UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2017~~March 31, 2023

☐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

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:~~days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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~~	~~☐ (Do not check if a smaller reporting company)~~	~~Smaller reporting company~~	☒
~~Emerging growth company~~	☐		Accelerated filer	☐
Non-accelerated filer	☒		Smaller reporting company	☒
			Emerging growth company	☐

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

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

As of ~~October 30, 2017,~~April 28, 2023, there were ~~21,594,685~~30,523,705 shares of the registrant’s common stock, no par value per share, outstanding.

CHARLES & COLVARD, LTD.

FORM 10-Q

For the Quarterly Period Ended ~~September 30, 2017~~March 31, 2023

TABLE OF CONTENTS

		Page Number
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2023 (unaudited) and ~~December 31, 2016~~June 30, 2022	31
		Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022	2
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the three and nine months ended March 31, 2023 and 2022	43
		Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022	54
	Notes to Condensed Consolidated Financial Statements (unaudited)	65
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3233
Item 4.	Controls and Procedures	3233

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	3334
Item 1A.	Risk Factors	3334
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	34
			35
~~SIGNATURES~~	Signatures	3536

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2017 (unaudited)			December 31, 2016			March 31, 2023 (unaudited)			June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	5,127,906		$	7,427,273		$	10,914,584		$	15,668,361
Restricted cash								5,056,044			5,510,979
Accounts receivable, net		2,612,188			2,794,626			933,553			2,220,816
Inventory, net		11,115,715			9,770,206			7,889,917			11,024,276
Note receivable								-			250,000
Prepaid expenses and other assets		736,493			682,083			883,814			1,190,012
Total current assets		19,592,302			20,674,188			25,677,912			35,864,444
Long-term assets:
Inventory, net		19,782,460			18,360,211			25,439,369			22,488,524
Property and equipment, net		1,319,962			1,391,116			2,317,738			1,901,176
Intangible assets, net		9,026			8,808			301,310			265,730
Operating lease right-of-use assets								2,336,334			2,787,419
Deferred income taxes, net								-			5,851,904
Note receivable								250,000			-
Other assets		66,330			71,453			50,387			49,658
Total long-term assets		21,177,778			19,831,588			30,695,138			33,344,411
TOTAL ASSETS	$	40,770,080		$	40,505,776		$	56,373,050		$	69,208,855

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,884,461		$	3,977,149		$	3,116,810		$	4,401,229
Accrued cooperative advertising		86,173			50,000
Operating lease liabilities, current portion								874,177			856,571
Accrued expenses and other liabilities		787,449			581,107			1,143,192			1,546,483
Total current liabilities		5,758,083			4,608,256			5,134,179			6,804,283
Long-term liabilities:
Accrued expenses and other liabilities		498,068			594,916
Accrued income taxes		457,085			433,983
Noncurrent operating lease liabilities								2,251,581			2,846,805
Total long-term liabilities		955,153			1,028,899			2,251,581			2,846,805
Total liabilities		6,713,236			5,637,155			7,385,760			9,651,088
Commitments and contingencies (Note 7)
Commitments and contingencies (Note 9)
Shareholders’ equity:
Common stock, no par value; 50,000,000 shares authorized; 21,594,685 and 21,369,885 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		54,243,816			54,243,816
Common stock, no par value; 50,000,000 shares authorized; 30,912,108 shares issued and 30,523,705 shares outstanding at March 31, 2023 and 30,778,046 shares issued and 30,747,759 shares outstanding at June 30, 2022								57,242,211			57,242,211
Additional paid-in capital		14,608,145			14,282,956			26,165,810			25,956,491
Treasury stock, at cost, 388,403 shares and 30,287 shares at March 31, 2023 and June 30, 2022, respectively								(489,979	)		(38,164	)
Accumulated deficit		(34,795,117	)		(33,658,151	)		(33,930,752	)		(23,602,771	)
Total shareholders’ equity		34,056,844			34,868,621			48,987,290			59,557,767
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	40,770,080		$	40,505,776		$	56,373,050		$	69,208,855

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net sales $ 6,208,808 $ 5,212,973 $ 18,495,982 $ 23,133,248
Costs and expenses:
Cost of goods sold 3,483,603 3,221,007 10,544,303 16,278,989
Sales and marketing 1,757,007 1,891,162 5,449,195 5,222,757
General and administrative 1,137,736 1,244,400 3,612,618 4,380,218
Research and development 489 - 3,633 2,848
Loss on abandonment of property and equipment - 473 - 116,021
Total costs and expenses 6,378,835 6,357,042 19,609,749 26,000,833
Loss from operations (170,027 ) (1,144,069 ) (1,113,767 ) (2,867,585 )
Other expense:
Interest expense (5 ) (36 ) (97 ) (1,548 )
Total other expense (5 ) (36 ) (97 ) (1,548 )
Loss before income taxes from continuing operations (170,032 ) (1,144,105 ) (1,113,864 ) (2,869,133 )
Income tax net expense from continuing operations (4,507 ) (3,325 ) (23,102 ) (10,068 )
Net loss from continuing operations (174,539 ) (1,147,430 ) (1,136,966 ) (2,879,201 )

Discontinued operations:
Loss from discontinued operations - (6,949 ) - (586,027 )
(Loss) gain on sale of assets from discontinued operations - (3,065 ) - 12,398

Net loss from discontinued operations - (10,014 ) - (573,629 )
Net loss $ (174,539 ) $ (1,157,444 ) $ (1,136,966 ) $ (3,452,830 )

Net loss per common share:
Basic – continuing operations $ (0.01 ) $ (0.06 ) $ (0.05 ) $ (0.14 )
Basic – discontinued operations - (0.00 ) - (0.03 )
Basic – total $ (0.01 ) $ (0.06 ) $ (0.05 ) $ (0.17 )

Diluted – continuing operations $ (0.01 ) $ (0.06 ) $ (0.05 ) $ (0.14 )
Diluted – discontinued operations - (0.00 ) - (0.03 )
Diluted – total $ (0.01 ) $ (0.06 ) $ (0.05 ) $ (0.17 )

Weighted average number of shares used in computing net loss per common share:
Basic 21,218,468 20,997,686 21,184,211 20,898,484
Diluted 21,218,468 20,997,686 21,184,211 20,898,484

	Three Months Ended March 31,						Nine Months Ended March 31,
	2023			2022			2023			2022
Net sales	$	6,641,799		$	9,751,835		$	24,382,003		$	33,785,281
Costs and expenses:
Cost of goods sold		4,493,125			5,296,530			14,650,910			17,347,026
Sales and marketing		3,267,436			2,932,587			10,715,066			9,741,774
General and administrative		1,053,357			1,106,850			3,654,788			3,880,684
Total costs and expenses		8,813,918			9,335,967			29,020,764			30,969,484
(Loss) Income from operations		(2,172,119	)		415,868			(4,638,761	)		2,815,797
Other income (expense):
Interest income		69,159			1,120			168,935			1,964
Loss on foreign currency exchange		-			-			-			(34	)
Total other income (expense), net		69,159			1,120			168,935			1,930
(Loss) Income before income taxes		(2,102,960	)		416,988			(4,469,826	)		2,817,727
Income tax expense		(6,293,048	)		(78,480	)		(5,858,155	)		(484,582	)
Net (loss) income	$	(8,396,008	)	$	338,508		$	(10,327,981	)	$	2,333,145

Net (loss) income per common share:
Basic	$	(0.28	)	$	0.01		$	(0.34	)	$	0.08
Diluted	$	(0.28	)	$	0.01		$	(0.34	)	$	0.07

Weighted average number of shares used in computing net (loss) income per common share:
Basic		30,344,954			30,484,897			30,387,303			30,286,195
Diluted		30,344,954			31,268,410			30,387,303			31,271,677

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,136,966 ) $ (3,452,830 )
Net loss from discontinued operations - (573,629 )
Net loss from continuing operations (1,136,966 ) (2,879,201 )
Adjustments to reconcile net loss from continuing operations to net cash (used in) provided by operating activities of continuing operations:
Depreciation and amortization 318,722 445,576
Stock-based compensation 325,189 829,381
Provision for uncollectible accounts 96,000 (60,300 )
Provision for sales returns (19,000 ) (430,000 )
Provision for inventory reserves 44,000 54,000
Loss on abandonment of property and equipment - 116,021
Changes in operating assets and liabilities:
Accounts receivable 105,438 2,396,925
Inventory (2,811,758 ) 5,092,381
Prepaid expenses and other assets, net (49,287 ) (87,071 )
Accounts payable 907,312 281,477
Accrued cooperative advertising 36,173 (49,000 )
Accrued income taxes 23,102 10,068
Accrued expenses and other liabilities 109,494 (151,071 )
Net cash (used in) provided by operating activities of continuing operations (2,051,581 ) 5,569,186
Net cash used in operating activities of discontinued operations - (1,123,381 )
Net cash (used in) provided by operating activities (2,051,581 ) 4,445,805

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (246,284 ) (410,306 )
Intangible assets (1,502 ) (2,446 )
Net cash used in investing activities of continuing operations (247,786 ) (412,752 )
Net cash provided by investing activities of discontinued operations - 368,671
Net cash used in investing activities (247,786 ) (44,081 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Stock option exercises - 2,300
Net cash provided by financing activities of continuing operations - 2,300

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,299,367 ) 4,404,024
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,427,273 5,274,305
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,127,906 $ 9,678,329

Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 97 $ 1,548

	Nine Months Ended March 31, 2023
	Common Stock
	Number of Shares			Amount		Additional Paid-in Capital		Treasury Stock			Accumulated Deficit			Total Shareholders’ Equity
Balance at June 30, 2022		30,747,759		$	57,242,211	$	25,956,491	$	(38,164	)	$	(23,602,771	)	$	59,557,767
Stock-based compensation		-			-		96,232		-			-			96,232
Cancellation of restricted stock		(44,688	)		-		-		-			-			-
Repurchases of common stock		(358,116	)		-		-		(451,815	)		-			(451,815	)
Net loss		-			-		-		-			(890,192	)		(890,192	)
Balance at September 30, 2022		30,344,955			57,242,211		26,052,723		(489,979	)		(24,492,963	)		58,311,992
Stock-based compensation		-			-		78,493		-			-			78,493
Issuance of restricted stock		178,750			-		-		-			-			-
Net loss		-			-		-		-			(1,041,781	)		(1,041,781	)
Balance at December 31, 2022		30,523,705			57,242,211		26,131,216		(489,979	)		(25,534,744	)		57,348,704
Stock-based compensation		-			-		34,594		-			-			34,594
Net loss		-			-		-		-			(8,396,008	)		(8,396,008	)
Balance at March 31, 2023		30,523,705		$	57,242,211	$	26,165,810	$	(489,979	)	$	(33,930,752	)	$	48,987,290

	Nine Months Ended March 31, 2022
	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
Stock-based compensation		-		-		279,407			-		-			279,407
Issuance of restricted stock		242,725		-		-			-		-			-
Stock option exercises		183,637		397,112		(139,742	)		-		-			257,370
Net income		-		-		-			-		827,025			827,025
Balance at September 30, 2021		30,339,457		56,454,221		25,748,258			-		(25,149,661	)		57,052,818
Stock-based compensation		-		-		199,004			-		-			199,004
Stock option exercises		255,590		447,877		(159,329	)		-		-			288,548
Net income		-		-		-			-		1,167,612			1,167,612
Balance at December 31, 2021		30,595,047		56,902,098		25,787,933			-		(23,982,049	)		58,707,982
Stock-based compensation		-		-		198,523			-		-			198,523
Stock option exercises		93,749		164,045		(59,046	)		-		-			104,999
Net income		-		-		-			-		338,508			338,508
Balance at March 31, 2022		30,688,796	$	57,066,143	$	25,927,410		$	-	$	(23,643,541	)	$	59,350,012

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHARLES & COLVARD, LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended March 31,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(10,327,981	)	$	2,333,145
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		477,285			350,198
Stock-based compensation		209,319			676,934
(Recovery of) Provision for uncollectible accounts		(18,000	)		26,000
Provision for (Recovery of) sales returns		59,000			(25,000	)
Inventory write-downs		119,000			232,000
Provision for accounts receivable discounts		42			3,269
Deferred income taxes		5,851,904			483,168
Changes in operating assets and liabilities:
Accounts receivable		1,246,221			92,264
Inventory		64,514			(3,562,704	)
Prepaid expenses and other assets, net		756,554			640,843
Accounts payable		(1,284,419	)		356,311
Accrued income taxes		-			1,414
Accrued expenses and other liabilities		(980,909	)		(504,862	)
Net cash (used in) provided by operating activities		(3,827,470	)		1,102,980

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(884,030	)		(1,250,296	)
Payments for intangible assets		(45,397	)		(38,867	)
Net cash used in investing activities		(929,427	)		(1,289,163	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock		(451,815	)		-
Stock option exercises		-			650,917
Net cash (used in) provided by financing activities		(451,815	)		650,917

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH		(5,208,712	)		464,734
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD		21,179,340			21,446,951
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD	$	15,970,628		$	21,911,685

Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes	$	5,900		$	-

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

CHARLES & COLVARD, LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	DESCRIPTION OF BUSINESS

Charles & Colvard, Ltd. (the “Company”), a North Carolina corporation, was founded in ~~1995,~~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. Moissanite, also known by its chemical name silicon carbide ~~(SiC)~~(“SiC”), is a rare mineral first discovered in a meteorite crater. Because naturally occurring SiC crystals are too small for commercial use, larger crystals must be grown in a laboratory. ~~Leveraging~~Lab grown diamonds are also grown using technology that replicates the natural diamond growing process. The only differentiation between that of a lab grown diamond and a mined diamond is its ~~advantage of being~~origin. The result is a man-made diamond that is chemically, physically, and optically the ~~original and leading worldwide source of created moissanite,~~same as those grown beneath the Company’s strategy is to establish itself with reputable, high-quality, and sophisticated brands across multiple channels, and to position moissanite as an ethically-sourced, affordable, and luxurious alternative to other gemstones such as diamond. The Company believes this is possible due to moissanite’s exceptional brilliance, fire, durability, and rarity like no other jewel available on the market. earth’s surface.

The Company sells loose moissanite jewels, loose lab grown diamonds, and finished jewelry featuring both moissanite and lab grown diamonds at wholesale prices to distributors, manufacturers, retailers, ~~TV shopping networks,~~ and designers, including some of the largest distributors and jewelry manufacturers in the ~~world, which mount them~~world. The Company’s finished jewelry and loose moissanite jewels and lab grown diamonds that are mounted into fine jewelry ~~to be~~by other manufacturers are sold at retail outlets and via the Internet. The Company sells at retail prices to ~~end consumers~~end-consumers through its own Charles & Colvard Signature Showroom, which opened in October 2022, and also through its wholly owned operating ~~subsidiaries,~~subsidiary, charlesandcolvard.com, LLC, ~~(formerly Moissanite.com, LLC) and Charles & Colvard Direct, LLC (until March 2016),~~ third-party online marketplaces, drop-ship, and other pure-play, exclusively e-commerce outlets. ~~As of September 30, 2016, the~~The Company ~~changed the name of its~~also sells at discount retail prices to end-consumers through moissaniteoutlet.com, LLC, a wholly owned operating subsidiary ~~Moissanite.com,~~of charlesandcolvard.com, LLC, ~~to charlesandcolvard.com, LLC. The Company~~ ~~believes its continued~~ and expanding use of multiple sales channels to the jewelry trade and the end consumer with branded finished jewelry featuring moissanite positions the Company’s goods at the many touchpoints where consumers are when they are making their buying decisions – thereby creating greater exposure for its brand and increasing consumer demand.third-party online marketplaces.

~~In February 2016, the Company~~ ~~made the strategic decision to explore a potential divestiture of its direct-to-consumer home party business previously operated through its Charles & Colvard Direct, LLC (dba~~ ~~Lulu Avenue~~^®) subsidiary. After careful analysis of the Company’s core competencies, go-to-market strategies, and intent to advance toward profitability, the management team and Board of Directors determined a divestiture of this distribution channel to be in the best interest of the Company and its shareholders. On March 4, 2016, the Company and Charles & Colvard Direct, LLC entered into an asset purchase agreement with Yanbal USA, Inc. (“Yanbal”), under which Yanbal purchased certain assets related to the Company’s direct-to-consumer home party business for $500,000 and assumed certain liabilities related to such assets. A more detailed description of this transaction is included in ~~Note 12, “Discontinued Operations.”~~

2.	BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation -– The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. However, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the ~~three and~~ nine months ended ~~September 30, 2017~~March 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending ~~December 31, 2017.~~June 30, 2023 (“Fiscal 2023”).

The condensed consolidated financial statements as of March 31, 2023 and for the three and nine months ended ~~September 30, 2017~~March 31, 2023 and ~~the three and nine months ended September 30, 2016~~2022 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of ~~December 31, 2016~~June 30, 2022 is derived from the audited financial statements as of that date. The accompanying statements should be read in conjunction with the audited financial statements and related notes ~~together with Management’s Discussion and Analysis of Financial Condition and Results of Operations,~~ contained in Item 8 of the Company’s Annual Report on Form 10-K (the “2022 Annual Report”) for the fiscal year ended ~~December 31, 2016~~June 30, 2022 filed with the SEC on ~~March 10, 2017 (the “2016 Annual Report”).~~September 2, 2022.

~~Table of Contents~~

The accompanying condensed consolidated financial statements as of ~~and~~March 31, 2023, for the three and nine months ended ~~September 30, 2017, as of~~March 31, 2023 and ~~for the three and nine months ended September 30, 2016,~~2022, and as of ~~December 31, 2016~~the fiscal year ended June 30, 2022, include the accounts of the Company and its wholly owned subsidiaries charlesandcolvard.com, LLC, ~~(formerly Moissanite.com, LLC),~~including its wholly-owned subsidiary, moissaniteoulet.com, LLC, which was formed ~~in 2011;~~and incorporated as of February 24, 2022; Charles & Colvard Direct, ~~LLC, formed in 2011;~~LLC; and Charles & Colvard (HK) Ltd., the Company’s Hong Kong subsidiary, ~~that~~which was entered into dormancy as of September 30, 2020 following its re-activation in December 2017. Charles & Colvard (HK) Ltd. previously became a dormant ~~entity~~ in the second quarter of 2009 and has had no operating activity since 2008. Charles & Colvard Direct, LLC, had no operating activity during the ~~operations of which ceased in 2008.~~nine-month periods ended March 31, 2023 or 2022. All intercompany accounts have been eliminated.

Significant Accounting Policies -– In the opinion of the Company’s management, except as discussed below, the Company’s significant accounting policies used for the three and nine months ended ~~September 30, 2017~~March 31, 2023, are consistent with those used for the fiscal year ended ~~December 31, 2016.~~June 30, 2022. Accordingly, please refer to Note 2 to the Consolidated Financial Statements in the ~~2016~~2022 Annual Report for the Company’s significant accounting policies.

~~Discontinued Operations -~~ ~~The results~~

Table of operations for businesses that have been disposed of or classified as held-for-sale are segregated from the results of the Company’s continuing operations and classified as discontinued operations for each period presented in the Company’s condensed consolidated income statement. Similarly, the assets and liabilities of such businesses are presented as discontinued operations for each period presented on the Company’s condensed consolidated balance sheet.Contents

Use of Estimates -The– The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. As future events and their effects, including any impact of the COVID-19 pandemic and the related responses, cannot be fully determined with precision, actual results of operations, cash flow, and financial position could differ significantly from estimates. The most significant estimates impacting the Company’s condensed consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, deferred tax assets ~~uncertain~~(including deferred tax ~~positions, cooperative advertising,~~asset valuation allowances), stock-based compensation, and revenue recognition. ~~Actual results could differ materially from those estimates.~~

~~Reclassifications -~~ ~~Certain amounts~~Changes in estimates are reflected in the ~~prior year’s~~ condensed consolidated financial statements in the period in which the change in estimate occurs.

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.

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 expires by its terms on July 31, 2023, the Company is required to keep $5.05 million in a cash deposit account held by JPMorgan Chase. Such amount is held as security for the Company’s credit facility from JPMorgan Chase. Accordingly, this cash deposit held by JPMorgan Chase is classified as restricted cash for financial reporting purposes on the Company’s condensed consolidated balance sheets. For additional information regarding the Company’s cash collateralized credit facility, see Note 10, “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 purchases 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 March 31, 2023 and June 30, 2022, cash in the amount of approximately $30 and approximately $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 condensed consolidated balance sheets. For additional information regarding the Company’s stock repurchase program, see Note 11, “Shareholders’ Equity and Stock-Based Compensation.”

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

	March 31, 2023		June 30, 2022
Cash and cash equivalents	$	10,914,584	$	15,668,361
Restricted cash		5,056,044		5,510,979
Total cash, cash equivalents, and restricted cash	$	15,970,628	$	21,179,340

Reclassification – Certain amounts in the Company’s condensed consolidated financial statements as of June 30, 2022 have been reclassified to conform to ~~the~~ current ~~year~~ presentation, ~~primarily~~principally amounts ~~described~~presented in Note ~~3, “Segment Information~~7, “Accrued Expenses and ~~Geographic Data” related~~Other Liabilities”, relating to ~~changes in~~the combination of accrued sales tax and accrued franchise taxes, which had previously been presented separately. These reclassifications had no impact on the Company’s ~~reportable segments.~~condensed consolidated financial position or condensed consolidated results of operations as of or for the three and nine months ended March 31, 2023 and 2022 and as of June 30, 2022.

~~Recently Adopted/Issued Accounting Pronouncements~~ – In May 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard that supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the standard is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The standard defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the standard recognized at the date of adoption (which includes additional footnote disclosures). The Company will complete its review of contracts, the related documentation and the new disclosure requirements in the fourth quarter of 2017. The Company anticipates using the modified retrospective method of adoption and does not anticipate a material effect on the timing and measurement of revenue recognition.

In February 2016, the FASB issued guidance that establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of operations. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company currently expects that upon adoption of this standard, ROU assets and liabilities will be recognized in the balance sheet in amounts that will be material.

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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.

~~Previously, the~~The Company ~~managed~~manages its business through two operating and reportable segments: wholesale distribution transacted through the parent entity, and the direct-to-consumer distribution channel transacted through the Company’s wholly owned operating subsidiary, charlesandcolvard.com, LLC (formerly Moissanite.com, LLC). ~~During the first quarter of 2017, the Company~~ ~~began managing its business through two newly defined~~ operating and reportable segments based on its distribution channels to sell its product lines, loose jewels and finished jewelry: its ~~“Traditional” segment, which consists of wholesale, retail, and television customers; and 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.~~outlets; and its “Traditional” segment, which consists of wholesale and retail customers, including its own Charles & Colvard Signature Showroom. The accounting policies of the ~~Traditional~~Online Channels segment and ~~Online Channels~~Traditional segment are the same as those described in Note 2, “Basis of Presentation and Significant Accounting Policies” of this Quarterly Report on Form 10-Q and in the Notes to the Consolidated Financial Statements in the ~~2016~~2022 Annual Report.

TheThe Company evaluates the financial performance of its segments based on net sales; product line gross profit, or the excess of product line sales over product line cost of goods sold; and operating ~~income (loss).~~income. 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, ~~rent,~~leases, utilities, and corporate overhead allocations; freight out; inventory ~~valuation allowance adjustments;~~write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged ~~goods, and inventory write-downs.~~goods.

The Company allocates certain general and administrative expenses ~~from its Traditional segment to~~between its Online Channels segment ~~primarily~~and its Traditional segment based on net sales and number of employees to arrive at segment operating ~~loss.~~income. Unallocated expenses ~~which also include interest and taxes,~~ remain in its Traditional segment.

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

	Three Months Ended September 30, 2017								Three Months Ended March 31, 2023
	Traditional		Online Channels			Total			Online Channels			Traditional			Total
Net sales
Finished jewelry									$	4,130,314		$	1,190,987		$	5,321,301
Loose jewels	$	3,407,092	$	691,380		$	4,098,472			486,084			834,414			1,320,498
Finished jewelry		726,985		1,383,351			2,110,336
Total	$	4,134,077	$	2,074,731		$	6,208,808		$	4,616,398		$	2,025,401		$	6,641,799

Product line cost of goods sold
Finished jewelry									$	1,880,504		$	959,817		$	2,840,321
Loose jewels	$	1,877,210	$	367,378		$	2,244,588			197,145			448,114			645,259
Finished jewelry		378,799		610,762			989,561
Total	$	2,256,009	$	978,140		$	3,234,149		$	2,077,649		$	1,407,931		$	3,485,580

Product line gross profit
Finished jewelry									$	2,249,810		$	231,170		$	2,480,980
Loose jewels	$	1,529,882	$	324,002		$	1,853,884			288,939			386,300			675,239
Finished jewelry		348,186		772,589			1,120,775
Total	$	1,878,068	$	1,096,591		$	2,974,659		$	2,538,749		$	617,470		$	3,156,219

Operating income (loss)	$	110,601	$	(280,628	)	$	(170,027	)
Operating loss									$	(999,028	)	$	(1,173,091	)	$	(2,172,119	)

Depreciation and amortization	$	74,281	$	30,277		$	104,558		$	47,876		$	120,509		$	168,385

Capital expenditures	$	19,651	$	-		$	19,651		$	14,202		$	252,545		$	266,747

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	Three Months Ended September 30, 2016									Three Months Ended March 31, 2022
	Traditional			Online Channels			Total			Online Channels		Traditional		Total
Net sales
Finished jewelry										$	5,720,197	$	1,700,394	$	7,420,591
Loose jewels	$	3,165,142		$	432,337		$	3,597,479			634,617		1,696,627		2,331,244
Finished jewelry		302,652			1,312,842			1,615,494
Total	$	3,467,794		$	1,745,179		$	5,212,973		$	6,354,814	$	3,397,021	$	9,751,835

Product line cost of goods sold
Finished jewelry										$	2,560,952	$	1,148,912	$	3,709,864
Loose jewels	$	1,654,137		$	154,842		$	1,808,979			229,714		784,272		1,013,986
Finished jewelry		148,760			557,419			706,179
Total	$	1,802,897		$	712,261		$	2,515,158		$	2,790,666	$	1,933,184	$	4,723,850

Product line gross profit
Finished jewelry										$	3,159,245	$	551,482	$	3,710,727
Loose jewels	$	1,511,005		$	277,495		$	1,788,500			404,903		912,355		1,317,258
Finished jewelry		153,892			755,423			909,315
Total	$	1,664,897		$	1,032,918		$	2,697,815		$	3,564,148	$	1,463,837	$	5,027,985

Operating loss	$	(612,526	)	$	(531,070	)	$	(1,143,596	)
Operating income										$	350,276	$	65,592	$	415,868

Depreciation and amortization	$	100,720		$	14,709		$	115,429		$	52,613	$	59,374	$	111,987

Capital expenditures	$	58,695		$	233,178		$	291,873		$	28,145	$	446,445	$	474,590

	Nine Months Ended September 30, 2017									Nine Months Ended March 31, 2023
	Traditional			Online Channels			Total			Online Channels			Traditional			Total
Net sales
Finished jewelry										$	15,657,343		$	3,640,572		$	19,297,915
Loose jewels	$	10,506,456		$	2,264,379		$	12,770,835			1,657,369			3,426,719			5,084,088
Finished jewelry		1,512,310			4,212,837			5,725,147
Total	$	12,018,766		$	6,477,216		$	18,495,982		$	17,314,712		$	7,067,291		$	24,382,003

Product line cost of goods sold
Finished jewelry										$	7,296,812		$	2,335,540		$	9,632,352
Loose jewels	$	5,546,616		$	1,101,245		$	6,647,861			623,129			1,719,004			2,342,133
Finished jewelry		893,600			1,712,728			2,606,328
Total	$	6,440,216		$	2,813,973		$	9,254,189		$	7,919,941		$	4,054,544		$	11,974,485

Product line gross profit
Finished jewelry										$	8,360,531		$	1,305,032		$	9,665,563
Loose jewels	$	4,959,840		$	1,163,134		$	6,122,974			1,034,240			1,707,715			2,741,955
Finished jewelry		618,710			2,500,109			3,118,819
Total	$	5,578,550		$	3,663,243		$	9,241,793		$	9,394,771		$	3,012,747		$	12,407,518

Operating loss	$	(475,236	)	$	(638,531	)	$	(1,113,767	)
Operating income										$	(1,954,975	)	$	(2,683,786	)	$	(4,638,761	)

Depreciation and amortization	$	225,906		$	92,816		$	318,722		$	167,769		$	309,516		$	477,285

Capital expenditures	$	242,663		$	3,621		$	246,284		$	173,810		$	710,220		$	884,030

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	Nine Months September 30, 2016									Nine Months Ended March 31, 2022
	Traditional			Online Channels			Total			Online Channels		Traditional		Total
Net sales
Finished jewelry										$	18,659,690	$	4,986,354	$	23,646,044
Loose jewels	$	16,572,061		$	1,623,309		$	18,195,370			2,388,584		7,750,653		10,139,237
Finished jewelry		723,545			4,214,333			4,937,878
Total	$	17,295,606		$	5,837,642		$	23,133,248		$	21,048,274	$	12,737,007	$	33,785,281

Product line cost of goods sold
Finished jewelry										$	7,705,127	$	3,043,196	$	10,748,323
Loose jewels	$	11,444,109		$	548,753		$	11,992,862			877,604		3,630,393		4,507,997
Finished jewelry		842,147			1,824,813			2,666,960
Total	$	12,286,256		$	2,373,566		$	14,659,822		$	8,582,731	$	6,673,589	$	15,256,320

Product line gross profit (loss)
Product line gross profit
Finished jewelry										$	10,954,563	$	1,943,158	$	12,897,721
Loose jewels	$	5,127,952		$	1,074,556		$	6,202,508			1,510,980		4,120,260		5,631,240
Finished jewelry		(118,602	)		2,389,520			2,270,918
Total	$	5,009,350		$	3,464,076		$	8,473,426		$	12,465,543	$	6,063,418	$	18,528,961

Operating loss	$	(2,111,576	)	$	(756,009	)	$	(2,867,585	)
Operating income										$	2,104,674	$	711,123	$	2,815,797

Depreciation and amortization	$	400,321		$	45,255		$	445,576		$	173,786	$	176,412	$	350,198

Capital expenditures	$	147,246		$	263,060		$	410,306		$	114,445	$	1,135,851	$	1,250,296

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 condensed consolidated financial statements is as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended March 31,					Nine Months Ended March 31,
	2017			2016			2017			2016		2023		2022			2023		2022
Product line cost of goods sold	$	3,234,149		$	2,515,158		$	9,254,189		$	14,659,822	$	3,485,580	$	4,723,850		$	11,974,485	$	15,256,320
Non-capitalized manufacturing and production control expenses		298,858			448,038			1,021,676			1,190,321		596,344		484,299			1,660,231		1,243,528
Freight out		100,016			105,616			273,088			268,705		216,817		294,143			851,171		976,855
Inventory valuation allowances		(3,000	)		(1,000	)		44,000			54,000
Inventory write-downs													-		-			119,000		232,000
Other inventory adjustments		(146,420	)		153,195			(48,650	)		106,141		194,384		(205,762	)		46,023		(361,677	)
Cost of goods sold	$	3,483,603		$	3,221,007		$	10,544,303		$	16,278,989	$	4,493,125	$	5,296,530		$	14,650,910	$	17,347,026

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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 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. Sales to international end consumers made by the Company’s Online Channels segment are included in U.S. sales because products are shipped and invoiced to a U.S.-based intermediary party that assumes all international shipping and credit risks. All intangible assets and property and equipment as of September 30, 2017 and December 31, 2016 are held and located in the United States.

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The following presents net sales by geographic area:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,				Nine Months Ended March 31,
	2017		2016		2017		2016		2023		2022		2023		2022
Net sales
United States	$	5,750,825	$	4,590,299	$	17,206,485	$	20,682,341	$	6,545,336	$	9,390,774	$	23,630,410	$	32,237,221
International		457,983		622,674		1,289,497		2,450,907		96,463		361,061		751,593		1,548,060
Total	$	6,208,808	$	5,212,973	$	18,495,982	$	23,133,248	$	6,641,799	$	9,751,835	$	24,382,003	$	33,785,281

4.	FAIR VALUE MEASUREMENTS

U~~nder~~

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 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 2 -~~ ~~inputs other than Level 1 quoted prices that are directly or indirectly observable~~

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

~~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 management of the Company. The financial instruments identified as subject to fair value measurements on a recurring basis are cash and cash equivalents, notes receivable, trade accounts receivable, and trade accounts payable. All financial instruments are reflected in the condensed consolidated balance sheets at carrying value, which approximates fair value due to the ~~short-term~~ nature of these financial instruments.

Assets that are measured at fair value on a non-recurring basis include property and equipment, leasehold improvements, and intangible assets comprising patents, license rights, and trademarks. These items are recognized at fair value when they are considered to be impaired. For ~~each of~~ the ~~three-~~three and ~~nine- month periods~~nine months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, no impairment was recorded.

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5.	INVENTORIES

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

	March 31, 2023		June 30, 2022
Finished jewelry:
Raw materials	$	1,359,919	$	1,697,361
Work-in-process		716,494		1,260,728
Finished goods		13,045,604		12,100,910
Finished goods on consignment		2,266,501		2,135,856
Total finished jewelry	$	17,388,518	$	17,194,855
Loose jewels:
Raw materials	$	812,024	$	1,985,355
Work-in-process		8,980,285		8,485,713
Finished goods		5,519,936		5,454,266
Finished goods on consignment		251,693		303,491
Total loose jewels		15,563,938		16,228,825
Total supplies inventory		376,830		89,120
Total inventory	$	33,329,286	$	33,512,800

September 30,
2017

December 31,
2016

Raw materials $ 4,076,977 $ 3,106,617
Work-in-process 10,715,382 11,048,126
Finished goods 16,749,663 15,057,668
Finished goods on consignment 944,957 467,778
Supplies Inventory 22,196 17,228
Less inventory reserves (1,611,000 ) (1,567,000 )
Total $ 30,898,175 $ 28,130,417

Current portion $ 11,115,715 $ 9,770,206
Long-term portion 19,782,460 18,360,211
Total $ 30,898,175 $ 28,130,417

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~~Inventories are stated at the lower of cost or net realizable value on an average cost basis.~~ ~~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~~As of the dates presented, the Company’s ~~current requirements based on historical and anticipated levels~~total inventories, net of ~~sales is~~reserves, are classified as long-term on the Company’s condensed consolidated balance sheets. The Company’s classification of its inventory as either short- or long-term inventory requires it to estimate the portion of on-hand inventory that can 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 goods sold over the next 12 months.follows:

	March 31, 2023		June 30, 2022
Short-term portion	$	7,889,917	$	11,024,276
Long-term portion		25,439,369		22,488,524
Total	$	33,329,286	$	33,512,800

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 ~~good~~goods set with moissanite jewels, that have been issued to jobs in the manufacture of finished jewelry. The Company’s moissanite jewel manufacturing process involves the production of intermediary shapes, called “preforms,” that vary depending upon the expected size and shape of the finished jewel. To maximize manufacturing efficiencies, preforms may be made in advance of current finished inventory needs but remain in work-in-process inventories. As of ~~September~~March 31, 2023 and June 30, ~~2017 and December 31, 2016,~~2022, work-in-process inventories issued to active production jobs approximated ~~$5.20~~$1.41 million and ~~$7.18~~$2.76 million, respectively.

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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 ~~majority of~~Company’s jewel inventory is not mounted in finished jewelry settings and is therefore not subject to fashion ~~trends nor~~trends. Product obsolescence is ~~obsolescence a significant factor. The Company had the exclusive right in the U.S. through August 2015~~closely monitored and ~~the exclusive right in many other countries into the third quarter~~reviewed by management as of ~~2016 to produce~~ and ~~sell created SiC~~ for ~~use in jewelry applications.~~each financial reporting period.

The Company manufactures finished jewelry featuring ~~moissanite.~~moissanite and lab grown diamonds. Relative to loose moissanite jewels and lab grown diamonds, finished jewelry is more ~~fashion oriented~~fashion-oriented and subject to styling trends that could render certain designs ~~obsolete.~~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 ~~basic~~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 ~~manufactures small individual~~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 ~~are used~~the Company uses in the selling process to its customers.

~~Prior to March 2016, the Company purchased fashion finished jewelry comprising base metals and non-precious gemstones for sale through~~ ~~Lulu Avenue~~^®, the Company’s former direct-to-consumer home party business of the Company’s wholly owned operating subsidiary, Charles & Colvard Direct, LLC. This finished jewelry was fashion oriented and subject to styling trends that could change with each catalog season, of which there are generally two each year.

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

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

9.11.

SHAREHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Repurchases of Common Stock

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

During the nine-month period ended March 31, 2023, the Company repurchased 358,116 shares of the Company’s common stock for an aggregate price of $451,815 pursuant to the repurchase authorization. The Company repurchased no shares of the Company’s common stock during the three-month period ended March 31, 2023.

Dividends

The Company has paid no cash dividends during the current fiscal year through March 31, 2023.

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Stock-Based Compensation

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

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,							Nine Months Ended March 31,
	2017		2016		2017		2016		2023				2022			2023			2022
Employee stock options	$	93,631	$	94,715	$	249,969	$	339,441		$	63,383			$	60,045		$	185,585		$	187,059
Consultant stock options		-		39,143		-		136,253
Restricted stock awards		25,472		100,796		75,220		397,859			(28,789	)			138,478			23,734			489,875
Totals	$	119,103	$	234,654	$	325,189	$	873,553		$	34,594			$	198,523		$	209,319		$	676,934

No stock-based compensation was capitalized as a cost of inventory during the three and nine months ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022.

Included in total stock-based compensation is approximately $0 for each of the three-month periods ended September 30, 2017 and 2016, related to discontinued operations. Included in total stock-based compensation are approximately $0 and $44,000 for the nine months ended September 30, 2017 and 2016, respectively, related to discontinued operations.

Stock Options - –The following is a summary of the stock option activity for the nine months ended ~~September 30, 2017:~~March 31, 2023:

	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding, December 31, 2016		2,134,898		$	1.99
Outstanding, June 30, 2022							1,658,803		$	1.32
Granted		681,369		$	0.92		270,787		$	1.02
Forfeited		(68,000	)	$	1.38		(22,004	)	$	2.01
Expired		(603,252	)	$	3.08		(3,663	)	$	1.01
Outstanding, September 30, 2017		2,145,015		$	1.36
Outstanding, March 31, 2023							1,903,923		$	1.27

~~The~~The weighted average grant date fair value of stock options granted during the nine months ended ~~September 30, 2017~~March 31, 2023 and 2022 was ~~$0.51.~~approximately $0.59 and $1.37, respectively. The total fair value of stock options that vested during the nine months ended ~~September 30, 2017~~March 31, 2023 and 2022 was approximately $312,000. 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 nine months ended September 30, 2017:$225,000 and $188,000, respectively.

~~Dividend yield~~	~~0.0~~	%
~~Expected volatility~~	~~63.0~~	%
~~Risk-free interest rate~~	~~1.86~~	%
~~Expected lives (years)~~	~~5.49~~

~~Although the Company issued dividends in prior years, a dividend yield of zero was used due to the uncertainty of future dividend payments.~~ ~~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~~. ~~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.~~ The expected lives of the stock options issued since 2014 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. Stock ~~options issued prior to 2014 were expensed using expected lives that represented the time until exercise or forfeiture using historical information. Expected forfeitures are based on the historical forfeiture rates by employee class.~~

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The following table summarizes information about stock options outstanding at ~~September 30, 2017:~~March 31, 2023:

Options Outstanding	Options Outstanding					Options Exercisable						Options Vested or Expected to Vest						Options Outstanding					Options Exercisable						Options Vested or Expected to Vest
Balance as of 9/30/2017		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 9/30/2017		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 9/30/2017		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
Balance as of March 31, 2023																		Balance as of March 31, 2023	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of March 31, 2023		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of March 31, 2023		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
	2,145,015		8.14	$	1.36		1,256,146		7.32	$	1.62		2,039,272		8.08	$	1.38	1,903,923		6.61	$	1.27		1,440,913		5.81	$	1.24		1,859,855		6.56	$	1.26

As of ~~September 30, 2017,~~March 31, 2023, the unrecognized stock-based compensation expense related to unvested stock options was approximately ~~$350,000,~~$256,000, which is expected to be recognized over a weighted average period of approximately 2318 months.

The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at ~~September 30, 2017~~March 31, 2023 and 2022 was approximately ~~$9,000. This amount is~~$101,000 and $973,000, respectively. These amounts are before applicable income taxes and ~~represents~~represent the closing market price of the Company’s common stock at ~~September 30, 2017~~March 31, 2023 less the grant price, multiplied by the number of stock options that had a grant price that is less than the closing market price. ~~This amount represents~~These values represent the amount that would have been received by the optionees had these stock options been exercised on that date. ~~No stock options were exercised during~~During the ~~three and~~ nine months ended ~~September 30, 2017. During each of the three- and nine-month periods ended September 30, 2016,~~March 31, 2022, the aggregate intrinsic value of stock options exercised was approximately ~~$250.~~$829,000. During the nine months ended March 31, 2022, the total estimated tax benefit associated with certain stock options that were exercised was approximately $93,000. No stock options were exercised during the nine-month period ended March 31, 2023.

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Restricted Stock -

The following is a summary of the restricted stock activity for the nine months ended ~~September 30, 2017:~~March 31, 2023:

Shares
Weighted
Average
Grant Date
Fair Value

Unvested, December 31, 2016 359,400 $ 0.91
Granted 420,000 $ 1.11
Vested (210,453 ) $ 0.92
Canceled (195,200 ) $ 0.95
Unvested, September 30, 2017 373,747 $ 1.11

	Shares			Weighted Average Grant Date Fair Value
Unvested, June 30, 2022		178,750		$	2.75
Granted		178,750		$	0.97
Vested		(134,063	)		2.75
Cancelled		(44,687	)	$	2.75
Unvested, March 31, 2023		178,750		$	0.97

The unvested restricted shares as of March 31, 2023 are all performance-based restricted shares and were scheduled to vest, subject to achievement of the underlying performance goals, in July 2023. However, during the quarter ended March 31, 2023, it was determined that none of the underlying performance-based targets related to the unvested restricted shares would be achieved for Fiscal 2023 and management concluded that none of the restricted shares would vest. Accordingly, the underlying expected forfeiture rates were adjusted to reflect the change in estimate. In addition, the benefit in stock-based compensation expense from the reversal of previously recorded stock-based compensation on these performance-based awards related to the unvested restricted shares was recognized in the current quarter ended March 31, 2023. As of ~~September 30, 2017,~~March 31, 2023, the estimated unrecognized stock-based compensation expense related to unvested restricted shares subject to achievement of performance goals was approximately ~~$227,000, all~~$173,000, none of which is expected to be recognized over athe weighted average period of approximately ~~five months.~~four months.

Sales and marketing expenses are allocated across our Traditional segment and Online Channels segment, which in 2016 included allocations to Charles & Colvard Direct, LLC, a segment we are reporting as discontinued operations. See Note 12, “Discontinued Operations,” in the Notes to the Condensed Consolidated Financial Statements for further discussion

Table of discontinued operations. Approximately $61,000 of sales and marketing expenses for the nine months ended September 30, 2016, all of which were incurred during the first six months of 2016, are attributable to sales and marketing expenses that are now being allocated to our remaining two continuing operating segments that were previously allocated to Charles & Colvard Direct, LLC. The Company had no such sales and marketing expenses during the third quarter of 2016.Contents

General and Administrative

General and administrative expenses for the three and nine months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 are as follows:

Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
2017 2016 Dollars Percent 2017 2016 Dollars Percent
General and administrative $ 1,137,736 $ 1,244,400 $ (106,664 ) -9 % $ 3,612,618 $ 4,380,218 $ (767,600 ) -18 %

	Three Months Ended March 31,				Change						Nine Months Ended March 31,				Change
	2023		2022		Dollars			Percent			2023		2022		Dollars			Percent
General and administrative	$	1,053,357	$	1,106,850	$	(53,493	)		(5	)%	$	3,654,788	$	3,880,684	$	(225,896	)		(6	)%

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General and administrative expenses were ~~$1.14~~$1.05 million for the three months ended ~~September 30, 2017~~March 31, 2023 compared to ~~$1.24~~$1.11 million for the three months ended ~~September 30, 2016,~~March 31, 2022, a decrease of ~~$107,000,~~approximately $53,000, or 9%5%. General and administrative expenses were ~~$3.61~~$3.65 million for the nine months ended ~~September 30, 2017~~March 31, 2023 compared to ~~$4.38~~$3.88 million for the nine months ended ~~September 30, 2016,~~March 31, 2022, a decrease of ~~$768,000,~~approximately $226,000, or ~~18%~~6%.

The net decrease in general and administrative expenses for the three months ended ~~September 30, 2017~~March 31, 2023 compared to the same period in ~~2016~~2022 was primarily due to a ~~$189,000~~$147,000 decrease in compensation expenses; ~~a $20,000~~an $11,000 decrease in general business taxes and licenses; and an ~~$11,000~~$8,000 decrease in ~~insurance expenses; a $5,000 decrease in depreciation and amortization expense; and a $4,000 decrease in travel expenses.~~rent expense, primarily related to our corporate headquarters operating lease. These decreases were partially offset by a ~~$68,000~~$62,000 increase in depreciation and amortization expense related to 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 also located in our headquarters campus; a $20,000 increase in travel and expense-related expenditures as we returned to more traditional business travel patterns; a $15,000 increase in professional services; an $8,000 increase in insurance expense, principally related to increased premiums; and an $8,000 increase in bad debt expense associated with our allowance for doubtful accounts reserve ~~policy; a $28,000 increase~~policy.

The decrease in ~~professional services fees; a $9,000 increase in board retainer fees; and a $17,000 increase in miscellaneous other general and administrative expenses.~~

~~Compensation~~compensation expenses ~~decreased~~ for the three months ended ~~September 30, 2017~~March 31, 2023 compared to the same period in ~~2016~~2022 was primarily due to ~~an $81,000~~a $146,000 decrease in employee stock-based compensation ~~expense; an $80,000~~expense and a $53,000 decrease in bonus expense. These decreases were partially offset by a $49,000 net increase in salaries and related employee benefits in the ~~aggregate; a $24,000 decrease in bonus expense;~~aggregate and a ~~$4,000 decrease~~$3,000 increase in ~~severance expense.~~severance-related expenses associated with a reduction-in-force during the current year period.

Professional services fees increased for the three months ended ~~September 30, 2017~~March 31, 2023 compared to the same period in ~~2016~~2022 primarily due to ana $24,000 increase ~~of $61,000~~in investor relations fees and a $23,000 increase in legal ~~fees. This increase was~~fees principally associated with the above-referenced reduction-in-force. These increases were partially offset by a $32,000 decrease ~~of $27,000~~ in ~~consulting~~fees associated with audit and ~~other professional~~tax services ~~primarily~~, principally related to ~~human resources and sales and use tax projects~~a tax-related consulting project in the ~~same period in 2016; a $4,000 decrease in investor and public relations expenses; and a $2,000 decrease in accounting services.~~prior year period.

The net decrease in general and administrative expenses for the nine months ended ~~September 30, 2017~~March 31, 2023 compared to the ~~same~~nine-month period ~~in 2016~~ended March 31, 2022 was primarily due to a ~~$908,000~~$396,000 decrease in compensation expenses; a ~~$95,000~~$146,000 decrease in ~~professional services fees; a $76,000 decrease~~bank fees resulting from the revised fee structure associated with different banking arrangements in ~~depreciation and amortization expense;~~place in the current period versus those in the year ago period; a $44,000 decrease in insurance expenses; a $28,000 decrease in travel expenses; a $2,000 decrease in board retainer fees; and a $22,000 decrease in miscellaneous other general and administrative expenses. These decreases were partially offset by a $156,000 increase in bad debt expense associated with our allowance for doubtful accounts reserve policy; and a ~~$46,000~~$5,000 decrease in rent expense, primarily related to our corporate headquarters operating lease. These decreases were partially offset by a $131,000 increase in ~~bank fees, which includes fees~~depreciation and amortization expense related to general office leasehold improvements associated with the ~~Wells Fargo Credit Facility~~lease on our corporate headquarters and ~~credit card clearing transactions;~~business expansion related to the opening of our new Charles & Colvard Signature Showroom also located in our headquarters campus; a ~~$16,000~~$97,000 increase in ~~equipment-related rental expense; and a $14,000 increase in~~general business taxes and ~~licenses.~~licenses; an $83,000 increase in travel and expense related expenditures as we returned to more traditional business travel patterns; a $30,000 increase in professional services; a $23,000 increase in insurance expense, principally related to increased premiums; and a $1,000 net increase in miscellaneous other general and administrative expenses.

Compensation expenses decreased for the nine months ended ~~September 30, 2017~~March 31, 2023 compared to the same period in ~~2016 primarily~~2022 principally due to a ~~$429,000 decrease in salaries and related employee benefits in the aggregate; a $407,000~~$420,000 decrease in employee stock-based compensation ~~expense;~~expense and a ~~$75,000~~$222,000 decrease in bonus expense. These decreases were partially offset by ana $242,000 net increase ~~of $3,000~~ in ~~severance~~salaries and related employee benefits in the aggregate and a $4,000 increase in severance-related expenses ~~related to personnel changes.~~associated with a reduction-in-force during the current year period.

Professional services fees ~~decreased~~increased for the nine months ended ~~September 30, 2017~~March 31, 2023 compared to the ~~same~~nine-month period ~~in 2016~~ended March 31, 2022 primarily due to a ~~decrease of $83,000~~$38,000 increase in ~~consulting and other professional services~~broker commissions primarily related to ~~human resources and sales and use tax projects in the same period in 2016; a decrease of $51,000 in accounting services;~~our stock repurchase program and a ~~$1,000 decrease~~$5,000 increase in ~~investor and public relations expenses.~~legal fees associated with corporate governance matters. These ~~decreases~~increases were partially offset by ~~an increase~~a $13,000 decrease in ~~legal~~ fees ~~of $40,000.~~

~~General~~associated with audit and ~~administrative expenses are allocated across our Traditional segment and Online Channels segment, which in 2016 included allocations~~tax services, principally related to ~~Charles & Colvard Direct, LLC,~~ a ~~segment we are reporting as discontinued operations. See Note 12, “Discontinued Operations,”~~tax-related consulting project in the Notes to the Condensed Consolidated Financial Statements for further discussion of discontinued operations. Approximately $175,000 of general and administrative expenses for the nine months ended September 30, 2016, all of which were incurred during the first six months of 2016, are attributable to general and administrative expenses that are now being allocated to our remaining two continuing operating segments that were previously allocated to Charles & Colvard Direct, LLC. The Company had no such general and administrative expenses during the third quarter of 2016.prior year period.

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~~Loss on Abandonment of Property and Equipment~~Interest Income

~~Loss on abandonment of property and equipment~~Interest income for the three and nine months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 is as follows:

Three Months Ended
September 30,
Change
Nine Months Ended
September 30,
Change
2017 2016 Dollars Percent 2017 2016 Dollars Percent
Loss on abandonment of property and equipment $ - $ 473 $ (473 ) -100 % $ - $ 116,021 $ (116,021 ) -100 %

	Three Months Ended March 31,				Change					Nine Months Ended March 31,				Change
	2023		2022		Dollars		Percent			2023		2022		Dollars		Percent
Interest income	$	69,159	$	1,120	$	68,039		*	%	$	168,935	$	1,964	$	166,971		*	%

*	Not meaningful

Certain cash balances in excess of operating needs are deposited into and maintained in an interest-bearing account with a commercial bank. Accordingly, during the three- and nine-month periods ended March 31, 2023 and 2022, we earned interest from cash on deposit in this interest-bearing account. The ~~Company had no losses on abandonment of property and equipment~~increase in earned interest for the three and nine months ended ~~September 30, 2017~~March 31, 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 the first nine months of Fiscal 2023 compared with the same period in Fiscal 2022.

Loss on Foreign Currency Exchange

Losses on foreign currency exchange related to ~~approximately $500 and $116,000~~foreign sales transacted in functional currencies other than the U.S. dollar for the three and nine months ended ~~September 30, 2016, respectively, a decrease of approximately $500~~March 31, 2023 and ~~$116,000, respectively, or 100% for each period.~~2022 are as follows:

	Three Months Ended March 31,				Change					Nine Months Ended March 31,				Change
	2023		2022		Dollars		Percent			2023		2022		Dollars			Percent
Loss on foreign currency exchange	$	-	$	-	$	-		-	%	$	-	$	34	$	(34	)		(100	)%

During the nine months ended March 31, 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 nine-month period ended September 30, 2016, we abandoned costs of construction in progress related to website branding and design for our direct-to-consumer e-commerce business due to a change in our corporate strategy to consolidate our web properties.March 31, 2023.

Provision for Income Taxes

We recognized an income tax net expense of approximately $4,500 and $3,300 for the three-month periods ended September 30, 2017 and 2016, respectively. We recognized an income tax net expense of approximately $23,100 and $10,100 for the nine-month periods ended September 30, 2017 and 2016, respectively. Income tax provisions in these periods primarily relate to estimated tax, penalties, and interest associated with uncertain tax positions.

As of each reporting date, ~~management considers~~we consider new evidence, both positive and negative, that could impact ~~its~~our view with regard to future realization of deferred tax assets. ~~Beginning in 2014, management~~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 management 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, ~~outweighed~~primarily as a result of the ~~positive and~~pre-tax operating losses incurred during the nine-month period ended March 31, 2023. Consequently, we established a full valuation allowance against ~~our~~the deferred tax ~~assets.~~assets, resulting in an income tax expense of approximately $6.29 million and $5.86 million for the three and nine months ended March 31, 2023, respectively. We ~~maintained a full~~recognized an income tax expense of approximately $78,000 and $485,000 for the three and nine months ended March 31, 2022, respectively.

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 quarter. Driven by the establishment of the valuation allowance asduring the quarter ended March 31, 2023, our effective tax rate for the nine month-period then ended was a negative 131.06%. For the nine months ended March 31, 2022, our effective tax rate was 17.20%.

Table of ~~September 30, 2017 and December 31, 2016.~~Contents

Liquidity and Capital Resources

Our business depends on consumer demand for our products and could be adversely impacted 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. The full effect of these factors on the global and domestic economy remains uncertain. In addition, the full impact of the ongoing COVID-19 pandemic on our business remains uncertain as well at this time. Accordingly, we remain increasingly focused on the general macroeconomic conditions outlined herein as well as on the COVID-19 pandemic. We are continually evaluating their potential effect on our business and liquidity and capital resources.

Capital Structure and Long-Term Debt

Short-Term Liquidity and Capital Structure

The Consolidated Appropriations Act, 2021, provides that employers who received a Paycheck Protection Program, or PPP, loan may also qualify for the Employee Retention Credit, or ERC. Previously, pursuant to the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, taxpayers that received a PPP loan were not eligible for the ERC and this change is retroactive to March 27, 2020. We believe that we may qualify for certain employer-related tax benefits pursuant to the ERC and are currently working with an independent third-party tax credit firm to amend our applicable federal payroll tax returns for such benefit. Any benefit received in connection with available ERC credits will be recognized in the period such credits are received.

Long-Term Liquidity and Capital Structure

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 macroeconomic effects of the COVID-19 pandemic. Accordingly, any capital raise is not assured and these conditions may adversely affect our ability to raise capital under the shelf registration statement, if at all.

As previously disclosed, on December 19, 2022, we received notice from Nasdaq’s Listing Qualifications Department indicating that we were not in compliance with Nasdaq’s listing requirements 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 the Nasdaq’s listing requirements, we had 180 calendar days, or until June 19, 2023, to regain compliance with the minimum $1.00 bid price per share requirement.

On April 20, 2023, we received a letter from the Nasdaq Listing Qualifications Department notifying us that the minimum bid price of our common stock was $1.00 per share or greater for at least the last 10 consecutive business days. Accordingly, we have regained compliance with the Nasdaq minimum bid price requirement and the matter is now closed.

Debt

We have no short- or long-term outstanding debt as of March 31, 2023.

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 $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 our condensed consolidated balance sheets, with the purchase price recorded within treasury stock.

During the nine-month period ended March 31, 2023, we repurchased 358,116 shares of our common stock for an aggregate price of $451,815 pursuant to the repurchase authorization. We repurchased no shares of our common stock during the three-month period ended March 31, 2023.

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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. As of ~~September 30, 2017,~~March 31, 2023, our principal sources of liquidity were cash and cash equivalents ~~totaling $5.13~~of $10.91 million, trade accounts receivable of ~~$2.61 million,~~$934,000, and net current inventory of ~~$11.12~~$7.89 million, as compared to cash and cash equivalents ~~totaling $7.43~~of $15.67 million, trade accounts receivable of ~~$2.79~~$2.22 million, and net current inventory of ~~$9.77~~$11.02 million as of ~~December~~June 30, 2022. We also had access during the nine-month period ended March 31, ~~2016. As described more fully below, we also have access~~2023 to ~~our $10.00~~a $5.00 million ~~asset-based revolving~~cash collateralized line of credit facility, or the JPMorgan Chase Credit Facility, that we obtained effective July 9, 2021, as amended July 28, 2022, from ~~Wells Fargo~~JPMorgan Chase Bank, ~~National Association,~~N.A., or ~~Wells Fargo~~.JPMorgan Chase.

During the nine months ended ~~September 30, 2017,~~March 31, 2023, our working capital decreased by approximately ~~$2.23~~$8.52 million to ~~$13.83~~$20.54 million from ~~$16.07~~$29.06 million at ~~December 31, 2016.~~June 30, 2022. As described more fully below, the decrease in working capital at ~~September 30, 2017~~March 31, 2023 is primarily attributable to a net decrease in our cash, ~~and~~ cash equivalents, ~~resulting from~~and restricted cash, ~~used in our operations,~~ a decrease in our allocation of inventory from long-term to short-term due to a lower expected sell through of inventory on hand in the upcoming period, a decrease in our accounts receivable, a decrease in our prepaid expenses and other assets, the classification of the note receivable as noncurrent as of March 31, 2023 as compared to current as of June 30, 2022, and an increase in ~~accounts payable, accrued cooperative advertising, and accrued expenses and other~~our short-term operating lease liabilities. These factors were offset partially by ~~an increase~~a decrease in ~~both~~ our ~~allocation of inventory to short-term from long-term~~accounts payable and ~~prepaid~~a decrease in our accrued expenses and other ~~assets.~~liabilities. Our cash used for investing activities were principally for construction-in-process expenditures related to our retail expansion program and the construction of our first Charles & Colvard Signature Showroom and other leasehold improvements in the corporate offices at our headquarters campus. Our cash used for financing activities was principally for our share repurchase program.

During the nine months ended ~~September 30, 2017, $2.05~~March 31, 2023, approximately $3.83 million of cash was used ~~in continuing~~by our operations. The primary drivers of ~~the~~our use of cash were a net loss in the amount of ~~$1.14~~approximately $10.33 million; a decrease in accounts payable of $1.28 million; and a decrease in accrued expenses and other liabilities of $981,000. These factors were offset partially by the favorable impact of approximately $6.58 million ~~which includes $765,000~~ of non-cash ~~expenditures; an increase~~expenses driven by the deferred tax valuation allowance recorded during the quarter ended March 31, 2023, a decrease in ~~inventory~~accounts receivable of ~~$2.81~~$1.25 million; ~~and an increase~~a decrease in prepaid expenses and other assets of ~~$49,000. These factors were partially offset by~~$757,000; and a decrease in ~~accounts~~inventory of $181,000.

Accounts receivable ~~of $105,000; an increase in accounts payable of $907,000 and an increase in accrued liabilities of $169,000. The inventory increase was, in part,~~decreased principally due to the ~~purchase~~decreased level of ~~new raw material SiC crystals~~sales on credit during the three months ended March 31, 2023, as compared with the sales during the period ~~pursuant~~leading up to ~~the Supply Agreement; production of moissanite jewels; and purchases of jewelry castings and other jewelry components due~~June 30, 2022. From time to ~~increased demand in certain channels and preparation for the upcoming holiday season. We did not offer any~~time, we have offered extended Traditional segment customer payment terms ~~during~~beyond 90 days to certain credit-worthy customers. Because of the ~~nine months ended September 30, 2017; however, we may offer~~ongoing impact of the pandemic on the global economy, the extension of these terms ~~from time to time, which~~ may not immediately increase liquidity as a result of ongoing current-period ~~sales. We~~sales, which we expect may continue to be pressured due to the effects of the ongoing pandemic. In addition, we believe our competitors and other vendors in the wholesale jewelry industry have expanded their use of extended payment terms and, in aggregate, we believe that, through our use of extended payment terms, we provide a competitive response in our market ~~and~~during the current global economic environment. We believe that ~~our net sales have been favorably impacted. We~~we are unable to estimate the impact of ~~this program~~these actions on our net sales, but we believe that if we ~~cease~~ceased providing extended payment terms, ~~in select instances, we believe~~ we would ~~not~~ be at a competitive disadvantage for some Traditional segment customers in the marketplace during this economic period and that our net sales and profits would likely ~~decrease.~~be adversely impacted.

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~~During the nine months ended September 30, 2017, we~~We manufactured approximately ~~$11.41~~$10.57 million in finished jewelry and $5.88 million in loose jewels, ~~and $4.73 million in finished jewelry,~~ which includes the cost of the loose jewels and the purchase of precious metals and labor in connection with jewelry ~~production.~~production, during the nine months ended March 31, 2023. We expect our purchases of precious metals and labor to increase as we increase our finished jewelry business. In addition, the price of gold has ~~increased~~fluctuated significantly over the past decade, resulting in higher retail price points for gold jewelry. Because the market ~~price~~prices of gold and other precious metals isare beyond our control, ~~the~~ upward price trends could ~~continue and~~ have a negative impact on our operating cash flow as we manufacture finished jewelry.

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 ~~our~~ reduced sales levels during ~~the~~prior periods ~~when~~in which the purchase commitments were in effect, have resulted in levels of inventories that are higher than we might otherwise maintain. As of ~~September~~March 31, 2023 and June 30, ~~2017, $19.78~~2022, $25.44 million and $22.49 million of our inventories were classified as long-term assets. Loose jewel sales and finished jewelry that we manufacture will utilize both the finished ~~good~~goods loose jewels currently on-hand and, as we deplete certain shapes and sizes, our on-hand raw material SiC crystals of ~~$4.08 million~~$812,000 and new raw material that we ~~are purchasing~~purchase pursuant to the Supply Agreement. A

With our investment in the lab grown diamond product line in recent periods, the level of our lab grown diamond inventory, which has a higher carrying value, has increased to support the business and expected product sales. This has contributed to the growth in our overall inventory levels compared with prior periods.

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

As of March 31, 2023, all of our remaining federal income tax credits had expired or been utilized, and therefore, are not available to be carried forward to offset future income taxes. As of March 31, 2023, we also had a federal tax net operating loss carryforward of approximately $16.53 million expiring between 2034 and 2038, 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 $19.87 million expiring between 2023 and 2035; and various other state tax net operating loss carryforwards expiring between 2023 and 2040, which can be used to offset against future state taxable income.

Short-Term Capital Resources

Line of Credit

Effective July 7, 2021, we obtained from JPMorgan Chase our $5.00 million cash collateralized JPMorgan Chase Credit Facility. The 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 $5.05 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.

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, 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.

As of March 31, 2023, we had not borrowed against the JPMorgan Chase Credit Facility.

Long-Term Contractual Commitment

Contractual Agreement

On December 12, 2014, we entered into the Supply Agreement with Cree, ~~our raw material SiC crystal supplier.~~Inc., now known as Wolfspeed, Inc., or Wolfspeed. Under the Supply Agreement, subject to certain terms and conditions, we agreed to exclusively purchase from ~~Cree,~~Wolfspeed, and ~~Cree~~Wolfspeed agreed to exclusively supply, 100% of our required SiC materials in quarterly installments that must equal or exceed a set minimum order quantity. The initial term of the Supply Agreement ~~will~~was scheduled to expire on June 24, 2018, unless extended by the parties. ~~We have~~Effective June 22, 2018, the Supply Agreement was amended to extend the expiration date to June 25, 2023. The Supply Agreement, as amended, also provides for the exclusive production of the raw materials used in our premium moissanite product, Forever One™ and provided us with one option, subject to certain conditions, to unilaterally extend the term of the ~~agreement~~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, effective June 30, 2020, to extend the 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 ~~2018~~2025 is ~~dependent upon the size~~approximately $52.95 million, of ~~the SiC material and ranges between~~which approximately ~~$29.60~~$24.75 million ~~and approximately $31.50 million. As~~remains to be purchased as of ~~September 30, 2017, our remaining purchase commitment through June 2018 under the Supply Agreement ranges from approximately $7.64 million to approximately $9.54 million.~~March 31, 2023.

During the nine months ended ~~September 30, 2017,~~March 31, 2023 and 2022, we purchased approximately ~~$6.90~~$1.80 million and $4.49 million, respectively, of SiC crystals from ~~Cree.~~Wolfspeed pursuant to the terms of the Supply Agreement, as amended. We have made no purchases of SiC crystals from Wolfspeed during the six-month period ended March 31, 2023 while currently in discussions regarding the purchase commitment terms of the Supply Agreement. Going forward, we expect to use existing cash and cash equivalents and access to other working capital resources, including but not limited to the potential issuance of equity securities, together with future cash expected to be provided by our operating activities ~~and, if necessary, our Credit Facility,~~ to ~~finance our purchase commitment under~~make purchases in accordance with the terms of the Supply ~~Agreement.~~Agreement, as amended.

We made no income tax payments during the nine months ended September 30, 2017. As of September 30, 2017, we had approximately $882,000 of remaining federal income tax credits, $533,000 of which expire between 2018 and 2021 and the balance without an expiration, which can be carried forward to offset future income taxes. As of September 30, 2017, we also had a federal tax net operating loss carryforward of approximately $25.01 million expiring between 2020 and 2036, which can be used to offset against future federal taxable income, a North Carolina tax net operating loss carryforward of approximately $20.23 million expiring between 2023 and 2031, and various other state tax net operating loss carryforwards expiring between 2021 and 2036, which can be used to offset against future state taxable income.

On June 25, 2014, we and our wholly owned subsidiaries, Charles & Colvard Direct, LLC and Moissanite.com, LLC (now charlesandcolvard.com, LLC), collectively referred to as the Borrowers, obtained the Credit Facility from Wells Fargo. The Credit Facility may be used for general corporate and working capital purposes, including transaction fees and expenses incurred in connection therewith and the issuance of letters of credit up to a $1.00 million sublimit. The Credit Facility was scheduled to mature on June 25, 2017.

Effective June 22, 2017, the Credit Facility was amended to extend the maturity date to June 25, 2018. The Credit Facility was also amended to reduce the interest rate payable on advances under the Credit Facility to a rate equal to Wells Fargo’s daily three-month LIBOR rate plus 2.00%, calculated on an actual/360 basis and payable monthly in arrears. In addition, the Credit Facility was amended further to include the addition of an EBITDA covenant, whereby the Borrowers must maintain a specified minimum monthly EBITDA through December 2017 if the cash position for the Borrowers’ demand deposit account maintained at Wells Fargo falls below $3.00 million or the Borrowers draw upon the Credit Facility.

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The Credit Facility includes a $5.00 million sublimit for advances that are supported by a 90% guaranty provided by the U.S. Export-Import Bank. Advances under the Credit Facility are limited to a borrowing base, which is computed by applying specified advance rates to the value of the Borrowers’ eligible accountsLiquidity and ~~inventory, less reserves. Advances against inventory are further subject to an initial $3.00 million maximum. We must maintain a minimum of $1.00 million in excess availability at all times.~~Capital Trends

Each advance accrues interest at a rate equal to either (i) Wells Fargo’s three-month LIBOR rate plus 2.00% or (ii) Wells Fargo’s Prime Rate plus 1.00%, each calculated on an actual/360 basis and payable monthly in arrears. Principal outstanding during an event of default accrues interest at a rate of 3% in excess of the above rate. Any advance may be prepaid in whole or in part at any time. There are no mandatory prepayments or line reductions.

The Credit Facility is secured by a lien on substantially all assets of the Borrowers, each of which is jointly and severally liable for all obligations thereunder. Wells Fargo’s security interest in certain SiC materials is subordinate to Cree’s security interest in such materials pursuant to the Supply Agreement and an Intercreditor Agreement with Wells Fargo.

The Credit Facility is evidenced by a Credit and Security Agreement dated as of June 25, 2014, as amended, or the Credit Agreement, and customary ancillary documents. The Credit Agreement contains customary covenants, representations and cash dominion provisions, including a financial reporting covenant and limitations on dividends, distributions, debt, contingent obligations, liens, loans, investments, mergers, acquisitions, divestitures, subsidiaries, affiliate transactions, and changes in control.

Events of default under the Credit Facility include, without limitation, (i) any impairment of the Export-Import Bank guaranty, unless the guaranteed advances are repaid within two business days, (ii) an event of default under any other indebtedness of the Borrowers in excess of $200,000, and (iii) a material adverse change in the ability of the Borrowers to perform their obligations under the Credit Agreement or in the Borrowers’ assets, liabilities, businesses or prospects, or other circumstances that Wells Fargo believes may impair the prospect of repayment. If an event of default occurs, Wells Fargo is entitled to take enforcement action, including acceleration of amounts due under the Credit Agreement and foreclosure upon collateral.

The Credit Agreement contains other customary terms, including indemnity, expense reimbursement, yield protection, and confidentiality provisions. Wells Fargo is permitted to assign the Credit Facility.

~~As of September 30, 2017, we had not borrowed against the Credit Facility.~~

We believe that our existing cash and cash equivalents and ~~other working capital, together with future~~ cash expected to be provided by operating activities combined will be sufficient to meet our working capital and capital expenditure needs over the next 12twelve months.

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 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. As outlined above under the caption, Long-Term Liquidity and Capital Structure, 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 macroeconomic effects of the COVID-19 pandemic. Accordingly, any capital raise is not assured and these conditions may adversely affect our ability to raise capital under the shelf registration statement, if at all.

Our future capital requirements and the adequacy of available funds will depend on many factors, includingthe ongoing uncertainty surrounding COVID-19 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 ~~jewel~~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 II, Item 1A, of this ~~report~~Quarterly Report on Form 10-Q and in Part I, Item 1A, of our 2022 Annual Report on Form 10-K for the year ended December 31, 2016. We obtained the Credit Facility to 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.10-K.

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed 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 Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

We routinely review our internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate. During the three months ended ~~September 30, 2017,~~March 31, 2023, we made no changes to our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that we believe materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting.~~reporting.

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PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

There are no material pending legal proceedings to which we are a party or to which any of our property is subject.

Item 1A.

Risk Factors

We discuss in our Annual Report on Form 10-K for the fiscal year ended ~~December 31, 2016~~June 30, 2022 and our Quarterly ~~Report~~Reports on Form 10-Q for the ~~quarter~~quarters ended ~~June~~September 30, ~~2017~~2022 and December 31, 2022 various risks that may materially affect our business. There have been no material changes to such risks, except as set forth below.

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, quarantine 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.

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~~The Nasdaq Capital Market. In order to maintain this listing, we must satisfy minimum financial and other requirements. On ~~May 4, 2017,~~three separate occasions in the past five years, including on one occasion in Fiscal 2023, we have received a notification ~~letter~~letters from Nasdaq~~’s Listing Qualifications Department~~ indicating that we were not in compliance with ~~Nasdaq Listing Rule 5450(a)(1),~~listing requirements because the minimum bid price of our common stock closed below $1.00 per share for 30 consecutive business ~~days on the~~days. However, Nasdaq ~~Global Select Market, and~~subsequently notified us that we had ~~180 calendar days, or until October 31, 2017, to regain~~regained compliance with the minimum ~~$1.00~~ bid price ~~per share~~ requirement. ~~We received notice transferring our~~If we fail to satisfy all applicable Nasdaq listing torequirements in the ~~Nasdaq Capital Market from the Nasdaq Global Select Market, effective November 3, 2017, which resulted in an additional 180-day period within which~~future, we may take actions to regain compliance, ~~with~~but we can provide no assurance that any such action would prevent our common stock from dropping below the ~~$1.00~~Nasdaq minimum bid price ~~requirement.~~

~~While we intend to engage in efforts to regain compliance, and thus maintain our~~requirement or prevent future non-compliance with Nasdaq’s listing ~~including by carrying out a reverse stock split, if necessary, there can be no assurance that we will be able to regain compliance during the applicable time periods set forth above.~~ requirements. 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;~~all, and may result in the potential loss of confidence by investors, suppliers, customers, ~~and~~ 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.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~Negative or inaccurate information on social media could adversely affect our brand and reputation.~~ ~~We are actively using various forms~~Issuer Purchases 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 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.Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per share		Total Number of shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾		Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
January 1, 2023 – January 31, 2023		-	$	-		-	$	4,510,021
February 1, 2023 – February 28, 2023		-	$	-		-	$	4,510,021
March 1, 2023 – March 31, 2023		-	$	-		-	$	4,510,021
Total		-	$	-		-	$	4,510,021

~~We are subject to certain risks due to our international distribution channels and vendors.~~ We currently have approximately 20 international distributors for moissanite jewels and finished jewelry covering portions of Western Europe, Australia, India, China and other Southeast Asian countries, and the Middle East. In addition, we use certain companies based outside the U.S. to facet our moissanite jewels and to manufacture finished jewelry. Due to our 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. These risks include the following:

⁽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 adverse effects on U.S.-based companies operating in foreign markets that might result from war; terrorism; changes in diplomatic, trade, or business relationships; or other political, social, religious, or economic instability;three-year period ending April 29, 2025.

·	~~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;~~

·	~~tariffs and other trade barriers and restrictions;~~

·	~~the burdens of complying with a variety of foreign laws and other factors beyond our control;~~

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

·	~~the complications related to collecting receivables through a foreign country’s legal system.~~

Additionally, while all of our foreign transactions are denominated in U.S. dollars, foreign currency fluctuations could impact demand for our products or the ability of our foreign suppliers to continue to perform. Further, some of our foreign distributors operate relatively small businesses and may not have the financial stability to assure their continuing presence in their markets. There can be no assurance that the foregoing factors will not adversely affect our operations in the future or require us to modify our anticipated business practices.

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Item 6.

Exhibits

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

Exhibit No.		Description

~~10.1~~	~~Board Compensation Program, effective October 1, 2017~~

31.1		Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101~~101.INS	~~The following materials from Charles & Colvard, Ltd.’s Quarterly Report on Form 10-Q for~~	Inline XBRL Instance Document – the ~~quarter ended September 30, 2017 formatted~~instance document does not appear in the Interactive Data File because its XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements.tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase document

104		Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document contained in Exhibit 101

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SIGNATURES

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

		CHARLES & COLVARD, LTD.

	By:	/s/ ~~Suzanne Miglucci~~Don O’Connell
~~November 2, 2017~~ May 4, 2023		~~Suzanne Miglucci~~ Don O’Connell
		President and Chief Executive Officer

	By:	/s/ Clint J. Pete
~~November 2, 2017~~ May 4, 2023		Clint J. Pete
		Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

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	March 31, 2023		June 30, 2022
Deferred revenue	$	434,132	$	452,866
Accrued compensation and related benefits		275,465		614,443
Accrued sales taxes and franchise taxes		233,351		341,706
Accrued cooperative advertising		200,243		137,467
Other accrued expenses		1		1
Total accrued expenses and other liabilities	$	1,143,192	$	1,546,483

Operating Leases:
Noncurrent operating lease ROU assets	$	2,336,334

Current operating lease liabilities	$	874,177
Noncurrent operating lease liabilities		2,251,581
Total operating lease liabilities	$	3,125,758

2023	$	219,393
2024		893,660
2025		918,236
2026		943,487
2027		317,327
Total lease payments		3,292,103
Less: imputed interest		166,345
Present value of lease payments		3,125,758
Less: current lease liability		874,177
Total long-term lease liability	$	2,251,581

	~~September 30,~~ ~~2017~~			~~December 31,~~ ~~2016~~
~~Customer A~~		21	%		*	%
~~Customer B~~		17	%		*	%
~~Customer C~~		**	%		13	%

	September 30, 2017			December 31, 2016
Raw materials	$	4,076,977		$	3,106,617
Work-in-process		10,715,382			11,048,126
Finished goods		16,749,663			15,057,668
Finished goods on consignment		944,957			467,778
Supplies Inventory		22,196			17,228
Less inventory reserves		(1,611,000	)		(1,567,000	)
Total	$	30,898,175		$	28,130,417

Current portion	$	11,115,715		$	9,770,206
Long-term portion		19,782,460			18,360,211
Total	$	30,898,175		$	28,130,417

	Shares			Weighted Average Grant Date Fair Value
Unvested, December 31, 2016		359,400		$	0.91
Granted		420,000		$	1.11
Vested		(210,453	)	$	0.92
Canceled		(195,200	)	$	0.95
Unvested, September 30, 2017		373,747		$	1.11

	March 31, 2023			June 30, 2022
Customer A		24	%		20	%
Customer B		18	%		29	%
Customer C		15	%		**	%
Customer D		*	%		13	%