, including studying alternate preform shapes and cutting technologies, due to the dramatic effect such an improvement could have on our gross margin percentage.

Faceting and Polishing Jewels. Each preform is faceted and polished by our independent third-party gem-cutters to create what we believe to be our uniquely faceted Revolutionary Cut^™ gemstones based on master designs with multiple quality control measures built into the process. Gem-cutter training is a regimented program involving several months of progressive hands-on bench training. As we continue to expand the assortment of Forever One^™, we will continue the process of certifying additional cutters to ensure sufficient scalability of our production capabilities to meet anticipated demand for this premium finished jewel.

Inspecting, Sorting, and Grading. Like other gemstones, each faceted moissanite jewel greater than 3.5 millimeters in size is individually graded against established master standards using our specially trained personnel. Additionally, as part of our overall quality assurance program, a representative sample from each batch of jewels is submitted to an image analyzer to ensure critical angles and other attributes designed to maximize moissanite’s optical properties are consistently maintained. This phase of manufacturing is relatively labor-intensive and requires skills not readily available in the general work force. In the future, we may elect to outsource certain portions of this stage of the manufacturing process to independent third parties that we will require to adhere to our rigorous quality control and monitoring standards.

Engraving. For moissanite gemstones that are four millimeters and larger in size, with certain exceptions Charles & Colvard laser inscribes an identifying code on the girdle of each Forever One™ and Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, gemstone that includes the Charles & Colvard Floret logo. This identifier matches a grading standard and is an important element in protecting the integrity of Charles & Colvard Created Moissanite®, ~~and~~recently rebranded as Forever Bright™, and ensuring the customer an authentic Charles & Colvard gemstone.

Moissanite Finished Jewelry

Our line of finished jewelry featuring moissanite is developed by a team of industry experts integrating our moissanite jewels into many forms of jewelry, generally made of responsibly sourced precious metals, either designed or purchased by us utilizing a core group of suppliers, manufacturers, and finishers. In addition to our Limited Lifetime Warranty offered on our moissanite jewels, we provide a twelve-month Limited Warranty on all finished jewelry featuring our moissanite, and on jewelry designs that do not contain our moissanite gemstones, such as men’s wedding bands.

All procured finished jewelry components are sourced from our approved suppliers, and each finished jewelry item is jobbed and/or tracked by stock keeping unit, or SKU, utilizing our enterprise resource planning system. The components of moissanite finished jewelry comprised in each job are then manufactured into finished jewelry by assemblers either in the U.S. or internationally in China, India, Mexico, Costa Rica, or Hong Kong~~, Vietnam, Thailand, or Portugal~~. We are continuously working with our existing manufacturing partners, as well as identifying new manufacturing partners, to expand our assortments and efficiencies.

All finished jewelry produced by Charles & Colvard undergoes a multi-point inspection process. A representative sampling of manufactured finished jewelry items undergoes stone and metals testing to ensure that the items for sale are of the quality that we strive to maintain. Also, in line with our goal of providing socially and ethically sourced products, we require suppliers of our gold and tantalum to certify that the gold and tantalum is coming from conflict free sources and that all precious metals supplied to us are responsibly sourced. If required by government ordinance or requested by a customer, we facilitate the inspection of our finished jewelry by internationally recognized testing facilities to comply with legal requirements and to ensure consumer confidence.12

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Lab Grown Diamonds

To ensure a premium lab grown diamond product standard, the quality assurance process for Caydia^® gems 0.50 carat weight or larger are individually hand selected by our GIA certified diamond graders to meet our strict and uncompromising quality standards. The quality and physical characteristics of each lab grown diamond are also validated by independent third-party gemologists. Each lab grown diamond 0.50 carats or larger is inscribed with a unique, registered serial number on the girdle and is accompanied by a certification of authenticity.

Lab Grown Diamond Finished Jewelry

Our line of finished jewelry featuring our Caydia® lab grown diamonds is developed by a team of industry experts integrating our premium lab grown diamonds into many forms of jewelry, ~~generally~~ made of responsibly sourced, mostly recycled precious metals, either designed or purchased by us utilizing a core group of suppliers, manufacturers, and finishers. We provide a twelve-month Limited Warranty on all finished jewelry featuring our Caydia® lab grown diamonds.

All procured finished jewelry components featuring our Caydia® lab grown diamonds are sourced from our approved suppliers, and each finished jewelry item is jobbed and/or tracked by SKU utilizing our enterprise resource planning system. The components of our Caydia® lab grown diamonds finished jewelry comprised in each job are then manufactured into finished jewelry by assemblers either in the U.S. or internationally in China, India, Mexico, Costa Rica, Hong Kong, ~~Vietnam, Thailand,~~ or ~~Portugal~~Thailand. We are continuously working with our existing manufacturing partners, as well as identifying new manufacturing partners, to expand our assortments and efficiencies.

All finished jewelry featuring our Caydia^® lab grown diamonds produced by Charles & Colvard undergoes a multi-point inspection process. A representative sampling of manufactured finished jewelry items undergoes stone and metals testing to ensure that the items for sale are of the quality that we strive to maintain. Also, in line with our goal of providing socially and ethically sourced products, we require suppliers of our gold and tantalum to certify that the gold and tantalum is coming from conflict free sources and that all precious metals supplied to us are responsibly sourced. If required by government ordinance or requested by a customer, we facilitate the inspection of our finished jewelry by internationally recognized testing facilities to comply with legal requirements and to ensure consumer confidence.

Each finished jewelry item we sell, set with our Caydia® gems, is inspected by our in-house diamond graders and quality assurance specialists prior to shipment to the end-consumer from our fulfillment center in Research Triangle Park, North Carolina. AEach ~~registered~~finished ~~certificate~~jewelry ofitem ~~authenticity~~we ~~accompanies~~sell, ~~each~~set ~~piece~~with ofour ~~finished~~Caydia® ~~jewelry~~gems ~~set~~0.50 ~~with~~carats ~~Caydia®~~or ~~lab~~larger ~~grown~~is ~~diamonds~~accompanied by a certification of authenticity when shipped to the end consumer. All of our Caydia® lab grown diamonds are set with responsibly-sourced, mostly recycled precious metals.

Competition

As competitive moissanite and lab grown diamonds expand and grow their global market presence, we believe that it is important to affirm Charles & Colvard’s leadership position as a provider of what we consider isto be the premier worldwide moissanite gemstone as well as an exclusive brand of premium lab grown diamonds. Moving forward, we also believe that we are well positioned to further establish our presence for both of our product lines in the worldwide emerging markets. We believe our leadership position in these global markets is a product of nearly three decades of moissanite innovation, and as a purveyor of fine jewelry.

~~Accordingly, we believe our competitive advantage is bolstered by the following strengths:~~13

• With our Forever One™ gemstones, we believe that we have achieved a level of perfection that is rarely seen in any gemstone – featuring colorless grades with an innovative cut that we believe reveals optical properties unrivaled by any other jewel. This pinnacle of our legacy production process is the result of continual improvement and a demonstration of our artisan craftsmanship. Additionally, with our Moissanite by Charles & Colvard® gemstones we have brought forward what we believe to be a price-conscious alternative to competitive moissanite that we also believe exceeds the quality of competitive moissanite, specifically in terms of clarity, as well as in cut and polish. The distinction between Forever One™ and Moissanite by Charles & Colvard® is made through our applied expertise throughout the design and manufacturing processes and the discerning approach we believe we take to ensure the quality of Forever One™ remains above any other offering available today. By closely evaluating clarity, color, and cut, we are able to determine which gemstones meet our exemplary standards for Forever One™ and those that should bear the Moissanite by Charles & Colvard® name.

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Accordingly, we believe our competitive advantage is bolstered by the following strengths:

•

With our Forever One^™ gemstones, we believe that we have achieved a level of perfection that is rarely seen in any gemstone – featuring colorless grades with an innovative cut that we believe reveals optical properties unrivaled by any other jewel. This pinnacle of our legacy production process is the result of continual improvement and a demonstration of our artisan craftsmanship. Additionally, with our Moissanite by Charles & Colvard^®, recently rebranded as Forever Bright^™, gemstones we have brought forward what we believe to be a price-conscious alternative to competitive moissanite that we also believe exceeds the quality of competitive moissanite, specifically in terms of clarity, as well as in cut and polish. The distinction between Forever One^™ and Moissanite by Charles & Colvard^®, recently rebranded as Forever Bright^™, is made through our applied expertise throughout the design and manufacturing processes and the discerning approach we believe we take to ensure the quality of Forever One^™ remains above any other offering available today. By closely evaluating clarity, color, and cut, we are able to determine which gemstones meet our exemplary standards for Forever One^™ and those that should bear the Moissanite by Charles & Colvard^®, recently rebranded as Forever Bright^™, name.

•

With our success in developing and promoting Caydia^®, our brand of lab grown diamonds, since September 2020 we believe that we have been able to demonstrate that we are able to successfully integrate and market these premium gems into fine jewelry finished products.

• With our mature and innovative supply chain, while we have experienced instances of suppliers and certain vendors in China still temporarily closing their operations, delaying order fulfillment needs or limiting their production as a result of the impact of COVID-19, we utilize alternative supply arrangements with partners whose businesses were able to successfully navigate the impact of COVID-19. Accordingly, we believe that we have remained able to seamlessly manage the complex manufacturing process of our moissanite gemstones, meet the marketing demand and distribution needs of our lab grown diamond product line, and the varied finished jewelry options featuring both of these lab created gemstones that we deliver to a global audience.

•

With management’s vast experience in the worldwide fine jewelry industry, we likewise believe that we have been able to build a creative and dependable supply chain for our Caydia^® product line. We believe this approach that was built on these many years of experience has proven to be successful as we continue building our brand and expanding this line of fine jewelry set with our exclusive brand of lab grown diamonds.

• With an established direct-to-consumer e-commerce presence on our transactional website, charlesandcolvard.com, coupled with the roll-out in 2021 of our secondary transactional website, moissaniteoutlet.com, and most recently in 2023, our madenetwork.com website, we believe we are able to leverage established consumer-driven online communication channels directly with our target audiences. We also believe that we have developed an innovative in-house digital marketing capacity to support ~~both~~all of our online digital marketing properties.

• With an established global distribution network encompassing our own ability and that of our retail business partners, ~~and notwithstanding the ongoing impact of COVID-19 in certain regions of the Asian basin,~~ we continue to believe that we have optimized this network for timely delivery of our products from unique consumer orders to bulk distribution orders.

•

With our ample inventory and an established supply chain, we believe we are positioned to meet the just-in-time needs of our distribution partners. We believe having inventory quantities on the shelf is paramount to meeting the challenging delivery requirements of our customers. We expect to effectively manage our inventory levels given the potential uncertainty in consumer demand and in our supply chain.

With our above strengths outlined, it is also important to note that our future competitive success is reliant, in part, on the following:

• Our continued success in developing and promoting the Charles & Colvard brands, such as Forever One™, Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, and Caydia®, all of which are used in finished fine jewelry featuring moissanite and lab grown diamonds, resulting in increased interest in and demand for moissanite and lab grown diamond jewelry at the consumer level;

•

Our ability to differentiate Charles & Colvard Created Moissanite^® and Caydia^® from competing gemstone products, including competitive moissanite and the rapidly emerging lab-created diamond industry;

•

The ongoing ability to operationally execute our digital marketing strategy for our Online Channels segment;

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•

Our continued ability and the ability of manufacturers, designers, and retail jewelry partners to select jewelry settings that promote and encourage consumer acceptance of and demand for our jewels and finished jewelry featuring moissanite and lab grown diamonds;

•

The ability to understand our consumer market segment and effectively sell a compelling value proposition to that market, which leads successfully to converted customers;

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•

The continued willingness and ability of our jewelry distributors and other jewelry suppliers, manufacturers, and designers to market and promote Charles & Colvard Created Moissanite^® and Caydia^® to the retail jewelry trade;

•

The continued willingness of distributors, retailers, and others in our distribution channels to purchase loose Charles & Colvard Created Moissanite^®, and the continued willingness of manufacturers, designers, and retail jewelers to undertake setting of the loose jewels;

•

Our continued ability and the ability of jewelry manufacturers and retail jewelers to set loose moissanite jewels and lab grown diamonds in finished jewelry with a high-quality standard of workmanship;

•

Our continued ability and the ability of retail jewelers to effectively market and sell finished jewelry featuring moissanite jewels and lab grown diamonds to consumers;

•

The improvement of the engagement market which has led to downward price pressure on the jewelry and gemstone markets overall and;

•

The rebound of diamond pricing, both mined and lab grown.

Competitive Gemstones and Jewelry

Gemstone materials can be grouped into three types:

•

Those found in nature, generally through mining techniques;

•

Synthetic gemstones, which have the same chemical composition and essentially the same physical and optical characteristics of natural gemstones but are created or grown in a laboratory; and

•

Simulants, which are similar in appearance to natural gemstones but do not have the same chemical composition, physical properties, or optical characteristics.

Moissanite is a rare, naturally occurring mineral. Our lab-created gemstones, Charles & Colvard Created Moissanite^®, are considered a synthetic version of the naturally occurring moissanite mineral. Our exclusive brand of premium lab grown diamonds, Caydia^®, are also considered a synthetic version of a natural diamond that is mined.

Our moissanite jewels and lab grown diamonds compete with fine gemstones such as ruby, sapphire, emerald, and tanzanite as well as with mined natural diamonds. We also face competition from synthetic diamonds, synthetic diamond films, and other sources of moissanite gemstones. Some suppliers of diamonds, including lab grown diamonds, and other fine gemstones, as well as the suppliers of other synthetic and lab-created gemstones, may have substantially greater financial, technical, manufacturing, and marketing resources and greater access to distribution channels than we do.

Competing with Other Moissanite Producers

Although we believe that our moissanite jewels have a leadership market position, we ~~are beginning to~~ face competition from other companies that develop competing SiC material. These products ~~are~~have ~~emerging~~emerged primarily from ~~Far~~eastern ~~Eastern~~Asian countries and are making their way into the U.S. market. Our ongoing research of the competitive landscape has identified competing moissanite, primarily in the “E-F” and below color range, according to the GIA’s grading scale. However, we have not yet identified competing moissanite that exhibits a consistent level of color, cut, clarity and polish that is competitive with the quality of our Forever One™ gemstone.

~~Achieving the capacity to consistently produce a high-quality moissanite product at mass scale requires a careful balance of SiC-specific faceting skills and a well-tuned global supply chain.~~15

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~~However,~~Achieving ~~we are seeing a grade of moissanite material reaching~~ the ~~market~~capacity ~~that in most cases exhibits a lower color grade and a lesser cut, clarity and polish standard compared~~ to ~~our~~consistently ~~Forever~~produce One™ gemstone. This inferior product is coming to market at competitive price points, and we have subsequently been experiencing downward pricing pressures. In 2018, we entered this market with a ~~value~~high-quality ~~line of~~ moissanite ~~to compete directly with these lower grade moissanite products. Our~~ product ~~line,~~at ~~known~~mass asscale ~~Moissanite~~requires ~~by Charles & Colvard®, is~~ a ~~competitively~~careful ~~priced~~balance ~~line~~ of ~~gemstones~~SiC-specific ~~that~~faceting isskills ~~fashioned~~and from the same core material as our other created moissanite products. Finished gemstones that do not meet our grading standards for Forever One™ – but do meet our specifications for gemstones worthy of carrying the Charles & Colvard name – are offered to the market at a ~~value~~well-tuned ~~priced~~global ~~option.~~supply ~~For the fiscal year ended June 30, 2023, approximately 16% of our revenue was generated from Moissanite by Charles & Colvard® gemstones and finished jewelry~~chain.

However, we are seeing a grade of moissanite material reaching the market that in most cases exhibits a lower color grade and a lesser cut, clarity and polish standard compared to our Forever One^™ gemstone. This inferior product is coming to market at competitive price points, and we have subsequently been experiencing downward pricing pressures. In 2018, we entered this market with a value line of moissanite to compete directly with these lower grade moissanite products. Our product line, known as Moissanite by Charles & Colvard^®, recently rebranded as Forever Bright^™, is a competitively priced line of gemstones that is fashioned from the same core material as our other created moissanite products. Finished gemstones that do not meet our grading standards for Forever One^™ – but do meet our specifications for gemstones worthy of carrying the Charles & Colvard name – are offered to the market at a value priced option. For the fiscal year ended June 30, 2024, approximately 15% of our revenue was generated from Moissanite by Charles & Colvard^®, recently rebranded as Forever Bright^™, gemstones and finished jewelry.

Competing with Lab Grown Diamonds

Lab-created diamond material has been synthesized since the early 1940s and made its way into industrial processes by the 1950s. Common applications such as diamond-tipped drill bits and abrasive processes led the way, followed by uses in solid-state electronics. In more recent years, lab grown diamonds have become accepted as a form of gemstone with companies such as ~~VRAI~~Signet ~~by Diamond Foundry~~Group, Brilliant Earth, ~~Clean~~Grown ~~Origin~~Brilliance, and ~~Grown~~VRAI ~~Brilliance~~by Diamond Foundry, gaining notoriety in the market.

Consumer demand is driving the charge behind this recent adoption of lab grown gemstones in the modern global luxury fashion jewelry space. Today’s discerning consumer is seeking ethically sourced options, better price points, and authenticity in the brands they choose to engage. With the launch of our Caydia^® lab grown diamond product line, we believe that our entry into the lab grown diamond market could be a potential threat to – and increase competition for – our core moissanite products. While our moissanite gemstones and finished jewelry set with moissanite generally have different price points than those set with lab grown diamonds, including our Caydia^® product line, any cannibalization of moissanite product sales resulting from sales of our lab grown diamonds could have an adverse impact on sales of our moissanite jewels and finished jewelry set with moissanite.

Since our entry into the lab grown diamond space, we have experienced growing traffic and interest in charlesandcolvard.com from the ongoing attention around lab grown gems. We have faced and may continue to face future price point and consumer related demand pressures from the lab grown diamond industry. However, we believe that for the foreseeable future we will ~~continue to~~ be able to serve and thrive in this segment of the market.

Competing with Mined Diamonds

The worldwide market for large, uncut, high-quality mined diamonds is significantly consolidated and controlled by the De Beers Group of Companies, or De Beers (headquartered in South Africa), Alrosa Group (Russia), Rio Tinto Limited (Australia), and BHP Group Limited (Australia). These companies have a major impact on the worldwide supply and pricing of mined diamonds at both the wholesale and retail levels. While moissanite ~~trades~~and lab grown diamond trade at a fraction of the cost of mined diamonds, diamond producers may undertake additional marketing or other activities designed to protect the mined diamond jewelry market against sales erosion from consumer acceptance of competing goods such as moissanite jewels and lab grown diamond gemstones.

According to an August 2023 British Vogue article, lab grown diamonds comprise around 10% of all diamond sales, with the lab grown diamond market estimated to be worth $55.5 billion in 2031.

Competing with Simulants

While moissanite is a synthetic gemstone (a lab-created version of the naturally occurring SiC mineral), we may also, to a lesser degree, face competition from simulant gemstones, including cubic zirconia and man-made crystals. Producers and sellers of these products may see the markets for these products being eroded by the market penetration of our moissanite jewels. We believe that the substantially lower price of these products is the primary basis upon which they will compete with our moissanite jewels; however, they are not considered fine gemstone or jewelry products.

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Competing in the Finished Jewelry Space

The global fine jewelry market competition is fierce. Such well-known jewelry designers and manufacturers as Brilliant Earth Group, Inc., ~~James~~Signet ~~Allen®~~Group, and VRAI by Diamond Foundry, ~~and Blue Nile Inc.,~~ among others, have a variety of jewelry collections featuring diamond and other precious and semi-precious gemstones, and enjoy strong brand recognition and a loyal consumer following. It is notable that Blue Nile Inc. was acquired by Signet Jewelers Limited, or Signet, one of the world’s largest fine jewelry retailers, in a transaction that closed in October 2022. All of these companies with whom we compete have greater financial resources than we do to develop and market their products.

We intend to expand our market share and compete with these well-known brands primarily on the basis of the combination of quality, design, and value, as moissanite is the highest quality, affordable alternative available to more expensive gemstones such as diamond. We believe that focusing on the clear advantages in moissanite’s retail price points, especially in the one-carat and larger sizes, will provide a key point of differentiation and value proposition to the end consumer who may not have had the opportunity to previously purchase fine jewelry due to limitations in discretionary spending income.

In addition, we believe that the Charles & Colvard Created Moissanite® suite, including moissanite jewels such as Forever One™ and Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, along with moissanite finished jewelry that we are developing pursuant to our marketing programs, as well as the line of finished jewelry featuring our Caydia® lab grown diamonds and, most recently, our Caydia® lab grown diamonds in color, all combine to create what we believe is a long-term competitive advantage for our products as we continue building brand recognition. We endeavor to partner with recognized designers and jewelry companies, in addition to developing our own proprietary brands of finished jewelry. While our finished jewelry business is still developing, our goal is to build multiple strong brands sought after by the end consumer. We propose to focus our marketing efforts on emphasizing our attractive designs, coupled with moissanite’s exceptional brilliance, fire, durability, and rarity, to establish moissanite as a primary consumer choice in fine jewelry.

Our design, manufacture and marketing of finished jewelry featuring moissanite for sale at wholesale pricing to distributors and retailers and at retail to end consumers through our charlesandcolvard.com, moissaniteoutlet.com, charlesandcolvarddirect.com, madenetwork.com and other Online Channels outlets may result in some of our current wholesale customers perceiving us as a competitor, despite our efforts to use primarily non-conflicting sales channels. As we continue to develop our finished jewelry business, we intend to increase distribution through new and existing channels similarly to how many other companies have executed cross-channel marketing and distribution strategies. Due to the size of the finished jewelry market, we believe that such sales channels can co-exist, with the overall end result being increased consumer and brand awareness of moissanite products and a corresponding increased demand for not only our products, but those of our distributor and manufacturer customers as well.

Competing with Lab Grown Diamond Retailers

Our primary competitors in the lab grown diamond retail market are Brilliant Earth Group, Inc., ~~James~~Signet ~~Allen®~~Group, VRAI by Diamond Foundry, and ~~Clean~~Grown ~~Origin~~Brilliance. Our offerings are curated to remove the complexity from the diamond buying process by selling only what we believe to be higher quality lab grown diamonds set in our finished jewelry products. Many of these competitors offer a wider quality grade range of lab grown diamonds which are sold separately from finished jewelry set with lab grown diamonds. We believe that our pricing strategy remains competitive based on the quality of the Caydia® lab grown diamonds that we offer and sell.

~~Working Capital Practices~~17

Our primary source of working capital is cash on hand and cash generated by our operations. As global and U.S. economic activity continues feeling the impact of inflation and fears of recession, the risk of constraints on our cash and working capital, including experiencing potential liquidity challenges, remains in the forefront of our working capital management practices. Despite our cost-saving efforts, many business and operating expenses, particularly those in connection with fuel and transportation costs and the resulting impact on our freight expenses, have continued to rise. Cash flow management will remain crucial for our business in the months ahead and we intend to monitor fluctuations in our revenues that could impact our ongoing cash flow from operations. We expect to remain proactive in managing our inventory levels given the uncertainty in the worldwide supply chain and the effects of increased inflation rates, which may also place further demands on our level of working capital. Because we have quarterly minimum purchase commitments under the Supply Agreement, we have been, and in the future may be, required to purchase SiC materials in excess of our immediate needs from time to time, which may result in inventories that are higher than we might otherwise maintain.

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WeWorking ~~have~~Capital 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. 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 global and domestic inflation and fears of recession.Practices

Our primary source of working capital is cash on hand and cash generated by our operations when that occurs. As global and U.S. economic activity continues feeling the impact of inflation and fears of recession, the risk of constraints on our cash and working capital, including experiencing potential liquidity challenges, remains in the forefront of our working capital management practices. Despite our cost-saving efforts, many business and operating expenses, particularly those in connection with fuel and transportation costs and the resulting impact on our freight expenses, have continued to rise. Cash flow management will remain crucial for our business in the months ahead and we intend to monitor fluctuations in our revenues that could impact our ongoing cash flow from operations. We expect to remain proactive in managing our inventory levels given the uncertainty in the worldwide supply chain and the effects of increased inflation rates, which may also place further demands on our level of working capital.

Payment terms on trade receivables for our Traditional segment customers are generally between 30 and 90 days, though we may offer extended terms with specific customers and on significant orders from time to time. We extend credit to our 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 us, the customer’s reputation in the trade, and/or an evaluation of the customer’s opportunity to introduce our moissanite jewels and lab grown diamonds or finished jewelry featuring both moissanite and lab grown diamonds to new or expanded markets.

Our returns policy for consumers on our charlesandcolvard.com, moissaniteoutlet.com, and ~~moissaniteoutlet~~madenetwork.com websites provides for the return of purchases for any reason generally within 30 days, respectively, of the shipment date. Our returns policy for all other customers allows for the return of moissanite jewels, lab grown diamonds, and finished jewelry for credit generally within 30 days of shipment if returned for a valid reason. We have established an allowance for returns based on our historical return rate, which considers any contractual return privileges granted to our customers. Periodically, we ship loose gemstones and finished jewelry goods inventory to Traditional segment customers on consignment terms. Under these terms, the customer assumes the risk of loss and has an absolute right of return for a specified period that typically ranges from six months to one year.

Government Regulation

We are subject to governmental regulations in the manufacture and sale of moissanite jewels and finished jewelry. In particular, in July 2018 the Federal Trade Commission, or FTC, issued updated guidelines governing the description of lab-grown diamonds and other gemstones that require such gemstones to be clearly identified as to the gemstone’s lab-grown origin in any promotional or marketing materials. In addition, the precious metal in our finished jewelry may be subject to requirements, which vary by country and by state, such as hallmarking and alloy content. While we have a policy to ensure compliance with applicable regulations, if our actions are found to be in violation of FTC or other governmental regulations, we may be required to suspend marketing of our products and could incur significant expenses in developing new marketing strategies and materials that would not violate governmental regulations.

Human Resources Capital

As of ~~October~~March 926, ~~2023~~2025, we had a total of 4925 employees, 4824 of whom were full-time and one of whom was part-time. None of our employees are represented by a labor union and we believe that our employee relations are good.

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Directors and Executive Officers of Charles & Colvard, Ltd.

The members of our current Board of Directors are the following:

Neal I. Goldman

Chairman of the Board of Directors of Charles & Colvard, Ltd.; President of Goldman Capital Management, Inc., an investment advisory firm.

Anne M. Butler

Chief Executive Officer of Butler Advisors, a consulting firm specializing in strategic and operational advisory services to private equity, venture capital, and institutional investors on direct selling acquisitions and management.

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Benedetta I. Casamento

Business Consultant specializing in finance, business operations, and financial planning and analysis.

Don O’Connell

President and Chief Executive Officer of Charles & Colvard, Ltd.

Ollin B. Sykes

President of Sykes & Company, P.A., a regional accounting firm specializing in accounting, tax, and financial advisory services.

Our current executive officers are the following:

Don O’Connell

President and Chief Executive Officer

Clint J. Pete

Chief Financial Officer

Available Information

Our corporate information is accessible through our investor relations website at https://ir.charlesandcolvard.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available, free of charge, access on our website to all reports we file with, or furnish to, the SEC, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. A copy of this Annual Report on Form 10-K and our other reports are available without charge upon written request to Investor Relations, Charles & Colvard, Ltd., 170 Southport Drive, Morrisville, North Carolina 27560.

2019

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Item 1A.

Risk Factors

We operate in a dynamic and rapidly changing business environment that involves substantial risk and uncertainty, and these risks may change over time. The following discussion addresses some of the risks and uncertainties that could cause, or contribute to causing, actual results to differ materially from expectations. In evaluating our business, you should pay particular attention to the descriptions of risks and uncertainties described below. If any of these risks actually occur, our business, financial condition, or results of operations could be materially and adversely affected.

Risks Related to our Operations

The execution of our business plans could significantly impact our liquidity and there is substantial doubt about our ability 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^®, recently rebranded as Forever Bright^™, 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. 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. The shelf registration statement is currently not available to offer or sell shares of common stock due to the Company’s late periodic filings. 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 insufficient to meet our working capital and capital expenditure needs.

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 exclusive supply agreement and agreed to pay Wolfspeed a total of $4.77 million, which includes the purchased and consigned inventory, Wolfspeed’s attorney fees in connection with the arbitration, and interest. The final settlement amount is to be paid $500,000 on February 11, 2025, $1.83 million on or before February 28, 2025, and $2.44 million on or before December 31, 2025. As of June 30, 2024, the Company accrued $4.77 million related to the final settlement and expected payments.

Further, our 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 twelve months ended June 30, 2024, we had losses of $14.4 million and cash flow used in operations of $7.4 million and these factors and the recent Wolfspeed arbitration award and related settlement agreement of $4.8 million raise substantial doubt about our ability to continue as a going concern for one year from the date the financial statements are issued.

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We are continuing to work on plans to fund operations and address the recent Wolfspeed arbitration settlement 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. If we are unable to successfully implement these plans, it would have a material adverse effect on our business, results of operations, and financial condition.

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.

Our business and our results of operations could be materially adversely affected as a result of general economic and market conditions. Our business, including our sales volumes and overall profitability, depends on consumer demand for our products and could be adversely impacted further by unfavorable general economic conditions, declines in consumer confidence and consumer disposable income, rising energy and fuel prices, increasing freight costs, rising inflation rates, recession and fears of recession, consumer debt levels, increased interest rates, and higher tax rates. Our business could also be adversely impacted by possible disruptions in global financial markets, including severely diminished liquidity and credit availability, declines in economic growth, increased unemployment levels, and uncertainty about economic stability, including the increased risk of global trade tensions and geopolitical unrest such as the ongoing conflict between Russia and Ukraine, and domestic political and geopolitical instability. We are unable to predict the likely duration and severity of the effects of these disruptions in the financial markets and the adverse domestic and global economic conditions, and if these economic conditions deteriorate, our business and results of operations could be materially and adversely affected.

Ongoing unfavorable economic conditions may continue to lead consumers to further delay or reduce purchases of our products and services and projected consumer demand for our products and services may not grow as we expect. The consequences of such adverse effects could also include interruptions or delays in our suppliers’ performance of our contracts, reductions and delays in customer purchases, delays in or the inability of customers to obtain financing to purchase our products, and bankruptcy of customers or suppliers. Prolonged or pervasive economic downturns could also slow the pace of any planned future showroom openings that we may have going forward.

Luxury products, such as fine jewelry, are discretionary purchases for consumers. Recessionary economic cycles, higher interest rates, higher tax rates, higher fuel and energy costs, higher freight costs, higher inflation rates, higher levels of unemployment, adverse conditions in the residential real estate and mortgage markets, tighter access to consumer credit, increased consumer debt levels, unsettled financial markets, and other economic factors that may affect consumer spending or buying habits could materially and adversely affect demand for our products. In addition, volatility in the financial markets has had and may continue to have a negative impact on consumer spending patterns. A reduction in consumer spending or disposable income may affect us more significantly than companies in other industries and could have a material adverse effect on our business, results of operations, and financial condition.

Our future financial performance depends upon increased consumer acceptance, growth of sales of our products, and operational execution of our strategic initiatives. We believe that most consumers are not generally aware of the existence and attributes of moissanite jewels and lab grown diamonds and that the consumer market for moissanite jewels, lab grown diamonds, and finished jewelry featuring both moissanite and lab grown diamonds remains in the early stages of development and consumer acceptance. The degree of future market acceptance and demand is subject to a significant amount of uncertainty. Our future financial performance will depend, in part, upon greater consumer acceptance of moissanite jewels and lab grown diamonds as an ethically sourced, affordable, luxurious alternative to other gemstones, such as a mined diamond, and our ability to develop brands and execute strategic initiatives, particularly in our Online Channels segment, to grow our sales and operating income. As we execute our strategy to build and reinvest in our business, significant expenses and investment of cash will be required going forward and this may adversely affect our operating income. If we are unable to execute and achieve desired revenue levels, we may adjust our strategic initiatives in response to the results of our investments.

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In addition, consumer acceptance may be affected by retail jewelers’ and jewelry manufacturers’ acceptance of moissanite jewels, lab grown diamonds, and finished jewelry featuring both moissanite and lab grown diamonds. The quality, design, and workmanship of the jewelry settings, whether manufactured by us or other manufacturers, could affect both consumers’ perception and acceptance of our products and costs incurred by returns and markdowns. Therefore, as other competitors enter the moissanite and lab grown diamond market, we do and could continue to face market share and pricing pressures for our own products. In addition, the lower quality of competitors’ gemstones could negatively impact consumer perception of moissanite jewels and lab grown diamonds, and in turn, acceptance of our jewels.

Thus, our future financial performance may be affected by:

• Our ability to develop and promote the Charles & Colvard brands, such as Forever One™, Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, and Caydia®, all of which are used in finished jewelry featuring moissanite and lab grown diamonds, which may in part drive interest in and demand for moissanite and lab grown diamond jewelry at the consumer level;

•

Our ability to differentiate Charles & Colvard Created Moissanite^®and Caydia^® from competing products, including competitive moissanite and the rapidly emerging lab grown diamond industry;

•

Our ability to operationally execute our digital marketing strategy for our Online Channels segment;

•

Our continued ability and the ability of manufacturers, designers, and retail jewelers to select jewelry settings that encourage consumer acceptance of and demand for our moissanite jewels, lab grown diamonds, and finished jewelry;

•

Our ability to understand our consumer market segment and effectively market to them a compelling value proposition that leads to converted customers;

• Our ~~relationship~~ability to find alternative suppliers of SiC crystals after the termination of our exclusive supply agreement with Wolfspeed;

•

• The continued willingness of distributors, retailers, and others in our distribution channels to purchase loose Forever One™, Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, and Caydia® gemstones as well as ~~their~~the continued willingness of manufacturers, designers, and retail jewelers to undertake setting of the loose jewels;

•

Our continued ability and the ability of jewelry manufacturers and retail jewelers to set loose moissanite jewels and lab grown diamonds in finished jewelry with high-quality workmanship; and

•

Our continued ability and the ability of retail jewelers, including that of our internal retail jewelry marketing team in connection with the Charles & Colvard Signature Showroom, which is our first retail jewelry brick-and-mortar location that we opened in October 2022, to effectively market and sell finished jewelry featuring moissanite and lab grown diamonds to consumers.

We face intense competition in the worldwide gemstone and jewelry industry. The jewelry industry is highly competitive, and we compete with numerous other jewelry products. In addition, we face competition from mined diamonds, lab grown diamonds, other moissanite, and simulants. A substantial number of companies supply products to the jewelry industry, many of whom we believe have greater financial resources than we do. Competitors could develop new or improved technologies, including those for lab grown diamonds, that may render the price point for our moissanite and our lab grown diamonds noncompetitive, which could have an adverse effect on our business, results of operations, and financial condition.

With the launch of our Caydia® product line, we believe that our entry into the lab-grown diamond market could be a potential threat to – and increase competition for – our core moissanite products. While our moissanite gemstones and finished jewelry set with moissanite generally have different price points than those of our Caydia® product line, any cannibalization of moissanite product sales resulting from sales of our lab-created diamonds could have an adverse impact on sales of our moissanite jewels and finished jewelry set with moissanite.

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With the launch of our Caydia^® product line, we believe that our entry into the lab-grown diamond market could be a potential threat to – and increase competition for – our core moissanite products. While our moissanite gemstones and finished jewelry set with moissanite generally have different price points than those of our Caydia^® product line, any cannibalization of moissanite product sales resulting from sales of our lab-created diamonds could have an adverse impact on sales of our moissanite jewels and finished jewelry set with moissanite.

We have previously relied on our patent rights and other intellectual property rights to maintain our competitive position. Our U.S. product and method patents for moissanite jewels expired in 2015 and most of our patents in foreign jurisdictions expired in 2016 with one in Mexico that expired in 2021. Since the expiration of our product and method patents we have noted new providers of moissanite and competitive products entering the market. We will continue to rely on our carefully executed brand awareness and digital marketing campaigns to build our consumer relationships and maintain our competitive position going forward. If, however, we are unable to successfully build strong brands for our moissanite jewels, lab grown diamonds, and finished jewelry featuring moissanite and lab grown diamonds or competition grows faster than expected, we may not have commercially meaningful protection for our products or a commercial advantage against our competitors or their competitive products or processes, which may have a material adverse effect on our business, results of operations, and financial condition.

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. We have been a party to an exclusive supply agreement with Wolfspeed, which we have historically been dependent on for the provision of substantially all of the SiC material we use to produce moissanite jewels. Under the terms and conditions of the Supply Agreement, we agreed to purchase from Wolfspeed, and Wolfspeed agreed to supply, all of our required SiC material, subject to terms and conditions that allow us to purchase certain amounts of SiC materials from third parties under limited conditions. On February 10, 2025, we entered into a settlement agreement related to the Wolfspeed arbitration and terminated the exclusive supply agreement. (see “We are subject to arbitration, litigation, and demands, which could result in significant liability and costs, and impact our resources and reputation.” and Item 3, “Legal Proceedings”). If our supply of high-quality SiC crystals is interrupted, then we may not be able to meet demand for moissanite jewels and our business may be materially and adversely affected. There is no guaranty that we would be able to obtain similar quality SiC crystals from another provider or at competitive prices that enable us to manage our inventories and raw material costs effectively.

Constantly evolving privacy regulatory regimes are creating new legal compliance challenges. Domestic and international privacy and data security laws are complex and changing rapidly. There are a variety of laws and regulations, including regulations by federal government agencies, including the Federal Trade Commission, or FTC, and state and local agencies. In addition to federal laws such as §5 of the Federal Trade Commission Act, the Gramm-Leach-Bliley Act, and the Fair Credit Reporting Act, certain states have also enacted laws regulating companies’ collection, use, and disclosure of personal information and requiring the implementation of reasonable data security measures. Various laws across states and U.S. territories also require businesses to notify affected individuals, governmental entities, and/or credit reporting agencies of certain security breaches affecting personal information. International privacy laws, including in Canada and the European Union, or E.U., pose further challenges. These domestic and international laws are not consistent, and compliance with these laws in the event of a widespread data breach would be complex and costly.

In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards by which we are legally or contractually bound. If we fail to comply with these obligations or standards, we may face substantial liability or fines.

Despite our efforts to comply with all applicable data protection laws and regulations, any actual or perceived non-compliance could result in litigation and proceedings against us by governmental entities, customers, or others, fines and civil or criminal penalties, limited ability or inability to operate our business, offer services, or market our business in certain jurisdictions, negative publicity and harm to our brand and reputation, and reduced overall demand for our products and services. Such occurrences could adversely affect our business, financial condition, and results of operations.

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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. Our business operations rely on the secure processing, storage, and transmission of certain confidential, sensitive, proprietary, and other information, as well as personal information about our customers and employees. Cyber-attacks, including those associated with the current conflict in Eastern Europe, are rapidly evolving as cyber criminals have become increasingly sophisticated and carry out direct large-scale, complex, and automated attacks against companies or through their vendors.

Breaches of our technology systems, whether from circumvention of security systems, denial-of-service attacks or other cyber-attacks, hacking, “phishing” attacks, computer viruses, ransomware or malware, employee or insider error, malfeasance, social engineering, vendor software supply chain compromises, physical breaches or other actions, have resulted and may result in manipulation or corruption of sensitive data, material interruptions or malfunctions in our websites, applications, data processing and certain products and services, or disruption of other business operations. Furthermore, any such breaches could compromise the confidentiality and integrity of material information held by us (including information about our business, employees, or customers), as well as sensitive information, the disclosure of which could lead to identity theft. Breaches of our product services that rely on technology and internet connectivity can expose us to product and other liability risk and reputational harm. Measures that we take to avoid, detect, mitigate, or recover from material incidents may be insufficient, circumvented, or may become ineffective.

We are not able to anticipate or prevent all such cyber-attacks and, to the extent a cyber-attack or other security incident results in a breach of the above-described information, it could disrupt our business operations, harm our reputation, compel us to comply with applicable data breach notification laws, subject us to litigation, regulatory investigation, or otherwise subject us to liability under laws, regulations and contractual obligations. This could result in increased costs to us and result in significant legal and financial exposure and/or reputational harm.

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. ~~This~~Through investigation, we confirmed that this event was related to an apparent ransomware attack involving the unauthorized encryption of some of our files and the deployment of malware. This incident required us to temporarily implement manual processes to conduct our operations with as little disruption to production as possible.

We have invested and continue to invest in risk management and information security and data privacy measures in order to protect our systems and data, including employee training, organizational investments, incident response plans, table-top exercises, and technical defenses. The cost and operational consequences of implementing, maintaining, and enhancing data or system protection measures could increase significantly to overcome intense, complex, and sophisticated global cyber threats.

In addition, we and certain of our third-party vendors receive and store certain information associated with our sales operations and other aspects of our business. In connection with our e-commerce business, we rely on encryption and authentication technology licensed from third parties to effect secure transmission of confidential information. Our disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches. We also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information generally and in connection with a cybersecurity breach. The breakdown in existing controls and procedures around our cybersecurity environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and could have a material adverse effect on our financial position and value of our Company’s stock. Despite our implementation of security measures, our IT systems and e-commerce business are vulnerable to damages from computer viruses, natural disasters, unauthorized access, cyber-attack, and other similar disruptions.

23We are subject to certain risks due to our international operations, distribution channels, and vendors. We have continued our direct international sales operations, with international net sales accounting for approximately 2% of total consolidated net sales during Fiscal 2024. We also currently have numerous international wholesale distributors and retail sales channels covering portions of Canada, the U.K., Western Europe, Australia and New Zealand, Southeast Asia, the Middle East, and China. In addition, we use certain companies based outside the U.S. to facet our moissanite jewels and to manufacture finished jewelry. Any international expansion plans we choose to undertake will increase the complexity of our business, require attention from management and other personnel and cause additional strain on our operations, financial resources and our internal financial control and reporting functions. Further, our expansion efforts may be unsuccessful as we have limited experience selling our products in certain international markets and in conforming to the local cultures, standards, or policies necessary to successfully compete in those markets. In addition, we may have to compete with retailers that have more experience with local markets. Our ability to expand and succeed internationally may also be limited by the demand for our products, the ability to successfully transact in foreign currencies, the ability of our brand to resonate with consumers globally and the adoption of online or Internet commerce in these markets. Different privacy, censorship and liability standards and regulations, and different intellectual property laws in foreign countries may also prohibit expansion into such markets or cause our business and results of operations to suffer. Through our planned international expansion and our continued reliance on development of foreign markets and use of foreign vendors, we are subject to the risks of conducting business outside of the U.S.

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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. We are party to an exclusive supply agreement with Wolfspeed, which we have historically been dependent on for the provision of substantially all of the SiC material we use to produce moissanite jewels. Under the terms and conditions of the Supply Agreement, we agreed to purchase from Wolfspeed, and Wolfspeed agreed to supply, all of our required SiC material, subject to terms and conditions that allow us to purchase certain amounts of SiC materials from third parties under limited conditions. The Supply Agreement will expire by its terms in 2025, and Wolfspeed has initiated a confidential arbitration alleging we are in breach of the agreement (see “We are subject to arbitration, litigation, and demands, which could result in significant liability and costs, and impact our resources and reputation.” and Item 3, “Legal Proceedings”). If our supply of high-quality SiC crystals is interrupted, then we may not be able to meet demand for moissanite jewels and our business may be materially and adversely affected. There is no guaranty that we would be able to obtain similar quality SiC crystals from another provider. There can be no assurance that Wolfspeed will continue to produce and supply us with SiC crystals of sufficient quality, sizes, and volumes that we desire or that we will be able to continue to negotiate future purchase commitments at acceptable, competitive prices that enable us to manage our inventories and raw material costs effectively.

We are subject to certain risks due to our international operations, distribution channels, and vendors. We have continued our direct international sales operations, with international net sales accounting for approximately 3% of total consolidated net sales during Fiscal 2023. We also currently have numerous international wholesale distributors and retail sales channels covering portions of Canada, the U.K., Western Europe, Australia and New Zealand, Southeast Asia, the Middle East, and China. In addition, we use certain companies based outside the U.S. to facet our moissanite jewels and to manufacture finished jewelry. Any international expansion plans we choose to undertake will increase the complexity of our business, require attention from management and other personnel and cause additional strain on our operations, financial resources and our internal financial control and reporting functions. Further, our expansion efforts may be unsuccessful as we have limited experience selling our products in certain international markets and in conforming to the local cultures, standards, or policies necessary to successfully compete in those markets. In addition, we may have to compete with retailers that have more experience with local markets. Our ability to expand and succeed internationally may also be limited by the demand for our products, the ability to successfully transact in foreign currencies, the ability of our brand to resonate with consumers globally and the adoption of online or Internet commerce in these markets. Different privacy, censorship and liability standards and regulations, and different intellectual property laws in foreign countries may also prohibit expansion into such markets or cause our business and results of operations to suffer. Through our planned international expansion and our continued reliance on development of foreign markets and use of foreign vendors, we are subject to the risks of conducting business outside of the U.S.

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These risks include the following:

•

the adverse effects on U.S.-based companies operating in foreign markets that might result from war; terrorism; changes in diplomatic, trade, or business relationships (including labor disputes); or other political, social, religious, or economic instability;

•

an outbreak of a contagious disease, such as COVID-19 and other potential future public health crises, which may cause us or our distributors, vendors, or customers to temporarily suspend our or their respective operations in the affected city or country;

•

the continuing adverse economic effects of any global financial crisis;

•

unexpected changes in, or impositions of, legislative or regulatory requirements;

•

delays resulting from difficulty in obtaining export licenses;

•

international regulatory requirements, tariffs and other trade barriers and restrictions, including the consequences of U.S. or international led tariff actions;

•

the burdens of complying with a variety of foreign laws and regulations, including foreign taxation and varying consumer and data protection laws, and other factors beyond our control, and the risks of non-compliance;

•

longer payment cycles and greater difficulty in collecting accounts receivable;

•

our reliance on third-party carriers for product shipments to our customers;

•

risk of theft of our products during shipment;

•

limited payment, shipping and insurance options for us and our customers;

•

difficulties in obtaining export, import or other business licensing requirements;

•

customs and import processes, costs or restrictions;

•

the potential difficulty of enforcing agreements with foreign customers and suppliers; and

•

the complications related to collecting accounts receivable through a foreign country’s legal or banking system.

In particular, there is currently significant uncertainty about the future relationship between the U.S. and various other countries, with respect to trade policies, treaties, government regulations, and tariffs. For example, the recent imposition of tariffs and/or increase in tariffs on various products by the U.S. and other countries, including China and Canada and the recent U.S. election results, have introduced greater uncertainty with respect to trade policies and government regulations affecting trade between the U.S. and other countries, and new and/or increased tariffs have subjected, and may in the future subject, us to additional costs and expenditure of resources. Major developments in trade relations, including the imposition of new or increased tariffs by the U.S. and/or other countries, and any emerging nationalist trends in specific countries could alter the trade environment and consumer purchasing behavior which, in turn, could have a material effect on our financial condition and results of operations. The U.S. and China signed a contingent trade deal to reduce planned tariff increases. However, because of the current geopolitical unrest in eastern Europe and the apparent Chinese-Russian alliance, concerns over the stability of these bilateral trade relations continue to exist, and in some cases, have heightened in ~~2023~~2024.

~~Separately~~Additionally, ~~with~~while ~~the~~substantially ~~U.K.’s~~all ~~exit from the E.U. in January 2020, known as Brexit, the ongoing uncertainties~~ of ~~the~~our ~~trading~~foreign ~~relationship~~transactions ~~between~~are ~~the~~denominated in U.KS. ~~and~~dollars, ~~the~~foreign ~~E.U.~~currency ~~have~~fluctuations ~~yet~~could toimpact bedemand ~~completely~~for ~~realized~~our ~~and~~products ~~the~~or ~~ultimate outcome and long-term impacts for~~ the ~~U.K.~~ability ~~and~~of ~~Europe~~our ~~remain~~foreign ~~uncertain.~~suppliers ~~Ongoing changes and uncertainties related~~ to ~~Brexit, including trade frictions and Britain’s high inflation rate,~~ continue to ~~subject us to heightened trade risks in that region~~perform. ~~In addition~~Further, some ~~disruptions to trade and free movement~~ of ~~goods, services, and people to and from the U.K., disruptions to the workforce of~~ our ~~business partners, increased~~ foreign ~~exchange~~distributors ~~volatility~~operate ~~with~~relatively ~~respect~~small tobusinesses ~~the British pound,~~ and ~~additional~~may ~~legal, political~~not ~~and~~have ~~economic~~the ~~changes~~financial ~~also~~stability ~~subject~~to usassure totheir ~~further~~continuing ~~uncertainty~~presence in ~~the~~their ~~region~~markets. IfThere ~~these~~can ~~actions~~be ~~impacting~~no ~~our~~assurance ~~international~~that ~~distribution~~the ~~and~~foregoing ~~sales~~factors ~~channels~~will ~~result~~not inadversely ~~increased~~affect ~~costs for us or~~ our ~~international partners, such changes could~~ ~~result~~operations in ~~higher~~the ~~costs~~future toor require us, ~~adversely~~to ~~affecting~~modify our ~~operations,~~anticipated ~~particularly~~business ~~as we expand our international presence~~practices.

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~~Additionally,~~Our ~~while~~business ~~substantially~~and ~~all~~our results of operations could be materially adversely affected as a result of our ~~foreign~~inability ~~transactions~~to ~~are~~fulfill ~~denominated~~orders inon Ua timely basis.S The availability of certain shapes and sizes of our loose moissanite and lab grown diamond gems, including our Forever One™, Moissanite by Charles & Colvard®, recently rebranded as Forever Bright™, and Caydia® gems, may be at risk. ~~dollars~~In addition, ~~foreign~~finished ~~currency~~jewelry ~~fluctuations~~has ~~could~~a ~~impact~~large ~~demand~~variety of styles of which we maintain on-hand stock for ~~our~~such ~~products~~core ordesigns ~~the~~as ~~ability~~stud ofearrings, ~~our~~solitaire ~~foreign~~and ~~suppliers~~three-stone rings, pendants, and bracelets; and made-to-order ~~continue~~under strict deadlines for certain wholesale and direct-to-consumer ~~perform~~e-commerce outlets. ~~Further,~~We ~~some~~must ofadequately ~~our~~maintain ~~foreign~~relationships, ~~distributors~~forecast ~~operate~~material ~~relatively~~and ~~small~~product ~~businesses~~demand, and ~~may~~operate ~~not~~within ~~have~~ the ~~financial~~lead ~~stability~~times of third parties that facet jewels and manufacture finished jewelry settings to ~~assure~~ensure ~~their~~adequate on-hand ~~continuing~~quantities ~~presence~~and meet shipment requirements for customer orders in ~~their~~a ~~markets~~timely manner. ~~There~~In ~~can~~addition, bewe noare ~~assurance~~currently ~~that~~dependent upon certain vendors for most of the ~~foregoing~~faceting ~~factors~~of ~~will~~our ~~not~~loose ~~adversely~~gems. ~~affect~~If any or all of these vendors were to cancel their arrangements with us, we could experience a disruption in our operations and incur additional costs to procure faceting services from a replacement vendor. The inability to fulfill orders on a timely basis and ~~operations~~within promised customer deadlines could result in a cancellation of the ~~future~~orders orand ~~require~~loss usof tocustomer ~~modify~~goodwill ~~our~~that ~~anticipated~~could materially and adversely affect our business, ~~practices~~results of operations, and financial condition.

~~Our~~We ~~business~~are ~~and~~currently ~~our~~dependent ~~results~~on ofa ~~operations~~limited ~~could~~number beof ~~materially~~distributor ~~adversely~~and ~~affected~~retail aspartners ain ~~result of~~ our ~~inability~~Traditional tosegment ~~fulfill~~for ~~orders~~the onsale aof ~~timely~~our ~~basis~~products. ~~The~~A ~~availability~~significant ofportion ~~certain shapes and sizes~~ of ~~our~~the ~~loose~~ moissanite ~~and lab grown diamond gems, including our Forever-One™, Moissanite~~jewels ~~by Charles & Colvard®,~~ and ~~Caydia® gems,~~finished ~~may~~jewelry befeaturing atmoissanite ~~risk.~~that Inwe ~~addition,~~sell ~~finished~~are ~~jewelry~~distributed ~~has~~through a ~~large~~limited ~~variety~~number of ~~styles~~distributors ofand ~~which~~retail wepartners ~~maintain~~in ~~on-hand~~our ~~stock~~Traditional ~~for such core designs as stud earrings~~segment, ~~solitaire~~ and ~~three-stone rings~~therefore, ~~pendants,~~we ~~and~~are ~~bracelets;~~dependent ~~and~~upon ~~made-to-order~~these ~~under~~companies ~~strict deadlines~~ for ~~certain~~distribution ~~wholesale~~of ~~and~~our ~~direct-to-consumer e-commerce outlets~~products. Our Wethree ~~must~~largest ~~adequately~~customers ~~maintain~~collectively ~~relationships,~~accounted ~~forecast~~for ~~material~~approximately ~~and~~23% ~~product demand,~~ and ~~operate~~21% ~~within the lead times~~ of ~~third~~our ~~parties that~~net ~~facet~~sales ~~jewels~~during ~~and~~the ~~manufacture~~fiscal ~~finished~~years ~~jewelry~~ended ~~settings~~June to30, ~~ensure~~2024 ~~adequate on-hand quantities~~ and ~~meet~~2023, ~~shipment~~respectively. ~~requirements~~As ~~for~~we ~~customer~~continue ~~orders~~to inbuild aour ~~timely~~finished ~~manner.~~jewelry ~~In addition~~business, we ~~are~~anticipate ~~currently~~in ~~dependent~~the ~~upon~~near ~~certain~~ term ~~vendors~~that ~~for~~a ~~most~~significant portion of the ~~faceting~~moissanite ofjewels ~~our~~and ~~loose~~finished ~~gems.~~jewelry Iffeaturing ~~any~~moissanite orthat ~~all of these vendors were to cancel their arrangements with us,~~ we ~~could~~sell ~~experience~~through ~~a disruption in~~ our ~~operations~~Traditional ~~and~~segment ~~incur~~will ~~additional~~continue ~~costs~~ to ~~procure~~be ~~faceting services from a replacement vendor. The inability~~ to ~~fulfill orders on~~ a ~~timely~~limited ~~basis~~number ~~and within promised customer deadlines could result in a cancellation~~ of ~~the~~distributors ~~orders~~ and ~~loss of customer goodwill that could materially and adversely affect our business, results of operations, and financial condition~~retailers.

We ~~are~~may ~~currently~~experience ~~dependent~~quality oncontrol achallenges ~~limited~~from ~~number~~time ofto ~~distributor~~time ~~and~~that ~~retail~~can ~~partners~~result in ~~our~~lost ~~Traditional~~revenue ~~segment~~and ~~for~~harm ~~the~~to ~~sale~~our ofbrands ~~our~~and ~~products~~reputation. Part Aof ~~significant~~our ~~portion~~strategy offor ~~the~~success ~~moissanite~~is ~~jewels~~to align ~~and~~Charles ~~finished~~& ~~jewelry~~Colvard ~~featuring~~with ~~moissanite~~reputable, ~~that~~high-quality, weand ~~sell~~sophisticated ~~are~~strategic ~~distributed~~partners. ~~through~~The aachievement ~~limited number~~ of ~~distributors~~this ~~and~~goal ~~retail~~depends ~~partners~~ in ~~our~~large ~~Traditional~~part ~~segment,~~on ~~and~~our ~~therefore,~~ability weto ~~are~~provide ~~dependent~~customers ~~upon~~with ~~these~~high-quality ~~companies~~moissanite ~~for~~and ~~distribution~~lab ofgrown ~~our~~diamonds ~~products.~~and finished ~~Our~~jewelry ~~three~~featuring ~~largest~~moissanite ~~customers~~and ~~collectively~~lab ~~accounted~~grown ~~for~~diamonds. ~~approximately~~Although ~~21%~~we ~~and~~take ~~31%~~measures ofto ~~our~~ensure ~~net~~that ~~sales~~we ~~during~~sell only the ~~fiscal~~best ~~years~~quality ~~ended June 30~~products, ~~2023~~we ~~and~~may ~~2022,~~face ~~respectively.~~quality Ascontrol wechallenges, ~~continue~~which tocould ~~build~~impact our ~~finished~~competitive ~~jewelry~~advantage. ~~business,~~There wecan ~~anticipate~~be inno ~~the~~assurance ~~near~~we ~~term~~will ~~that~~be aable ~~significant~~to ~~portion~~detect ofand ~~the~~resolve ~~moissanite~~all ~~jewels~~quality ~~and~~control ~~finished~~issues ~~jewelry~~prior ~~featuring~~to ~~moissanite~~shipment ~~that~~of weproducts ~~sell~~to ~~through~~ our ~~Traditional~~distributors, ~~segment~~manufacturers, ~~will~~retailers, ~~continue~~and toend beconsumers. Failure to ado ~~limited~~so ~~number~~could ofresult ~~distributors~~in lost revenue, lost customers, significant warranty and other ~~retailers~~expenses, and harm to our reputation.

We may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation. Part of our strategy for success is to align Charles & Colvard with reputable, high-quality, and sophisticated strategic partners. The achievement of this goal depends in large part on our ability to provide customers with high-quality moissanite and finished jewelry featuring moissanite. Although we take measures to ensure that we sell only the best quality products, we may face quality control challenges, which could impact our competitive advantage. There can be no assurance we will be able to detect and resolve all quality control issues prior to shipment of products to our distributors, manufacturers, retailers, and end consumers. Failure to do so could result in lost revenue, lost customers, significant warranty and other expenses, and harm to our reputation.

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. We could be negatively impacted by the widespread outbreak of an illness or other communicable disease, or any other public health crisis that results in economic and trade disruptions. During Fiscal 2023, our performance has been affected by supply chain disruptions and delays, as well as labor challenges associated with employee absences, travel restrictions, remote work, and adjusted work schedules. The impact of COVID-19 on our operational and financial performance in future periods, including our ability to execute our business plans in the expected timeframe, remains uncertain and will depend on future COVID-19-related developments, including the impact of COVID-19 infection or potential new variants or subvariants, the effectiveness and adoption of COVID-19 vaccines and therapeutics, supplier impacts and related government actions to prevent and manage disease spread, including the implementation of any federal, state, local or foreign COVID-19-related controls. The long-term impacts of COVID-19 on consumer shopping and spending patterns, including product and commodity priorities affected by general economic conditions that impact demand for our products and services and our business also are difficult to predict, but could negatively affect our future results and performance.

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Seasonality of our business may adversely affect our net sales and operating income. Sales in the retail jewelry industry are typically seasonal due to increased consumer purchases during the calendar year-end holiday season. Because historically we have primarily sold our loose moissanite jewels and finished jewelry featuring moissanite at wholesale pricing to distributors, manufacturers, and retailers, our sales to support the holiday season have largely taken place during the third and beginning of the fourth calendar quarters, depending on the sales channel and the level of advance planning and production our customers undertook. As sales of our finished jewelry featuring moissanite and lab grown diamonds to retailers and directly to consumers increase, both in dollars and as a percentage of total sales, our results for the three months in the calendar quarter ending December 31 of each year may depend upon the general level of retail sales during the holiday season as well as general economic conditions and other factors beyond our control. In anticipation of increased sales activities during the three months in the calendar quarter ending December 31 of each year, we may incur significant additional expenses and increases in our finished jewelry inventory levels to support expected sales in the second half of the calendar year.

We ~~have~~experience ~~experienced~~ a higher degree of seasonality in the three months ending December 31, primarily as a result of the calendar year-end holiday season sales to end consumers through our Online Channels segment and ~~as a result of increased~~to ~~sales through our~~ brick-and-mortar retailers within our Traditional segment. Our quarterly results of operations may continue to fluctuate as a result of a number of factors, including seasonal cycles, the timing of new product introductions, the timing of orders by our customers, and the mix of product sales demand, and these factors may significantly affect our results of operations in a given quarter.

Our operations could be disrupted by natural disasters. We conduct substantially all of our activities, including executive management, manufacturing, packaging, and distribution activities, at one central North Carolina location. Although we have taken precautions to safeguard our facility, including obtaining business interruption insurance, any future natural disaster, such as a hurricane, flood or fire, could significantly disrupt our operations and delay or prevent product shipment during the time required to repair, rebuild or replace our facility, which could be lengthy and result in significant expenses. Furthermore, the insurance coverage we maintain may not be adequate to cover our losses in any particular case or continue to be available at commercially reasonable rates and terms. In addition, the vendors that perform some of the faceting of our loose moissanite jewels are located in regions that are susceptible to tsunamis, flooding, and other natural disasters that may cause a disruption in our vendors’ operations for sustained periods and the loss or damage of our work-in-process inventories located at such vendors’ facilities. Damage or destruction that interrupts our ability to deliver our products could impair our relationships with our customers. Prolonged disruption of our services as a result of a natural disaster may result in product delivery delays, order cancellations, and loss of substantial revenue, which could materially and adversely affect our business, results of operations, and financial condition.

Sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control. Any increases in the market price of precious metals (primarily gold) could affect the pricing and sales of jewelry incorporating moissanite jewels and lab grown diamonds. The majority of price increases in precious metals are passed on to the end consumer in the form of higher prices for finished jewelry. These higher prices could have a negative impact on the sell-through of moissanite and lab grown diamond jewelry at the retail level. From 2007 through 2023, the price of gold has fluctuated significantly, resulting in generally higher retail price points for gold jewelry. Accordingly, higher gold prices could have an adverse impact on both sales of moissanite and lab grown diamond finished jewelry and the jewelry industry as a whole.26

Our current customers may potentially perceive us as a competitor in the finished jewelry business. As described above, we are currently dependent on a limited number of customers, including distributors and retailers, for the sale of our products in the Traditional segment. Our design, manufacture, and marketing of finished jewelry featuring moissanite and lab grown diamonds for sale to distributors and retailers may result in some of these current customers perceiving us as a competitor, despite our efforts to use primarily non-conflicting sales channels. In response, these customers may choose to reduce their orders for our products. This reduction in orders could occur faster than our sales growth in this business, which could materially and adversely affect our business, results of operations, and financial condition.

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Sales of moissanite and lab grown diamond jewelry could be dependent upon the pricing of precious metals, which is beyond our control. Any increases in the market price of precious metals (primarily gold) could affect the pricing and sales of jewelry incorporating moissanite jewels and lab grown diamonds. The majority of price increases in precious metals are passed on to the end consumer in the form of higher prices for finished jewelry. These higher prices could have a negative impact on the sell-through of moissanite and lab grown diamond jewelry at the retail level. From 2007 through 2024, the price of gold has fluctuated significantly, resulting in generally higher retail price points for gold jewelry. Accordingly, higher gold prices could have an adverse impact on both sales of moissanite and lab grown diamond finished jewelry and the jewelry industry as a whole.

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. As e-commerce emerges as one of our primary selling channels, our business model becomes more reliant on third-party platforms to achieve success. Should our products, product listings, or business not meet the requirements of certain third-party transactional channels such as marketplaces, comparison shopping engines, or social commerce sites, it may affect our ability to meet our revenue targets. Additionally, Amazon.com, Inc., eBay Inc., Walmart.com, or other desirable e-commerce platforms may decide to make significant changes to their respective business models, policies, systems, or plans, and those changes could impair or inhibit our ability to sell our products through those channels. Further, a significant change in consumer online behavior or the introduction of new or disruptive technology could adversely affect overall e-commerce trends and diminish the value of investments we have made in select online channels. Any of these results could cause a significant reduction in our revenue and have a material adverse effect on our results of operations.

Governmental regulation and oversight might adversely impact our operations. We are subject to governmental regulations in the manufacture and sale of moissanite jewels and finished jewelry featuring moissanite and lab grown diamonds. In addition, the precious metal in our finished jewelry may be subject to requirements, which vary by country and by state, such as hallmarking and alloy content. We may be under close scrutiny both by governmental agencies and by competitors in the gemstone industry, any of which may challenge our promotion and marketing of our moissanite jewels and finished jewelry products featuring moissanite and lab grown diamonds. While we have a policy to ensure compliance with applicable regulations, if our production or marketing of moissanite jewels and/or finished jewelry featuring moissanite and lab grown diamonds is challenged by governmental agencies or competitors, or if regulations are issued that restrict our ability to market our products, our business, results of operations, and financial condition could be materially adversely affected.

The effects of potential future public health crises, epidemics, pandemics or similar events on our business, operating results, and cash flows are uncertain. We could be negatively impacted by the widespread outbreak of an illness or other communicable disease, or any other public health crisis, such as COVID-19, that results in economic and trade disruptions.

Risks Related to our Financial Position

~~The~~We ~~execution~~are ofsubject ~~our business plans could significantly impact our liquidity. The execution of our business plans~~ to ~~expand~~arbitration, ~~our~~litigation, ~~Online Channels segment~~ and ~~global market opportunities~~demands, as ~~well~~which ascould toresult ~~create~~in ~~required~~significant ~~inventory~~liability ofand ~~our Forever One™~~costs, ~~Moissanite by Charles & Colvard®,~~ and ~~Caydia®~~impact ~~gemstones, requires significant investment of~~ our resources, ~~which~~and ~~may reduce our cash position~~reputation. ~~Should~~From wetime ~~fail~~ to ~~execute our business plans~~time, we ~~could~~may ~~see~~be ~~delays~~involved in ~~the~~legal ~~return~~proceedings ofor ~~cash~~subject ~~from~~to ~~our~~claims ~~investments,~~incident ~~resulting~~to inthe aordinary ~~decrease~~course inof ~~our liquidity~~business. ~~Under our~~The ~~$5.00~~ outcome ~~million~~of ~~cash~~litigation ~~collateralized~~is ~~line~~inherently ~~of credit facility~~uncertain, orand ~~the~~there ~~JPMorgan~~can ~~Chase~~be ~~Credit~~no ~~Facility~~assurances that wefavorable ~~obtained~~outcomes ~~from~~will ~~JPMorgan~~be ~~Chase Bank, N~~obtained.~~A.,~~ ~~effective~~On July ~~7, 2021, as amended July~~ 28, ~~2022 and amended further effective June 21,~~ 2023, ~~failure~~Wolfspeed ~~to comply with the covenants and defaults contained in the JPMorgan Chase Credit Facility or any other~~initiated ~~instrument~~ a orconfidential ~~document~~arbitration ~~executed~~against inus ~~connection~~for ~~with~~breach ~~the~~of ~~JPMorgan~~contract ~~Chase~~claiming ~~Credit~~damages, ~~Facility~~plus ~~could~~interest, ~~restrict~~costs, ~~our~~and ~~ability~~attorneys’ tofees. ~~draw~~On onFebruary ~~such~~10, ~~facility. In addition~~2025, ~~we currently have an effective shelf registration statement on Form S-3 on file with~~ the ~~SEC~~Company ~~that allows us to periodically offer~~ and ~~sell,~~Wolfspeed ~~individually~~entered orinto ina ~~any~~settlement ~~combination,~~agreement ~~shares~~related ofto ~~common~~the ~~stock,~~Wolfspeed ~~shares~~arbitration. ofUnder ~~preferred~~the ~~stock,~~settlement ~~warrants~~agreement tothe ~~purchase~~Company ~~shares~~terminated ofthe ~~common~~exclusive ~~stock~~supply oragreement ~~preferred stock,~~ and ~~units~~agreed ~~consisting~~ to ofpay ~~any~~Wolfspeed ~~combination of the foregoing types of securities, up to~~ a total of $254.0077 million, of which ~~all~~includes isthe ~~available.~~purchased ~~However, we may offer~~ and ~~sell~~consigned noinventory, ~~more~~Wolfspeed’s ~~than~~attorney ~~one-third~~fees ofin ~~our~~connection ~~public~~with ~~float (which is~~ the ~~aggregate~~arbitration, ~~market~~and ~~value of our outstanding common stock held by non-affiliates) in any 12-month period~~interest. ~~Further,~~The iffinal wesettlement ~~would~~amount beis ~~unable~~ to ~~access~~be ~~the~~paid ~~capital~~$500,000 ~~markets~~on orFebruary ~~issue~~11, 2025, ~~equity~~$1.83 ~~securities~~million on ~~terms that are acceptable to us~~ or atbefore ~~all,~~February ~~our cash~~28, ~~cash equivalents~~2025, and ~~restricted~~ ~~cash and other working capital may be constrained to meet our working capital and capital expenditure needs~~$2.44 ~~Given~~million ~~our current liquidity position, it is unlikely that we would not be able to draw~~ on ~~the~~or ~~JPMorgan Chase~~before ~~Credit~~December ~~Facility, as amended, which matures on July~~ 31, ~~2024~~2025. As ~~There is no guarantee~~ of ~~extension~~June or30, ~~renewal~~2024, inthe ~~connection~~Company ~~with~~accrued ~~the~~$4.77 ~~terms~~million ~~and~~related ~~conditions~~to of the ~~JPMorgan~~final ~~Chase~~settlement ~~Credit~~and ~~Facility~~expected payments.

We are subject to arbitration, litigation, and demands, which could result in significant liability and costs, and impact our resources and reputation. 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. On July 28, 2023, Wolfspeed initiated a confidential arbitration against us for breach of contract claiming damages, plus interest, costs, and attorneys’ fees. Wolfspeed has alleged that the Company failed to satisfy the purchase obligations provided in the Supply Agreement for Fiscal 2023 in the amount of $4.25 million and failed to pay for $3.30 million of SiC crystals Wolfspeed delivered to us. Wolfspeed further alleges that the Company intends to breach our remaining purchase obligations under the Supply Agreement, representing an additional $18.5 million in alleged damages. This arbitration and other such proceedings or claims could result in adverse judgments, settlements, fines, penalties, injunctions, or other relief and, regardless of outcome, can have an adverse impact on us for reasons including diverting management’s attention away from our business operations and incurring substantial costs and expenses relating directly to these actions. For more information on our pending legal proceedings, see “Part I, Item 3. Legal Proceedings”.27

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Other such proceedings or claims could result in adverse judgments, settlements, fines, penalties, injunctions, or other relief and, regardless of outcome, can have an adverse impact on us for reasons including diverting management’s attention away from our business operations and incurring substantial costs and expenses relating directly to these actions. For more information on our pending legal proceedings, see “Part I, Item 3. Legal Proceedings”. For more information about the risks related to our liquidity and ability to continue as a going concern, see “Risks Related to our Operations – The execution of our business plans could significantly impact our liquidity and there is substantial doubt about our ability to continue as a going concern.”

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. We are subject to a concentration of credit risk amongst our major customers (some of whom are distributors), and a default by any of these customers on their amounts owed to us could have a material adverse effect on our financial position. Future sales and our ability to collect accounts receivable depend, in part, on the financial strength of our customers and our distributors’ willingness and ability to successfully market our products. We estimate an allowance for accounts for which collectability is at risk and this allowance adversely impacts profitability. In the event customers experience greater than anticipated financial difficulties, insolvency, or difficulty marketing products, we expect profitability to be further adversely impacted by our failure to collect accounts receivable in excess of the amount due, net of the estimated allowance. In these circumstances, we may demand the return of product sold to such customers, resulting in an increase in inventory and a reduction in accounts receivable.

Negative or inaccurate information on social media could adversely affect our brand and reputation. We are actively using various forms of digital and social media outreach to accomplish greater awareness of our brand and the value proposition we offer. These social media platforms and other forms of Internet-based communications allow access not only by us, but by any individual, to a broad audience of consumers and other interested persons. Consumers value readily available information concerning goods that they have or plan to purchase; however, they may act on such information without further investigation or authentication. Many social media platforms, including those relating to recruiting and placement activities, immediately publish the content of their participants’ posts, often without filters or checks on accuracy of the content posted. While we actively monitor social media sites, we may be unable to quickly and effectively respond to or correct inaccurate and/or unfavorable information posted on social media platforms. Any such information may harm our reputation or brand, which could in turn materially and adversely affect our business, results of operations, and financial condition.

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. We believe that certain metrics are key to our business, including but not limited to average order value, or AOV, and revenue growth for charlesandcolvard.com, our primary transactional website. As both the industry in which we operate and our business continue to evolve, so too might the metrics by which we evaluate our business. While the calculation of these metrics is based on what we believe to be reasonable estimates, our internal tools are not independently verified by a third party and may have a number of limitations and, furthermore, our methodologies for tracking these metrics may change over time. We continue to improve upon our tools and methodologies to capture data and believe that our current metrics are accurate; however, the improvement of our tools and methodologies could cause inconsistency between current data and previously reported data, which could confuse investors or lead to questions about the integrity of our data. In addition, if the internal tools we use to track these metrics under-count or over-count performance or contain algorithm or other technical errors, the data we report may not be accurate. Accordingly, you should not place undue reliance on these metrics.

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. We rely primarily on patent, copyright, trademark, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We held U.S. product and method patents for moissanite jewels, which expired in 2015, under which we believed that we had broad, exclusive rights to manufacture, use, and sell moissanite jewels in the U.S. We had these same patents in 25 foreign jurisdictions primarily across Asia and Europe that expired in 2016 and one in Mexico that expired in 2021. However, our product and method patent expirations have enabled competitors and other businesses to duplicate and market a similar product and enter the marketplace. There can be no assurance that any patents issued to or licensed by or to us will provide any significant commercial protection, that we will have sufficient resources to protect our respective patents and proprietary rights, that any additional patents will be issued in the future, or that any existing or future patents will be upheld by a court should we seek to enforce our rights against an infringer.

The existence of valid patents does not prevent other companies from independently developing competing technologies. Existing producers of SiC crystals or others may refine existing processes for growing SiC crystals or develop new technologies for growing large single crystals of SiC or colorless SiC crystals in a manner that does not infringe any patents issued to or licensed by or to us. Accordingly, existing and potential competitors have been able to develop products that are competitive with or superior to certain of our products, and such competition could have a material adverse effect on our business, results of operations, and financial condition.

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In addition, we have certain trademarks and pending trademark applications that support our moissanite and lab grown diamond branding strategy. The success of our growth strategy may depend on our continued ability to use our existing brand names in order to increase consumer awareness and further develop strong brands around our moissanite jewels and finished moissanite and lab grown diamond jewelry collections. We cannot assure that any future trademark or other registrations will be issued for pending or future applications or that we will be able to obtain licenses or other contractual rights to use brand names that may infringe the proprietary rights of third parties. We also cannot assure that any registered or unregistered trademarks or other intellectual property or contractual rights will be enforceable or provide adequate protection of our proprietary rights. Our inability to secure proprietary protection with respect to our brands could have a material adverse effect on our business, results of operations, and financial condition.

We also cannot be certain that our products and brand names do not or will not infringe valid patents, trademarks, and other intellectual property rights held by third parties. We may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. Litigation to determine the validity of any third party’s claims could result in significant expense and divert the efforts of our technical and management personnel, whether or not such litigation is determined in our favor. In the event of an adverse result of any such litigation, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses for, and pay royalties on the use of, the technology subject to the litigation. We have no assurance that we would be successful in such development or that any such license would be available on commercially reasonable terms.

Environmental, social, and governance matters may impact our business, reputation, financial condition, and results of operations. Increasingly, companies are being measured by their performance on a variety of environmental, social, and governance, or ESG, matters, which are considered to contribute to the long-term sustainability of companies’ performance. Recently, many investors, including large institutional investors, have publicly emphasized the importance of ESG measures to their investment decisions.

Our assessments on ESG matters include, among others, the Company’s efforts and impacts, including impacts associated with our suppliers or other business partners, on environmentally and socially responsible fine jewelry, climate change, diversity, ethics, and compliance with applicable regulations.

There can be no certainty that we will manage such ESG matters successfully, or that we will successfully meet investors’ expectations as to our proper role, or our own ESG goals and values. This could lead to risk of litigation or reputational damage relating to our ESG policies or performance. Further, our decisions regarding ESG matters may not be consistent with our short-term financial expectations and may not ultimately produce the long-term benefits that we expect, in which case our business, reputation, financial condition, and operating results may be adversely impacted.

If we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer. From time to time, we evaluate strategic opportunities available to us for product, technology, or business acquisitions or dispositions. If we choose to make acquisitions or dispositions, we face certain risks, such as failure of an acquired business to meet our performance expectations, failure to recognize cost savings from a disposition, diversion of management attention, retention of management and existing customers of our current and any acquired business, and difficulty in integrating or separating a business’s operations, personnel, and financial and operating systems. We may not be able to successfully address these risks or any other problems that arise from future acquisitions or dispositions. Any failure to successfully evaluate strategic opportunities and address risks or other problems that arise related to any acquisition or disposition could adversely affect our business, results of operations, and financial condition.

30As a public reporting company, we are subject to rules and regulations established from time to time by the SEC and Nasdaq regarding our internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner.

We are subject to the rules and regulations established from time to time by the SEC and Nasdaq. These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.

We are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting pursuant to Section 404(a) of the Sarbanes-Oxley Act in our annual reports. This assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an “Smaller Reporting Company,” as defined in Regulation S-K, and we become an accelerated or large accelerated filer. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating.

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As disclosed in Part II, Item 9A, “Controls and Procedures,” of this Annual Report on Form 10-K, our management identified material weaknesses in our internal control over financial reporting and we have concluded that our internal control over financial reporting was not effective as of June 30, 2024. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We are in the process of remediating the material weaknesses.

We can give no assurance that our efforts will remediate the material weaknesses in our internal control over financial reporting, or that additional material weaknesses will not be identified in the future. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional implementation and evaluation time.

If we are unable to comply with the demands that are placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely manner, there could be errors in our annual or interim consolidated financial statements that could result in a restatement of our financial statements, or we may be unable to report our financial results within the timeframes required by the SEC. Additionally, ineffective internal control over financial reporting could expose us to an increased risk of financial reporting fraud and the misappropriation of assets and subject us to potential delisting from Nasdaq or to other regulatory investigations and civil or criminal sanctions or investigations by the SEC or other regulatory authorities. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be adversely affected.

Risks Related to Ownership of our Common Stock

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~~had 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), wethe ~~have~~Company had 180 calendar days, or until December 11, 2023, to regain compliance with the minimum ~~$1.00~~ bid price ~~per share~~ requirement. ToThe ~~regain~~Company ~~compliance,~~received ~~any~~notice ~~time~~on ~~before~~ December 1112, 2023, from the ~~bid~~Nasdaq’s ~~price~~Listing ofQualifications ~~our~~Department ~~common~~which ~~stock~~resulted ~~must~~in ~~close~~an atadditional ~~$1.00~~180-day ~~per~~period, ~~share~~ or ~~more~~until ~~for~~June ~~a minimum of~~ 10, ~~consecutive~~2024, ~~business~~within ~~days.~~which Onto ~~December~~regain ~~11,~~compliance ~~2023,~~with ~~if we meet~~ the ~~continued~~minimum ~~listing~~bid price requirement. ~~for~~As ~~market~~noted ~~value~~above, ofthe ~~publicly~~Company ~~held~~completed ~~shares~~the ~~and~~Reverse Stock ~~all~~Split ~~other~~effective ~~initial~~May ~~listing~~17, ~~standards~~2024, ~~for~~and ~~The~~on ~~Nasdaq~~June ~~Capital~~3, ~~Market~~2024, ~~(except for~~ the ~~minimum~~ ~~bid~~Company ~~price~~received ~~requirement),~~a ~~and~~letter wefrom ~~notify~~the Nasdaq ofListing ~~our~~Qualifications ~~intent~~Department tonotifying ~~cure~~ the ~~deficiency,~~Company wethat ~~may~~the beminimum ~~provided~~bid ~~with~~price anof ~~additional~~its ~~180~~common ~~calendar~~stock ~~day~~was ~~compliance period to regain compliance~~$1.00 Ifper weshare ~~are~~or ~~not~~greater ~~eligible~~ for ~~an additional compliance~~at ~~period~~ least atthe ~~that~~last ~~time,~~10 ~~Nasdaq~~consecutive ~~will~~business ~~provide us with written notification that our common stock will be subject to delisting~~days. ~~Upon such notice~~Accordingly, wethe ~~may~~Company ~~appeal~~has ~~Nasdaq’s~~regained ~~delisting~~compliance ~~determination~~with tothe a Nasdaq ~~hearing~~minimum ~~panel.~~bid ~~There~~price ~~can~~requirement beand nothe ~~assurance that,~~matter ifis wenow ~~appeal Nasdaq’s determination, such appeal would be successful~~closed.

~~While~~On weOctober ~~intend~~18, ~~to engage in efforts to regain compliance~~2024, ~~and~~we ~~thus~~received ~~maintain~~a ~~our~~notification ~~listing,~~letter ~~there~~from ~~can~~Nasdaq’s beListing noQualifications ~~assurance~~Department indicating that we ~~will~~are benot ~~able~~in ~~to regain~~ compliance ~~during~~with Nasdaq ~~the~~Listing ~~applicable~~Rule ~~time~~5250(c)(1), ~~periods~~which ~~set~~requires ~~forth above.~~the Iftimely wefiling ~~fail~~of toall ~~continue~~required toperiodic ~~meet~~reports, ~~all~~as ~~applicable~~a ~~listing~~result ~~requirements~~of innot ~~the~~having ~~future~~timely ~~and~~filed ~~Nasdaq~~its ~~determines~~Annual toReport ~~delist~~on ~~our~~Form ~~common~~10-K ~~stock,~~for the ~~delisting~~fiscal ~~could~~year ~~substantially~~ended ~~decrease~~June ~~trading~~30, in2024 ~~our~~(the ~~common~~“2024 ~~stock~~Form ~~and~~10-K”), ~~adversely~~with ~~affect~~ the ~~market~~ ~~liquidity~~ Securities ofand ~~our~~Exchange ~~common~~Commission ~~stock;~~(the ~~adversely~~“SEC”). ~~affect~~The ~~our~~2024 ~~ability~~Form to10-K ~~obtain~~was ~~financing~~due on ~~acceptable~~September ~~terms~~30, if2024. atWe ~~all;~~filed ~~and~~a ~~may~~Notification ~~result in the potential loss~~ of ~~confidence~~Late byFiling ~~investors,~~on ~~suppliers,~~Form ~~customers,~~12b-25 ~~employees,~~with ~~and fewer business development opportunities. Additionally,~~ the ~~market~~SEC ~~price~~on ofOctober ~~our common stock may decline further~~1, ~~and shareholders may lose some or all of their investment~~2024.

~~Some~~On ~~anti-takeover~~November ~~provisions~~21, of2024, ~~our~~we ~~charter~~received ~~documents may delay or prevent~~ a ~~takeover~~notification ofletter ~~our~~from ~~Company.~~Nasdaq’s AListing ~~number~~Qualifications ofDepartment ~~provisions~~indicating ofthat ~~our~~we are ~~articles~~not ofin ~~incorporation~~compliance ~~and~~with ~~bylaws~~Nasdaq ~~impact matters~~Listing ofRule ~~corporate~~5250(c)(1), ~~governance~~which ~~and~~requires the ~~rights~~timely offiling ~~shareholders. Certain~~ of ~~these~~all ~~provisions~~required ~~have~~periodic anreports, ~~anti-takeover~~as ~~effect~~a ~~and~~result ~~may~~of ~~delay or prevent takeover attempts~~ not ~~first~~having ~~approved~~timely byfiled ~~our~~its ~~Board~~Annual ofReport ~~Directors~~on ~~(including~~Form ~~takeovers~~10-Q ~~that~~for ~~certain shareholders~~the ~~may~~fiscal ~~deem~~period toended beSeptember in30, ~~their~~2024 ~~best~~(the “September ~~interests~~Form 10-Q”)., ~~These~~with ~~provisions also could delay or frustrate~~ the ~~removal~~SEC. ofThe ~~incumbent~~September ~~directors~~Form or10-Q ~~the~~was ~~assumption~~due ofon ~~control~~November by14, ~~shareholders~~2024. We ~~believe~~filed ~~that~~a ~~these~~Notification ~~provisions~~of ~~are~~Late ~~appropriate~~Filing toon ~~protect our~~Form ~~interests~~12b-25 ~~and~~with the ~~interests~~SEC ofon ~~all~~November of15, ~~our shareholders~~2024.

We ~~cannot~~had ~~guarantee~~60 ~~that~~calendar ~~our share repurchase program will be utilized to the full value approved~~days, or ~~that~~until itDecember ~~will~~17, ~~enhance~~2024, ~~long-term~~to ~~stockholder~~regain ~~value~~compliance ~~and repurchases~~with ~~we consummate could increase~~ the ~~volatility~~Listing ofRule ~~the~~or ~~price of our common stock and could have a negative impact on our available cash balance. Our Board authorized a share repurchase program pursuant~~ to ~~which~~submit ~~we may repurchase up~~ to ~~$5.00~~Nasdaq ~~million of our common stock through April 29, 2025. The manner, timing and amount of any share repurchases may fluctuate and will be determined based on~~ a ~~variety~~plan ofto ~~factors,~~regain ~~including~~compliance with the ~~market~~Listing ~~price~~Rule ~~of our common stock, our priorities for~~ (the ~~use of cash to support our business operations and plans, general business and market conditions, tax laws, and alternative investment opportunities~~“Plan”). ~~The~~On ~~share~~December ~~repurchase program authorization does not obligate us to acquire any specific number or dollar value of shares. Further~~17, ~~our share repurchases could have an impact on our share trading prices~~2024, ~~increase~~ the ~~volatility~~Company offiled the ~~price~~Plan ~~of our common stock, or reduce our available cash balance such that we will be required~~ to ~~seek~~regain ~~financing~~compliance towith ~~support our operations~~Nasdaq. Our share repurchase program may be modified, suspended, or terminated at any time, which may result in a decrease in the trading prices of our common stock. Even if our share repurchase program is fully implemented, it may not enhance long-term stockholder value.

On January 31, 2025, we received a letter from the Nasdaq Listing Qualifications Department indicating they have accepted the Company’s Plan to regain compliance. On February 25, 2025, we received a notification letter from Nasdaq’s Listing Qualifications Department indicating that we are not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires the timely filing of all required periodic reports, as a result of not having timely filed its Annual Report on Form 10-Q for the fiscal period ended December 31, 2024 (the “December Form 10-Q”), with the SEC. The December Form 10-Q was due on February 18, 2025. We filed a Notification of Late Filing on Form 12b-25 with the SEC on February 18, 2025. We had until March 12, 2025, to submit to Nasdaq a plan to regain compliance with the Listing Rule (the “Plan”). On March 12, 2025, the Company filed the Plan to regain compliance with Nasdaq.

The Company has until April 14, 2025 to file its Form 10-K for the year ended June 30, 2024 and Forms 10-Q for the periods ended September 30, 2024 and December 31, 2024. If we fail to file the Form 10-K for the year ended June 30, 2024 and Forms 10-Q for the period ended September 30, 2024 and December 31, 2024 by April 14, 2025, then the Company’s securities will be delisted from the Nasdaq Capital Market. However, we will have the opportunity to appeal that decision to a Nasdaq Hearings Panel.

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.

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We could be negatively affected as a result of a proxy contest and the actions of activist shareholders. While we value constructive feedback from our investors and engage in dialogue with them on various matters, we may nonetheless be subject to actions or proposals from activist shareholders that may not align with our business strategies or the interests of our other shareholders. On August 27, 2024, our board of directors received notice from a shareholder of the shareholder’s intention to nominate three candidates to stand for election to our board of directors at our next annual meeting of shareholders. A proxy contest with respect to election of our directors, or other activist shareholder activities, could adversely affect our business because: (1) responding to a proxy contest and other actions by activist shareholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees; (2) perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and (3) if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans. We cannot predict, and no guarantees can be given, as to the outcome or timing of any matters relating to the foregoing actions by activist shareholders and our responses thereto or the ultimate impact on our business, results of operations or financial condition.

Some anti-takeover provisions of our charter documents may delay or prevent a takeover of our Company. A number of provisions of our articles of incorporation and bylaws impact matters of corporate governance and the rights of shareholders. Certain of these provisions have an anti-takeover effect and may delay or prevent takeover attempts not first approved by our Board of Directors (including takeovers that certain shareholders may deem to be in their best interests). These provisions also could delay or frustrate the removal of incumbent directors or the assumption of control by shareholders. We believe that these provisions are appropriate to protect our interests and the interests of all of our shareholders.

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. Our Board authorized a share repurchase program pursuant to which we may repurchase up to $5.00 million of our common stock through April 29, 2025. The manner, timing and amount of any share repurchases may fluctuate and will be determined based on a variety of factors, including the market price of our common stock, our priorities for the use of cash to support our business operations and plans, general business and market conditions, tax laws, and alternative investment opportunities. The share repurchase program authorization does not obligate us to acquire any specific number or dollar value of shares. Further, our share repurchases could have an impact on our share trading prices, increase the volatility of the price of our common stock, or reduce our available cash balance such that we will be required to seek financing to support our operations. Our share repurchase program may be modified, suspended, or terminated at any time, which may result in a decrease in the trading prices of our common stock. Even if our share repurchase program is fully implemented, it may not enhance long-term shareholder value.

Item 1B.

Unresolved Staff Comments

Not applicable.

Item 1C.

Cybersecurity

Our business operations rely on the secure processing, storage, and transmission of certain confidential, sensitive, proprietary, and other information, as well as personal information about our customers and employees.

Risk Management and Strategy

We maintain a cybersecurity risk management program designed to identify, assess, manage, mitigate, and respond to cybersecurity threats. This program is integrated with our overall risk assessment process and has been embedded in our operating procedures, internal controls and information systems.

The underlying controls of the cybersecurity risk management program are based on recognized best practices consistent with National Institute of Standards and Technology, or NIST and Cybersecurity Framework, or CSF. We have invested and continue to invest in risk management and information security and data privacy measures in order to protect our systems and data, including employee training, organizational investments, incident response plans, and technical defenses. The cost and operational consequences of implementing, maintaining, and enhancing data or system protection measures could increase significantly to overcome intense, complex, and sophisticated global cyber threats.

We constantly monitor our cybersecurity environment and coordinate with third-party consultants to provide regular cybersecurity training and promote cybersecurity awareness across the organization.

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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. Through investigation, we confirmed that this event was related to an apparent ransomware attack involving the unauthorized encryption of some of our files and the deployment of malware. This incident required us to temporarily implement manual processes to conduct our operations with as little disruption to production as possible. There were no payments made in this cybersecurity incident and no material impact on the operations of our business operating segments.

We have not encountered any cybersecurity threats or incidents that have had a material impact on our business. We face risks from cybersecurity threats that could have a material adverse effect on our business, financial condition, results of operations, cash flows or reputation. See “Risk Factors– Risks Related to our Operations - 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.”

Cybersecurity Governance

Our Board considers cybersecurity risk as part of its risk oversight function. The Board oversees management’s implementation of our cybersecurity risk management program.

The Board receives periodic reports on our cybersecurity risks and processes from management. In addition, management updates the Board, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential.

The Board also receives briefings from management on our risk management program, which includes our cybersecurity risk management. Presentations on cybersecurity topics are made as appropriate by our Chief Executive Officer.

Our management team, including our Chief Executive Officer and Chief Financial Officer, whom are supported by our information technology consultant, are responsible for assessing and managing our material risks from cybersecurity threats. This team has primary responsibility for our overall cybersecurity risk management program and supervises our internal cybersecurity personnel. Our management team members have relevant experience in risk assessment and management, and our information technology consultant has over 25 years of IT and Cybersecurity experience.

Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from our third-party vendors; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment.

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Item 2.

Properties

We currently lease approximately 36,350 square feet of office, retail, storage, and light manufacturing space in Research Triangle Park, North Carolina, from an unaffiliated third-party that is used by both of our current operating and reportable business segments.

The majority of all U.S. personnel, including our executive offices, sales offices, and administrative personnel, as well as our production and distribution facilities are housed in our current leased space.

Item 3.

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 Company ~~failed~~and toWolfspeed ~~satisfy~~entered ~~the~~into ~~purchase~~a ~~obligations~~settlement ~~provided~~agreement inrelated to the ~~Supply~~Wolfspeed ~~Agreement~~arbitration. ~~for~~Under ~~Fiscal~~the ~~2023~~settlement inagreement the ~~amount~~Company ofterminated ~~$4.25~~the ~~million~~exclusive supply agreement and ~~failed~~agreed to pay Wolfspeed ~~for~~a total of $34.3077 million, ofwhich ~~SiC~~includes ~~crystals~~the ~~Wolfspeed~~purchased ~~delivered~~and toconsigned ~~us.~~inventory, Wolfspeed’s ~~further~~attorney ~~alleges that~~fees in connection with the ~~Company~~arbitration, ~~intends~~and interest. The final settlement amount is to ~~breach~~be ~~our~~paid ~~remaining~~$500,000 ~~purchase~~on ~~obligations~~February ~~under~~11, ~~the~~2025, $1.83 ~~Supply~~million ~~Agreement~~on or before February 28, ~~representing~~2025, anand ~~additional~~$2.44 million on or before December 31, 2025. As of June 30, 2024, the Company accrued $184.577 million inrelated ~~alleged~~to ~~damages~~the final settlement and expected payments.

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 not yet been scheduled. The final determinations of liability arising from this matter will only be made following comprehensive investigations, discovery and arbitration processes.

Item 4.

Mine Safety Disclosures

Not applicable.

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PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and 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
April 1, 2023 – April 30, 2023		-	$	-		-	$	4,510,021
April 1, 2024 – April 30, 2024		-	$	-		-	$	4,510,021
May 1, 2023 – May 31, 2023		-	$	-		-	$	4,510,021
May 1, 2024 – May 31, 2024		-	$	-		-	$	4,510,021
June 1, 2023 – June 30, 2023		-	$	-		-	$	4,510,021
June 1, 2024 – June 30, 2024		-	$	-		-	$	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.

Market for Registrant’s Common Equity

Our common stock is traded on the Nasdaq Capital Market under the symbol “CTHR.” As of ~~September~~March 295, ~~2023~~2025, there were ~~210~~199 shareholders of record of our common stock.

We did not pay any dividends on our common stock during the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023. We will regularly review and consider the best policies and practices for our company, including the dividend policy. The payment of ~~future~~ future dividends will be dependent on the facts and circumstances at the time of that review.

Item 6.

[Reserved]

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Item 7.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to provide a better understanding of our 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 Item 1A, “Risk Factors” and our consolidated financial statements and the notes thereto included in Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Historical results and percentage relationships among any amounts in the consolidated financial statements are not necessarily indicative of trends in operating results for future periods.

Business Overview

Our Mission

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 manufacture, market, and distribute Charles & Colvard Created Moissanite® (which we refer to as moissanite or moissanite jewels) and in September 2020, we announced our expansion into the lab grown diamond market with the launch of Caydia®, an exclusive brand of premium lab grown diamonds. We offer gemstones and finished jewelry featuring our proprietary moissanite jewels and premium lab grown diamonds for sale in the worldwide fine jewelry market. Charles & Colvard is the original source of created moissanite, and in 2015, we debuted Forever One™, our premium moissanite gemstone brand. As an e-commerce and multi-channel destination for fine jewelry featuring lab grown gemstones, we believe that the addition of lab grown diamonds is a natural progression for the Charles & Colvard brand.

We sell loose moissanite jewels, lab grown diamonds, and finished jewelry set with these gems through two operating segments: our Online Channels segment, which encompasses our digital properties components, comprised of our charlesandcolvard.com, moissaniteoutlet.com, and ~~moissaniteoutlet~~madenetwork.com websites, charlesandcolvarddirect.com, 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~~ 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 that our goods appeal to a wide 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 important component to this strategy, which entails delivering tailored educational content, engaging in 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, as well as 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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We believe our expanding application of an omni-channel sales strategy across the fine jewelry trade and to the end consumer with accessible gemstones and value branded finished jewelry featuring Charles & Colvard Created Moissanite^® and Caydia^® lab grown diamonds positions our products at the many touchpoints where consumers are when they are making their buying decisions – thereby continuing to create greater exposure for our brand and increasing consumer demand.

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, ~~subsequent to June 30, 2023,~~ we implemented recommended strengthening of our access requirements, and improved our unauthorized access detection.

~~Subsequent to June 30~~Additionally, ~~2023,~~ 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~~ 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~~Fiscal ~~first~~2024 ~~quarter~~ of ~~the~~approximately ~~fiscal year ending June 30~~$300,000 ~~2024,~~(of orwhich ~~Fiscal 2024~~$232,000 ~~and~~was ~~expect~~paid todirectly ~~continue~~by toour ~~incur~~insurance ~~costs in connection with this incident~~carrier). InThese ~~the first quarter of 2024, these~~ costs have been ~~primarily~~ 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~~ 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.

Additional information on the risks we face related to this event and other potential cybersecurity incidents is included in Part I, Item 1A., “Risk Factors.”

~~Highlights~~Reverse ofStock ~~the Fiscal Year Ended June 30, 2023~~Split

~~During~~On May 14, 2024, the ~~fiscal~~Company ~~year~~filed ~~ended~~an ~~June~~Articles ~~30,~~of ~~2023,~~Amendment weto ~~delivered~~its onArticles ~~several~~of ~~key~~Incorporation ~~initiatives,~~(the ~~which~~“Amendment”) wewith ~~believe~~the ~~positions~~North usCarolina Secretary of State to effect the 1-for-10 ~~future~~reverse ~~growth~~stock assplit weof ~~move~~the ~~forward~~Company’s ~~into~~shares of common stock (“Reverse Stock Split”). As a result of the ~~fiscal~~Reverse ~~year~~Stock ~~ending~~Split, ~~June~~every 3010 shares of common stock issued and outstanding immediately prior to the effectiveness of the Reverse Stock Split were combined and converted into one share of common stock. The Reverse Stock Split became effective May 17, 2024, orand ~~Fiscal~~the ~~2024~~common stock was quoted on the Nasdaq Stock Market on a post-split basis at the open of business on that same day. No ~~These~~fractional ~~accomplishments~~shares were issued in ~~the~~connection with ~~fiscal~~ the ~~year~~Reverse ~~ended~~Stock ~~June~~Split. Shareholders ~~30,~~who ~~2023,~~would orhave ~~Fiscal~~otherwise ~~2023,~~been ~~include~~entitled to a fraction of one share of common stock as a result of the ~~following:~~Reverse Stock Split instead received one whole share of common stock.

•All ~~Strengthen~~share ~~our Brand. In early December 2022~~amounts, weper ~~hosted~~share a multiple-day private press event in New York City that included interviews with editors of numerous fashion and jewelry print and electronic media publications to showcase and promote our brand of fine jewelry. Throughout the fiscal quarter ended December 31data, ~~2022,~~share ~~our~~prices ~~finished jewelry products were featured in multiple national~~ and ~~local~~conversion ~~print~~rates ~~and~~set ~~electronic~~forth ~~media~~herein ~~publications~~have, ~~such~~where ~~as InStyle~~applicable, ~~HuffPost,~~been ~~Forbes,~~adjusted ACretroactively Magazine, The Knot®, National Jeweler, WRAL, and the Triangle Business Journal. During the quarter, we also launched local print media public relations campaigns in Midtown Magazine and Raleigh Magazine to ~~promote~~reflect the opening of our Charles & Colvard Signature Showroom. In January 2023, we launched our bridal and fashion jewelry collections on 15- and 30-second commercial advertisement packages on NBC Universal’s Peacock Streaming Service, or Peacock. Peacock is now the streaming home for NBC’s broadcast shows, including the network’s own Peacock Original Broadcasts on Originals Hub, Bravo Hub, NBC Network Hub, Telemundo Hub, WWE Hub, MSNBC Hub, and Hallmark Channel Hub. In mid-January, we participated in the Wedding Venue at Raleigh, North Carolina’s Maxwell Winter Showcase. Charles & Colvard was the premier bridal and anniversary jewelry vendor that participated in this ~~event.~~reverse ~~Raleigh’s~~stock ~~Maxwell events are well known in the Central North Carolina region and offer a setting where a touch of modern elegance meets classic luxury~~split. This event, in particular, provided our collections with a premier setting to showcase our bridal and anniversary fine jewelry brands to the regional retail market. In April 2023 we hosted a private/invite-only Spring Preview in New York City with over 30 editors and influencers from The Knot, NBCU, Today, US Weekly, etc. to showcase new Forever One™ and Caydia® fine jewelry styles;

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• Marketing Strategy to Increase Awareness. In addition to the accomplishments discussed above in “Strengthen Our Brand”, as we move forward into Fiscal 2024, our strategic focus remains centered on the health and growth of our brand on a global scale. We will continue to execute our key strategies with an ongoing commitment to measured spending and generating sustainable earnings improvement. In December 2022, the popularity of our Made, not Mined™ Caydia® lab grown diamonds was the subject of a proprietary news feature broadcast on Spectrum News Channel 1, which is a primary cable news channel network that is broadcast statewide throughout North Carolina. Lastly, and in conjunction with our community outreach programs, during the December year-end holiday season, we sponsored the 29th Annual Jingle Ball at the North Carolina Museum of Natural Sciences, which is hosted by Capital City Clauses, Inc., a federally registered 501(c)(3) nonprofit corporation whose mission is to enrich children’s lives in the Raleigh metropolitan area by providing toy gifting and basic needs to those who are underprivileged and in need during the Christmas holidays and beyond;

• Enhance and Expand Product Assortment. In Fiscal 2023, we took several steps to broaden available selections of finished jewelry, which features our exclusive brand of premium lab grown diamonds, with an expanded Couture Collection assortment of finished jewelry that showcases a combination of mixed cuts of our Caydia® lab grown diamonds and recycled precious metals featuring new designs of rings, earrings, and pendant styles that we believe is the future of Made, not Mined™ fine jewelry. We believe this collection showcases a combination of mixed cut gemstones in single designs to create consumer interest. Also, during Fiscal 2023, we expanded our Ouro Edition of fine jewelry to include Caydia® lab grown diamond fashion pieces. The Ouro Edition is our curation of polished recycled 14 karat gold jewelry pieces with a design focus on geometric shapes. We believe that Ouro – which is Portuguese for gold – will bring a fresh approach to our finished jewelry in modern dimensional styles in yellow gold to bring our fine luxury jewelry to the forefront of modern fashion. In addition, with the launch of our latest lab grown precious gemstones in color, which we announced in October 2022, we are now offering a colorful new dimension of our Made, not Mined™ fine jewelry repertoire featuring lab grown ruby, sapphire, and emerald gemstones. We further offered an expanded assortment of Caydia® lab grown diamonds to include higher total carat weight items adding finished jewelry featuring lab grown diamonds with total carat weights of up to and in some cases exceeding 4.0 carats. Previously, we focused primarily on smaller total carat weight items of finished jewelry featuring our Caydia® lab grown diamonds. In Fiscal 2023 we expanded our bridal and engagement fine jewelry collections of styles featuring Forever One™ moissanite to continue to showcase and promote finished jewelry featuring our core product gemstone. Lastly, we launched 55 styles of our patented Signature Collection engagement ring and wedding band designs featuring Forever One™ moissanite and expanded our Caydia® lab grown diamond Couture Collection to include additional ring, necklace, earring, and bracelet styles; and launched 47 new fine jewelry styles on charlesandcolvard.com across all categories: and

• Broaden our Footprint. In October 2022, we officially opened the first Charles & Colvard Signature Showroom located in our corporate headquarters in North Carolina’s Research Triangle Park. We believe that consumers are responding positively to our patented Signature Collection designs as well as our wide assortment of Forever One™ moissanite and Caydia® lab grown diamond fine jewelry. Also in October 2022, we hosted a private press event for community leaders and influencers, allowing them to experience the new broadcast studio located in our corporate headquarters. This studio is a digital extension of the sales team and a tool that our marketing team utilizes for video content production, live-stream shopping, designer and influencer interviews, and fashion photography. We believe our brick-and-mortar expansion and digital marketing capability will continue to further position and define our brand in what we believe is a rapidly evolving consumer landscape and allow us to compete more effectively and, we believe, increase our market share within the fine jewelry space. In June 2023, we launched charlesandcolvarddirect.com selling loose moissanite gems (Forever One™ and Moissanite by Charles & Colvard®) to specific retailers. In addition, we launched three new dropship partnerships with Moissanite by Charles & Colvard® fine jewelry.

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AsHighlights ~~evidenced by our results for Fiscal 2023, domestic and global inflation and rising interest rates, coupled with ongoing fears~~ of ~~recession and~~ the ~~overall~~Fiscal ~~worsening~~Year ofEnded ~~macroeconomic conditions that we witnessed during the fiscal year ended~~ June 30, 2023, combined to continue eroding consumer confidence and presenting major challenges for the global retail and e-commerce industry. While American consumers continue spending more on consumer goods to keep up with higher prices, consumers are spending on necessities and other required goods and services and moving away from spending on luxury items. We expect that consumers will continue to feel pressured financially, particularly throughout the remaining calendar year 2023. We are facing similar challenges to other retailers, including those in the e-commerce space, but particularly those in the luxury product retail arena. In addition, we continue seeing ongoing increased costs of digital advertising spend, known as cost-per-click in the digital advertising world, due to intense competition and pricing pressures in the lab grown gem and finished jewelry space. While management remains focused to take the required steps necessary to mitigate the impact, the Company’s costs that continue to increase will result in further pressure on its revenues, margins, and cash flows.2024

~~Our~~During ~~MD&A~~Fiscal ~~generally~~2024, ~~discusses~~we ~~Fiscal~~delivered ~~2023~~on ~~and~~several ~~Fiscal~~key ~~2022~~initiatives, ~~items~~which ~~and~~we believe ~~year-~~will enable us to~~-year~~ ~~comparisons~~maintain ~~between~~our ~~Fiscal~~brand ~~2023~~positioning ~~and~~as we navigate Fiscal ~~2022~~2025. These accomplishments in Fiscal 2024, include the following:

~~Results~~• Global Brand Awareness. In our quest to further brand awareness, the Company announced its new brand ambassador strategic partnership with American actress Skyler Samuels. We also partnered with Erin Lim Rhodes, host of ~~Operations~~E! The Rundown, to promote our Caydia® lab-grown diamond fine jewelry on her social platforms, including on the red carpet of the 2024 People’s Choice Awards in February. Our Forever One™ moissanite fine jewelry was featured on a Mother’s Day gifting segment on Sherri, a nationally syndicated talk show. Focusing on strategic partnerships with relevant influencers allowed us to showcase our products in a relatable context, creating genuine connections with our current clientele while reaching potential new customers. Charlesandcolvard.com partnered with the National Breast Cancer Foundation, Inc. to host a social media giveaway campaign in October. The Company also sponsored Raleigh Magazine’s Cocktail Classic event in November. To drive traffic and awareness to the Company’s Signature Showroom in Morrisville, the brick-and-mortar retail store was featured in a full-page spread in The Scout Guide of Raleigh, Durham, & Chapel Hill. Throughout the fiscal year ended June 30, 2024, our finished jewelry products were featured in multiple national and local print and electronic media publications, including notable outlets such as Glamour, Bridal Guide, TODAY.com, theknot.com, Brides.com, JCKonline.com, Insider.com, MarieClaire.com, USAToday.com, NYPost.com, Byrdie.com, NationalJeweler.com, and ETOnline.com. We also continued to invest in digital streaming with the launch of the Company’s new owned multimedia network, MADE Shopping™, in October 2023. The Company’s newly owned transactional website, madeshopping.com, launched to support the MADE Shopping™ programming. We also launched two strategic drop-ship partnerships—with Fred Meyer Jewelers and the Army & Air Force Exchange Service, or The Exchange, reaching new customers, which, we believe, are our primary target market. We continued to focus on the trade with the expansion of our B2B transactional website, charlesandcolvarddirect.com. The Company showcased the online trade portal and moissanite gemstone product brands Forever One™ and Forever Bright™ with a booth in June during JCK, the world’s largest and most trusted jewelry industry trade event.

~~The~~• ~~following~~Diversify ~~table~~Product ~~sets~~Categories. ~~forth~~In ~~certain~~Fiscal ~~consolidated~~2024, ~~statements~~we debuted several new products, introduced new collections, and expanded existing collections. We expanded our assortment of ~~operations~~Forever ~~data~~One™ ~~for~~moissanite and Caydia® lab-grown diamond fine jewelry styles on charlesandcolvard.com across all categories, including bridal and anniversary styles in both moissanite and lab-grown diamond; the ~~fiscal~~Couture ~~years~~Collection ~~ended~~in ~~June~~lab-grown 30diamond; fashion jewelry assortments in both moissanite and lab-grown diamond; and men’s fine jewelry in lab-grown diamond. We introduced the Made in Color Collection featuring fashion rings set with fancy pink and yellow lab-grown diamonds in 14K yellow and rose gold. We also added new Forever One™ moissanite styles in Helzberg Diamonds brick-and-mortar stores and on helzberg.com. We introduced Caydia® lab-grown diamond men’s fine jewelry styles in select Helzberg Diamond brick-and-mortar stores and on helzberg.com. We debuted lab-grown diamond finished jewelry products with dropship and marketplace partners, ~~2023~~including Amazon, Belk.com, eBay, ShopHQ, and ~~2022:~~Walmart.com. Finally, we announced our strategic shift within the Traditional segment with the formal launch of charlesandcolvarddirect.com for independent jewelers and retailers to purchase our product brand, Forever One™ moissanite, while also introducing the Company’s newest gemstone brand, Forever Bright™.

	Year Ended June 30,
	2023			2022
Net sales	$	29,946,234		$	43,089,024
Costs and expenses:
Cost of goods sold		25,212,383			22,845,702
Sales and marketing		13,686,049			12,421,138
General and administrative		5,023,822			4,948,980
Total costs and expenses		43,922,254			40,215,820
(Loss) Income from operations		(13,976,020	)		2,873,204
Other income (expense):
Interest income		297,262			19,277
Loss on foreign currency exchange		-			(34	)
Total other income, net		297,262			19,243
(Loss) Income before income taxes		(13,678,758	)		2,892,447
Income tax expense		(5,902,036	)		(518,532	)
Net (loss) income	$	(19,580,794	)	$	2,373,915

•

Innovative Technology. We continue investing in innovative technology to position us for success and foster long-term sustainability and relevance in an ever-evolving landscape. In June, we launched our Next Gen website revamp of charlesandcolvard.com, which led to significant improvements in site-load speed, which directly impacts user experience. Our enhanced technology platform also significantly boosted our website’s visibility on search engines, allowing more potential customers to discover us. We realized improvements in Search Engine Optimization (“SEO”) and SEO rankings, streamlined product categories and offerings, and added a two-step ring builder to allow the customer to build their engagement ring. We also reduced expenses by consolidating infrastructure to eliminate duplicative or unnecessary third-party services.

~~Consolidated~~As ~~Net~~evidenced ~~Sales~~by our results for Fiscal 2024, strained consumer spending reflects the challenges many households face as they navigate rising prices and increased living costs. As inflation persists, consumers prioritize essential goods and services over discretionary expenditures, leading to declining sales of luxury and non-essential items. Moreover, increased competition and heightened marketing and advertising costs continue to impact revenues and margins. Management remains steadfast and focused on prioritizing profitability and shareholder value. We intend to remain agile and responsive to evolving consumer priorities while managing operational expenses.

~~Consolidated~~Our ~~net~~MD&A ~~sales~~generally ~~for~~discusses ~~the~~Fiscal ~~fiscal~~2024 ~~years~~and ~~ended~~Fiscal ~~June 30,~~ 2023 items and ~~2022~~year-to-year ~~comprise~~comparisons ~~the~~between ~~following:~~Fiscal 2024 and Fiscal 2023.

	Year Ended June 30,				Change
	2023		2022		Dollars			Percent
Finished jewelry	$	23,985,614	$	29,712,230	$	(5,726,616	)		(19	)	%
Loose jewels		5,960,620		13,376,794		(7,416,174	)		(55	)	%
Total consolidated net sales	$	29,946,234	$	43,089,024	$	(13,142,790	)		(31	)	%

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~~Consolidated~~Results ~~net sales were $29.95 million for the fiscal year ended June 30, 2023 compared to $43.09 million for the fiscal year ended June 30, 2022, a decrease~~ of $13.14 million, or 31%. We had lower net sales in both operating business segments during the fiscal year ended June 30, 2023. Overall consumer confidence has continued to show signs of weakening due to general economic uncertainties, coupled with domestic and worldwide inflation, including recessionary fears, and rising interest rates. Notwithstanding the calendar year-end 2022 holiday shopping season and the Valentine’s Day occasion during February 2023 and Mother’s Day during May 2023, these conditions have brought about lower consumer demand for our finished jewelry products, which resulted in lower net sales in our Online Channels segment during the fiscal year ended June 30, 2023. These same general economic conditions also caused weakness in demand for moissanite jewels from our domestic and international distributors, which in turn resulted in lower loose jewel and jewelry product net sales during the fiscal year ended June 30, 2023 in our Traditional segment.Operations

~~Sales~~The offollowing ~~finished~~table ~~jewelry~~sets ~~represented~~forth ~~80%~~certain ~~and~~consolidated ~~69%~~statements of ~~total~~operations ~~consolidated~~data ~~net sales~~ for the fiscal years ended June 30, ~~2023~~2024 and ~~2022, respectively. For the fiscal year ended June 30,~~ 2023, finished jewelry sales were $23.99 million compared to $29.71 million for the fiscal year ended June 30, 2022, a decrease of $5.73 million, or 19%. This decrease in finished jewelry sales was 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 20% and 31% of total consolidated net sales for the fiscal years ended June 30, 2023 and 2022, respectively. For the fiscal year ended June 30, 2023, loose jewel sales were $5.96 million compared to $13.38 million for the fiscal year ended June 30, 2022, a decrease of $7.42 million, or 55%. The decrease for the fiscal year ended June 30, 2023 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.

	Year Ended June 30,
	2024			2023
Net sales	$	21,956,472		$	29,946,234
Costs and expenses:
Cost of goods sold		16,764,099			25,212,383
Sales and marketing		12,546,547			13,686,049
General and administrative		5,777,216			5,023,822
Legal settlement and related expenses		1,474,567			-
Total costs and expenses		36,562,429			43,922,254
Loss from operations		(14,605,957	)		(13,976,020	)
Other income (expense):
Interest income		300,718			297,262
Interest and other expense		(57,718	)		-
Total other income, net		243,000			297,262
Loss before income taxes		(14,362,957	)		(13,678,758	)
Income tax expense		-			(5,902,036	)
Net loss	$	(14,362,957	)	$	(19,580,794	)

~~U.S.~~Consolidated ~~net~~Net sales accounted for approximately 97% and 95% of total consolidated net sales during the fiscal years ended June 30, 2023 and 2022, respectively. U.S. net sales decreased to $29.06 million during the fiscal year ended June 30, 2023 compared to $41.14 million during the fiscal year ended June 30, 2022, primarily as a result of decreased sales to U.S. customers in both our Online Channels segment and Traditional segment for the same reasons outlined above.Sales

~~Our~~Consolidated ~~largest U.S. customer during the fiscal years ended June 30, 2023 and 2022 accounted for 14% of total consolidated~~ net sales ~~during~~for ~~each of~~ the fiscal years ~~then~~ ended. ~~Other than our U.S. customer noted above during the fiscal years ended~~ June 30, ~~2023~~2024 and ~~2022,~~2023 wecomprise ~~had no other customers with sales that represented 10% or more of total consolidated net sales for~~ the periods then ended. We expect that we, along with 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.following:

International net sales accounted for approximately 3% and 5% of total consolidated net sales during the fiscal years ended June 30, 2023 and 2022, respectively. International net sales decreased to $890 thousand during the fiscal year ended June 30, 2023 compared to $1.95 million in the fiscal year ended June 30, 2022. International sales decreased during the fiscal year ended June 30, 2023, compared to the prior fiscal year primarily due to lower demand in our international distributor market due to shutdowns in the Asia Pacific region and increased competition during the fiscal year ended June 30, 2023, coupled with the strength of the U.S. dollar against foreign currencies. In light of the effects of ongoing global economic conditions, we continue to evaluate these and other potential distributors in international markets to determine the best long-term partners. As a result, and in light of the impact from the ongoing worldwide pandemic and international trade challenges, we expect that our sales in these markets may significantly fluctuate each reporting period.

	Year Ended June 30,				Change
	2024		2023		Dollars			Percent
Finished jewelry	$	20,124,904	$	23,985,614	$	(3,860,710	)		(16	)%
Loose jewels		1,831,568		5,960,620		(4,129,052	)		(69	)%
Total consolidated net sales	$	21,956,472	$	29,946,234	$	(7,989,762	)		(27	)%

We did not have an international customer account for 10% or more of total consolidated sales during the fiscal years ended June 30, 2023 and 2022. A portion of our international consolidated sales represents jewels sold internationally that may be re-imported to U.S. retailers.

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Consolidated net sales were $21.96 million for the fiscal year ended June 30, 2024 compared to $29.95 million for the fiscal year ended June 30, 2023, a decrease of $7.99 million, or 27%. We had lower net sales in both operating business segments during the fiscal year ended June 30, 2024. Overall consumer confidence has continued to show signs of weakening due to general economic uncertainties, coupled with domestic and worldwide inflation, including recessionary fears, and rising interest rates, as well as commodity price increases. These conditions have brought about lower consumer demand for our finished jewelry products, which resulted in lower net sales in our Online Channels segment during the fiscal year ended June 30, 2024. These same general economic conditions, coupled with the negative impacts that downward lab grown pricing pressures have had on moissanite, also caused weakness in demand for moissanite jewels from our domestic and international distributors, which in turn resulted in lower loose jewel and jewelry product net sales during the fiscal year ended June 30, 2024 in our Traditional segment.

Sales of finished jewelry represented 92% and 80% of total consolidated net sales for the fiscal years ended June 30, 2024 and 2023, respectively. For the fiscal year ended June 30, 2024, finished jewelry sales were $20.12 million compared to $23.99 million for the fiscal year ended June 30, 2023, a decrease of $3.87 million, or 16%. This decrease in finished jewelry sales was 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 8% and 20% of total consolidated net sales for the fiscal years ended June 30, 2024 and 2023, respectively. For the fiscal year ended June 30, 2024, loose jewel sales were $1.83 million compared to $5.96 million for the fiscal year ended June 30, 2023, a decrease of $4.13 million, or 69%. The decrease for the fiscal year ended June 30, 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 98% and 97% of total consolidated net sales during the fiscal years ended June 30, 2024 and 2023, respectively. U.S. net sales decreased to $21.50 million during the fiscal year ended June 30, 2024 compared to $29.06 million during the fiscal year ended June 30, 2023, primarily as a result of 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 fiscal years ended June 30, 2024 and 2023 accounted for 13% and 14%, respectively of total consolidated net sales during each of the fiscal years then ended. Other than our U.S. customer noted above during the fiscal years ended June 30, 2024 and 2023, we had no other customers with sales that represented 10% or more of total consolidated net sales for the periods then ended. We expect that we, along with 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 2% and 3% of total consolidated net sales during the fiscal years ended June 30, 2024 and 2023, respectively. International net sales decreased to $460 thousand during the fiscal year ended June 30, 2024 compared to $890 thousand in the fiscal year ended June 30, 2023. International sales decreased during the fiscal year ended June 30, 2024, compared to the prior fiscal year primarily due to lower demand in our international distributor market and increased competition during the fiscal year ended June 30, 2024. In light of the effects of ongoing global economic conditions, we continue to evaluate these and other potential distributors in international markets to determine the best long-term partners. As a result, and in light of the impact from potential international trade challenges, we expect that our sales in these markets may significantly fluctuate each reporting period.

We did not have an international customer account for 10% or more of total consolidated sales during the fiscal years ended June 30, 2024 and 2023. A portion of our international consolidated sales represents jewels sold internationally that may be re-imported to U.S. retailers.

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Costs and Expenses

Cost of Goods Sold

Cost of goods sold for the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023 are as follows:

	Year Ended June 30,				Change
	2023		2022		Dollars			Percent
	2024		2023		Dollars			Percent
Product line cost of goods sold:
Finished jewelry	$	1211,~~397~~144,~~091~~997	$	1312,~~932~~397,~~700~~091	$	(1,~~535~~252,~~609~~094	)		(1110	)%
Loose jewels		2707,~~744,977~~708		62,~~169~~744,~~790~~977		(32,~~424~~037,~~813~~269	)		(5674	)%
Total product line cost of goods sold		1511,~~142~~852,~~068~~705		2015,~~102~~142,~~490~~068		(43,~~960~~289,~~422~~363	)		(2522	)%
Non-product line cost of goods sold		104,~~070~~911,~~315~~394		210,~~743~~070,~~212~~315		7(5,~~327~~158,~~103~~921	)		~~267~~(51	)%
Total cost of goods sold	$	2516,~~212~~764,~~383~~099	$	2225,~~845~~212,~~702~~383	$	2(8,~~366~~448,~~681~~284	)		10(34	)%

Total cost of goods sold was $2516.2176 million for the fiscal year ended June 30, ~~2023~~2024, compared to $2225.8521 million for the fiscal year ended June 30, ~~2022~~2023, a net ~~increase~~decrease of approximately $28.3745 million, or 1034%. Product line cost of goods sold is defined as direct product cost of goods sold in each of our Online Channels segment and Traditional segment excluding indirect non-~~capitalized~~product ~~expenses~~line cost of goods sold from our manufacturing and production control departments, comprising personnel costs, depreciation, rent, utilities, and corporate overhead allocations; freight out; inventory write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods.

The ~~increase~~decrease in total cost of goods sold for the fiscal year ended June 30, ~~2023~~2024, as compared to the fiscal year ended June 30, ~~2022~~2023 was primarily driven by an ~~increase~~decrease in non-product line cost of goods sold offset byand a decrease of sales of of finished jewelry and loose jewels during the fiscal year ended June 30, ~~2023~~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~~ product demand and loose jewel demand during the fiscal year ended June 30, ~~2023~~2024. Likewise, we saw lower loose jewel product demand and finished jewelry product demand in our Traditional segment throughout Fiscal ~~2023~~2024.

The net ~~increase~~decrease in non-product line cost of goods sold of $5.16 million for the fiscal year ended June 30, ~~2023~~2024 ~~comprises~~primary driven by a decrease in inventory write-~~down~~downs of approximately $5.990 million ~~representing~~, ~~the~~which ~~carrying~~was ~~value~~related ofto a ~~portion of the Company’s non~~one-~~Forever~~time ~~One™ loose jewels~~ inventory~~. The non-Forever One™ material inventory (mainly the classifications for our~~ ~~multiple grade Moissanite by Charles & Colvard® gemstones and lab~~ write-~~grown~~down ~~diamonds) is comprised~~ of ~~raw materials, or boules, work-in-process gemstones, and loose finished gemstones~~$5.9 ~~Certain~~million ~~grades of the Company’s Moissanite by Charles & Colvard® loose gemstones and lab-grown diamonds have seen a market deterioration which started~~ in ~~the~~fiscal ~~quarterly~~year ~~period ended June 30,~~ 2023 ~~due to the recent downward pricing pressure on both mined~~ and ~~lab~~a ~~grown~~decrease ~~diamonds. These trends~~ in the ~~diamond~~2024 market have now put considerable pricing pressure on moissanite – for rough and loose gemstones – and due to oversupply of rough and loose gems for lab grown diamonds the net realizable value of such inventory has decreased. Additionally, the net increase includes an approximate $1.1 million increase in other inventory adjustments principally related to Fiscal 2023 cycle book-to-physical inventory adjustments ~~and~~of ~~changes in production standard cost variances compared to those in the fiscal year ended June 30, 2022 and an approximate~~ $~~549~~580,000 ~~increase~~compared ~~in non-capitalized manufacturing production control expenses principally related~~ to the ~~timing~~prior offiscal ~~when work-in-process goods are received into inventory and overhead costs are allocated~~year. These ~~increases~~decreases ~~was~~were partially offset by a $~~127,000~~1.32 ~~decrease~~million ~~in freight out principally from decreased shipments resulting from lower Online Channels segment sales during the fiscal year ended June 30, 2023 and an approximate $76,000 decrease in~~ inventory write-~~offs,~~down ~~exclusive of amounts previously mentioned, primarily related to decreases~~ in ~~obsolescence reserves in~~ the ~~fiscal~~carrying ~~year~~value ~~ended~~of ~~June~~finished ~~30,~~goods ~~2023, compared to those~~ in ~~the~~finished ~~comparable prior fiscal year~~jewelry.

In the year-ended June 30, 2024, management determined for certain finished jewelry inventory, evidence existed that the net realizable value of this inventory had fallen below that of its historical carrying cost. We recorded a write-down of approximately $1.3 million of the Company’s finished jewelry inventory to adjust the carrying value of such inventory to its net realizable value.

For further discussion of non-product line cost of goods sold, see Note 3 to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

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Sales and Marketing

Sales and marketing expenses for the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023 are as follows:

	Year Ended June 30,				Change
	2023		2022		Dollars			Percent
	2024		2023		Dollars			Percent
Sales and marketing	$	1312,~~686~~546,~~049~~547	$	1213,~~421~~686,~~138~~049	$	(1,~~264~~139,~~911~~502	)		10(8	)%

Sales and marketing expenses were $1312.6955 million for the fiscal year ended June 30, ~~2023~~2024 compared to $1213.4269 million for the fiscal year ended June 30, ~~2022~~2023, ana ~~increase~~decrease of approximately $1.2614 million, or 108%. The ~~increase~~decrease in sales and marketing expenses for the fiscal year ended June 30, ~~2023~~2024 compared to the fiscal year ended June 30, ~~2022~~2023 was primarily due to a $~~513~~762,000 ~~increase~~decrease in advertising and digital marketing expenses ~~due to an increase in targeted direct-to-consumer top-of-funnel brand awareness campaigns~~; a $~~252~~253,000 ~~increase~~decrease in compensation expenses; a $~~242~~298,000 ~~increase~~decrease in general business ~~and franchise~~ taxes; aprimarily ~~$175,000~~due ~~increase~~to insales ~~professional~~and ~~services~~use ~~principally comprising consulting services for marketing support in the current year period~~taxes; aand ~~$28,000 increase in telephone-related communications expenses;~~ a $22122,000 ~~increase~~decrease in ~~employee-related~~bank ~~recruiting and search~~ fees ~~for~~These ~~new~~decreases ~~hires;~~were apartially ~~$15,000~~offset ~~increase~~by ~~in supplies and customer promotional gifts, primarily~~ a ~~“gift with purchase” program associated with the opening of our Signature Showroom in the current fiscal year; a~~ $14160,000 increase in software-related costs incurred primarily in ~~connection~~ connection with new software-related agreements associated with upgraded sales-related operating systems; a $376,000 increase in ~~depreciation~~professional ~~and~~services ~~amortization expense~~ principally comprising ~~related~~consulting toservices ~~new~~for ~~sales-related~~marketing ~~systems~~support ~~hardware~~in ~~and~~the ~~software;~~current ~~and~~year a period; $336,000 ~~net~~ increase in ~~general office~~Telephone/fiber-related communications expenses.; ~~These~~$23,000 ~~increases~~net ~~were~~increase ~~offset~~in ~~partially~~customer bymeetings aand ~~$2,000~~general ~~decrease~~office-related ~~in travel expenses~~expense.

The ~~increase~~decrease in advertising and digital marketing expenses for the fiscal year ended June 30, ~~2023~~2024 compared to the fiscal year ended June 30, ~~2022~~2023 was primarily due to ~~an $821,000 increase in digital advertising spend;~~ a $92140,000 ~~increase~~decrease in ~~outside~~brand ~~agency fees;~~awareness ~~and a $1,000 increase in print media~~ expenses.; ~~These increases were offset partially by~~ a $~~186~~606,000 decrease in cooperative advertising; aexpense ~~$135,000~~related ~~decrease~~to inconsideration ~~brand~~of ~~awareness~~these ~~marketing~~expenses ~~campaign~~as ~~expenditures~~contra-revenue asunder aASC ~~result~~606, ofand ~~fewer promotional~~are ~~activities~~reflected in ~~the~~that ~~current~~manner ~~fiscal~~for ~~year~~Fiscal 2024; and ana $8016,000 decrease in ~~expenses~~trade ~~relating to our participation in the 2021 JCK Trade Show held in the prior fiscal year for which we did not host a booth in the 2022 JCK Trade~~ show ~~held during the current fiscal year~~expenses.

Compensation expenses for the fiscal year ended June 30, ~~2023~~2024 compared to the fiscal year ended June 30, ~~2022~~2023 ~~increased~~decreased primarily as a result of: a ~~$344,000~~reduction ~~increase~~ in salaries (and benefits due to ~~fluctuations~~a reduction in headcount ~~throughout~~for the year), approximating ~~commissions~~ $84,000; ~~and~~a ~~related~~reduction ~~employee benefits~~ in ~~the~~bonus ~~aggregate~~expense ~~and~~of aapproximately $5139,000; ~~increase~~and ~~in severance-related expenses associated with~~ a reduction~~-in-force~~ ~~during the current fiscal year. These increases were partially offset by a $62,000 decrease~~ in ~~bonus~~stock option expense ~~and~~of aapproximately $3530,000 ~~decrease in employee stock-based compensation expense~~.

General and Administrative

General and administrative expenses for the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023 are as follows:

	Year Ended June 30,				Change
	2023		2022		Dollars		Percent
	2024		2023		Dollars		Percent
General and administrative	$	5,~~023~~777,~~822~~216	$	45,~~948~~023,~~980~~822	$	74753,~~842~~394		215	%

General and administrative expenses were $5.0278 million for the fiscal year ended June 30, ~~2023~~2024 compared to $45.9502 million for the fiscal year ended June 30, ~~2022~~2023, an increase of approximately $75753,000, or 215%. The increase in general and administrative expenses for the fiscal year ended June 30, ~~2023~~2024 compared to the fiscal year ended June 30, ~~2022~~2023 was primarily due to: a $~~199,000~~1.14 million increase in professional services; aan $~~187~~18,000 increase in ~~depreciation~~taxes and ~~amortization~~licenses; ~~expense related~~a to$66,000 ~~general office leasehold improvements associated with the lease on our corporate headquarters and business expansion related to the opening of our new Charles & Colvard Signature Showroom~~increase ~~also located~~ in ~~our~~depreciation ~~headquarters~~and ~~campus~~amortization; a $~~105~~28,000 increase in ~~travel and expense related expenditures as we returned to more traditional business travel patterns following the pandemic~~insurance; ana $849,000 increase in bad debt expense ~~associated with our allowance for doubtful accounts reserve policy~~; ana ~~increase~~net of $724,000 ~~in general business taxes and licenses; and a $21,000~~ increase in ~~insurance~~other ~~expense, principally~~ administrative-related toexpenses ~~increased cybersecurity premiums.~~ These increases were partially offset by: a $~~411~~415,000 decrease in compensation expenses; a ~~$163~~47,000 decrease in ~~bank~~Board ~~fees~~of ~~resulting~~Directors ~~from the revised fee structure associated with different banking arrangements in place in the current fiscal year versus those in the prior fiscal year~~Compensation; a $1431,000 decrease in ~~rent~~bank ~~expense, primarily related to our corporate headquarters operating lease~~fees; and aan $419,000 ~~net~~ decrease in ~~miscellaneous~~travel ~~other general~~ and ~~administrative expenses~~expense.

40Compensation expenses decreased for the fiscal year ended June 30, 2024 compared to the fiscal year ended June 30, 2023 primarily due to: a $322,000 reduction in salaries and benefits due to a reduction in headcount; and a $124,000 reduction in bonuses. These decreases were partially offset by an increase in stock compensation expense of $31,000.

Professional services fees increased for the fiscal year ended June 30, 2024 compared to the fiscal year ended June 30, 2023 primarily due to: a $680,000 increase in legal fees primarily due to corporate matters; a $344,000 increase in temporary labor and consulting fees due to various strategic consulting projects and pay versus performance analysis; a $103,000 increase in audit and tax fees; and a $13,000 increase in investor relations fees.

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~~Compensation~~Legal ~~expenses~~settlement ~~decreased for the fiscal year ended June 30, 2023 compared to the fiscal year ended June 30, 2022 primarily due to a $463,000 decrease in employee stock-based compensation expense~~ and ~~a $169,000 decrease in bonus expense. These decreases were partially offset by a $217,000 net increase in salaries and~~ related ~~employee benefits in the aggregate (due to fluctuations in headcount throughout the year), and a $5,000 increase in severance-related~~ expenses ~~associated with a reduction-in-force during the current fiscal year.~~

~~Professional~~Legal ~~services~~settlement ~~fees~~and ~~increased~~related expenses for the fiscal ~~year~~years ended June 30, ~~2023~~2024 compared to the fiscal year ended June 30, 2022 primarily due to a $118,000 increase in legal fees associated with corporate governance matters; a $53,000 increase in broker commissions primarily related to our stock repurchase program; a $24,000 increase in investor relations fess; and a2023 ~~$4,000~~are ~~increase~~as ~~in fees associated with audit and tax services.~~follows:

	Year Ended June 30,				Change
	2024		2023		Dollars		Percent
Legal settlement and related expenses	$	1,474,567	$	-	$	1,474,567		100	%

Legal settlement and related expenses were $1,474,567 for the fiscal year ended June 30, 2024 compared to $0 for the fiscal year ended June 30, 2023. The $1,474,567 increase in the legal settlement and related expenses is due to the settlement of the Wolfspeed arbitration. Under the terms of the settlement agreement, the Company is expected to pay Wolfspeed $1,474,567 in legal fees and interest.

Interest Income

Interest income for the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023 is as follows:

	Year Ended June 30,				Change
	2023		2022		Dollars		Percent
	2024		2023		Dollars		Percent
Interest income	$	~~297~~300,~~262~~718	$	19297,~~277~~262	$	~~277~~* 53,~~985~~456		*	%

* Not ~~meaningful~~Significant

~~Certain~~Interest ~~cash balances in excess of operating needs are deposited into~~ and ~~maintained~~Other in an interest-bearing account with a commercial bank. Accordingly, during the fiscal years ended June 30, 2023 and 2022, we earned interest from cash on deposit in this interest-bearing account. The increase in earned interest for the fiscal year ended June 30, 2023 reflects movement of invested funds into a higher-yield money market fund in late Fiscal 2022, coupled with the overall increase in interest rates during Fiscal 2023 compared with those in Fiscal 2022.Expense

~~Loss~~Interest onand ~~Foreign~~other ~~Currency~~expense ~~Exchange~~for the fiscal years ended June 30, 2024 and 2023 is as follows:

Loss on foreign currency exchange related to foreign sales transacted in functional currencies other than the U.S. dollar for the fiscal years ended June 30, 2023 and 2022 are as follows:

	Year Ended June 30,				Change
	2024		2023		Dollars		Percent
Interest and other expense	$	57,718	$	-	$	57,718		100	%

	Year Ended June 30,				Change
	2023		2022		Dollars			Percent
Loss on foreign currency exchange	$	-	$	34	$	(34	)		(100	)%

Interest and other expense incurred for the fiscal years ended June 30, 2024 and 2023 was primarily a result of the drawdown on the Company’s line of credit

During the fiscal year ended June 30, 2022, we had international sales transactions denominated in currencies other than the U.S. dollar that resulted in foreign currency exchange net losses. There were no such international sales transactions denominated in foreign currencies during the fiscal year ended June 30, 2023.

Provision for Income Taxes

Our statutory tax rate as of June 30, ~~2023~~2024 is 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. Our statutory tax rate as of the fiscal year ended June 30, ~~2022~~2023 was 22.4594% and consisted of the federal income tax rate of 21.00% and a blended state income tax rate of 1.4594%, net of the federal benefit. Our 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. Driven by the establishment of the valuation allowance during the fiscal quarter ended March 31, 2023, our effective tax rate for the fiscal year ended June 30, ~~2023~~2024 was ~~a negative 43.15~~0%. For the fiscal year ended June 30, ~~2022~~2023, our effective income tax rate was 17a negative 43.9315%.

We recognized a net income tax expense of ~~approximately~~ $~~5.90~~0 ~~million~~ for the fiscal year ended June 30, ~~2023~~2024, compared with a net income tax expense of approximately $~~519,000~~5.90 million for the fiscal year ended June 30, ~~2022~~2023.

41As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. During the three months ended March 31, 2023, we determined that due to the worsening global macro-economic conditions and heightened levels of inflation, including fears of recession, coupled with the effects from worldwide political unrest, the risks associated with these conditions led us to conclude that it was not more likely than not we would have sufficient future taxable income to utilize our deferred tax assets. Additionally, we determined that the positive evidence was no longer sufficient to offset available negative evidence, primarily as a result of the pre-tax operating losses incurred during the three- and nine-month periods ended March 31, 2023. Consequently, we established a full valuation allowance against our deferred tax assets. As of June 30, 2024, we determined that sufficient negative evidence continued to exist to conclude it was uncertain that we would have sufficient future taxable income to utilize our deferred tax assets, and therefore, we maintained a full valuation allowance against its deferred tax assets as we did for the fiscal year ending June 30, 2023.

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As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regard to future realization of deferred tax assets. During the three months ended March 31, 2023, we determined that due to the worsening global macro-economic conditions and heightened levels of inflation, including fears of recession, coupled with the effects from worldwide political unrest and the ongoing economic impact from the COVID pandemic, the risks associated with these conditions led us to conclude that it was not more likely than not we would have sufficient future taxable income to utilize our deferred tax assets. Additionally, we determined that the positive evidence was no longer sufficient to offset available negative evidence, primarily as a result of the pre-tax operating losses incurred during the three- and nine-month periods ended March 31, 2023. Consequently, we established a full valuation allowance against our deferred tax assets. As of June 30, 2023, we determined that sufficient negative evidence continued to exist to conclude it was uncertain that we would have sufficient future taxable income to utilize our deferred tax assets, and therefore, we maintained a full valuation allowance against its deferred tax assets.

Conversely, as of June 30, 2022, we determined at that time our expectations of future taxable income in upcoming tax years, including estimated growth rates applied to future expected taxable income that included significant management estimates and assumptions, would continue to be sufficient to result in full utilization of our remaining federal net operating loss carryforwards and certain of the deferred tax assets prior to any statutory expiration. As a result, we determined that sufficient positive evidence existed as of June 30, 2022, to conclude that it was more likely than not deferred tax assets of approximately $5.85 million remained realizable. However, we further determined that sufficient negative evidence continued to exist to conclude it was uncertain that we would have sufficient future taxable income to utilize certain of our deferred tax assets. Therefore, we continued to maintain a valuation allowance against the deferred tax assets relating to certain state net operating loss carryforwards from our e-commerce subsidiary due to the timing uncertainty of when it would generate positive taxable income to utilize the associated deferred tax assets. In addition, a valuation allowance remained against certain deferred tax assets relating to operating loss carryforwards relating to our dormant subsidiary located in Hong Kong.

Certain Operating Metrics

We believe that certain metrics are key to our business, including but not limited to monitoring our average order value, or AOV, primarily in our transactional website charlesandcolvard.com. We use the AOV computation in part to make ~~strategic~~ strategic digital marketing-related decisions and to monitor the performance and return on investment of our marketing activities. Our AOV is based on financial results and customer-related data for charlesandcolvard.com, LLC, our wholly owned subsidiary through which we operate our primary transactional website. Our calculation for AOV is sensitive to several factors, including sales volume and product mix. Therefore, we believe that this metric may vary widely going forward as we respond to ever- changing consumer demand and provide the products – that may have widely variable price points – which our audiences are seeking.

For the fiscal years ended June 30, ~~2023~~2024 and June 30, ~~2022~~2023, our AOV, based on charlesandcolvard.com revenue, net of returns, divided by the total number of customer orders, is estimated to be approximately $900 and $1,100, ~~in each year~~respectively.

An additional metric that we use to manage charlesandcolvard.com operations and to make strategic digital marketing decisions for our transactional website is period-over-period revenue growth. While we believe this metric is sensitive to many factors and may vary in future periods, we expect to continue to monitor and base our marketing-related investments in part on charlesandcolvard.com revenue growth going forward.

For the fiscal year ended June 30, ~~2023~~2024, we experienced a 2013% year-over-year decline in charlesandcolvard.com revenue compared to revenue for the fiscal year ended June 30, ~~2022~~2023.

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 financial statements included in this Annual Report on Form 10-K. 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 consolidated financial statements in Part II, Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

From a long-term perspective, we believe that our ongoing access to capital markets, including but not limited to the issuance of equity securities or even potential debt securities, coupled with cash provided by operating activities in future periods beyond the next twelve months, will continue to provide us with the necessary liquidity to meet our long-term working capital and capital expenditure requirements.

In connection with our long-term capital resources, we 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. The shelf registration statement is currently not available to offer or sell shares of common stock due to the Company’s late periodic filings. Our long-term 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 and fears of recession. Any capital raise is not assured and may not be at terms that would be acceptable to us.

Our future capital requirements and the adequacy of available funds will depend on many factors, including 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; our sales and marketing activities; the timing and extent of raw materials and labor purchases in connection with loose jewel production to support our moissanite jewels and lab grown diamond business and precious metals and labor purchases in connection with jewelry production to support our finished jewelry business; the timing of capital expenditures; and the risk factors described in more detail in “Risk Factors” in Part I, Item 1A, of this Annual Report on Form 10-K.

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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 13, 2027, 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. Our long-term 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. The shelf registration statement is currently not available to offer or sell shares of common stock due to the Company’s late periodic filings. In addition, on June 12, 2023, we received a notification letter from Nasdaq’s Listing Qualifications Department indicating that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), because the minimum bid price of our common stock on the Nasdaq Capital Market had closed below $1.00 per share for 30 consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company had 180 calendar days, or until December 11, 2023, to regain compliance with the minimum bid price requirement. The Company 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 minimum bid price requirement. As noted above, the Company completed the Reverse Stock Split effective May 17, 2024, and on June 3, 2024, the Company received a letter from the Nasdaq Listing Qualifications Department notifying the Company that the minimum bid price of its common stock was $1.00 per share or greater for at least the last 10 consecutive business days. Accordingly, the Company has regained compliance with the Nasdaq minimum bid price requirement and the matter is now closed.

42On October 18, 2024, we received a notification letter from Nasdaq’s Listing Qualifications Department indicating that we are not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires the timely filing of all required periodic reports, as a result of not having timely filed its Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (the “Form 10-K”), with the SEC. The 2024 Form 10-K was due on September 30, 2024. We filed a Notification of Late Filing on Form 12b-25 with the SEC on October 1, 2024.

~~Table~~On November 21, 2024, we received a notification letter from Nasdaq’s Listing Qualifications Department indicating that we are not in compliance with Nasdaq Listing Rule 5250(c)(1), which requires the timely filing of ~~Contents~~all required periodic reports, as a result of not having timely filed its September Form 10-Q with the SEC. The September Form 10-Q was due on November 14, 2024. We filed a Notification of Late Filing on Form 12b-25 with the SEC on November 15, 2024. We had 60 calendar days, or until December 17, 2024, to regain compliance with the Listing Rule or to submit to Nasdaq a plan to regain compliance with the Listing Rule (the “Plan”). On December 17, 2024, the Company filed the Plan to regain compliance with Nasdaq.

Debt

We had $2.3 million in short-term borrowings on our line of credit as of June 30, 2024. We have no long-term outstanding debt as of June 30, 2024. As of January 31, 2025, the line of credit was not renewed, and the outstanding balance was paid off and the remaining collateralized restricted cash balance was released.

Financing Activities

Long-Term Financing Activities

In accordance with authority granted by our Board of Directors on April 29, 2022, we can repurchase up to ~~approximately~~ $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 generally at the discretion of management. As we repurchase our common shares, which have no par value, we report such shares held as treasury stock on the accompanying consolidated balance sheets as of June 30, ~~2023~~2024 and ~~2022~~2023, with the purchase price recorded within treasury stock.

During the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023, we repurchased ~~358,116~~no shares and 30358,~~287~~116 shares, respectively, of our common stock for an aggregate price of $~~451,815~~0 and $38451,~~164~~815, respectively, pursuant to the repurchase authorization.

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Operating Activities and Cash Flows

We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures. AsFor offiscal ~~June~~year ~~30,~~2024 and 2023, ~~our~~cash ~~principal~~used ~~sources~~in operations ofequaled ~~liquidity~~$7.37 ~~were~~million ~~cash~~ and ~~cash equivalents totaling~~ $103.4588 million, ~~trade~~ ~~accounts~~respectively. During ~~receivable~~the offiscal ~~$380~~year ended June 30,~~000~~ 2024, ~~and~~our ~~net~~working ~~current~~capital ~~inventory~~decreased ofby approximately $712.4882 million, ~~as compared~~ to ~~cash~~$4.69 ~~and~~million ~~cash~~from ~~equivalents of~~ $1517.6751 million, ~~trade~~at ~~accounts~~June ~~receivable~~30, ~~of $2~~2023.22 ~~million,~~As ~~and~~described ~~net~~more fully ~~current~~below, ~~inventory~~the ofdecrease ~~$11.02~~in ~~million~~working ascapital ofat June 30, ~~2022.~~2024 Weis ~~also~~primarily ~~had~~attributable ~~access~~to: ~~during~~a ~~Fiscal~~net ~~2023~~decrease toin aour ~~$5.00~~cash, ~~million~~cash equivalents, and restricted cash; ~~collateralized~~a ~~line~~decrease ofin ~~credit~~our ~~facility,~~accounts orreceivable; ~~the~~an ~~JPMorgan~~increase ~~Chase~~in ~~Credit~~our ~~Facility,~~accounts ~~that~~payable; wea ~~obtained~~decrease in ~~effective~~our ~~July~~prepaid 9,expenses ~~2021,~~and asother ~~amended July~~assets; ~~28,~~an ~~2022~~increase ~~and~~in ~~amended~~our ~~further~~short-term ~~effective~~operating ~~June~~lease ~~21,~~liabilities; ~~2023,~~and ~~from~~an ~~JPMorgan~~increase ~~Chase~~in ~~Bank,~~our ~~N.A.,~~accrued orexpenses ~~JPMorgan~~and ~~Chase~~other liabilities.

~~During~~As ~~the~~of ~~fiscal year ended~~ June 30, ~~2023~~2024, our ~~working~~principal ~~capital~~sources ~~decreased~~of byliquidity ~~approximately~~were ~~$11.55~~cash ~~million~~and tocash ~~$17.51~~equivalents ~~million~~totaling ~~from~~ $294.0614 million ~~at June 30~~, ~~2022.~~trade Asaccounts ~~described~~receivable ~~more~~of ~~fully below~~$845,000, ~~the~~and ~~decrease~~net incurrent inventory ~~working~~of ~~capital~~$7.51 ~~at June 30~~million, ~~2023~~ isas ~~primarily~~compared ~~attributable~~ to acash ~~net~~and ~~decrease~~cash inequivalents ~~our~~of ~~cash~~$10.45 million, ~~cash~~trade ~~equivalents,~~accounts ~~and~~receivable ~~restricted~~of ~~cash~~$380,000, aand ~~decrease~~net incurrent ~~our~~inventory ~~allocation~~ of ~~inventory~~$7.48 ~~from~~million ~~long-term~~as toof ~~short-term~~June ~~due~~30, to2023. aWe ~~lower~~also ~~expected~~had ~~sell~~access ~~through~~during ofFiscal ~~inventory~~2024 onand ~~hand~~Fiscal in2023 ~~the~~to ~~upcoming~~ a ~~period,~~$5.00 amillion ~~decrease~~cash incollateralized ~~our~~line ~~accounts~~of ~~receivable~~credit facility, anor ~~increase~~the inJPMorgan ~~our~~Chase ~~accounts~~Credit ~~payable~~Facility, athat ~~decrease~~we inobtained ~~our~~effective ~~prepaid~~July ~~expenses~~9, ~~and~~2021, ~~other~~as ~~assets~~amended July 28, 2022 and anamended ~~increase~~further ineffective ~~our~~June ~~short-term~~21, ~~operating~~2023, ~~lease~~July ~~liabilities.~~29, ~~These~~2024, ~~factors~~and ~~were~~October ~~offset partially~~31, by2024, afrom ~~decrease~~JPMorgan inChase ~~our~~Bank, ~~accrued~~N.A., ~~expenses~~or ~~and~~JPMorgan ~~other liabilities~~Chase.

~~Cash~~As ~~used~~of ~~for~~June ~~investing~~30, ~~activities~~2023, ~~was~~our ~~principally~~principal ~~for~~sources ~~construction-in-process~~of ~~expenditures~~liquidity ~~related~~were cash and cash equivalents totaling $10.45 million, trade accounts receivable of $380,000, and net current inventory of $7.48 million, as compared to ~~our~~cash ~~retail~~and ~~expansion~~cash ~~program~~equivalents of $15.67 million, trade accounts receivable of $2.22 million, and ~~the~~net ~~completion~~current inventory of ~~the~~$11.02 ~~construction~~million as of ~~our~~June ~~first~~30, ~~Signature~~2022. ~~Showroom~~We also had access during Fiscal 2023 to a $5.00 million cash collateralized line of credit facility, or the JPMorgan Chase Credit Facility, that we obtained effective July 9, 2021, as amended July 28, 2022 and ~~other~~amended ~~leasehold~~further ~~improvements~~effective inJune ~~our~~21, ~~corporate~~2023, ~~office~~from JPMorgan Chase Bank, N.A., or JPMorgan Chase.

Cash flows used in investing activities were $1.04 million and $1.28 million in Fiscal 2024 and Fiscal 2023, respectively. Cash used for ~~financing~~investing activities isin Fiscal 2024 was principally for expenditures related to ~~repurchases~~our ofnew NextGen platform for our ~~common~~charlesandcolvard.com ~~stock~~website ~~pursuant~~launched in mid-June 2024. Cash used in Fiscal 2023 was used principally for construction-in-process expenditures related to our retail expansion program and the ~~terms~~completion of anthe ~~effective~~construction ~~stock~~of ~~repurchase~~our ~~authorization~~Signature Showroom and other leasehold improvements in our corporate office.

~~During~~Cash ~~the~~flows ~~fiscal~~from ~~year~~financing ~~ended~~activities ~~June~~were ~~30, 2023, approximately~~ $32.883 million offor ~~cash~~Fiscal ~~was~~2024 ~~used~~and by$452,000 ~~our operations. The primary drivers of our~~ cash ~~flows~~used ~~from operations were a net loss~~ in ~~the~~financing ~~amount~~operations offor ~~approximately~~Fiscal ~~$19~~2023.58 Cash ~~million~~provided ~~and~~by ~~a decrease~~financing activities, in ~~accrued~~Fiscal ~~expenses~~2024 ~~and~~is ~~other~~related ~~liabilities~~to ofcash ~~approximately~~proceeds ~~$927,000.~~from ~~These~~draws ~~factors~~on ~~were offset partially by~~ the ~~favorable~~line ~~impact~~ of ~~approximately~~credit, ~~$12.8~~where ~~million of non-~~cash ~~expenses~~used ~~driven~~in byfinancing ~~the~~activities ~~deferred~~in ~~tax~~Fiscal ~~valuation~~2024 ~~allowance,~~occurred ~~and~~in ~~the inventory~~connection ~~write-down~~with ~~recorded during~~ the ~~year~~Company’s ~~ended~~repurchases ~~June~~of ~~30,~~common ~~2023;~~stock a(see ~~decrease~~Note in12 ~~accounts~~to ~~receivable~~our ofconsolidated financial ~~$1.77~~statements ~~million; a decrease~~ in ~~prepaid~~Item ~~expenses and other assets of $893~~8,~~000;~~ a“Financial ~~decrease~~Statements inand ~~inventory~~Supplementary ~~during year ended June 30~~Data”, ~~2023~~ of ~~$755,000;~~ ~~and~~this anAnnual ~~increase~~Report inon ~~accounts~~Form ~~payable of $385,000~~10-K).

~~Accounts~~During ~~receivable decreased principally due to~~ the ~~decreased~~fiscal ~~level~~year ~~of sales on credit during the three months~~ ended June 30, ~~2023~~2024, asapproximately ~~compared~~$7.37 ~~with~~million ~~the~~of ~~sales~~cash ~~during~~was ~~the~~used ~~period~~by ~~leading~~our upoperations. toThe ~~June~~primary ~~30,~~drivers ~~2022.~~of ~~From~~our ~~time~~cash toflow ~~time,~~used wein ~~have~~operations ~~offered~~were: ~~extended~~a ~~Traditional~~net ~~segment~~loss ~~customer~~in ~~payment terms beyond 90 days to certain credit-worthy customers~~ the ~~extension~~amount of ~~these~~approximately ~~terms~~$14.36 ~~may~~million ~~not~~and ~~immediately~~an increase ~~liquidity~~in asaccounts areceivable ~~result~~ of ~~ongoing current-period sales~~$190,000. InThese ~~addition,~~factors ~~we believe~~were ~~our~~offset ~~competitors~~partially ~~and~~by: ~~other vendors in~~ the ~~wholesale~~favorable ~~jewelry~~impact ~~industry have expanded their use~~ of ~~extended~~approximately ~~payment~~$2.15 ~~terms~~million ~~and, in aggregate, we believe that, through our use~~ of ~~extended~~non-cash ~~payment~~expenses; ~~terms, we provide~~ a ~~competitive~~decrease ~~response~~ in ~~our~~prepaid ~~market~~expenses ~~during~~and ~~the~~other ~~current~~assets ~~global economic environment. We believe that we are unable to estimate the impact~~ of ~~these actions on our net sales~~$776,000; ~~but~~a wedecrease ~~believe~~in ~~that~~inventory ifof ~~we ceased providing extended payment terms~~$498,000; wean ~~would~~increase ~~be at a competitive disadvantage for some Traditional segment customers~~ in ~~the~~accrued ~~marketplace~~expenses ~~during~~of ~~this~~$273,000; ~~economic period~~ and ~~that~~an ~~our~~increase ~~net~~in ~~sales~~accounts ~~and~~payable ~~profits~~of ~~would~~$3.49 ~~likely be adversely impacted~~million.

43Accounts receivable decreased principally due to the decreased level of sales due to increased competition and continued pricing pressures during the twelve months ended June 30, 2024, as compared with the sales during the period leading up to June 30, 2023.

During the fiscal year ended June 30, 2024, prepaid expenses and other assets decreased principally as a result of: a decrease in the right-of-use asset associated with leasehold improvements in connection with the lease for our corporate headquarters facilities (which for financial reporting purposes is classified with prepaid expenses and other assets in the consolidated statement of cash flows); and the timing of certain vendor payments, primarily for insurance-related premium expenses, in advance of goods or services received. During the fiscal year ended June 30, 2024, accrued expenses and other liabilities increased principally due to the settlement of the Wolfspeed arbitration, which was partially offset by the timing of payments for certain incurred expenses, principally for compensation and related benefits, and a decrease in the operating lease liability associated with the lease for our corporate headquarters facilities. During the fiscal year ended June 30, 2024, accounts payable increased primarily as a result of the timing of payments for costs associated with inventory-related purchases and professional services incurred.

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During the fiscal year ended June 30, 2023, ~~prepaid~~our ~~expenses~~working ~~and~~capital ~~other assets~~ decreased ~~principally~~by asapproximately a$11.55 ~~result~~million ofto a$17.51 ~~decrease~~million infrom ~~the~~$29.06 ~~right-of-use~~million ~~asset~~at ~~associated~~June ~~with~~30, ~~leasehold~~2022. ~~improvements~~As described inmore ~~connection~~fully ~~with~~below, the ~~lease~~decrease ~~for~~in ~~our~~working ~~corporate headquarters~~capital ~~facilities~~at ~~(which~~June ~~for~~30, ~~financial~~2023 ~~reporting purposes~~ is ~~classified~~primarily ~~with~~attributable ~~prepaid~~to: ~~expenses~~a ~~and~~net ~~other~~decrease ~~assets~~ in ~~the~~our ~~consolidated~~cash, ~~statement~~cash ofequivalents, and restricted cash; ~~flows)~~a ~~and~~decrease ~~the~~in ~~timing~~our allocation of ~~certain~~inventory ~~vendor~~from ~~payments,~~long-term ~~primarily~~to ~~for insurance~~short-~~related~~term due ~~premium~~ to ~~expenses,~~a inlower ~~advance~~expected ofsell ~~goods~~through orof ~~services~~inventory ~~received.~~on ~~During~~hand in the ~~fiscal~~upcoming ~~year~~period; ~~ended~~a ~~June~~decrease ~~30,~~in ~~2023,~~our ~~accrued~~accounts ~~expenses~~receivable; ~~and~~an ~~other~~increase ~~liabilities~~in ~~decreased~~our ~~principally~~accounts ~~due~~payable; ~~the~~a ~~timing~~decrease ofin ~~payments~~our ~~for~~prepaid ~~certain incurred~~ expenses, ~~principally for compensation~~ and ~~related~~other ~~benefits,~~assets; and aan ~~decrease~~increase in ~~the~~our short-term operating lease ~~liability associated with the lease for our corporate headquarters facilities~~liabilities. ~~During~~These ~~the~~factors ~~fiscal~~were ~~year~~offset ~~ended~~partially ~~June~~by ~~30, 2023, accounts payable increased primarily as~~ a ~~result~~ ofdecrease ~~the~~in ~~timing~~our ofaccrued ~~payments~~expenses ~~for costs associated with inventory-related purchases~~ and ~~professional~~other ~~services incurred~~liabilities.

During the fiscal year ended June 30, ~~2022~~2023, ~~our working capital decreased by~~ approximately $13.0888 million toof ~~$29.06~~cash ~~million~~was ~~from~~used ~~$30.14~~by ~~million~~our ~~at June 30, 2021~~operations. AsThe ~~described~~primary ~~more~~drivers ~~fully~~of ~~below,~~our ~~the~~cash ~~decrease~~flow used in ~~working~~operations ~~capital at June 30,~~were: ~~2022~~ a isnet ~~primarily~~loss ~~attributable~~in tothe anamount ~~increase~~of inapproximately ~~our~~$19.58 ~~accounts~~million; ~~payable,~~and a decrease in ~~our~~accrued ~~allocation~~expenses ofand ~~inventory~~other ~~from~~liabilities ~~long-term~~of toapproximately ~~short-term~~$927,000. ~~due~~These tofactors awere ~~lower~~offset ~~expected~~partially ~~sell~~by: ~~through~~the offavorable ~~inventory~~impact onof ~~hand~~approximately in$12.8 ~~the~~million ~~upcoming~~of ~~period, an increase in our short~~non-~~term~~cash expenses ~~operating~~driven ~~lease~~by ~~liabilities;~~the ~~and~~deferred atax ~~net~~valuation ~~decrease in our cash~~allowance, ~~cash~~and ~~equivalents,~~the ~~and~~inventory ~~restricted~~write-down ~~cash.~~recorded ~~These~~during ~~factors~~the ~~were~~year ~~offset~~ended ~~partially~~June by30, 2023; a decrease in ~~our~~accounts ~~accrued~~receivable ~~expenses~~of ~~and~~$1.77 ~~other~~million; ~~liabilities,~~a andecrease ~~increase~~ in ~~our accounts receivable, and an increase in our~~ prepaid expenses and other assets. ~~Our~~of ~~cash~~$893,000; ~~used~~a decrease ~~for investing activities principally for construction-~~in~~-process~~ ~~expenditures~~inventory ~~related~~during toyear ~~our~~ended ~~retail~~June ~~expansion~~30, ~~program~~2023 ~~and the construction~~ of ~~our~~$755,000; ~~first Signature Showroom~~ and ~~other~~an ~~leasehold~~increase ~~improvements~~ in ~~our~~accounts ~~corporate~~payable ~~offices~~of ~~was offset partially by cash provided by net financing activities~~$385,000.

~~During~~We ~~the~~manufactured ~~fiscal~~approximately ~~year~~$1.21 ~~ended~~million ~~June~~and ~~30,~~$6.76 ~~2022,~~million ~~approximately~~in ~~$573,000~~loose ofjewels ~~cash~~and ~~was~~$9.33 ~~provided~~million byand ~~our operations~~$12.75 ~~The~~million ~~primary~~in ~~drivers~~finished ofjewelry, ~~our~~which ~~cash~~includes ~~flows~~the ~~from~~cost ~~operations~~of ~~were~~ the ~~favorable~~loose ~~effect~~jewels and the purchase of ~~net~~precious ~~income~~metals and labor in connection with jewelry production, during the ~~amount~~fiscal ofyears ~~$2.37~~ended ~~million~~June 30, ~~which also~~2024 ~~included~~and $12023, respectively.87 ~~million~~We expect our purchases of ~~non-cash~~precious ~~expenses;~~metals anand ~~increase~~labor to fluctuate in ~~accounts~~conjunction ~~payable~~with the levels of ~~$1.63~~our ~~million;~~finished ~~and~~jewelry anbusiness. ~~increase~~In inaddition, ~~prepaid~~the ~~expenses~~price ~~and~~of gold ~~other~~has ~~assets~~fluctuated ofsignificantly ~~$927,000.~~over ~~These~~the ~~factors~~past ~~were~~decade, ~~offset~~resulting ~~partially~~in byhigher anretail ~~increase~~price inpoints ~~inventory~~for ofgold $4jewelry.~~54 million;~~ aBecause ~~decrease~~the inmarket ~~accrued~~prices ~~expenses~~of gold and other ~~liabilities~~precious ofmetals ~~$1.20~~are ~~million;~~beyond anour ~~increase~~control, inupward ~~accounts~~price ~~receivable~~trends ofcould ~~$484,000;~~have ~~and~~ a ~~decrease~~negative inimpact on ~~accrued~~our ~~income~~operating ~~taxes~~cash ~~of $10,000~~flow as we manufacture finished jewelry.

WeHistorically, ~~manufactured~~our ~~approximately~~raw ~~$6.76~~material ~~million~~inventories ~~and~~of ~~$9.23~~SiC ~~million~~crystals inhad ~~loose~~been ~~jewels~~purchased ~~and~~under ~~$12.75~~exclusive ~~million~~supply ~~and~~agreements ~~$16~~with a limited number of suppliers.~~98 million~~ inBecause ~~finished~~the ~~jewelry,~~supply ~~which~~agreements ~~includes~~restricted the ~~cost~~sale of ~~the loose~~these ~~jewels~~crystals ~~and~~exclusively to us, the suppliers ~~purchase~~negotiated ofminimum ~~precious~~purchase ~~metals~~commitments ~~and~~with ~~labor~~us inthat, ~~connection~~when combined with ~~jewelry~~reduced ~~production,~~sales levels during ~~the~~prior ~~fiscal~~periods ~~years~~in ~~ended~~which ~~June~~the ~~30,~~purchase ~~2023~~commitments ~~and~~were ~~2022~~in effect, ~~respectively.~~have Weresulted ~~expect~~in ~~our~~levels ~~purchases~~ of ~~precious~~inventories ~~metals~~that ~~and~~are ~~labor~~higher tothan ~~fluctuate~~we inmight ~~conjunction~~ otherwise ~~with~~maintain. ~~the~~As ~~levels~~ of ~~our~~June ~~finished~~30, ~~jewelry~~2024 ~~business~~and 2023, $17.42 Inmillion ~~addition,~~and ~~the~~$19.28 ~~price~~million, respectively, of ~~gold~~our ~~has~~inventories ~~fluctuated~~were ~~significantly~~classified ~~over~~as ~~the~~long-term ~~past~~assets. ~~decade,~~Loose ~~resulting~~jewel insales ~~higher~~and ~~retail~~finished ~~price~~jewelry ~~points~~that ~~for~~we ~~gold~~manufacture ~~jewelry.~~will ~~Because~~utilize both the ~~market~~finished goods ~~prices~~loose ofjewels ~~gold~~currently on-hand and ~~other~~, ~~precious~~as ~~metals~~we ~~are~~deplete ~~beyond~~certain ~~our~~shapes ~~control~~and sizes, ~~upward~~our ~~price~~on-hand ~~trends~~raw ~~could~~material ~~have~~SiC acrystals ~~negative~~and ~~impact~~new onraw ~~our~~material ~~operating~~that ~~cash~~we ~~flow~~may aspurchase wepursuant ~~manufacture~~to ~~finished~~the ~~jewelry~~Supply Agreement.

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 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 resulted in levels of inventories that are higher than we might otherwise maintain. As of June 30, 2023 and 2022, $19.28 million and $22.49 million, respectively, of our inventories were classified as long-term assets. 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 $422,000 and new raw material that we may purchase pursuant to the Supply Agreement.

A more detailed description of our inventories is included in Note 6 to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

We made income tax payments of approximately $~~5,900~~0 and $05,900 during the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023, respectively. As of June 30, ~~2023~~2024 and ~~2022~~2023, we had federal tax net operating loss carryforwards of approximately $2438.76 13 million and $1624.5376 million, respectively, 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 $20.0120 million and $1920.7701 million, respectively, expiring between ~~2023~~2024 and 2035; and various other state tax net operating loss carryforwards expiring between 2027 and 2040, which can be used to offset against future state taxable income.

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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 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 $5.051 million held by JPMorgan Chase as collateral for the line of credit facility. 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 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.

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 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. Effective July 29, 2024, the JPMorgan Chase Credit Facility was amended further to extend the maturity date to October 31, 2024. Effective October 31, 2024, the JPMorgan Chase Credit Facility was amended further to extend the maturity date to January 31, 2025. On January 31, 2025, we elected not to renew the JP Morgan Chase Credit Facility and the Company is evaluating other financing arrangements.

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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, or the 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 its amendment on July 31, 2022, 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 at any time.

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~~January 31, ~~2024~~2025, 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.

InAs ~~connection~~of ~~with~~June ~~the JPMorgan Chase Credit Facility~~30, ~~effective July 7~~2024, ~~2021,~~ we ~~incurred~~have aborrowed ~~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~~2.3 ~~There~~million ~~was~~against ~~no origination fee paid to JPMorgan Chase in connection with~~ the ~~amended~~ JPMorgan Chase Credit Facility~~, dated July 28, 2022 and June 21, 2023~~.

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 June 30, 2023, we had not borrowed against the JPMorgan Chase Credit Facility.

More detailed descriptions of our JPMorgan Chase Credit Facility are included in Note 11 to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

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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~~contingent ~~initial term of the Supply Agreement was scheduled to expire~~ on ~~June 24, 2018, unless extended by~~ the ~~parties.~~Company ~~Effective June~~submitting ~~22,~~purchase ~~2018, the Supply Agreement was amended to extend the expiration date to June 25, 2023~~orders. The Supply Agreement, as amended, also provides for the exclusive production of our premium moissanite product, Forever One™ and provided 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 amended,~~scheduled ~~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 June 30~~, ~~2023~~2018.

~~For~~Effective ~~more~~June ~~information~~22, ~~regarding~~2018, the ~~second~~Company ~~amendment~~and toWolfspeed ~~our~~amended the Supply Agreement, ~~executed~~to onextend ~~August~~the 26expiration date to June 25, ~~2020~~2023. This amendment also (i) provided the Company with one option, ~~see~~subject ~~Note~~to 10certain conditions, to ~~our~~unilaterally ~~consolidated~~extend ~~financial~~the ~~statements~~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 ~~Item~~a 8,broader ~~“Financial~~variety ~~Statements~~of its products; and ~~Supplementary~~(iii) permitted ~~Data”,~~the Company to purchase certain amounts of ~~this~~SiC ~~Annual~~materials ~~Report~~from onthird ~~Form~~parties ~~10-K~~under limited conditions.

During the fiscal years ended June 30, 2023 and 2022, we purchased approximately $1.80 million and $6.29 million, respectively, of SiC crystals from Wolfspeed. The Company has made no purchases of SiC crystals during the nine-month period ended June 30, 2023 while in discussions regarding the terms of the Supply Agreement. Such discussions included potential renegotiation of the Supply Agreement, but the parties have not reached an agreement.

On July 28, 2023, Wolfspeed initiated a confidential arbitration against us for breach of contract claiming damages, plus interest, costs, and attorneys’ fees. Wolfspeed has alleged that the Company failed to satisfy the purchase obligations provided in the Supply Agreement for Fiscal 2023 in the amount of $4.25 million and failed to pay for $3.30 million of SiC crystals Wolfspeed delivered to us. Wolfspeed further alleges that the Company intends to breach our remaining purchase obligations under the Supply Agreement, representing an additional $18.5 million in alleged damages.

While the Company is evaluating Wolfspeed’s claims, we dispute the amount sought, and we intend to vigorously defend our position, including by asserting rights and defenses that the Company may have under the Supply Agreement, at law and in equity. A hearing has not yet been scheduled . The final determinations of liability arising from this matter will only be made following comprehensive investigations, discovery and arbitration processes.

Going forward, we expect to use existing cash and cash equivalents and access to other working capital resources, including but not limited to the issuance of equity securities, together with future cash expected to be provided by operating activities to finance our purchase commitment under the Supply Agreement, as amended.

For more information in connection with the Wolfspeed arbitration matter, see Part I, Item 3, “Legal Proceedings” and Note 10 to our consolidated financial statements in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

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Liquidity and Capital Trends

We believe that our existing cash and cash equivalents and access to other working capital resources, including but not limited to the issuance of equity securities, and cash expected to be provided by operating activities combined will be sufficient to meet our working capital and capital expenditure needs over the next twelve months.

In connection with our short- and long-term capital resources, we 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. 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 and fears of recession. Any capital raise is not assured and may not be at terms that would be acceptable to us.

Our future capital 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 jewel production to support our moissanite jewels and lab grown diamond business and precious metals and labor purchases in connection with jewelry production to support our finished jewelry business; the timing of capital expenditures; and the risk factors described in more detail in “Risk Factors” in Part I, Item 1A, of this Annual Report on Form 10-K. Currently, we have the JPMorgan Chase Credit Facility, as amended, through its expiration on July 31, 2024, which we believe would mitigate these risks to our cash and liquidity position. Also, we may make investments in, or acquisitions of, complementary businesses, which could also require us to seek additional equity or debt financing.

Critical Accounting 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 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.

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~~Valuation~~Effective June 30, 2020, the Company and ~~Classification~~Wolfspeed further amended the Supply Agreement to extend the expiration date to June 29, 2025. This amendment also, among other things, (i) spread the Company’s total purchase commitment, contingent on the Company submitting a purchase order, under the Supply Agreement in the amount of ~~Inventories~~approximately $52.95 million over the term of the Supply Agreement, as amended; (ii) established 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) permitted the Company to purchase revised amounts of SiC materials from third parties under limited conditions.

~~Any~~Approximately ~~inventory~~$24.75 onmillion ~~hand~~of at the ~~measurement~~Company’s ~~date~~commitment inunder ~~excess~~the ofSupply ~~our~~Agreement ~~current~~was ~~requirements~~available ~~based~~to onbe ~~historical~~purchased ~~and anticipated levels of sales is classified~~ as ~~long-term on our Consolidated Balance Sheets. The classification~~ of ~~our~~June ~~inventory~~30, as2024. ~~either~~Over ~~current or long-term inventory requires us to estimate~~ the ~~portion~~life of ~~on-hand~~the ~~inventory~~Supply ~~that~~Agreement, ~~can~~as beamended, ~~realized over~~ the ~~next~~Company’s 12future ~~months~~minimum ~~and~~annual ~~does~~purchase ~~not~~commitments ~~include~~of ~~precious~~SiC ~~metal,~~crystals ~~labor,~~ranged ~~and~~from ~~other~~approximately ~~inventory~~$4.00 ~~purchases~~million ~~expected~~ to be$10.00 ~~both purchased~~million ~~and~~each ~~realized in cost of sales over the next 12 months~~year.

~~Each~~During ~~accounting period we evaluate~~ the ~~valuation~~fiscal ~~and~~years ~~classification~~ended ofJune ~~inventories including the need for potential inventory write-downs~~30, ~~which~~2024 ~~also include significant estimates by management for obsolescence, shrinkage,~~ and ~~rework. Obsolescence reserves are based on an estimated loss percentage factor~~2023, ~~determined~~we bypurchased aapproximately ~~combination~~$2.00 ofmillion ~~management’s analysis of current production-related conditions, coupled with historical work-in-process~~ and ~~customer-related obsolescence experience over time for specific product gemstones and finished jewelry affected by these conditions~~$1.80 ~~Shrinkage~~million, ~~reserves are based on an estimated loss percentage factor~~respectively, ~~determined by a combination~~ of ~~management’s~~SiC ~~analysis~~crystals offrom ~~current gemstones in production status and on memo at third-party locations, coupled with historical work-in-process shrinkage-related experience over time for specific product gemstones and jewelry~~Wolfspeed ~~impacted~~pursuant byto ~~these~~the ~~conditions.~~Supply ~~The rework reserves are also based on an estimated loss percentage factor~~Agreement, ~~determined~~as by a combination of management’s analysis of current production-related conditions, coupled with historical work-in-process rework experience over time for specific previously finished gemstones affected by these conditionsamended.

~~Revenue~~On ~~Recognition~~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 exclusive supply agreement and agreed to pay Wolfspeed a total of $4.77 million, which includes the purchased and consigned inventory, Wolfspeed’s attorney fees in connection with the arbitration, and interest. The final settlement amount is to be paid $500,000 on February 11, 2025, $1.83 million on or before February 28, 2025, and $2.44 million on or before December 31, 2025. As of June 30, 2024, the Company accrued $4.77 million related to the final settlement and expected payments.

WeFor ~~recognize~~more ~~substantially~~information ~~all of our revenue at a point~~ in ~~time~~connection ~~when control of our goods has passed to the customer~~ with the ~~exception~~Wolfspeed ofarbitration, ~~consigned~~see ~~goods.~~Part We consider our performance obligation related to the shipment of goods satisfied at the time this control is transferred. We also have a variable consideration element related to most of our contracts in the form of product return rights. At the time revenue is recognizedI, anItem ~~allowance for estimated returns is established and any change in the allowance for returns is charged against net sales in the current period. For our Traditional segment customers~~3, ~~the~~“Legal ~~returns~~Proceedings” ~~policy generally allows for the return of jewels~~ and ~~finished~~ ~~jewelry~~Note ~~with~~10 ato ~~valid reason for credit within 30 days of shipment. Customers on both~~ our ~~charlesandcolvard.com~~consolidated ~~and~~financial ~~moissaniteoutlet.com~~statements ~~websites may also generally return purchases within~~in 30Item ~~days~~8, ~~respectively,~~“Financial ofStatements ~~the shipment date in accordance with our returns policies as disclosed on our charlesandcolvard.com~~ and ~~moissaniteoutlet.com~~Supplementary ~~websites. Periodically~~Data”, ~~we ship loose jewel goods and finished goods to Traditional segment customers on consignment terms. Under these consignment terms, the customer assumes the risk~~ of ~~loss~~this ~~and~~Annual ~~has~~Report an absolute right of return for a specified period that typically ranges from six months to one year. Our Online Channels segment and Traditional segment customers are generally required to make payments on ~~consignment~~Form ~~shipments within 30 to 60 days upon the customer informing us that such inventory will be kept by the customer~~10-K. Accordingly, we do not recognize revenue on these consignment transactions until the earlier of (i) the customer informing us that the inventory will be kept by the customer; (ii) the expiration of the right of returns period; or (iii) the customer informing us that the inventory has been sold.

~~Accounts~~Critical ~~Receivable~~Accounting ~~Reserves~~Estimates

~~Estimates~~Our discussion and analysis of our financial condition and results of operations are ~~used~~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 ~~determine~~make estimates and judgments that affect the ~~amount~~reported amounts of ~~two~~assets, ~~reserves~~liabilities, ~~against~~revenues, ~~trade~~and ~~accounts~~expenses ~~receivable~~and related disclosures of contingent assets and liabilities. ~~The~~“Critical ~~first~~accounting ~~reserve~~estimates” isare andefined ~~allowance~~as ~~for~~those ~~sales~~most ~~returns.~~important Atto the ~~time~~financial ~~revenue~~statement ispresentation ~~recognized~~and that require the most difficult, wesubjective, ~~estimate~~or ~~future~~complex ~~returns~~judgments. ~~using~~We abase our estimates on historical ~~return~~experience and on ~~rate~~ various other factors that iswe ~~reviewed~~believe ~~quarterly~~to ~~with~~be ~~consideration~~reasonable under the circumstances, the results of ~~any~~which ~~contractual~~form ~~return~~the ~~privileges~~basis ~~granted~~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 ~~customers~~the valuation of inventories including lower of cost or market inventory cost write-downs and wereserves ~~reduce~~for ~~sales~~excess and ~~trade~~obsolete ~~accounts~~inventories. ~~receivable~~We byalso ~~this~~have ~~estimated~~other ~~amount~~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.

48Inventories

~~Table~~Each accounting period we evaluate the valuation of ~~Contents~~inventories including the need for potential inventory write-downs, to record inventories at the lower of cost or net realizable value. The Company’s inventories are subject to various market factors, including changes in styling trends and competition, that could indicate a decline in their net realizable value and excess or obsolete inventories. The uncertainty involved in estimating future marketability requires significant estimates by management to develop such values. Inventory cost write-downs to the lower of cost or net realizable value and reserves for excess and obsolete inventories require consideration by management of several factors including quantities for inventories on hand and plans for those inventories, the recorded cost of inventories, recent net selling prices for inventories, and actual sales volumes for inventories, affected by these conditions.

The second reserve is an allowance for uncollectible accounts for the measurement of estimated credit losses resulting from the failure of our customers to make required payments. This allowance reduces trade accounts receivable to an amount expected to be collected. We use a current expected credit losses model whereby we estimate credit losses expected over the life of our pool of exposures based on historical percentages of uncollectible accounts, changes in payment history, and facts and circumstances, including any current extenuating economic conditions, regarding specific accounts that become known to, or forecasted by, us to be uncollectible when evaluating the adequacy of the allowance for uncollectible accounts. We determine a credit loss percentage based on the age of the receivable that we deem uncollectible related to potential credit losses. We record an allowance for such credit losses, which includes a provision for expected losses based on historical write-offs, adjusted for current conditions as deemed necessary, reasonable and supportable forecasts about future conditions, and a specific reserve for accounts deemed at risk. The allowance is our estimate for accounts receivable as of the balance sheet date that ultimately will not be collected. Any changes in the allowance are reflected in the results of operations in the period in which the change occurs. We write-off accounts receivable and the related allowance recorded previously when it becomes probable, based upon customer facts and circumstances, that such amounts will not be collected. We generally use internal collection efforts, which may include our sales personnel as deemed appropriate. After all internal collection efforts have been exhausted, we generally write-off the underlying account receivable.

Any accounts with significant balances are reviewed separately to determine an appropriate allowance based on the facts and circumstances of the specific underlying customer account.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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Item 8.

Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page Number
Report of Independent Registered Public Accounting Firm (BDO USA, P.C., Raleigh, NC; PCAOB ID: 243)	5150
Consolidated Balance Sheets as of June 30, 2023 and 2022	53
Consolidated Balance Sheets as of June 30, 2024 and 2023	52
Consolidated Statements of Operations for the fiscal years ended June 30, 2023 and 2022	54
Consolidated Statements of Operations for the fiscal years ended June 30, 2024 and 2023	53
Consolidated Statements of Shareholders’ Equity for the fiscal years ended June 30, 2023 and 2022	55
Consolidated Statements of Shareholders’ Equity for the fiscal years ended June 30, 2024 and 2023	54
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2023 and 2022	56
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2024 and 2023	55
Notes to Consolidated Financial Statements	5756

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Charles & Colvard, Ltd.

Morrisville, North Carolina

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Charles & Colvard, Ltd. (the “Company”) as of June 30, ~~2023,~~2024 and ~~2022~~ 2023, the related consolidated statements of operations, ~~shareholders~~ stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, ~~2023~~2024 and ~~2022~~2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses and negative cash flows from operations and these factors, including the recent arbitration award and related settlement agreement, raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of athe critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

~~Inventories~~Valuation ~~Net~~of ~~Realizable Value~~Inventories

As described in Notes 2 and 6 to the Company’s consolidated financial statements, inventories totaled approximately $2624.89 million at June 30, ~~2023~~2024. 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 of inventories, including the need for potential inventory write-downs and reserves, which includes significant estimates by management.

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We identified ~~management’s~~the ~~estimation~~valuation of inventories as a critical audit matter due to the significant judgment and estimates required by management in determining the net realizable value of inventories, ~~including~~and ~~inventory~~reserves ~~write-downs,~~for asexcess aand ~~critical~~obsolete ~~audit matter~~inventories. The valuation of the Company’s inventories ~~are~~may ~~subject~~be toaffected by various market factors, ~~including~~ such as changes in styling trends, ~~and~~ competition, ~~that~~and ~~could~~market ~~indicate~~demand, potentially indicating a decline in ~~the~~ net realizable ~~value~~or leading to excess or obsolete inventories. Given the inherent uncertainty in estimating the future marketability of the Company’s products, auditing management’s ~~estimation~~estimates ofinvolved ~~the net~~significant ~~realizable value of inventories required a high degree of~~ auditor judgment and increased audit effort.

The primary procedures we performed to address this critical audit matter included:

• Evaluating the reasonableness of ~~the~~key inputs used in management’s ~~inventory~~estimate ~~reserve~~of ~~calculations~~net realizable value of inventories and reserves for excess and obsolete inventories, including prices for similar products recently sold ~~by the Company~~, current and expected margins based on ~~current~~recent ~~period~~ sales of inventories on hand, and industry trends.

• ~~Assessing~~Challenging the ~~reserve~~reasonableness ~~analysis~~of tomanagement’s ~~determine~~assumptions ~~whether~~related ~~management~~to ~~identified~~future ~~evidence~~sales ofand ~~potential~~the ~~declines~~planned inusage ~~marketability,~~of ~~including~~inventories ~~slow~~on ~~moving~~hand ~~inventory,~~to ~~for~~determine ~~which~~if ~~carrying~~management ~~value~~appropriately ~~may~~identified ~~exceed~~relevant ~~estimates~~evidence of ~~net~~potential ~~realizable~~declines ~~value~~in marketability and ~~appropriately~~the ~~evaluated~~recoverability ~~potential~~of ~~write-downs.~~recorded costs by:

•

Analyzing industry and market conditions to understand external factors affecting inventory marketability.

•

Analyzing recent historical sales data for items selling below cost with inventories on hand.

•

Reviewing historical sales data to identify patterns that may indicate reduced demand.

/s/ BDO USA, P.C.

We have served as the Company’s auditor since ~~2010~~2011.

Raleigh, North Carolina

~~October~~ 12April 3, ~~2023~~2025

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CHARLES & COLVARD, LTD.

CONSOLIDATED BALANCE SHEETS

	June 30,
	2023			2022
	2024			2023
ASSETS
Current assets:
Cash and cash equivalents	$	104,~~446~~137,~~532~~055		$	1510,~~668~~446,~~361~~532
Restricted cash		5,~~122~~328,~~379~~463			5,~~510~~122,~~979~~379
Accounts receivable, net		~~380~~844,~~085~~747			2540,~~220,816~~085
Inventory, net		7,~~476~~507,~~046~~303			117,~~024~~476,~~276~~046
Note receivable		250,000			250,000
Prepaid expenses and other assets		~~901~~751,~~354~~476			1901,~~190,012~~354
Total current assets		2418,~~576~~819,~~396~~044			3524,~~864~~736,~~444~~396
Long-term assets:
Inventory, net		1917,~~277~~423,~~530~~082			2219,~~488~~277,~~524~~530
Property and equipment, net		2,~~491~~761,~~569~~618			12,~~901~~491,~~176~~569
Intangible assets, net		~~305~~370,~~703~~186			~~265~~305,~~730~~703
Operating lease right-of-use assets		21,~~183~~556,~~232~~653			2,~~787~~183,~~419~~232
Deferred income taxes, net		-			~~5,851,904~~-
Other assets		49,658			49,658
Total long-term assets		2422,~~307~~161,~~692~~197			3324,~~344~~307,~~411~~692
TOTAL ASSETS	$	4840,~~884~~980,~~088~~241		$	6949,~~208~~044,~~855~~088
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	48,~~786~~274,~~155~~284		$	4,~~401~~786,~~229~~155
Operating lease liabilities, current portion		880,126			856,571
Current maturity of long-term debt		2,300,000			-
Accrued expenses and other liabilities		1,395,479			1,546,483
Operating lease liabilities, current portion		904,330			880,126
Total current liabilities		7,061,760			6,804,283
Accrued expenses and other liabilities		2,650,532			1,555,479
Total current liabilities		14,129,146			7,221,760
Long-term liabilities:
Noncurrent operating lease liabilities		21,~~047~~201,~~742~~722			2,~~846~~047,~~805~~742
Total long-term liabilities		21,~~047~~201,~~742~~722			2,~~846~~047,~~805~~742
Total liabilities		915,~~109~~330,~~502~~868			9,~~651~~269,~~088~~502
Commitments and contingencies (Note 10)
Shareholders’ equity:
Common stock, no par value; 50,000,000 shares authorized; 30,912,108 shares issued and 30,523,705 shares outstanding at June 30, 2023 and 30,778,046 shares issued and 30,747,759 shares outstanding at June 30, 2022		57,242,211			57,242,211
Common stock, no par value; 50,000,000 shares authorized; 3,157,113 shares issued and 3,118,273 shares outstanding at June 30, 2024 and 3,091,211 shares issued and 3,052,370 shares outstanding at June 30, 2023		67,233,259			57,242,211
Additional paid-in capital		2616,~~205~~452,~~919~~615			2526,~~956~~205,~~491~~919
Treasury stock, at cost, 388,403 shares and 30,287 shares at June 30, 2023 and 2022, respectively		(489,979	)		(38,164	)
Treasury stock, at cost, 38,841 shares and 38,841 shares at June 30, 2024 and 2023, respectively		(489,979	)		(489,979	)
Accumulated deficit		(4357,~~183~~546,~~565~~522	)		(2343,~~602~~183,~~771~~565	)
Total shareholders’ equity		3925,~~774~~649,~~586~~373			5939,~~557~~774,~~767~~586
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4840,~~884~~980,~~088~~241		$	6949,~~208~~044,~~855~~088

See Notes to Consolidated Financial Statements.

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CHARLES & COLVARD, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended June 30,
	2023			2022
	2024			2023
Net sales	$	2921,~~946~~956,~~234~~472		$	4329,~~089~~946,~~024~~234
Costs and expenses:
Cost of goods sold		2516,~~212~~764,~~383~~099			2225,~~845~~212,~~702~~383
Sales and marketing		1312,~~686~~546,~~049~~546			1213,~~421~~686,~~138~~049
General and administrative		5,~~023~~777,~~822~~217			45,~~948~~023,~~980~~822
Total costs and expenses		43,922,254			40,215,820
Legal settlement and related expenses		1,474,567			-
(Loss) Income from operations		(13,976,020	)		2,873,204
Total costs and expenses		36,562,429			43,922,254
Loss from operations		(14,605,957	)		(13,976,020	)
Other income (expense):
Interest income		~~297~~300,~~262~~718			19297,~~277~~262
Loss on foreign currency exchange		-			(34	)
Interest and other expense		(57,718	)		-
Total other income, net		~~297~~243,~~262~~000			19297,~~243~~262
(Loss) Income before income taxes		(13,678,758	)		2,892,447
Loss before income taxes		(14,362,957	)		(13,678,758	)
Income tax expense		~~(5,902,036~~-	)		(~~518~~5,~~532~~902,036	)
Net (loss) income	$	(19,580,794	)	$	2,373,915
Net loss	$	(14,362,957	)	$	(19,580,794	)
Net (loss) income per common share:
Net loss per common share:
Basic	$	(04.6473	)	$	0(6.0845	)
Diluted		(04.6473	)		0(6.0845	)
Weighted average number of shares used in computing net (loss) income per common share:
Weighted average number of shares used in computing net loss per common share:
Basic		303,~~376~~034,~~745~~495			303,~~363~~037,~~076~~675
Diluted		303,~~376~~034,~~745~~495			313,~~316~~037,~~028~~675

See Notes to Consolidated Financial Statements.

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CHARLES & COLVARD, LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock
	Number of Shares			Amount		Additional Paid-in Capital			Treasury Stock			Accumulated Deficit			Total Shareholders’ Equity
Balance at June 30, 2021		29,913,095		$	56,057,109	$	25,608,593		$	-		$	(25,976,686	)	$	55,689,016
Balance at June 30, 2022		3,074,776		$	57,242,211	$	25,956,491		$	(38,164	)	$	(23,602,771	)	$	59,557,767
Stock-based compensation		-			-		774,341			-			-			774,341
Issuance of restricted stock		242,725			-		-			-			-			-
Stock option exercises		622,226			1,185,102		(426,443	)		-			-			758,659
Repurchases of common stock		(30,287	)		-		-			(38,164	)		-			(38,164	)
Net income		-			-		-			-			2,373,915			2,373,915
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		-			-		249,428			-			-			249,428
Issuance of restricted stock		~~178~~17,~~750~~875			-		-			-			-			-
Cancellation of restricted stock		(44,688	)		-		-			-			-			-
Stock option exercises		(4,469	)		-		-			-			-			-
Repurchases of common stock		(~~358~~35,~~116~~812	)		-		-			(451,815	)		-			(451,815	)
Net loss		-			-		-			-			(19,580,794	)		(19,580,794	)
Balance at June 30, 2023		303,~~523~~052,~~705~~370		$	57,242,211	$	26,205,919		$	(489,979	)	$	(43,183,565	)	$	39,774,586
Share Issuance Reclassification		-			9,991,048		(9,991,048	)		-			-			-
Stock-based compensation		-			-		237,744			-			-			237,744
Reverse stock split effect		83,778			-		-			-			-			-
Cancellation of restricted stock		(17,875	)		-		-			-			-			-
Net loss		-			-		-			-			(14,362,957	)		(14,362,957	)
Balance at June 30, 2024		3,118,273		$	67,233,259	$	16,452,615		$	(489,979	)	$	(57,546,522	)	$	25,649,373

See Notes to Consolidated Financial Statements.

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CHARLES & COLVARD, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended June 30,
	2023			2022
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(19,580,794	)	$	2,373,915
Net loss	$	(14,362,957	)	$	(19,580,794	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		~~653~~703,~~157~~366			~~479~~653,~~308~~157
Stock-based compensation		~~249~~237,~~428~~744			~~774~~249,~~341~~428
Provision for uncollectible accounts		98129,000			1498,000
Recovery of sales returns		(23251,000	)		(8423,000	)
Inventory write-downs		61,~~004~~324,~~000~~385			~~195~~6,004,000
Recovery of accounts receivable discounts		(4,496	)		(4,285	)
Allowance (Recovery) of accounts receivable discounts		6,998			(4,496	)
Deferred income taxes		~~5,851,904~~-			~~498~~5,~~926~~851,904
Changes in operating assets and liabilities:
Accounts receivable		1(189,~~770,227~~660	)		~~(484~~1,~~457~~770,227	)
Inventory		~~755~~498,~~224~~806			(4755,~~535,080~~224	)
Prepaid expenses and other assets, net		~~892~~776,~~845~~457			~~926~~892,~~780~~845
Accounts payable		~~384~~3,~~926~~488,129			1384,~~626,856~~926
Accrued income taxes		-			(9,878	)
Accrued expenses and other liabilities		273,237			(926,512	)
Accrued expenses and other liabilities		(926,512	)		(1,198,873	)
Net cash used in operating activities		(7,365,495	)		(3,875,091	)
Net cash (used in) provided by operating activities		(3,875,091	)		572,553
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(1953,~~229,571~~580	)		(1,~~496~~229,~~471~~571	)
Payments for intangible assets		(5384,~~952~~318	)		(6453,~~188~~952	)
Net cash used in investing activities		(1,~~283~~037,~~523~~898	)		(1,~~560~~283,~~659~~523	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock		~~(451,815~~-	)		(38451,~~164~~815	)
Stock option exercises		-			758,659
Proceeds from debt		2,300,000			-
Net cash (used in) provided by financing activities		(451,815	)		720,495
Net cash provided by (used in) financing activities		2,300,000			(451,815	)
NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(56,~~610~~103,~~429~~393	)		(~~267~~5,~~611~~610,429	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR		2115,~~179~~568,~~340~~911			21,~~446~~179,~~951~~340
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR	$	159,~~568~~465,~~911~~518		$	2115,~~179~~568,~~340~~911
Supplemental disclosure of cash flow information:
Cash paid during the year for income taxes	$	~~5,900~~-		$	-5,900
Cash paid during the year for interest expense	$	26,544		$	-
Supplemental Schedule of Non-cash Investing and Financing Activities:
Shares issued related to fractional shares from reverse stock split (83,778 shares)	$	-		$	-

See Notes to Consolidated Financial Statements.

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CHARLES & COLVARD, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, lab grown diamonds, created color gemstones, and ~~lab~~most recently lab grown diamonds in color, at wholesale prices to select distributors, manufacturers, retailers, and designers, including some of the largest distributors and jewelry manufacturers in the world. In addition, Inin May 2023, the Company launched charlesandcolvarddirect.com, a direct-to-wholesaler online sales portal, which is currently a ~~gemstone product disposition~~ wholesale outlet. ~~The~~for the Company’s loose Forever Bright™ and Forever One™ moissanite gemstones. 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 also through its wholly owned operating subsidiary, charlesandcolvard.com, LLC, its owned web property madenetwork.com, 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 consolidated financial statements as of and for the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023, 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 organized 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 2009 and has had no operating activity since 2008. Charles & Colvard~~ Direct, LLC, had no operating activity during the fiscal years ended June 30, ~~2023~~2024 or ~~2022~~2023. All intercompany accounts have been eliminated.

~~Use~~Going ~~of Estimates~~ Concern – The ~~preparation~~ ofCompany’s accompanying consolidated financial statements inhave ~~conformity~~been ~~with~~prepared ~~accounting~~on ~~principles~~a ~~generally~~going ~~accepted~~concern inbasis, ~~the~~which ~~United~~contemplates ~~States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect~~ the ~~reported~~realization ~~amounts~~ of assets and ~~liabilities,~~ ~~disclosure~~satisfaction of ~~contingent~~obligations ~~assets~~in ~~and liabilities at~~ the ~~date~~normal course of business. ~~the~~However, ~~financial~~for ~~statements~~Fiscal 2024, ~~and~~ the ~~reported~~Company ~~amounts~~had losses of ~~revenues and expenses during the reporting period~~$14.36 Asmillion ~~future events~~ and ~~their~~cash ~~effects~~flow ~~cannot~~used bein ~~fully~~operations ~~determined with~~of ~~precision,~~$7.37 ~~actual~~million. ~~results~~These offactors ~~operations,~~and ~~cash~~the ~~flow,~~recent ~~and~~Wolfspeed ~~financial~~arbitration ~~position~~award ~~could~~and ~~differ~~related ~~significantly~~settlement ~~from~~agreement ~~estimates~~of $4.77 ~~The~~million ~~most~~raise ~~significant~~substantial ~~estimates~~doubt ~~impacting~~about the Company’s ~~consolidated~~ability ~~financial statements relate~~ to ~~valuation~~continue ~~and classification~~as ofa ~~inventories,~~going ~~accounts~~concern ~~receivable~~within ~~reserves,~~one ~~stock-based compensation,~~year ~~and~~from ~~revenue~~the ~~recognition.~~date ~~Changes in estimates are reflected in~~ the ~~consolidated~~ financial statements ~~in the period in which the change in estimate occurs~~are issued.

~~Reclassification~~The –Company’s management ~~Certain amounts~~is incontinuing ~~the~~to ~~Company’s~~work ~~consolidated~~on ~~financial~~plans ~~statements for~~to ~~the~~fund ~~fiscal~~operations ~~year~~to ~~ended~~alleviate ~~June~~the ~~30,~~conditions ~~2022~~that ~~have~~raise ~~been~~substantial ~~reclassified~~doubt toby ~~conform~~evaluating toits ~~current~~financing ~~presentation~~arrangements, ~~principally~~implementing ~~amounts~~cost ~~presented~~savings inactions ~~Note~~to 9,reduce ~~“Accrued~~cash ~~Expenses~~outflow, and ~~Other~~evaluating ~~Liabilities”, relating~~the toliquidation ~~the combination~~ of ~~accrued~~certain ~~sales tax and accrued franchise taxes~~inventories, ~~which~~if ~~had previously been presented separately~~needed. ~~These~~However, ~~reclassifications~~there ~~had~~can be no ~~impact~~assurance onthat ~~the~~these ~~Company’s~~plans ~~consolidated~~will ~~financial~~be ~~position~~successful or ~~consolidated~~that ~~results~~additional offinancing ~~operations~~will ~~as of~~be oravailable ~~for~~on ~~the~~terms ~~fiscal~~acceptable ~~years~~to ~~ended~~the ~~June 30, 2023 and 2022~~Company.

~~Cash~~In ~~and~~view ~~Cash~~of ~~Equivalents~~these matters, –continuation ~~All~~as ~~highly~~a ~~liquid~~going ~~investments~~concern ~~with~~is andependent ~~original~~upon ~~maturity~~continued operations of ~~three~~the ~~months~~Company, orwhich ~~less~~in ~~from~~turn is dependent upon the ~~date~~Company’s ability to meet its financial requirements and the success of its future operations. The financial ofstatements ~~purchase~~do ~~are~~not ~~considered~~include any adjustments to bethe ~~cash~~amount ~~equivalents.~~or ~~The~~the ~~Company’s~~classification ~~cash~~of assets and ~~cash~~liabilities ~~equivalents~~that ~~include~~may ~~cash~~be onnecessary ~~deposit~~should ~~and~~the aCompany ~~money~~not ~~market~~continue ~~fund~~as a going concern.

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~~Restricted~~Use ~~Cash~~of Estimates – InThe preparation ~~accordance~~of ~~with~~financial ~~the terms~~statements ofin ~~the~~conformity ~~Company’s~~with ~~cash~~accounting ~~collateralized~~principles ~~$5.00~~generally ~~million~~accepted ~~credit~~in ~~facility~~the ~~from~~United ~~JPMorgan~~States ~~Chase~~of ~~Bank,~~America N(“U.AS. ~~(“JPMorgan Chase~~GAAP”), ~~which~~requires ~~the~~management ~~Company~~to ~~entered~~make ~~into~~estimates onand ~~July~~assumptions ~~12, 2021,~~that asaffect ~~amended~~the ~~July~~reported 28amounts of assets and liabilities, ~~2022~~ disclosure of contingent assets and ~~amended~~liabilities ~~further~~at ~~effective~~the ~~June~~date ~~21,~~of ~~2023~~the financial statements, and the ~~Company~~ isreported ~~required~~amounts toof ~~keep~~revenues $5and expenses during the reporting period.1 ~~million~~As infuture events and their effects cannot be fully determined a with precision, actual results of operations, cash ~~deposit~~flow, ~~account~~and ~~held~~financial byposition ~~JPMorgan~~could ~~Chase.~~differ ~~Such~~significantly ~~amount~~from ~~was~~estimates. ~~held~~The asmost ~~security~~significant ~~for~~estimates impacting the Company’s ~~credit~~consolidated ~~facility~~financial ~~from~~statements ~~JPMorgan~~relate ~~Chase.~~to ~~Accordingly~~valuation and classification of inventories, ~~during~~accounts ~~the~~receivable ~~term~~reserves, ofstock-based compensation, ~~the~~valuation ~~JPMorgan~~on ~~Chase~~deferred ~~credit~~income ~~facility~~tax assets, ~~the~~and ~~cash~~revenue ~~deposit~~recognition. ~~held~~Changes byin ~~JPMorgan~~estimates ~~Chase is~~are ~~classified~~reflected asin ~~restricted~~the ~~cash~~consolidated ~~for~~ financial ~~reporting~~statements ~~purposes~~in onthe period in which the ~~Company’s~~change ~~Consolidated~~in ~~Balance~~estimate ~~Sheets~~occurs.

Reclassification – Certain amounts in the Company’s consolidated financial statements for the fiscal year ended June 30, 2023 have been reclassified to conform to current presentation, principally amounts presented in Note 9, “Accrued Expenses and Other Liabilities”, relating to the accrued customer returns from the charlesandcolvard.com allowance which had previously been presented in the Accounts Receivable, net balance. These reclassifications had no impact on the Company’s consolidated financial position or consolidated results of operations as of or for the fiscal years ended June 30, 2024 and 2023.

Cash and Cash Equivalents – All highly liquid investments with an original maturity of three months or less from the date of purchase are considered to be cash equivalents. The Company’s cash and cash equivalents include cash on deposit and money market funds.

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 and amended further October 31, 2024, the Company is 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 is classified as restricted cash for financial reporting purposes on the Company’s Consolidated Balance Sheets.

For additional information regarding the Company’s cash collateralized credit facility with JPMorgan Chase, see Note 11, “Debt”.

Pursuant to the terms and 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 program, the Company is required to maintain a funded liquid margin account held by Oppenheimer for the benefit of the Company. The purpose of this account is to fund the Company’s common stock repurchases and any underlying transaction costs and fees. Depending upon the level and timing of stock repurchase activity, the funded margin account cash balance will fluctuate from time to time. At June 30, 2023 and 2022, cash in the amount of approximately $30 and $461,000, respectively, was held by Oppenheimer. Such cash amount held by Oppenheimer was classified as restricted cash for financial reporting purposes on the Company’s Consolidated Balance Sheets.

For additional information regarding the Company’s stock repurchase program, see Note 12, “Shareholders’ Equity and Stock-Based Compensation.”

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 service 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 Consolidated Statements of Cash Flows, consists of the following as of the dates presented:

	June 30,
	2023		2022
	2024		2023
Cash and cash equivalents	$	104,~~446~~137,~~532~~055	$	1510,~~668~~446,~~361~~532
Restricted cash		5,~~122~~328,~~379~~463		5,~~510~~122,~~979~~379
Total cash, cash equivalents, and restricted cash	$	159,~~568~~465,~~911~~518	$	2115,~~179~~568,~~340~~911

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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.

In November 2024, the FASB issued ASU No. 2024-03 “Income Statement—Reporting Comprehensive Income (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.

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.

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 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.

See Note 14, “Major Customers and Concentration of Credit Risk”, for further discussion of credit risk within trade accounts receivable.

Accounts Receivable Reserves – Accounts receivable are reported net of reserves and were $845,000, $540,000, and $2.2 million as of June 30, 2024, 2023 and 2022, respectively. Estimates are used to determine the amount of two reserves against trade accounts receivable. The first reserve is an allowance for sales returns. At the time revenue is recognized, the Company estimates future returns using a historical return rate that is reviewed quarterly with consideration of any contractual return privileges granted to customers and it reduces sales and trade accounts receivable by this estimated amount. When cash is received at the time revenue is recognized, the Company records the sales returns in accrued expenses and other liabilities and this amounts to $89,000 and $160,000 at June 30, 2024 and 2023, respectively. When credit is extended at the time revenue is recognized, and the right of offset exists, the allowance for sales returns is netted against accounts receivable and totaled $317,000 and $568,000 at June 30, 2024 and 2023, respectively.

The following are reconciliations of the allowance for sales returns balances for the periods presented:

	Year Ended June 30,
	2024			2023
Balance, beginning of year	$	568,000		$	591,000
Additions charged to operations		3,925,344			5,405,613
Sales returns		(4,176,344	)		(5,428,613	)
Balance, end of year	$	317,000		$	568,000

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Accounts Receivable Reserves – Estimates are used to determine the amount of two reserves against trade accounts receivable. The first reserve is an allowance for sales returns. At the time revenue is recognized, the Company estimates future returns using a historical return rate that is reviewed quarterly with consideration of any contractual return privileges granted to customers and it reduces sales and trade accounts receivable by this estimated amount. The Company’s allowance for sales returns was $568,000 and $591,000 at June 30, 2023 and 2022, respectively.

The following are reconciliations of the allowance for sales returns balances for the periods presented:

	Year Ended June 30,
	2023			2022
Balance, beginning of year	$	591,000		$	675,000
Additions charged to operations		5,405,613			6,012,069
Sales returns		(5,428,613	)		(6,096,069	)
Balance, end of year	$	568,000		$	591,000

The second reserve is an allowance for uncollectible accounts for the measurement of estimated credit losses resulting from the failure of the Company’s customers to make required payments. This allowance reduces trade accounts receivable to an amount expected to be collected. The Company uses a current expected credit losses model whereby management estimates credit losses expected over the life of its pool of exposures based on historical percentages of uncollectible accounts, changes in payment history, and facts and circumstances, including any current extenuating economic conditions, regarding specific accounts that become known to, or forecasted by, management to be uncollectible when evaluating the adequacy of the allowance for uncollectible accounts. The Company determines a credit loss percentage based on the age of the receivable that it deems uncollectible related to potential credit losses. The Company records an allowance for such credit losses, which includes a provision for expected losses based on historical write-offs, adjusted for current conditions as deemed necessary, reasonable and supportable forecasts about future conditions, and a specific reserve for accounts deemed at risk. The allowance is the Company’s estimate for accounts receivable as of the balance sheet date that ultimately will not be collected. Any changes in the allowance are reflected in the results of operations in the period in which the change occurs. The Company writes-off accounts receivable and the related allowance recorded previously when it becomes probable, based upon customer facts and circumstances, that such amounts will not be collected. The Company generally uses internal collection efforts, which may include its sales personnel as it deems appropriate. After all internal collection efforts have been exhausted, the Company generally writes-off the underlying account receivable.

Any accounts with significant balances are reviewed separately to determine an appropriate allowance based on the facts and circumstances of the specific underlying customer account. During its review for the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023, the Company determined no additional reserves were necessary for specific accounts. Based on these criteria, management determined that allowances for uncollectible accounts receivable of $~~183~~312,000 and $85183,000 at June 30, ~~2023~~2024 and ~~2022~~2023, respectively, were required.

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

	Year Ended June 30,
	2023		2022
	2024		2023
Balance, beginning of year	$	85183,000	$	7185,000
Additions charged to operations		98129,000		1498,000
Balance, end of year	$	~~183~~312,000	$	85183,000

Although the Company believes that its reserves are adequate, if the financial condition of its customers deteriorates, resulting in an impairment of their ability to make payments, or if it underestimates the allowances required, additional allowances may be necessary, which would result in increased expense in the period in which such determination is made.

59Inventories – Inventories are stated on an average cost basis at the lower of cost or net realizable value, and net of inventory reserves. Inventory costs include direct material and labor, inbound freight, purchasing and receiving costs, inspection costs, and warehousing costs. Any inventory on hand at the measurement date in excess of the Company’s current requirements based on historical and anticipated levels of sales is classified as long-term on the Company’s Consolidated Balance Sheets. The Company’s classification of its inventory as either current or long-term inventory requires it to estimate the portion of on-hand inventory that is expected to be realized over the next 12 months and does not include precious metal, labor, and other inventory purchases expected to be both purchased and realized in cost of sales over the next 12 months.

~~Table~~Each accounting period, the Company evaluates the valuation and classification of ~~Contents~~inventories including the need for potential inventory cost write-downs to record inventory at the lower of cost or net realizable value, and inventory reserves, which includes significant estimates by management. The Company’s inventory-related valuation allowances for any excess or obsolete inventories, rework, and shrinkage are recorded in the aggregate rather than an individual item approach. The Company uses an individual item approach to record net realizable value write-downs.

Inventories - Inventories are stated on an average cost basis at the lower of cost or net realizable value. Inventory costs include direct material and labor, inbound freight, purchasing and receiving costs, inspection costs, and warehousing costs. Any inventory on hand at the measurement date in excess of the Company’s current requirements based on historical and anticipated levels of sales is classified as long-term on the Company’s Consolidated Balance Sheets. The Company’s classification of its inventory as either current or long-term inventory requires it to estimate the portion of on-hand inventory that is expected to be realized over the next 12 months and does not include precious metal, labor, and other inventory purchases expected to be both purchased and realized in cost of sales over the next 12 months.

Each accounting period, the Company evaluates the valuation and classification of inventories including the need for potential inventory write-downs, which also include significant estimates by management. The Company’s inventory-related valuation allowances are recorded in the aggregate rather than an individual item approach for each obsolescence, rework, and shrinkage valuation allowance.

Property and Equipment – Property and equipment are stated at cost and are depreciated over their estimated useful lives using the straight-line method as follows:

Machinery and equipment	5 to 12 years
Computer hardware	3 to 5 years
Computer software	3 years
Furniture and fixtures	5 to 10 years
Leasehold improvements	Shorter of the estimated useful life or lease term

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Intangible Assets – The Company capitalizes costs associated with obtaining or defending patents issued or pending for inventions and license rights related to the manufacturing of moissanite gemstones and fine jewelry set with moissanite and lab grown diamond jewels. Such costs are amortized over the life of the patent, generally 15 years. The Company also capitalizes licenses it obtains for the use of certain advertising images and external costs incurred for trademarks. Such costs are amortized over the period of the license or estimated useful life of the trademark, respectively.

Impairment of Long-Lived Assets – The Company evaluates the recoverability of its long-lived assets by reviewing them for possible impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The recoverability of assets to be held and used is measured by comparing the carrying value of the asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment is measured as the amount by which the carrying value exceeds the fair value and such amount is recognized as an operating expense in the period in which the determination is made. As of June 30, ~~2023~~2024, the Company did not identify any indicators of long-lived asset impairment.

In addition to the recoverability assessment, the Company routinely reviews the remaining estimated useful lives of its long-lived assets. Any reduction in the useful-life assumption would result in increased depreciation and amortization expense in the current period in which such determination is made, as well as in subsequent periods.

~~Revenue~~Leases- ~~Recognition~~The –Company ~~Revenue~~determines isif ~~recognized to depict the transfer of promised goods or services to customers in~~ an arrangement ~~amount~~is ~~that~~a ~~reflects~~lease ~~the~~at ~~consideration~~inception. toThe ~~which the~~ Company ~~expects~~has toan beoperating ~~entitled~~lease ~~in exchange~~ for ~~those~~its ~~goods~~corporate ~~or services. To achieve this principle~~headquarters, ~~the~~which ~~Company~~includes ~~performs~~executive ~~the~~office ~~following~~space, ~~five~~storage, steps: (i) identification of a contract with a customer; (ii) identification of any separate performance obligations; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and ~~(v)~~light ~~recognition~~manufacturing ~~of revenue when the Company has satisfied the underlying performance obligations~~space. The Company ~~recognizes~~has ~~substantially~~no ~~all~~other ofmaterial ~~its~~operating ~~revenue~~leases atand ais ~~point in time when~~not ~~control~~party ofto ~~the~~leases ~~Company’s~~that ~~goods~~would ~~has~~qualify ~~passed~~for toclassification ~~the~~as ~~customer~~a ~~with~~finance ~~the~~lease, ~~exception~~variable oflease, ~~consigned~~or ~~goods~~short-term lease. The ~~Company~~lease ~~considers~~agreement ~~its~~includes ~~sole~~an ~~performance~~option ~~obligation related~~ to ~~the~~renew ~~shipment~~or ofterminate ~~goods satisfied at~~ the ~~time~~lease, ~~this control is transferred~~ which is ~~typically~~not ~~upon~~reasonably ~~shipment~~certain ~~but~~to ~~may~~ be ~~upon~~exercised ~~delivery depending on the contractual arrangement with the customer. Customer payment terms for these shipments typically range between 30-~~ and ~~90-days. Customers purchasing items through the Company’s websites pay amounts in advance of the Company transferring control of the goods.~~therefore Amounts received in advance of the transfer of control are included in deferred revenue within accrued expenses and other liabilities on the consolidated balance sheets until the time of the transfer of control of the goods. The amounts included in deferred revenue of $452,866 and $774,891 at June 30, 2022 and June 30, 2021, respectively, were ~~recorded~~is innot ~~net~~factored ~~sales~~into ~~during~~ the ~~fiscal~~determination ~~years ended June 30, 2023 and June 30, 2022, respectively. The opening accounts receivable, net balance as~~ of ~~July~~lease ~~1, 2021 was $1,662,074~~payments. The Company’s ~~has~~lease ~~elected~~agreements todo ~~treat~~not ~~shipping~~contain ~~and~~any ~~handling~~material ~~performed~~variable ~~after~~lease ~~control has transferred to customers as a fulfillment activity~~payments, ~~and~~ ~~additionally,~~material ~~has~~residual ~~elected~~value ~~the~~guarantees ~~practical~~or ~~expedient~~any tomaterial ~~report~~restrictive ~~sales taxes on a net basis~~covenants. ~~The Company records shipping and handling expense related to product sales as cost of sales.~~

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the operating lease. Operating lease Right-of-Use (“ROU”) assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate to determine the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company has lease agreements with lease and non-lease components and uses the practical expedient related to treating lease and non-lease components as a single lease component for all leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred.

The Company reviews its ROU assets for events or changes in circumstances that may indicate that the carrying amount of such assets may not be recoverable. The carrying amount of an asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying amount of an ROU exceeds its net realizable value, the asset will be written down to its fair value. The Company did not recognize an impairment charge related to the right-of-use assets for the years ended June 30, 2024 or 2023.

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~~The~~Loss ~~Company~~Contingencies- ~~has~~From atime ~~variable consideration element related~~ to ~~most of its contracts in the form of product return rights. At the~~ time ~~revenue is recognized~~, anthe ~~allowance~~Company ~~for estimated returns~~ is ~~established~~involved ~~and~~in ~~any~~litigation, ~~change~~claims, incontingencies ~~the~~and ~~allowance~~other ~~for~~legal ~~returns~~matters. isThe ~~charged~~Company’s ~~against~~management ~~net~~and ~~sales~~its inlegal ~~the~~counsel ~~current~~assess ~~period.~~such ~~For~~contingent ~~the~~liabilities, ~~Company’s~~and ~~Traditional~~such ~~segment~~assessment ~~customers,~~inherently ~~the~~involves ~~returns~~an ~~policy~~exercise ~~generally~~of ~~allows~~judgment. ~~for the~~In ~~return~~assessing ofloss ~~jewels~~contingencies ~~and~~related ~~finished~~to ~~jewelry~~legal ~~with~~proceedings athat ~~valid~~are ~~reason~~pending ~~for~~against ~~credit~~the ~~within~~Company 30or ~~days~~unasserted ofclaims ~~shipment.~~that ~~Online~~may ~~Channels~~result ~~segment customers~~ in ~~both~~such ofproceedings, the Company’s ~~transactional~~management ~~websites,~~team ~~charlesandcolvard.com~~evaluates ~~and~~the ~~moissaniteoutlet.com,~~perceived ~~may~~merits ~~also~~of ~~generally~~any ~~return~~legal ~~purchases~~proceedings ~~within~~or unasserted 30claims ~~days~~as ofwell as the ~~shipment~~perceived ~~date~~merits inof ~~accordance with~~ the ~~Company’s~~amount ~~returns~~of ~~policies~~relief assought ~~disclosed~~or onexpected ~~its~~to ~~charlesandcolvard.com~~be ~~and~~sought ~~moissaniteoutlet~~therein.~~com websites.~~

If the assessment of a contingency indicates it is probable that a loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed. Expected legal costs associated with assessing or potentially settling a contingent liability are expensed as incurred.

Common Stock Presentation- The Company’s no par common stock is reported as Common Stock in the Consolidated Balance Sheets and Statements of Stockholders’ Equity. The Common Stock presented on the Consolidated Balance Sheets and Statements of Stockholders’ Equity includes share issuances and exercised stock options. The Additional Paid-in-Capital presented on the Consolidated Balance Sheets and Statements of Stockholders’ Equity includes stock-based compensation.

Revenue Recognition – Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this principle, the Company performs the following five steps: (i) identification of a contract with a customer; (ii) identification of any separate performance obligations; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when the Company has satisfied the underlying performance obligations. The Company recognizes substantially all of its revenue at a point in time when control of the Company’s goods has passed to the customer with the exception of consigned goods. The Company considers its sole performance obligation related to the shipment of goods satisfied at the time this control is transferred which is typically upon shipment but may be upon delivery depending on the contractual arrangement with the customer. Customer payment terms for these shipments typically range between 30 and 90 days. Customers purchasing items through the Company’s websites pay amounts in advance of the Company transferring control of the goods. Amounts received in advance of the transfer of control are included in deferred revenue within accrued expenses and other liabilities on the consolidated balance sheets until the time of the transfer of control of the goods. The deferred revenue balances as of June 30, 2024, 2023, and 2022 were $301,000, $567,000, and $453,000, respectively. The amounts included in deferred revenue of $567,000 and $453,000 at June 30, 2023 and June 30, 2022, respectively, were recorded in net sales during the fiscal years ended June 30, 2024 and June 30, 2023, respectively. The Company has elected to treat shipping and handling performed after control has transferred to customers as a fulfillment activity, and additionally, has elected the practical expedient to report sales taxes on a net basis. The Company records shipping and handling expense related to product sales as cost of sales.

The Company has a variable consideration element related to most of its contracts in the form of product return rights. At the time revenue is recognized, an allowance for estimated returns is established and any change in the allowance for returns is charged against net sales in the current period. For the Company’s Traditional segment customers, the returns policy generally allows for the return of jewels and finished jewelry with a valid reason for credit within 30 days of shipment. Online Channels segment customers in the Company’s transactional websites, charlesandcolvard.com, moissaniteoutlet.com, and madenetwork.com may also generally return purchases within 30 days of the shipment date in accordance with the Company’s returns policies as disclosed on its charlesandcolvard.com, moissaniteoutlet.com, and madenetwork.com websites.

Periodically, the Company ships loose jewel goods and finished goods to Traditional segment customers on consignment terms. Under these consignment terms, the customer assumes the risk of loss and has an absolute right of return for a specified period that typically ranges from six months to one year. The Company’s Online Channels segment and Traditional segment customers are generally required to make payments on consignment shipments within 30 to 60 days upon the customer informing the Company that it will keep the inventory. Accordingly, the Company does not recognize revenue on these consignment transactions until the earlier of (i) the customer informing the Company that it will keep the inventory; (ii) the expiration of the right of return period; or (iii) the customer informing the Company that the inventory has been sold to the end consumer.

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The Company presents disaggregated net sales by its Online Channels segment and its Traditional segment for both finished jewelry and loose jewels product lines. The Company also presents disaggregated net sales by geographic area between the United States and international locations. For financial reporting purposes, disaggregated net sales amounts are presented in Note 3, “Segment Information and Geographic Data.”

Returns Asset and Refund Liabilities

The Company maintains a returns asset account and a refund liabilities account (recorded in accounts receivable reserve or in accrued expenses and other liabilities if cash is received when revenue is recognized) to record the effects of its estimated product returns and sales returns allowance. The Company’s returns asset and refund liabilities are updated at the end of each financial reporting period and the effect of such changes are accounted for in the period in which such changes occur.

The Company estimates anticipated product returns in the form of a refund liability based on historical return percentages and current period sales levels. The Company also accrues a related returns asset for goods expected to be returned in salable condition, less any expected costs to recover such goods, including return shipping costs that the Company may incur. As of June 30, ~~2023~~2024 and 2022, the Company’s refund liabilities balances were $568,000 and $591,000, respectively, and are included as allowances for sales returns within accounts receivable, net, in the accompanying consolidated balance sheets. As of June 30, 2023 ~~and 2022~~, the Company’s ~~returns~~return asset balances were $~~290~~230,000 and $~~260~~290,000, respectively, and are included within prepaid expenses and other assets in the accompanying consolidated balance sheets.

Cost of Goods Sold – Cost of goods sold is primarily composed of inventory sold during the period; inventory written-down during the period due to ongoing quality and obsolescence reviews; salaries and payroll-related expenses for personnel involved in preparing and shipping product to customers; an allocation of shared expenses such as rent, utilities, communication expenses, and depreciation related to preparing and shipping product to customers; and outbound freight charges.

Advertising Costs – Advertising production costs are expensed as incurred. Media placement costs are expensed the first time the underlying advertising appears.

The Company also offers a cooperative advertising program to certain of its distributor and retail partners that reimburses, via a credit towards future purchases, a portion of their marketing costs based on the customers’ net purchases from the Company and is subject to the customer providing documentation of all advertising performed that includes the Company’s products. For the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023, these approximate amounts were $~~606~~522,000 and $~~792~~606,000, respectively~~, and are included as a component of sales and marketing expenses~~. ~~Because~~These ~~the~~costs ~~Company~~are ~~receives~~considered acontra ~~distinct~~revenue ~~good~~under ~~or service in exchange for consideration and~~ the ~~fair value~~requirements of ~~the~~ASC ~~benefit~~606 ~~can~~and ~~be reasonably estimated, these transactions~~ are reflected asin ~~sales~~that ~~and~~manner ~~marketing~~for ~~expenses~~Fiscal 2024.

Advertising expenses, inclusive of the cooperative advertising program, for the fiscal years ended June 30, 2023 and 2022, were approximately $7.89 million and $7.38 million, respectively.

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Sales and Marketing – Sales and marketing costs are expensed as incurred. These costs include all expenses of promoting and selling the Company’s products and include such items as the salaries, payroll-related expenses, and travel of sales and marketing personnel; digital marketing; advertising; trade shows; market research; sales commissions; and an allocation of overhead expenses attributable to these activities. Except for an allocation to general and administrative expenses, these costs also include the operating expenses of charlesandcolvard.com, LLC, the Company’s wholly owned operating subsidiary, which include the operating expenses of its wholly owned subsidiary, moissaniteoutlet.com, LLC.

General and Administrative – General and administrative costs are expensed as incurred. These costs include the salaries and payroll-related expenses of executive, finance, information technology, and administrative personnel; non-litigation legal, investor relations, and professional fees; general office and administrative expenses; Board of Directors fees; rent; bad debts; and insurance.

Stock-Based Compensation – The Company recognizes compensation expense for stock-based awards based on estimated fair values on the date of grant. The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of stock options. The fair value of restricted stock awards is determined by the market price of the Company’s common stock on the date of grant. The expense associated with stock-based compensation is recognized on a straight-line basis over the requisite service period of each award.

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Fair value of stock options using the Black-Scholes-Merton option pricing model is estimated on the date of grant utilizing certain assumptions for dividend yield, expected volatility, risk-free interest rate, and expected lives of the awards, as follows:

Dividend Yield. Although the Company issued dividends in prior years, a dividend yield of zero is used due to the lack of recent dividend payments and the uncertainty of future dividend payments;

Expected Volatility. Volatility is a measure of the amount by which a financial variable such as share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company estimates expected volatility giving primary consideration to the historical volatility of its common stock;

Risk-Free Interest Rate. The risk-free interest rate is based on the published yield available on U.S. Treasury issues with an equivalent term remaining equal to the expected life of the stock option; and

Expected Lives. The expected lives of the issued stock options represent the estimated period of time until exercise or forfeiture and are based on the simplified method of using the mid-point between the vesting term and the original contractual term. The simplified method is used because historically the Company has not had sufficient option exercise experience.

The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rates of stock-based awards and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rates, the Company analyzes its historical forfeiture rates. If the Company’s actual forfeiture rates are materially different from its estimates, or if the Company re-evaluates the forfeiture rates in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

Income Taxes – Deferred income taxes are recognized for the income tax consequences of “temporary” differences by applying enacted statutory income tax rates applicable to future years to differences between the financial statement carrying amounts and the income tax bases of existing assets and liabilities. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount that is more likely than not to be realized.

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Net (Loss) Income per Common Share – Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the periods. Diluted net (loss) income 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.

As of the dates presented, the following table reconciles the differences between the basic and diluted net (loss) income per share presentations:

	Year Ended June 30,
	2023			2022
	2024			2023
Numerator:
Net (loss) income	$	(19,580,794	)	$	2,373,915
Net loss	$	(14,362,957	)	$	(19,580,794	)
Denominator:
Weighted average common shares outstanding:
Basic		303,~~376~~034,~~745~~495			303,~~363~~037,~~076~~675
Effect of dilutive securities		-			~~952,952~~-
Diluted		303,~~376~~034,~~745~~495			313,~~316~~037,~~028~~675
Net (loss) income per common share:
Net loss per common share:
Basic	$	(04.6473	)	$	0(6.0845	)
Diluted	$	(04.6473	)	$	0(6.0845	)

For the fiscal year ended June 30, 2023, stock options to purchase approximately 1.82 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. For the fiscal year ended June 30, 2022, stock options to purchase approximately 758,000 were excluded from the computation of diluted net income per common share because the exercise price of the stock options 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 income 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 June 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. Approximately 45,000 shares of unvested restricted stock were excluded from the computation of diluted net income per common share as of June 30, 2022 because the shares were performance-based, and the underlying conditions had not been met as of June 30, 2022.

3. SEGMENT INFORMATION AND GEOGRAPHIC DATA

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, 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 and charlesandcolvarddirect.com. 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.”

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, excluding non-capitalized expenses from the Company’s manufacturing and production control departments, comprising personnel costs, depreciation, leases, utilities, and corporate overhead allocations; freight out; inventory write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods.

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For the fiscal year ended June 30, 2024, stock options to purchase approximately 268,000 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 fiscal year ended June 30, 2023, stock options to purchase approximately 182,000 shares were excluded from the computation of diluted net income per common share because the effect of inclusion of such amounts would be anti-dilutive to net income per common share. Approximately 179,000 shares of unvested restricted stock were excluded from the computation of diluted net income per common share as of June 30, 2023 because the shares were performance-based, and the underlying conditions had not been met as of June 30, 2023.

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.”

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 direct product cost of goods sold, excluding indirect non-product line cost of goods sold from the Company’s manufacturing and production control departments, comprising personnel costs, depreciation, leases, utilities, and corporate overhead allocations; freight out; inventory write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods.

Summary financial information by reportable segment for the periods presented is as follows:

Year Ended June 30, 2023

Year Ended June 30, 2024

Online Channels

Traditional

Total

Net sales

Finished jewelry

1916,~~607~~567,~~941~~091

43,~~377~~557,~~673~~813

2320,~~985~~124,~~614~~904

Loose jewels

1,~~884~~014,~~939~~679

4816,~~075,681~~889

51,~~960~~831,~~620~~568

Total

2117,~~492~~581,~~880~~770

84,~~453~~374,~~354~~702

2921,~~946~~956,~~234~~472

Product line cost of goods sold

Finished jewelry

98,~~214~~571,~~749~~785

32,~~182~~573,~~342~~212

1211,~~397~~144,~~091~~997

Loose jewels

~~705~~340,~~576~~299

2367,~~039,401~~409

2707,~~744,977~~708

Total

98,~~920~~912,~~325~~084

52,~~221~~940,~~743~~621

1511,~~142~~852,~~068~~705

Product line gross profit

Finished jewelry

107,~~393~~995,~~192~~306

1984,~~195,331~~601

118,~~588~~979,~~523~~907

Loose jewels

1674,~~179,363~~380

2449,~~036,280~~480

31,~~215~~123,~~643~~860

Total

118,~~572~~669,~~555~~686

31,~~231~~434,~~611~~081

1410,~~804~~103,~~166~~767

Depreciation and amortization

~~215~~176,~~978~~833

~~437~~526,~~179~~533

~~653~~703,~~157~~366

Capital expenditures

~~423~~477,~~150~~475

~~806~~476,~~421~~102

1953,~~229,571~~577

	Year Ended June 30, 2022
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	23,539,347	$	6,172,883	$	29,712,230
Loose jewels		3,240,702		10,136,092		13,376,794
Total	$	26,780,049	$	16,308,975	$	43,089,024
Product line cost of goods sold
Finished jewelry	$	9,837,830	$	4,094,870	$	13,932,700
Loose jewels		1,209,832		4,959,958		6,169,790
Total	$	11,047,662	$	9,054,828	$	20,102,490
Product line gross profit
Finished jewelry	$	13,701,517	$	2,078,013	$	15,779,530
Loose jewels		2,030,870		5,176,134		7,207,004
Total	$	15,732,387	$	7,254,147	$	22,986,534
Depreciation and amortization	$	235,643	$	243,665	$	479,308
Capital expenditures	$	305,586	$	1,190,885	$	1,496,471

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	Year Ended June 30, 2023
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	19,607,941	$	4,377,673	$	23,985,614
Loose jewels		1,884,939		4,075,681		5,960,620
Total	$	21,492,880	$	8,453,354	$	29,946,234

Product line cost of goods sold
Finished jewelry	$	9,214,749	$	3,182,342	$	12,397,091
Loose jewels		705,576		2,039,401		2,744,977
Total	$	9,920,325	$	5,221,743	$	15,142,068

Product line gross profit
Finished jewelry	$	10,393,192	$	1,195,331	$	11,588,523
Loose jewels		1,179,363		2,036,280		3,215,643
Total	$	11,572,555	$	3,231,611	$	14,804,166

Depreciation and amortization	$	215,978	$	437,179	$	653,157

Capital expenditures	$	423,150	$	806,421	$	1,229,571

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.

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

	Year Ended June 30,
	2023		2022
	2024		2023
Product line cost of goods sold	$	1511,~~142~~852,~~068~~705	$	2015,~~102~~142,~~490~~068
Non-capitalized manufacturing and production control expenses		2,210,494		1,661,207
Non-product line cost of goods sold: Manufacturing and production control expenses		2,489,090		2,210,494
Freight out		1951,~~068,437~~299		1,~~195~~068,~~062~~437
Inventory write-downs		61,~~004~~324,~~000~~385		~~195~~6,004,000
Other inventory adjustments		~~787~~146,~~384~~620		~~(308~~787,~~057~~384	)
Cost of goods sold	$	2516,~~212~~764,~~383~~099	$	2225,~~845~~212,~~702~~383

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

	Year Ended June 30,
	2023			2022
	2024			2023
Product line gross profit	$	1410,~~804~~103,~~166~~767		$	2214,~~986~~804,~~534~~166
Non-allocated cost of goods sold		(10,070,315	)		(2,743,212	)
Non-product line cost of goods sold		(4,911,394	)		(10,070,315	)
Sales and marketing		(1312,~~686~~546,~~049~~546	)		(1213,~~421~~686,~~138~~049	)
General and administrative		(5,~~023~~777,~~822~~217	)		(45,~~948~~023,~~980~~822	)
Total other income, net		297,262			19,243
Legal settlement and related expenses		(1,474,567	)		-
(Loss) Income before income taxes	$	(13,678,758	)	$	2,892,447
Total other income, net		243,000			297,262
Loss before income taxes	$	(14,362,957	)	$	(13,678,758	)

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, charlesandcolvard.com, charlesandcolvarddirect.com, and moissaniteoutlet.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.

All intangible assets, as well as property and equipment, as of June 30, 2023 and 2022, are held and located in the United States.

The following presents net sales data by geographic area for the periods presented:

	Year Ended June 30,
	2023		2022
Net sales
United States	$	29,056,696	$	41,138,538
International		889,538		1,950,486
Total	$	29,946,234	$	43,089,024

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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, charlesandcolvard.com, madenetwork.com, charlesandcolvarddirect.com, and moissaniteoutlet.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.

All intangible assets, as well as property and equipment, as of June 30, 2024 and 2023, are held and located in the United States.

The following presents net sales data by geographic area for the periods presented:

	Year Ended June 30,
	2024		2023
Net sales
United States	$	21,495,716	$	29,056,696
International		460,756		889,538
Total	$	21,956,472	$	29,946,234

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 Company’s management. The Company’s financial instruments ~~identified~~are asprimarily ~~subject~~comprised toof ~~fair~~cash, ~~value~~cash ~~measurements~~equivalents, onand arestricted ~~recurring~~cash, notes ~~basis~~receivable, ~~are~~trade accounts receivable, trade accounts payable and the line of credit. The cash, cash equivalents, and restricted cash, ~~notes~~note receivable, trade accounts receivable, and trade accounts payable. ~~All financial instruments~~ are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these financial instruments.

~~There~~The ~~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 June 30, ~~2023~~2024 orand ~~2022.~~2023:

5. NOTE RECEIVABLE

	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

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”). In accordance with the terms of the September 2022 Amendment, the note receivable is classified as a current note receivable within the accompanying consolidated financial statements as of June 30, 2023.

	Fair value measurements on a recurring basis June 30, 2023
	Level 1		Level 2		Level 3		Total
Financial Assets:
Money Market Fund (cash equivalents)	$	5,211,536	$	-	$	-	$	5,211,536
Total Financial Assets	$	5,211,536	$	-	$	-	$	5,211,536

~~Interest~~There iswere ~~accrued~~no atassets ameasured 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~~fair ~~rate~~value ~~of 5% per annum. In accordance with the terms of the September 2022 Amendment, accrued and unpaid interest~~ on ~~the Convertible Promissory Note is classified as~~ a ~~current~~non-recurring ~~asset~~basis ~~and included in other current assets in the accompanying consolidated financial statements~~ as of June 30, 2024 or 2023.

~~Subject~~As ~~to the borrower’s completion~~ of aJune ~~specified equity financing transaction (an “Equity Financing”) on or prior to the Maturity Date~~30, ~~the unpaid principal amount~~2024, ~~including accrued and unpaid interest, automatically converts into equity units of~~ the ~~most~~line ~~senior class~~ of ~~equity~~credit ~~securities~~was ~~issued~~$2.3 million. toThe ~~investors~~line ~~in the Equity Financing at the lesser~~ of ~~80%~~credit ofis ~~the~~reflected ~~per~~in ~~unit price of~~ the ~~units~~consolidated ~~purchased~~balance bysheet ~~investors~~at orcarrying ~~the price equal to $33~~value,~~500,000~~ ~~divided~~which byapproximates ~~the~~fair ~~aggregate~~value ~~number~~due ~~of outstanding units of the borrower immediately prior~~ to ~~the~~its ~~closing~~short-term ofnature ~~the financing. Unless converted as provided in the Convertible Promissory Note, the principal amount, including accrued~~ and ~~unpaid~~variable interest, ~~will~~rate, onwhich ~~the~~is ~~Maturity~~considered ~~Date,~~a atlevel ~~the~~2 ~~Company’s~~fair ~~option~~value ~~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~~measurement.

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5.	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”). In accordance with the terms of the June 2024 Amendment, the note receivable is classified as a current note receivable within the accompanying consolidated financial statements as of June 30, 2024.

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. In accordance with the terms of the September 2022 Amendment, accrued and unpaid interest on the Convertible Promissory Note is classified as a current asset and included in other current assets in the accompanying consolidated financial statements as of June 30, 2024.

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.

6.	INVENTORIES

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

	June 30,
	2023		2022
	2024		2023
Finished jewelry:
Raw materials	$	1,~~288~~014,~~906~~072	$	1,~~697~~288,~~361~~906
Work-in-process		1433,~~223,670~~150		1,~~260~~223,~~728~~670
Finished goods		1210,~~772~~927,~~611~~372		12,~~100~~772,~~910~~611
Finished goods on consignment		2,~~039~~247,~~506~~609		2,~~135~~039,~~856~~506
Total finished jewelry		1714,~~324~~622,~~693~~203		17,~~194~~324,~~855~~693
Loose jewels:
Raw materials		~~421~~1,~~603~~908,677		1421,~~985,355~~603
Work-in-process		65,~~131~~393,~~853~~035		86,~~485~~131,~~713~~853
Finished goods		2,~~294~~577,~~270~~648		52,~~454~~294,~~266~~270
Finished goods on consignment		~~254~~201,~~323~~345		~~303~~254,~~491~~323
Total loose jewels		910,~~102~~080,~~049~~705		169,~~228~~102,~~825~~049
Total supplies inventory		~~326~~227,~~834~~477		89326,~~120~~834
Total inventory	$	2624,~~753~~930,~~576~~385	$	3326,~~512~~753,~~800~~576

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

	June 30,
	2023		2022
	2024		2023
Short-term portion	$	7,~~476~~507,~~046~~303	$	117,~~024~~476,~~276~~046
Long-term portion		1917,~~277~~423,~~530~~082		2219,~~488~~277,~~524~~530
Total inventory	$	2624,~~753~~930,~~576~~385	$	3326,~~512~~753,~~800~~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 June 30, ~~2023~~2024 and ~~2022~~2023, work-in-process inventories issued to active production jobs approximated $~~1.99~~841,000 ~~million~~ and $21.7699 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. In addition, approximately one-half of the Company’s jewel inventory is not mounted in finished jewelry settings and is therefore not subject to fashion trends. 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.

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The Company’s ~~inventories~~moissanite ~~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~~lab ~~of inventories including the need for potential inventory write-downs, which also include significant estimates by management. As a result of the deterioration of~~grown ~~marketability~~ diamond ~~of certain of the Company’s loose~~ jewels ~~inventory,~~do ~~management~~not ~~determined~~degrade ~~that~~in ~~the~~quality ~~inventory~~over ~~has~~time ~~lost certain of its revenue-generating ability~~ and ~~the net realizable value of this~~ inventory ~~has~~generally ~~fallen~~consists ~~below that~~ of ~~its historical carrying cost. The multiple grades of~~ the ~~Company’s Moissanite~~shapes ~~by Charles & Colvard® loose gemstones~~ and ~~lab-grown~~sizes ~~diamonds~~most ~~have~~commonly ~~seen~~used ~~a market deterioration which started~~ in the ~~quarterly~~jewelry ~~period ended June 30, 2023 due to the recent downward pricing pressure on both mined and lab grown diamonds~~industry. ~~These~~ ~~trends~~Product inobsolescence ~~the~~is ~~diamond~~closely ~~market~~monitored ~~have now put considerable pricing pressure on moissanite – for rough~~ and ~~loose~~reviewed ~~gemstones~~by –management ~~and~~as ~~due to oversupply~~ of ~~rough~~ and ~~loose gems~~ for ~~lab~~each financial ~~grown~~reporting ~~diamonds the net realizable value of such inventory has decreased~~period.

~~Included~~The inCompany ~~cost~~manufactures offinished ~~goods~~jewelry ~~sold~~featuring ~~during~~moissanite ~~the~~and ~~quarter~~lab ~~and~~grown ~~year~~diamonds. ~~ended~~Relative ~~June~~to ~~30,~~loose ~~2023~~moissanite jewels and lab grown diamonds, isfinished ~~the~~jewelry ~~write~~is more fashion-~~down~~oriented ofand ~~approximately~~subject ~~$5.9~~to ~~million~~styling oftrends athat ~~portion~~could render certain designs obsolete over time. The majority of the Company’s ~~non-Forever~~finished ~~One™~~jewelry ~~loose~~featuring ~~jewels~~moissanite ~~inventory~~and lab grown diamonds is held in ~~response~~inventory tofor resale and largely consists ~~pricing~~ of ~~pressures~~such core designs as stud earrings, solitaire and ~~constrained~~three-stone ~~consumer~~rings, ~~demand~~pendants, and bracelets that ~~has~~tend ~~impacted~~not to be subject to significant obsolescence risk due to their classic styling. In addition, the ~~net~~Company ~~realizable~~generally ~~value~~holds smaller quantities of ~~such~~designer-inspired ~~inventory~~and trend moissanite fashion jewelry that is available for resale through retail companies and through its Online Channels segment. The ~~non-Forever~~Company ~~One™~~also ~~material~~carries a limited amount of inventory isas ~~comprised~~part of ~~raw~~its ~~materials,~~sample orline ~~boules,~~that the ~~work-~~ Company uses in~~-process~~ ~~gemstones,~~the ~~and~~selling ~~loose~~process ~~finished~~to ~~gemstones~~its customers.

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 inventory write-downs and reserves for excess and obsolete inventories, which also include significant estimates by management. Inventory write-downs are included in cost of goods sold.

In the year-ended June 30, 2024, management determined for certain finished jewelry inventory, evidence existed that the net realizable value of this inventory had fallen below that of its historical carrying cost. For the fiscal year ended June 30, 2024, the write-down of approximately $1.3 million of the Company’s finished jewelry inventory was recorded to adjust the carrying value of such inventory to its net realizable value.

In the year-ended June 30, 2023, as a result of the deterioration of marketability of certain of the Company’s loose jewels inventory, management determined that the inventory has lost certain of its revenue-generating ability and the net realizable value of this inventory has fallen below that of its historical carrying cost.As such, the Company recorded a combination of inventory reserves and cost write-downs totaling approximately $5.9 million for its non-Forever One™ loose jewels inventory. The non-Forever One™ material inventory is comprised of raw materials, or boules, work-in-process gemstones, and loose finished gemstones.

7.	PROPERTY AND EQUIPMENT

Property and equipment, net, consists of the following as of the dates presented:

	June 30,
	2023			2022
	2024			2023
Computer software	$	23,~~865~~659,~~994~~623		$	2,~~392~~865,~~465~~994
Machinery and equipment		1,~~203~~210,~~585~~772			1,~~182~~203,~~171~~585
Computer hardware		1,~~841,~~972,062			1,~~621~~841,~~198~~972
Leasehold improvements		2,~~213~~235,~~330~~102			12,~~847~~213,~~227~~330
Furniture and fixtures		676,~~014~~916			~~528~~676,~~742~~014
Total		89,~~800~~754,~~895~~475			78,~~571~~800,~~803~~895
Less accumulated depreciation		(6,~~309~~992,~~326~~857	)		(56,~~670~~309,~~627~~326	)
Property and equipment, net	$	2,~~491~~761,~~569~~618		$	12,~~901~~491,~~176~~569

Depreciation expense for the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023 was approximately $~~639~~683,000 and $~~471~~639,000, respectively.

8. INTANGIBLE ASSETS

Intangible assets, net, consist of the following as of the dates presented:

							Weighted Average
							Remaining
	June 30,						Amortization Period
	2023			2022			(in Years)
Patents	$	1,017,007		$	1,017,007			11.6
Trademarks		296,294			242,342			9.0
License rights		6,718			6,718			-
Total		1,320,019			1,266,067
Less accumulated amortization		(1,014,316	)		(1,000,337	)
Intangible assets, net	$	305,703		$	265,730

Amortization expense for the fiscal years ended June 30, 2023 and 2022 was approximately $14,000 and $8,000, respectively. Amortization expense on existing intangible assets is estimated to be approximately $28,000 for the fiscal year ending June 30, 2024, approximately $27,000 for each of the fiscal years ending June 30, 2025, 2026, and 2027, and approximately $26,000 for the fiscal year ending June 30, 2028. The amortization expense for the remaining unamortized balance of the total intangible assets, net, will be recognized in fiscal years ending after June 30, 2028.

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8.	INTANGIBLE ASSETS

Intangible assets, net, consist of the following as of the dates presented:

							Weighted
							Average
							Remaining
							Amortization
	June 30,						Period
	2024			2023			(in Years)
Patents	$	1,017,007		$	1,017,007			11.6
Trademarks		380,612			296,294			9.0
License rights		6,718			6,718			-
Total		1,404,337			1,320,019
Less accumulated amortization		(1,034,151	)		(1,014,316	)
Intangible assets, net	$	370,186		$	305,703

Amortization expense for the fiscal years ended June 30, 2024 and 2023 was approximately $20,000 and $14,000, respectively. Amortization expense on existing intangible assets is estimated to be approximately $28,000 for the fiscal year ending June 30, 2025, approximately $20,000 for each of the fiscal years ending June 30, 2026, 2027, 2028 and 2029. The amortization expense for the remaining unamortized balance of the total intangible assets, net, will be recognized in fiscal years ending after June 30, 2029.

9.	ACCRUED EXPENSES AND OTHER LIABILITIES

Total accrued expenses and other liabilities consist of the following as of the dates presented:

	June 30,
	2023		2022
	2024		2023
Deferred revenue	$	566,896	$	452,866
Legal loss settlement	$	1,474,567	$	-
Accrued compensation and related benefits		382,630		614,443
Deferred revenue		301,158		566,896
Accrued cooperative advertising		243,861		137,467
Accrued compensation and related benefits		145,903		382,630
Accrued sales tax and franchise taxes		202,091		341,706
Accrued cooperative advertising		415,324		243,861
Other accrued expenses		1		1
Accrued sales tax and franchise taxes		211,337		202,091
Accrued expenses and other liabilities	$	1,395,479	$	1,546,483
Other accrued expenses		102,243		160,001
Accrued expenses and other liabilities	$	2,650,532	$	1,555,479

As of June 30, 2024, $1.47 million of the $4.77 million interim Wolfspeed arbitration award was recorded in accrued expenses and other liabilities. The remaining $3.30 million is recorded in accounts payable.

10.	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 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. 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 June 30, 2023, the Company’s balance sheet classifications of its leases are as follows:

Operating Leases:
Noncurrent operating lease ROU assets	$	2,183,232
Current operating lease liabilities	$	880,126
Noncurrent operating lease liabilities		2,047,742
Total operating lease liabilities	$	2,927,868

The Company’s total operating lease cost was approximately $698,000 and $596,000 for the fiscal years ended June 30, 2023 and 2022, respectively.

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 3.33 years.

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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 fiscal year ended June 30, ~~2023~~2024, the Company’s ~~remaining~~has ~~future~~been ~~payments~~reimbursed ~~under~~approximately ~~operating~~$506,000 ~~leases~~by the landlord for ~~each~~qualified ~~fiscal~~leasehold ~~year~~improvements ~~ending~~in accordance with the terms of the Lease Amendment. After June 30, ~~are~~2024, asthe ~~follows:~~Company received the remaining $39,000. 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.

2024	$	893,660
2025		918,236
2026		943,487
2027		317,327
Total lease payments		3,072,710
Less: imputed interest		144,842
Present value of lease payments		2,927,868
Less: current lease liability		880,126
Total long-term lease liability	$	2,047,742

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.

The Company’s ~~makes~~balance ~~cash~~sheet ~~payments~~classifications ~~for amounts included in the measurement~~ of its ~~lease liabilities. During the fiscal years ended June 30, 2023 and 2022, cash paid for operating~~ leases ~~was approximately~~are ~~$916,000~~as ~~and $550,000, respectively.~~follows:

	June 30,
		2024		2023
Operating Leases:
Noncurrent operating lease ROU assets		$	1,556,653	$	2,183,232

Current operating lease liabilities		$	904,330	$	880,126
Noncurrent operating lease liabilities			1,201,722		2,047,742
Total operating lease liabilities		$	2,106,052	$	2,927,868

The Company’s total operating lease cost was approximately $698,000 and $698,000 for the fiscal years ended June 30, 2024 and 2023, respectively.

For the fiscal year ended June 30, 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 2.33 years. For the fiscal year ended June 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 3.33 years

As of June 30, 2024, the Company’s remaining future payments under operating leases for each fiscal year ending June 30 are as follows:

2025	$	918,236
2026		943,487
2027		317,327
2028		-
Total lease payments		2,179,050
Less: imputed interest		72,998
Present value of lease payments		2,106,052
Less: current lease liability		904,330
Total long-term lease liability	$	1,201,722

The Company makes cash payments for amounts included in the measurement of its lease liabilities. During the fiscal years ended June 30, 2024 and 2023, cash paid for operating leases was approximately $894,000 and $916,000, 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. (“Wolfspeed”). 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~~were required to equal or exceed a set minimum order quantity, contingent on the Company submitting purchase orders. 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 June 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 fiscal years ended June 30, 2023 and 2022, the Company purchased approximately $1.80 million and $6.29 million, respectively, of SiC crystals from Wolfspeed.

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

On July 28, 2023, Wolfspeed initiated a confidential arbitration against the Company for breach of contract claiming damages, plus interest, costs, and attorneys’ fees. Wolfspeed has alleged that the Company failed to satisfy the purchase obligations provided in the Supply Agreement for Fiscal 2023 in the amount of $4.25 million and failed to pay for $3.30 million of SiC crystals Wolfspeed delivered to the Company. Wolfspeed further alleges that the Company intends to breach its remaining purchase obligations under the Supply Agreement, representing an additional $18.5 million in alleged damages.

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~~While~~Effective June 22, 2018, the Company isand ~~evaluating~~ Wolfspeed’s ~~claims,~~amended the ~~Company~~Supply ~~disputes~~Agreement to extend the ~~amount~~expiration ~~sought~~date to June 25, ~~and~~2023. ~~intends~~This toamendment ~~vigorously~~also ~~defend~~(i) provided ~~its~~the ~~position~~Company with one option, ~~including~~subject byto ~~asserting~~certain conditions, to unilaterally extend the term of the Supply Agreement for an ~~rights~~ additional ~~and~~two-year ~~defenses~~period ~~that~~following expiration of the ~~Company~~initial term; (ii) established a process by which Wolfspeed may ~~have~~begin ~~under~~producing alternate SiC material based on the ~~Supply~~Company’s ~~Agreement~~specifications atthat ~~law~~will ~~and~~give inthe ~~equity.~~Company Athe ~~hearing~~flexibility ~~has~~to ~~not~~use ~~yet~~the ~~been~~materials ~~scheduled.~~in ~~The~~a ~~final~~broader ~~determinations~~variety of ~~liability~~its ~~arising~~products; ~~from~~and ~~this~~(iii) permitted ~~matter~~the ~~will~~Company ~~only~~to bepurchase ~~made~~certain ~~following~~amounts ~~comprehensive investigations,~~of ~~discovery~~SiC ~~and~~materials ~~arbitration~~from ~~processes~~third parties under limited conditions.

Effective June 30, 2020, the Company and Wolfspeed further amended the Supply Agreement was further amended to extend the expiration date to June 29, 2025. This amendment also, among other things, (i) spread the Company’s total purchase commitment, contingent on the Company submitting a purchase order, under the Supply Agreement in the amount of approximately $52.95 million over the term of the Supply Agreement, as amended; (ii) established 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) permitted the Company to purchase revised amounts of SiC materials from third parties under limited conditions.

Approximately $24.75 million of the Company’s commitment under the Supply Agreement was available to be purchased as of June 30, 2024. Over the life of the Supply Agreement, as amended, the Company’s future minimum annual purchase commitments of SiC crystals ranged from approximately $4.00 million to $10.00 million each year.

During the fiscal years ended June 30, 2024 and 2023, the Company purchased approximately $2.00 and $1.80 million, respectively, of SiC crystals from Wolfspeed pursuant to the terms of the Supply Agreement, as amended.

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 exclusive supply agreement and agreed to pay Wolfspeed a total of $4.77 million, which includes the purchased and consigned inventory, Wolfspeed’s attorney fees in connection with the arbitration, and interest, which totals $1.48 million and is recorded in legal settlement and related expenses in the accompanying consolidated statement of operation. The final settlement amount is to be paid $500,000 on February 11, 2025, $1.83 million on or before February 28, 2025, and $2.44 million on or before December 31, 2025. As of June 30, 2024, the Company accrued $4.77 million related to the final settlement and expected payments.

11.

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.

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.

As of June 30, 2023, the Company had not borrowed against the JPMorgan Chase Credit Facility.

The Company had no outstanding debt during the fiscal year ended June 30, 2023.

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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. The interest rate on the credit facility was 6.67% as of June 30, 2024. 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 January 31, 2025, 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, 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.

As of June 30, 2024, the Company has borrowed $2.3 million against the JPMorgan Chase Credit Facility and incurred $40,000 of interest expense related to the JPMorgan Chase Credit Facility. See Note 16, which notes 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.

12.	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 June 30, ~~2023~~2024 and ~~2022~~2023, it had 303,~~523~~118,~~705~~273 and 303,~~747~~052,~~759~~370 shares of common stock outstanding, respectively. Holders of the Company’s common stock are entitled to one vote for each share held.

During the fiscal year ended June 30, 2024, the Company changed the presentation of $10 million related to the 2019 and 2020 Common Stock share issuances from additional paid-in capital to common stock in the Consolidated Balance Sheet and Statement of Stockholders’ Equity to comply with its previously established accounting policy. This change in presentation had no impact on the Company’s consolidated financial position or consolidated results of operations as of or for the fiscal year ended June 30, 2024.

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 June 30, ~~2023~~2024.

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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 on the accompanying consolidated balance sheets as of June 30, ~~2023~~2024 and ~~2022~~2023, with the purchase price recorded within treasury stock.

During the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023, the Company repurchased ~~358,116~~0 shares and 3035,~~287~~116 shares, respectively, of the Company’s common stock for an aggregate price of $~~451,815~~ 0 and $38451,~~164~~815, respectively, pursuant to the repurchase authorization.

Dividends

The Company paid no cash dividends during the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023.

Shelf Registration Statement

The Company has an effective shelf registration statement on Form S-3 on file with the U.S. Securities and Exchange Commission (the “SEC”) which allows it 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,~~The ~~the~~ Company may offer and sell no more than one-third of its public float (which is the aggregate market value of the Company’s outstanding common stock held by non-affiliates) in any 12-month period. The ~~Company’s~~shelf ~~ability~~registration tostatement ~~issue~~is ~~equity~~currently ~~securities~~not available ~~under~~to ~~its~~offer ~~effective~~or ~~shelf~~sell ~~registration~~shares ~~statement~~of iscommon ~~subject~~stock due to ~~market~~the ~~conditions~~Company’s late periodic filings.

After the Company regains eligibility to offer or sell shares of common stock pursuant to the shelf registration statement, the Company’s ability to issue equity securities under the effective shelf registration statement is subject to market conditions.

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.

Equity Compensation Plans

2018 Equity Incentive Plan

On November 21, 2018, the shareholders of the Company approved the adoption of the Charles & Colvard, Ltd. 2018 Equity Incentive Plan, (the “2018 Plan”). The 2018 Plan will expire by its terms on September 20, 2028.

The 2018 Plan provides for the grant of equity-based awards to selected employees, directors, and consultants of the Company and its affiliates. The aggregate number of shares of the Company’s common stock that could be issued pursuant to awards granted under the 2018 Plan are not to exceed the sum of 3,300,000 plus the number of shares of common stock underlying any award granted under any stock incentive plan maintained by the Company prior to the 2018 Plan (each, a “2018 Prior Plan”) that expires, terminates or is canceled or forfeited under the terms of the 2018 Prior Plans. Stock options granted to employees under the 2018 Plan generally vest over four years and have terms of up to 10 years. The vesting schedules and terms of stock options granted to independent contractors vary depending on the specific grant, but the terms are no longer than 10 years. Stock option awards granted to members of the Board of Directors generally vest at the end of one year from the date of the grant. The vesting schedules of restricted stock awards granted to employees or independent contractors vary depending on the specific grant but are generally four years or less. Only stock options and restricted stock have been granted under the 2018 Plan. As of June 30, ~~2023~~2024 and ~~2022~~2023, there were 1220,~~261,331~~114 and 1126,~~101,211~~135 stock options outstanding under the 2018 Plan, respectively. There were 192,837 options available for future issuance as of June 30, 2024.

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2008 Stock Incentive Plan

In May 2008, the shareholders of the Company approved the adoption of the Charles & Colvard, Ltd. 2008 Stock Incentive Plan, as amended on March 31, 2015 and approved by the shareholders of the Company on May 20, 2015 and further amended on March 15, 2016 and approved by the shareholders of the Company on May 18, 2016 (the “2008 Plan”). The 2008 Plan expired (with respect to future grants) on May 26, 2018.

The 2008 Plan authorized the Company to grant stock options, stock appreciation rights, restricted stock, and other equity awards to selected employees, directors, and independent contractors. The aggregate number of shares of the Company’s common stock that could be issued pursuant to awards granted under the 2008 Plan were not to exceed the sum of 6,000,000 plus any shares of common stock subject to an award granted under any stock incentive plan maintained by the Company prior to the 2008 Plan (each, a “2008 Prior Plan”) that is forfeited, cancelled, terminated, expires, or lapses for any reason without the issuance of shares pursuant to the award, or shares subject to an award granted under a 2008 Prior Plan which shares are forfeited to, or repurchased or reacquired by, the Company. Stock options granted to employees under the 2008 Plan generally vest over four years and have terms of up to 10 years. The vesting schedules and terms of stock options granted to independent contractors vary depending on the specific grant, but the terms are no longer than 10 years. Stock option awards granted to members of the Board of Directors generally vest at the end of one year from the date of the grant. The vesting schedules of restricted stock awards granted to employees or independent contractors vary depending on the specific grant but are generally four years or less. Only stock options and restricted stock had been granted under the 2008 Plan. As of June 30, ~~2023~~2024 and ~~2022~~2023, there were ~~556~~47,~~334~~950 and ~~557~~55,~~592~~670 stock options outstanding under the 2008 Plan, respectively.

Stock-Based Compensation

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

	Year Ended June 30,
	2023		2022
	2024		2023
Employee stock options	$	~~225~~237,~~694~~744	$	~~243~~225,~~576~~694
Restricted stock awards		~~23,734~~-		~~530~~23,~~765~~734
Total	$	~~249~~237,~~428~~744	$	~~774~~249,~~341~~428

No stock-based compensation was capitalized as a cost of inventory during the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023.

Stock Options

The following is a summary of the stock option activity for the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023:

	Shares			Weighted Average Exercise Price
Outstanding at June 30, 2021		2,235,286		$	1.24
Outstanding at June 30, 2022		165,918		$	13.20
Granted		~~289~~27,~~793~~078		$	210.4723
Exercised		(622,226	)	$	1.15
Forfeited		(6,589	)	$	19.84
Forfeited		(24,753	)	$	1.04
Expired		(4,602	)	$	17.58
Expired		(219,297	)	$	2.57
Outstanding at June 30, 2023		181,805		$	12.41
Outstanding at June 30, 2022		1,658,803		$	1.32
Granted		117,859		$	3.55
Granted		270,787		$	1.02
Forfeited		(11,325	)	$	9.61
Forfeited		(65,765	)	$	1.99
Expired		(20,275	)	$	18.89
Expired		(46,160	)	$	1.76
Outstanding at June 30, 2024		268,064		$	8.14
Outstanding at June 30, 2023		1,817,665		$	1.24

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The weighted average grant date fair value of stock options granted during the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023 was $02.5909 and $15.2791, respectively. The total fair value of stock options that vested during the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023 was approximately $229,000 and $~~222~~229,000, respectively.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions for stock options granted during the periods presented:

	Year Ended June 30,
	2023			2022
	2024			2023
Dividend yield		0.0	%		0.0	%
Expected volatility		6165.05	%		61.60	%
Risk-free interest rate		34.7520	%		13.4675	%
Expected lives (years)		5.41			4.5.4

The following tables summarize information in connection with stock options outstanding at June 30, ~~2023~~2024:

Options Outstanding						Options Exercisable						Options Vested or Expected to Vest
Balance as of June 30, 2023		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of June 30, 2023		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of June 30, 2023		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
Balance as of June 30, 2024		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of June 30, 2024		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of June 30, 2024		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
	1,817,665		6.27	$	1.24		1,405,916		5.50	$	1.22		1,789,617		6.23	$	1.23
	268,064		7.05	$	8.14		169,806		5.71	$	10.31		262,564		7.00	$	8.21

As of June 30, ~~2023~~2024, the unrecognized stock-based compensation expense related to unvested stock options was approximately $~~171~~125,000, which is expected to be recognized over a weighted average period of approximately 1513 months.

The aggregate intrinsic value of stock options outstanding and vested or expected to vest aton June 30, ~~2023~~2024 and ~~2022~~2023 was approximately $~~127,000~~0 and $~~410~~127,000, respectively. These amounts are before applicable income taxes and represent the closing market price of the Company’s common stock aton June 30, ~~2023~~2024 and ~~2022~~2023, respectively, 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 amounts represent the amounts that would have been received by the optionees had these stock options been exercised on those dates. The aggregate intrinsic value of stock options exercised during the fiscal year ended June 30, 2022 was approximately $886,000. During the fiscal year ended June 30, 2022, the total estimated tax benefit associated with certain stock options that were exercised during each period was approximately $89,000. There were no stock options exercised during the fiscal year ended June 30, ~~2023~~2024.

Restricted Stock

During the twelve-month period ended June 30, 2024 there were no restricted stock shares awarded to plan participants. The ~~following~~unvested isrestricted shares as of September 30, 2023, which totaled 17,875 with a ~~summary~~weighted average grant date fair value of ~~the~~$9.65, were all performance-based restricted ~~stock~~shares ~~activity~~and ~~for~~were scheduled to vest in July 2023, subject to achievement of the ~~fiscal~~underlying ~~years~~performance goals. None of these shares vested during the twelve-month period ended June 30, ~~2023~~2024, and ~~2022:~~these shares were canceled in the three-month period ended as of December 31, 2023 as the underlying performance goals were not met.

	Shares			Weighted Average Grant Date Fair Value
Unvested at June 30, 2021		178,750		$	0.72
Granted		242,725		$	2.75
Vested		(242,725	)	$	1.25
Unvested at June 30, 2022		178,750		$	2.75
Granted		178,750		$	0.97
Vested		(134,063	)	$	2.75
Cancelled		(44,687	)	$	2.75
Unvested at June 30, 2023		178,750		$	0.97

The unvested restricted shares as of June 30, 2023 are all performance-based restricted shares and were scheduled to vest, subject to achievement of the underlying performance goals, in July 2023. None of the restricted shares are expected to vest; therefore, no stock-based compensation expense was recorded on these shares during the year ended June 30, 2023. As of June 30, 2023, the estimated unrecognized stock-based compensation expense related to unvested restricted shares subject to achievement of performance goals was approximately $173,000, none of which is expected to be recognized. The performance-based restricted shares expired, as the performance conditions were not met.

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13.	INCOME TAXES

The Company accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the income tax consequences of “temporary differences” by applying enacted statutory income tax rates applicable to future years to differences between the financial statement carrying amounts and the income tax bases of existing assets and liabilities.

The Company’s income tax net expense for the periods presented comprises the following:

	Year Ended June 30,
	2023			2022
	2024			2023
Current:
Federal	$	-		$	-
State		~~(50,132~~-	)		(1950,~~606~~132	)
Total current (expense) benefit		(50,132	)		(19,606	)
Total current expense		-			(50,132	)
Deferred:
Federal		~~(5,568,311~~-	)		(~~493~~5,~~910~~568,311	)
State		~~(283,593~~-	)		(5283,~~016~~593	)
Total deferred (expense) benefit		(5,851,904	)		(498,926	)
Total deferred expense		-			(5,851,904	)
Income tax net (expense) benefit	$	(5,902,036	)	$	(518,532	)
Income tax net expense	$	-		$	(5,902,036	)

Significant components of the Company’s noncurrent deferred tax assets, net, as of the dates presented are as follows:

	June 30,
	2023			2022
	2024			2023
Deferred tax assets:
Reversals and accruals	$	~~183~~525,~~907~~273		$	~~487~~183,~~333~~907
Federal net operating loss (“NOL”) carryforwards		58,~~198~~028,~~460~~853			35,~~471~~198,~~594~~460
State NOL carryforwards		~~743~~1,~~287~~121,248			~~532~~743,~~300~~287
Hong Kong NOL carryforwards		995,566			995,566
Section 263A adjustment		~~120~~47,~~078~~449			~~118~~120,~~916~~078
Stock-based compensation		~~107~~144,~~842~~056			~~155~~107,~~139~~842
Inventory valuation & obsolescence reserve		3,~~465~~273,~~024~~820			13,~~631~~465,~~339~~024
Operating lease liabilities		~~703~~513,~~254~~797			~~850~~703,~~910~~254
Noncurrent deferred tax assets		1114,~~517~~650,~~418~~062			811,~~243~~517,~~097~~418
Valuation allowance		(1013,~~562~~942,~~696~~975	)		(110,~~442~~562,~~213~~696	)
Noncurrent deferred tax assets, net		~~954~~707,~~722~~087			6954,~~800,884~~722
Deferred tax liabilities:
Prepaid expenses		(15,~~770~~595	)		(5215,~~792~~770	)
Depreciation		(~~414~~379,~~555~~764	)		(~~255~~414,~~734~~555	)
Operating lease right-of-use assets		(~~524~~311,~~397~~728	)		(~~640~~524,~~454~~397	)
Noncurrent deferred tax liabilities		(~~954~~707,~~722~~087	)		(~~948~~954,~~980~~722	)
Total noncurrent deferred tax assets, net	$	-		$	~~5,851,904~~-

7576

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The following are reconciliations between expected income taxes, computed at the applicable statutory federal income tax rate applied to pretax accounting income, and the income tax net expense for the periods presented:

	Year Ended June 30,
	2023			2022
	2024			2023
Anticipated income tax benefit (expense) at the statutory rate	$	23,~~872~~008,~~539~~880		$	~~(607~~2,~~414~~872,539	)
State income tax benefit (expense), net of federal tax effect		~~430~~408,~~355~~795			~~(36~~430,~~928~~355	)
Income tax effect of uncertain tax positions		-			~~7,804~~-
Return to provision adjustments		-			~~405~~-
Stock-based compensation		(6718,~~627~~988	)		~~131~~(67,~~898~~627	)
Other changes in deferred income tax assets, net		(1618,~~820~~408	)		(2416,~~380~~820	)
(Increase) Decrease in valuation allowance		(9,120,483	)		10,083
Increase in valuation allowance		(3,380,279	)		(9,120,483	)
Income tax net (expense) benefit	$	(5,902,036	)	$	(518,532	)
Income tax net expense	$	-		$	(5,902,036	)

The Company’s statutory tax rate as of June 30, ~~2023~~2024 is 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. The Company’s statutory tax rate as of the fiscal year ended June 30, ~~2022~~2023 was 22.4594% and consisted of the federal income tax rate of 21.00% and a blended state income tax rate of 1.4594%, 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. Driven by the establishment of the valuation allowance during the year ended June 30, 2023, the Company’s effective tax rate for the fiscal year ended June 30, ~~2023~~2024 was ~~a negative 43.15~~0%. For the fiscal year ended June 30, ~~2022~~2023, the Company’s effective income tax rate was 17a negative 43.9315%.

As of each reporting date, management considers new evidence, both positive and negative, that could impact the Company’s view with regard to future realization of deferred tax assets. During the three months ended March 31, 2023, management determined that due to the worsening global macro-economic conditions and heightened levels of inflation, including fears of recession, coupled with the effects from worldwide political unrest and the ongoing economic impact from the COVID pandemic, the risks associated with these conditions led management to conclude that it was not more likely than not the Company would have sufficient future taxable income to utilize its deferred tax assets. Additionally, the Company’s management determined that the positive evidence was no longer sufficient to offset available negative evidence, primarily as a result of the pre-tax operating losses incurred during the three- and nine-month periods ended March 31, 2023. Consequently, management established a full valuation allowance against the Company’s deferred tax assets. As of June 30, 2023 and 2024, the Company’s management determined that sufficient negative ~~evidence~~ 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.

~~Conversely,~~As as of June 30, ~~2022~~2024 and 2023, the Company ~~Company’s~~had ~~management~~federal ~~determined~~tax atnet ~~that~~operating ~~time~~loss ~~its~~carryforwards ~~expectations~~ of ~~future~~approximately ~~taxable~~$38.21 ~~income~~million inand ~~upcoming~~$24.76 ~~tax~~million, ~~years~~respectively, ~~including~~expiring ~~estimated~~between ~~growth~~2034 ~~rates~~and ~~applied~~2037, toor ~~future expected taxable income~~ that ~~included~~have ~~significant~~no ~~management estimates and assumptions~~expiration, ~~would~~which ~~continue~~can to be ~~sufficient~~used to ~~result~~offset inagainst ~~full~~future ~~utilization~~federal oftaxable ~~the~~income; ~~Company’s~~North ~~remaining~~Carolina ~~federal~~ tax net operating loss carryforwards ~~and certain~~ of the deferred tax assets prior to any statutory expiration. As a result, the Company’s management determined that sufficient positive evidence existed as of June 30, 2022, to conclude that it was more likely than not deferred tax assets of approximately $520.8520 million ~~remained realizable~~and $20.01 ~~However~~million, the Company’s management further determined that sufficient negative evidence continued to exist to conclude it was uncertain that the Company would have sufficient future taxable income to utilize certain of its deferred tax assets. Thereforerespectively, ~~the~~expiring ~~Company~~between ~~continued~~2023 toand ~~maintain~~2035; aand ~~valuation~~various ~~allowance~~other ~~against~~state ~~the deferred~~ tax ~~assets relating to certain state~~ net operating loss carryforwards ~~from~~expiring ~~the~~between ~~Company’s~~2027 ~~e-commerce~~and ~~subsidiary due to the timing uncertainty of when it would generate positive taxable income to utilize the associated deferred tax assets. In addition~~2040, awhich ~~valuation~~can ~~allowance~~be ~~remained~~used ~~against certain~~to ~~deferred~~offset ~~tax~~against ~~assets~~future ~~relating~~state totaxable ~~operating loss carryforwards relating to the Company’s dormant subsidiary located in Hong Kong~~income.

As of each of June 30, ~~2023~~2024 and ~~2022~~2023, ~~the Company~~ ~~had~~there ~~federal~~was ~~tax~~approximately $6.03 million in net operating loss carryforwards ofin ~~approximately~~Hong ~~$24~~Kong.76 ~~million~~In ~~and~~accordance ~~$16.53~~with ~~million~~the Hong Kong tax code, these ~~respectively~~amounts can be carried forward indefinitely to offset future taxable income in Hong Kong. The Company’s deferred tax assets in Hong Kong were fully reserved with a valuation allowance of $996,000 ~~expiring~~as ~~between~~of ~~2034~~each of June 30, 2024 and ~~2037~~2023, orand ~~that~~had ~~have~~been nofully ~~expiration,~~reserved ~~which~~in ~~can~~all beprior ~~used~~fiscal periods due to ~~offset~~the ~~against~~uncertainty of future ~~federal~~ taxable income; ~~North~~in ~~Carolina~~this ~~tax~~jurisdiction ~~net~~to ~~operating~~utilize ~~loss~~the ~~carryforwards~~deferred oftax ~~approximately $20~~assets.01 ~~million~~Charles ~~and $19~~& Colvard (HK) Ltd.77, ~~million~~the Company’s Hong Kong subsidiary, ~~respectively~~was entered into dormancy as of September 30, ~~expiring~~2020, ~~between~~following ~~2023~~its ~~and~~re-activation ~~2035;~~in ~~and~~December ~~various~~2017. ~~other~~Charles ~~state~~& ~~tax~~Colvard ~~net~~(HK) ~~operating~~Ltd. ~~loss~~previously became ~~carryforwards~~dormant ~~expiring~~in ~~between~~the ~~2027~~second quarter of 2009 and ~~2040~~has had no operating activity since 2008. If the Company uses any portion of its deferred tax assets in future periods, ~~which~~the ~~can~~valuation beallowance ~~used~~would need to ~~offset~~be reversed and may impact the ~~against~~Company’s future ~~state~~operating ~~taxable income~~results.

As of each of June 30, 2023 and 2022, there was approximately $6.03 million in net operating loss carryforwards in Hong Kong. In accordance with the Hong Kong tax code, these amounts can be carried forward indefinitely to offset future taxable income in Hong Kong. The Company’s deferred tax assets in Hong Kong were fully reserved with a valuation allowance of $996,000 as of each of June 30, 2023 and 2022, and had been fully reserved in all prior fiscal periods due to the uncertainty of future taxable income in this jurisdiction to utilize the deferred tax assets. Charles & Colvard (HK) Ltd., the Company’s Hong Kong subsidiary, 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. If the Company uses any portion of its deferred tax assets in future periods, the valuation allowance would need to be reversed and may impact the Company’s future operating results.77

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14.	MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK

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.

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

	June 30,
	2023			2022
	2024			2023
Customer A		2419	%		*24	%
Customer B		1415	%		*14	%
Customer C		1415	%		*14	%
Customer D		**12	%		29*	%
Customer E		**	%		20	%
Customer F		**	%		13	%

* ~~Customers~~Customer A,D ~~B, and C~~ did not have an individual ~~balances~~balance that represented 10% or more of total gross accounts receivable as of June 30, ~~2022~~2023.

** Customers D, E, and F did not have individual balances that represented 10% or more of total gross accounts receivable as of June 30, 2023.

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

	Year Ended June 30,
	2023			2022
	2024			2023
Customer E		1413	%		14	%

The customer above is included in the Company’s Traditional segment. The Company records its sales returns allowance at the corporate level based on several factors including historical sales return activity and specific allowances for known customer returns.

15.	EMPLOYEE BENEFIT PLAN

All full-time employees who meet certain length of service requirements are eligible to participate in and receive benefits from the Company’s 401(k) Plan. This plan provides for matching contributions by the Company in such amounts as the Board of Directors may annually determine, as well as a 401(k) option under which eligible participants may defer a portion of their salaries. The Company contributed a total of approximately $~~171~~155,000 and $76171,000 to its employee benefit defined contribution plan during the fiscal years ended June 30, ~~2023~~2024 and ~~2022~~2023, respectively.

7716. SUBSEQUENT EVENTS

On July 29, 2024 and November 6, 2024, the Company renewed its cash collateralized $5.0 million line of credit facility with JP Morgan Chase Bank, N.A. See Note 11, “Debt”, for a more detailed description of the Company’s credit facility.

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. Upon the expiration of the $5.0 million line of credit, the $5 million of restricted cash was used to settle the outstanding balance on the line of credit and the remaining cash balance became unrestricted.

On February 10, 2025, the Company and Wolfspeed entered into a settlement agreement related to the Wolfspeed arbitration and terminated the exclusive supply agreement with Wolfspeed. See Note 10, “Commitments and Contingencies”, for a more detailed description of the Wolfspeed arbitration and settlement agreement.

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Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.

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 June 30, ~~2023~~2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, means controls and other procedures of a company that are 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 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 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 the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executi

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