This Quarterly Report on Type 10-Q comprises forward-looking statements inside
the that means of Part 27A of the Securities Act of 1933, as amended, and
Part 21E of the Securities Trade Act of 1934, as amended, or the Trade
Act. Statements expressing expectations relating to our future and projections
referring to merchandise, gross sales, revenues, and earnings are typical of such
statements and are made beneath the Personal Securities Litigation Reform Act of
1995. These forward-looking statements embrace, however are usually not restricted to,
statements about our plans, targets, representations, and contentions and are
not historic information and usually are recognized by use of phrases resembling "might,"
"will," "ought to," "might," "anticipate," "intend," "plan," "anticipate," "consider,"
"estimate," "predict," "proceed," and comparable phrases, though some
forward-looking statements are expressed in another way.

All forward-looking statements are topic to the dangers and uncertainties
inherent in predicting the long run. You need to be conscious that though the
forward-looking statements included herein signify administration's present
judgment and expectations, our precise outcomes might differ materially from these
projected, acknowledged, or implied in these forward-looking statements on account of
many elements together with, however not restricted to, the next:

1. Our enterprise and our outcomes of operations could possibly be materially adversely

affected on account of basic financial and market circumstances;

2. Our future monetary efficiency relies upon upon elevated shopper acceptance,

development of gross sales of our merchandise, and operational execution of our strategic

initiatives;

3. The results of COVID-19 and different potential future public well being crises,

epidemics, pandemics or comparable occasions on our enterprise, working outcomes, and

money flows are unsure;

4. We face intense competitors within the worldwide gemstone and jewellery trade;

5. Our data know-how, or IT, infrastructure, and our community could also be

impacted by a cyber-attack or different safety incident on account of the rise

of cybersecurity occasions;

6. Always evolving privateness regulatory regimes are creating new authorized

compliance challenges;

7. We’re topic to sure dangers because of our worldwide operations,

distribution channels and distributors;

8. Our enterprise and our outcomes of operations could possibly be materially adversely

affected on account of our incapacity to satisfy orders on a well timed foundation;

9. We’re presently depending on a restricted variety of distributor and retail

companions in our Conventional phase for the sale of our merchandise;

10. We might expertise high quality management challenges once in a while that may

end in misplaced income and hurt to our manufacturers and popularity;

11. Seasonality of our enterprise might adversely have an effect on our internet gross sales and working

revenue;

12. Our operations could possibly be disrupted by pure disasters;

13. Gross sales of moissanite and lab grown diamond jewellery could possibly be dependent upon the

pricing of treasured metals, which is past our management;

14. Our present clients might probably understand us as a competitor within the

completed jewellery enterprise;

15. We rely on a single provider for considerably all of our silicon carbide,

or SiC, crystals, the uncooked supplies we use to provide moissanite jewels; if

our provide of high-quality SiC crystals is interrupted, our enterprise could also be

materially harmed;

16. If the e-commerce alternative adjustments dramatically or if e-commerce

know-how or suppliers change their fashions, our outcomes of operations could also be

adversely affected;

17. Governmental regulation and oversight may adversely influence our operations;

18. The execution of our enterprise plans might considerably influence our liquidity;

19. The monetary difficulties or insolvency of a number of of our main

clients or their lack of willingness and talent to market our merchandise

might adversely have an effect on outcomes;

20. Unfavorable or inaccurate data on social media might adversely influence our

model and popularity;

21. We depend on assumptions, estimates, and information to calculate sure of our key

metrics and actual or perceived inaccuracies in such metrics might hurt our

popularity and negatively have an effect on our enterprise;

22. We might not be capable of adequately shield our mental property, which

might hurt the worth of our merchandise and types and adversely have an effect on our

enterprise;

23. Environmental, social, and governance issues might influence our enterprise,

popularity, monetary situation, and outcomes of operations;

 24. If we fail to judge, implement, and combine strategic acquisition or
     disposition alternatives efficiently, our enterprise might endure;



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25. Some anti-takeover provisions of our constitution paperwork might delay or stop a

takeover of our Firm;

26. We can’t assure that our share repurchase program will likely be utilized to the

full worth accepted, or that it’s going to improve long-term stockholder worth and

repurchases we consummate might enhance the volatility of the value of our

widespread inventory and will have a damaging influence on our obtainable money steadiness;

and

27. Our failure to take care of compliance with The Nasdaq Inventory Market’s continued

itemizing necessities might end result within the delisting of our widespread inventory.

Ahead-looking statements converse solely as of the date they're made. We undertake
no obligation to replace or revise such statements to mirror new circumstances
or unanticipated occasions as they happen besides as required by the federal
securities legal guidelines, and you might be urged to assessment and think about disclosures that we
make within the reviews that we file with the Securities and Trade Fee, or
SEC, that debate different elements related to our enterprise.

The next dialogue is designed to supply a greater understanding of our
unaudited condensed consolidated monetary statements, together with a quick
dialogue of our enterprise and merchandise, key elements that impacted our
efficiency, and a abstract of our working outcomes. This data ought to be
learn at the side of the unaudited condensed consolidated monetary
statements and notes thereto included in Half I, Merchandise 1 of this Quarterly Report
on Type 10-Q, and the consolidated monetary statements and notes thereto and
Administration's Dialogue and Evaluation of Monetary Situation and Outcomes of
Operations contained in our Annual Report on Type 10-Ok for the fiscal 12 months ended
June 30, 2022, or the 2022 Annual Report. Historic outcomes and share
relationships associated to any quantities within the condensed consolidated monetary
statements are usually not essentially indicative of tendencies in working outcomes for
future durations.

Overview

Our Mission

At Charles & Colvard, Ltd., our mission is to supply a extra acutely aware and
conflict-free superb jewellery expertise for our clients. We're devoted to
blazing a extra good path ahead with our Made, Not Mined™ gem stones and
dedicated to creating superb jewellery with a conscience.

About Charles & Colvard

Charles & Colvard, Ltd., a North Carolina company based in 1995 (which can
be known as Charles & Colvard, we, us, or our) is a globally acknowledged
superb jewellery firm specializing in lab created gem stones. We manufacture,
market, and distribute Charles & Colvard Created Moissanite® (which we consult with
as moissanite or moissanite jewels) and in September 2020, we introduced our
enlargement into the lab grown diamond market with the launch of Caydia®, an
unique model of premium lab grown diamonds. We provide gem stones and completed
jewellery that includes our proprietary moissanite jewels and premium lab grown
diamonds on the market within the worldwide superb jewellery market. Charles & Colvard is the
authentic supply of created moissanite, and in 2015, we debuted Endlessly One™, our
premium moissanite gemstone model. As an e-commerce and multi-channel
vacation spot for superb jewellery that includes lab grown gem stones, we consider that the
addition of lab grown diamonds is a pure development for the Charles &
Colvard model.

We promote unfastened moissanite jewels, lab grown diamonds, and completed jewellery set
with these gems by means of two working segments: our On-line Channels phase,
which encompasses our digital properties elements, comprised of our
charlesandcolvard.com and moissaniteoutlet.com web sites, e-commerce shops,
together with marketplaces, drop-ship clients, and different pure-play, completely
e-commerce clients; and our Conventional phase, which consists of home
and worldwide distributors and retail clients. We report phase
data based mostly on the "administration" strategy. This phase reporting strategy
designates the inner reporting utilized by administration for making working
selections and assessing efficiency because the supply of our working and
reportable segments.

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We function in an e-commerce surroundings characterised by each complexity in
international markets and ongoing financial uncertainties within the U.S. and
internationally. Our technique is to construct a globally revered and accessible
model of gem stones and completed superb jewellery merchandise set with moissanite and
lab grown diamonds. We consider that our items attraction to a large shopper viewers
and leverage our benefit of being the unique and main worldwide supply of
moissanite and purveyor of premium lab grown diamonds. We consider a direct
relationship with shoppers is a crucial part to this technique, which
entails delivering tailor-made instructional content material, partaking in interactive
dialogue with our viewers, and positioning our model to satisfy the calls for of
immediately's discerning shopper. A significant factor of our technique on this
surroundings is to deal with our core merchandise, bettering the standard and
predictability of the supply of our services, and putting these
merchandise rapidly into the fingers of our U.S. and worldwide clients at
reasonably priced costs. Furthermore, recognizing immediately that our clients and distributors
are useful resource constrained, we're endeavoring to develop and prolong our portfolio
of merchandise in a disciplined method with a deal with home markets near
our core capabilities, in addition to rising our international market gross sales. We
proceed to deal with affordability initiatives. We additionally anticipate to proceed
innovating and investing in lab created gemstone applied sciences to satisfy
evolving product necessities for our clients and investing in our folks so
that now we have the technical and manufacturing abilities essential to succeed with out
limiting our capacity to construct sound monetary returns to our buyers.

We consider our increasing utility of an omni-channel gross sales technique throughout
the superb jewellery commerce and to the top shopper with accessible gem stones and
worth branded completed jewellery that includes Charles & Colvard Created Moissanite®
and Caydia® lab grown diamonds positions our merchandise on the many touchpoints
the place shoppers are when they're making their shopping for selections - thereby
persevering with to create higher publicity for our model and rising shopper
demand.

COVID-19 Replace

The COVID-19 pandemic continues to current enterprise challenges and we anticipate
these to proceed all through the fiscal 12 months ending June 30, 2023, or Fiscal
2023. We've got reintroduced staff to the office, together with in some instances
allowing a hybrid mix of distant and onsite work for sure sectors of the
workforce, as vaccine and associated booster shot charges have elevated and COVID-19
an infection ranges have decreased. We proceed working with our clients and
suppliers to attenuate disruptions, together with at occasions accelerating funds to
key suppliers which are due by their phrases in future durations. We anticipate to
proceed accelerating funds to our suppliers in some instances into Fiscal 2023.

The last word influence of COVID-19 on our operations and monetary efficiency in
future durations, together with administration's capacity to execute its strategic
initiatives within the anticipated timeframes, stays unsure and can rely on
future pandemic associated developments, together with the length of the pandemic,
any potential subsequent waves of COVID-19 and its variant viral infections, the
effectiveness, distribution and acceptance of COVID-19 vaccines, and associated
authorities actions to forestall and handle illness unfold, all of that are
unsure and can't be predicted. We can't right now predict the complete
influence of the COVID-19 pandemic, however we anticipate that the COVID-19 pandemic is
more likely to proceed to influence our enterprise, monetary situation, outcomes of
operations, and money flows in Fiscal 2023.

For added dangers to the Firm associated to the COVID-19 pandemic, see “Half
I, Merchandise 1A. Threat Components”, contained in our 2022 Annual Report.

Fiscal 2023 Monetary Outlook

Our strategic objectives for Fiscal 2023 are centered on persevering with to develop Charles
& Colvard's model on a worldwide scale and to extend the scale of our enterprise
by means of top-line development. As lab-created gem stones are being embraced by rising
generations, we consider our capacity to ascertain moissanite and our lab grown
diamonds together with the Charles & Colvard model instantly with acutely aware
shoppers is vital to our future success and talent to gasoline our development. We plan
to proceed executing on our key Fiscal 2023 methods with an ongoing
dedication to spending judiciously and producing sustainable earnings
enchancment.

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In October 2022, we celebrated the grand opening of the primary Charles & Colvard
Signature Showroom, which is the primary location in reference to our showroom
enlargement initiative. We consider this enlargement mission can place us to be
capable of develop a nationwide footprint if future showrooms are opened to
showcase our superb jewellery in a tangible means. Likewise, in October 2022, we
hosted a personal press occasion for neighborhood leaders and influencers, permitting
them to expertise the brand new broadcast studio positioned in our company
headquarters. This studio is a digital extension of the gross sales workforce and a instrument
that our advertising and marketing workforce makes use of for video content material manufacturing, live-stream
buying, designer and influencer interviews, and vogue images. We
consider our brick-and-mortar enlargement and digital advertising and marketing functionality will
proceed to additional place and outline our model in what we consider is a
quickly evolving shopper panorama and permit us to compete extra successfully
and, we consider, enhance our market share throughout the superb jewellery area. Additionally
in October 2022, we introduced our newest lab grown treasured gem stones in shade,
which we consider represents one other milestone for us and provides a colourful new
dimension to our spectacular Made, Not Mined™ superb jewellery repertoire. That includes
lab grown ruby, sapphire, and emerald gem stones, our new acutely aware shade
assortment additionally consists of Caydia® lab grown diamonds and showcases the
above-ground stones with creative silhouettes and better carat designs.

As evidenced by our outcomes for the primary quarter of Fiscal 2023, home and
international inflation and rising rates of interest, coupled with ongoing fears of
recession, proceed to erode shopper confidence and current main challenges
for the worldwide retail and ecommerce trade. We face the identical challenges
as all retailers and people within the ecommerce area. On the similar time, nevertheless,
these similar challenges are offering us the chance to reevaluate
applied sciences, methods, and expertise to form a brand new period of buying. In lots of
methods, we consider the pandemic and present international financial circumstances have opened
the door for what we consider could also be a long-overdue reset inside our trade
that might assist transfer retailers and people within the ecommerce area into extra secure
- and probably extra worthwhile - positions. We plan to proceed to spend money on
our enterprise and seize present challenges by turning them into alternatives for
continued development and improved profitability.

We talk about our strategic outlook and key methods for Fiscal 2023 in Half I,
Merchandise 1, "Enterprise" and in Half II, Merchandise 7, "Administration's Dialogue and Evaluation
of Monetary Situation and Outcomes of Operations", contained in our 2022 Annual
Report.

Crucial Accounting Insurance policies and Estimates

Our dialogue and evaluation of our monetary situation and outcomes of operations
are based mostly upon our consolidated monetary statements, which we ready in
accordance with accounting rules typically accepted in the USA,
or U.S. GAAP. The preparation of those consolidated monetary statements
requires us to make estimates and judgments that have an effect on the reported quantities of
property, liabilities, revenues, and bills and associated disclosures of
contingent property and liabilities. "Crucial accounting insurance policies and estimates"
are outlined as these most necessary to the monetary assertion presentation and
that require probably the most troublesome, subjective, or complicated judgments. We base our
estimates on historic expertise and on numerous different elements that we consider
to be cheap beneath the circumstances, the outcomes of which type the premise
for making judgments concerning the carrying worth of property and liabilities which are
not readily obvious from different sources. Below totally different assumptions and/or
circumstances, these precise outcomes of operations might materially differ. Essentially the most
important estimates impacting our consolidated monetary statements relate to
the valuation and classification of inventories, accounts receivable reserves,
deferred tax property, stock-based compensation, and income recognition. We additionally
produce other insurance policies that we think about key accounting insurance policies, however these insurance policies
usually don't require us to make estimates or judgments which are troublesome or
subjective.

We've got disclosed our important accounting insurance policies and estimates in our 2022
Annual Report, and that disclosure ought to be learn at the side of this
Quarterly Report on Type 10-Q. There have been no important adjustments in our
important accounting insurance policies and estimates throughout the first three months of
Fiscal 2023.

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Outcomes of Operations

The next desk units forth sure consolidated statements of operations
information for the three months ended September 30, 2022 and 2021:

                                     Three Months Ended September 30,
                                         2022                  2021
Internet gross sales                          $       7,374,083$  10,280,311
Prices and bills:
Value of products bought                         4,086,010           5,016,550
Gross sales and advertising and marketing                        3,107,946           2,730,153
Basic and administrative                 1,413,476           1,584,275
Complete prices and bills                   8,607,432           9,330,978
(Loss) Earnings from operations             (1,233,349 )           949,333
Different revenue (expense):
Curiosity revenue                               40,201                 355
Loss on overseas forex trade                  -                 (34 )
Complete different revenue (expense), internet             40,201                 321
(Loss) Earnings earlier than revenue taxes         (1,193,148 )           949,654
Earnings tax profit (expense)                 302,956            (122,629 )
Internet (loss) revenue                  $        (890,192 )$     827,025



Consolidated Internet Gross sales

Consolidated internet gross sales for the three months ended September 30, 2022 and 2021
comprise the next:
                                    Three Months Ended
                                      September 30,                       Change
                                  2022             2021           {Dollars}         P.c
Completed jewellery               $ 5,540,406$  5,686,287$   (145,881 )          (3 )%
Unfastened jewels                     1,833,677        4,594,024       (2,760,347 )         (60 )%
Complete consolidated internet gross sales   $ 7,374,083$ 10,280,311$ (2,906,228 )         (28 )%



Consolidated internet gross sales had been $7.37 million for the three months ended September
30, 2022 in comparison with $10.28 million for the three months ended September 30,
2021, a lower of roughly $2.91 million, or 28%. The lower in
consolidated internet gross sales for the three months ended September 30, 2022 was primarily
because of weak point in demand for our moissanite jewels from our home
distributors. These decreases resulted in decrease unfastened jewel product internet gross sales
throughout the three months ended September 30, 2022 in our Conventional phase.
General shopper confidence has weakened because of basic financial uncertainties,
coupled with home and worldwide inflation, together with recessionary fears, and
rising rates of interest.

Gross sales of completed jewellery represented 75% of whole consolidated internet gross sales for
the three months ended September 30, 2022, in contrast with 55% of whole
consolidated internet gross sales for the corresponding interval of the prior 12 months. For the
three months ended September 30, 2022, completed jewellery gross sales had been $5.54 million
in comparison with $5.69 million for the corresponding interval of the prior 12 months, a
lower of roughly $146,000, or 3%. This lower in completed jewellery
gross sales is comparatively flat to the 12 months in the past interval, regardless of present financial
circumstances.

Gross sales of unfastened jewels represented 25% of whole consolidated internet gross sales for the
three months ended September 30, 2022, in comparison with 45% of whole consolidated internet
gross sales for the corresponding interval of the prior 12 months. For the three months ended
September 30, 2022, unfastened jewel gross sales had been $1.83 million in comparison with $4.59
million for the corresponding interval of the prior 12 months, a lower of
roughly $2.76 million, or 60%. The lower for the three months ended
September 30, 2022 was primarily a results of decrease demand of unfastened jewels
by means of our home distributors.

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U.S. internet gross sales accounted for about 96% of whole consolidated internet gross sales
for the three-month interval ended September 30, 2022, in contrast with 96% for the
three-month interval ended September 30, 2021. U.S. internet gross sales decreased to $7.10
million, or 28%, within the three months ended September 30, 2022 in comparison with $9.82
million within the comparable quarter of 2021 on account of decreased gross sales to U.S.
clients in our Conventional phase.

Our largest U.S. buyer throughout the three months ended September 30, 2022 was
our second largest buyer throughout the three months ended September 30, 2021 and
accounted for 17% and 14% of whole consolidated internet gross sales throughout every of the
respective durations then ended. Our largest U.S. buyer throughout the three months
ended September 30, 2021 accounted for 19% of whole consolidated internet gross sales
throughout the interval then ended. We didn't have one other U.S. buyer account for
10% or extra of whole consolidated gross sales throughout the three months ended September
30, 2022 or 2021. We anticipate that we, together with our clients, will stay
depending on our capacity to take care of and improve our customer-related applications.
A change in or lack of any of those buyer or retailer relationships might
have a cloth hostile impact on our outcomes of operations.

Worldwide internet gross sales accounted for about 4% and 4% of whole
consolidated internet gross sales throughout the quarters ended September 30, 2022 and 2021,
respectively. Worldwide internet gross sales decreased to $279,000, or 39%, throughout the
first quarter of Fiscal 2023 in comparison with $456,000 within the first quarter of the
12 months ended June 30, 2022, or Fiscal 2022. Worldwide gross sales decreased because of
decrease demand in our worldwide distributor market because of shutdowns within the
Asia Pacific area throughout the present interval, coupled with the power of the
U.S. greenback towards foreign currency. In gentle of the consequences of ongoing
international financial circumstances, we proceed to judge these and different potential
distributors in worldwide markets to find out the most effective long-term companions.
In consequence, and in gentle of the continued worldwide pandemic and worldwide
commerce challenges, we anticipate that our gross sales in these markets might fluctuate
considerably every reporting interval.

We didn’t have a world buyer account for 10% or extra of whole
consolidated gross sales throughout the three months ended September 30, 2022 or 2021. A
portion of our worldwide consolidated gross sales represents jewels bought
internationally that could be re-imported to U.S. retailers.

Prices and Bills

Value of Items Bought

Our whole price of products bought for the three months ended September 30, 2022 and
2021 are as follows:

                                               Three Months Ended
                                                  September 30,                      Change
                                              2022            2021           {Dollars}         P.c
Product line price of products bought:
Completed jewellery                           $ 2,606,699$ 2,334,482$    272,217             12 %
Unfastened jewels                                   825,623       2,059,446       (1,233,823 )          (60 )%
Complete product line price of products bought        3,432,322       4,393,928         (961,606 )          (22 )%
Non-product line price of products bought            653,688         622,622           31,066              5 %
Complete price of products bought                   $ 4,086,010$ 5,016,550

$ (930,540 ) (19 )%

Complete price of products bought was $4.09 million for the three months ended September
30, 2022 in comparison with $5.02 million for the three months ended September 30,
2021, a lower of roughly $931,000, or 19%. Product line price of products
bought is outlined as product price of products bought in every of our On-line Channels
phase and Conventional phase excluding non-capitalized bills from our
manufacturing and manufacturing management departments, comprising personnel prices,
depreciation, lease, utilities, and company overhead allocations; freight out;
stock write-offs; and different stock changes, comprising prices of
high quality points, and broken items.

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The lower in whole price of products bought for the three months ended September
30, 2022 in comparison with the identical interval in 2021 was primarily because of decreased
gross sales of unfastened jewels throughout the three months ended September 30, 2022 in our
Conventional phase on account of decrease product demand throughout the quarter.

The web enhance in non-product line price of products bought for the three months
ended September 30, 2022, includes an approximate $58,000 enhance in freight
out principally from the rising prices of gasoline and transport total throughout the
interval; an approximate $35,000 enhance in non-capitalized manufacturing
manufacturing management bills principally associated to the timing of when
work-in-process items are obtained into stock and overhead prices are
allotted; and a $51,000 enhance in different stock changes principally
associated to adjustments in manufacturing commonplace price variances in comparison with these in
the primary three months of Fiscal 2022. These will increase had been partially offset by
an approximate $113,000 lower in stock write-offs within the first three
months of the Fiscal 2022, in comparison with these within the comparable prior 12 months
interval.

For added disclosure referring to non-product line price of products bought, see
Be aware 3 to our condensed consolidated monetary statements in Merchandise 1, "Monetary
Statements", of this Quarterly Report on Type 10-Q.

Gross sales and Advertising and marketing

Gross sales and advertising and marketing bills for the three months ended September 30, 2022 and
2021 are as follows:

                         Three Months Ended
                            September 30,                  Change
                        2022            2021        {Dollars}       P.c
Gross sales and advertising and marketing  $ 3,107,946$ 2,730,153$ 377,793            14 %

Gross sales and advertising and marketing bills had been $3.11 million for the three months ended
September 30, 2022 in comparison with $2.73 million for the three months ended
September 30, 2021, a rise of roughly $378,000, or 14%.

The rise in gross sales and advertising and marketing bills for the three months ended
September 30, 2022 in comparison with the identical interval in 2021 was primarily because of a
$162,000 enhance in promoting and digital advertising and marketing bills; an $80,000
enhance in compensation bills; a $58,000 enhance in skilled companies
principally comprising consulting companies for advertising and marketing assist within the present
12 months interval; a $41,000 enhance in financial institution charges bills, that are principally
associated to increased bank card transaction and fee platform charges; a $37,000
enhance usually enterprise taxes; and a $7,000 enhance in employee-related
recruiting and search charges for brand new hires. These will increase had been offset partially
by a $6,000 lower in journey bills; and a $1,000 internet lower usually
office-related bills.

The rise in promoting and digital advertising and marketing bills for the three months
ended September 30, 2022 in comparison with the identical interval in 2021 was primarily due
to a $94,000 enhance in digital promoting spend; a $78,000 enhance in
cooperative promoting; an $80,000 enhance in model consciousness advertising and marketing
marketing campaign expenditures within the present 12 months interval; a $37,000 enhance in
manufacturing associated to photoshoots; and a $21,000 enhance in outdoors company
charges. These will increase had been offset partially by a $133,000 lower in bills
referring to our participation within the 2022 JCK Commerce Present held within the prior 12 months
quarter during which we didn't host a sales space at for the 2023 JCK Commerce present; a
$14,000 lower in print media bills; and a $1,000 lower in different basic
bills.

The rise in compensation bills for the three months ended September 30,
2022 in comparison with the identical interval in 2021 was primarily because of a $76,000 enhance
in salaries, commissions, and associated worker advantages within the combination; and a
$20,000 enhance in bonus expense. These will increase had been partially offset by a
$16,000 lower in worker stock-based compensation expense.

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Basic and Administrative

Basic and administrative bills for the three months ended September 30,
2022 and 2021 are as follows:

                               Three Months Ended
                                  September 30,                 Change
                               2022          2021        {Dollars}      

P.c

Basic and administrative $ 1,413,476$ 1,584,275$ (170,799 ) (11 )%

Basic and administrative bills had been $1.41 million for the three months
ended September 30, 2022 in comparison with $1.58 million for the three months ended
September 30, 2021, a lower of roughly $171,000, or 11%.

The lower usually and administrative bills for the three months ended
September 30, 2022 in comparison with the identical interval in 2021 was primarily because of a
$224,000 lower in compensation bills; a $70,000 lower in financial institution charges due
to the charge construction of various banking preparations in place within the present
interval versus these within the 12 months in the past quarter; a $32,000 lower in dangerous debt
expense related to our allowance for uncertain accounts reserve coverage; a
$14,000 lower in skilled companies; and a $7,000 internet lower in
miscellaneous different basic and administrative bills. These decreases had been
partially offset by a $117,000 enhance usually enterprise taxes and licenses;
a $33,000 enhance in travel-related expenditures; a $14,000 enhance in
depreciation and amortization expense; and a $12,000 enhance in
software-related prices.

The lower in compensation bills for the three months ended September 30,
2022 in comparison with the identical interval in 2021 was primarily because of a $167,000
lower in worker stock-based compensation expense; and a $155,000 lower
in bonus expense. These decreases had been partially offset by a $98,000 internet
enhance in salaries and associated worker advantages.

Skilled companies bills decreased for the three months ended September
30, 2022 in comparison with the identical interval in 2021 primarily because of a $24,000 lower
in authorized charges related to company governance issues; a $8,000 lower in
investor relations charges; and a $1,000 lower in charges related to audit and
tax companies. These decreases had been partially offset by a $10,000 enhance in
consulting and different skilled companies primarily in reference to
accounting division assist within the present interval and a $9,000 enhance in
dealer commissions associated to our inventory repurchase program.

Curiosity Earnings

Curiosity revenue for the three months ended September 30, 2022 and 2021 is as
follows:

                    Three Months Ended
                       September 30,                  Change
                      2022          2021      {Dollars}       P.c
Curiosity revenue   $     40,201$ 355$ 39,846             * %



* Not significant

Sure money balances in extra of working wants are deposited into and
maintained in an interest-bearing account with a federally insured industrial
financial institution. Accordingly, throughout the three months ended September 30, 2022 and 2021, we
earned curiosity from money on deposit on this interest-bearing account. The
enhance in earned curiosity for the quarterly interval ended September 30, 2022
displays motion of invested funds right into a higher-yield cash market fund in
late Fiscal 2022, coupled with the general enhance in rates of interest throughout the
first quarter of Fiscal 2023 in contrast with Fiscal 2022.

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Loss on International Forex Trade

Loss on overseas forex trade associated to overseas gross sales transacted in
purposeful currencies aside from the U.S. greenback for the three months ended
September 30, 2022 and 2021 are as follows:

                                        Three Months Ended
                                          September 30,                    Change
                                     2022              2021         {Dollars}       P.c

Loss on overseas forex trade $ – $ 34$ (34 ) (100 )%

In the course of the three months ended September 30, 2022 and 2021, we had worldwide
gross sales transactions denominated in currencies aside from the U.S. greenback that
resulted in overseas forex trade internet losses. The web lower in these
losses displays the decrease stage of worldwide gross sales denominated in overseas
currencies throughout the three months ended September 30, 2022 in contrast with the
similar interval within the prior 12 months.

Provision for Earnings Taxes

For the three months ended September 30, 2022, our statutory tax fee was 22.98%
and consisted of the federal revenue tax fee of 21% and a blended state revenue
tax fee of 1.98%, internet of the federal profit. For the three months ended
September 30, 2021, our statutory tax fee was 22.24% and consisted of the
federal revenue tax fee of 21% and a blended state revenue tax fee of 1.24%, internet
of the federal profit. Our efficient revenue tax fee displays the impact of
federal and state revenue taxes on earnings and the influence of variations in ebook
and tax accounting arising primarily from the everlasting tax advantages related
with inventory compensation transactions throughout the quarter. For the three months
ended September 30, 2022 and 2021, our efficient tax fee was 25.39% and 12.91%,
respectively.

We acknowledged a internet revenue tax profit of roughly $303,000 for the quarter
ended September 30, 2022, in contrast with a internet revenue tax expense of
roughly $123,000 for the quarter ended September 30, 2021.

As of every reporting date, we think about new proof, each optimistic and damaging,
that might influence our view with regard to future realization of deferred tax
property. As of September 30, 2022, we decided that our expectations of future
taxable revenue in upcoming tax years, together with estimated development charges utilized
to future anticipated taxable revenue that features important administration estimates
and assumptions, would proceed to be enough to end in full utilization
of our remaining federal internet working loss carryforwards and sure of the
deferred tax property previous to any statutory expiration. In consequence, we
decided that enough optimistic proof existed as of September 30, 2022,
to conclude that it's extra possible than not deferred tax property of roughly
$6.15 million stay realizable. Conversely, we additional decided that
enough damaging proof continued to exist to conclude it was unsure
that we might have enough future taxable revenue to make the most of sure of our
deferred tax property. Due to this fact, we continued to take care of a valuation allowance
towards the deferred tax property referring to sure state internet working loss
carryforwards from our e-commerce subsidiary as a result of timing uncertainty of
once we will generate optimistic taxable revenue to make the most of the related deferred
tax property. As well as, a valuation allowance stays towards sure deferred
tax property referring to working loss carryforwards referring to our dormant
subsidiary positioned in Hong Kong.

Liquidity and Capital Assets

The complete influence of the COVID-19 pandemic on the worldwide and home economic system
stays unsure and the world continues adapting to the continued pandemic and
evolving viral variants and its hostile results on international economics and
worldwide enterprise operations. The influence of the COVID-19 pandemic continues to
place unprecedented pressures on international and U.S. companies together with our personal.
Relying on future developments, together with the success of the worldwide vaccine
efforts to manage the unfold of the underlying virus and evolving variants and
sub-variants, the pandemic might materially adversely influence our capital
assets and liquidity sooner or later. We stay more and more targeted on the
COVID-19 pandemic and are regularly evaluating its potential impact on our
enterprise and liquidity and capital assets.

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Capital Construction and Debt

Brief-Time period Liquidity and Capital Construction

The Consolidated Appropriations Act, 2021, offers that employers who obtained
a Paycheck Safety Program ("PPP") mortgage may additionally qualify for the Worker
Retention Credit score, or ERC. Beforehand, pursuant to the Coronavirus Assist, Reduction,
and Financial Safety ("CARES") Act, taxpayers that obtained a PPP mortgage weren't
eligible for the ERC and this variation is retroactive to March 27, 2020. We
consider that we might qualify for sure employer-related tax advantages pursuant
to the ERC and are presently working with an impartial third-party tax credit score
agency to amend our relevant federal payroll tax returns for such profit. Any
profit obtained in reference to obtainable ERC credit will likely be acknowledged in
the interval such credit are obtained.

Lengthy-Time period Liquidity and Capital Construction

We've got an efficient shelf registration assertion on Type S-3 on file with the
SEC that enables us to periodically provide and promote, individually or in any
mixture, shares of widespread inventory, shares of most popular inventory, warrants to
buy shares of widespread inventory or most popular inventory, and items consisting of any
mixture of the foregoing varieties of securities, as much as a complete of $25.00
million, of which all is offered. Nonetheless, we might provide and promote not more than
one-third of our public float (which is the combination market worth of our
excellent widespread inventory held by non-affiliates) in any 12-month interval. Our
capacity to subject fairness securities beneath the shelf registration assertion is
topic to market circumstances, which can be in flip, topic to, amongst different
issues, the potential disruption and volatility that could be brought on by ongoing
results of the COVID-19 pandemic. Any capital increase shouldn't be assured and should not
be at phrases that may be acceptable to us.

Debt

We’ve got no short- or long-term excellent debt as of September 30, 2022.

Financing Actions

Lengthy-Time period Financing Actions

In accordance with authority granted by our Board of Administrators on April 29,
2022, we are able to repurchase as much as $5.00 million in shares excellent of our widespread
inventory over the three-year interval ending April 29, 2025. Pursuant to the phrases of
the repurchase authorization, the widespread inventory share repurchases are typically
on the discretion of administration. As we repurchase our widespread shares, which have
no par worth, we report such shares held as treasury inventory on our condensed
consolidated steadiness sheets, with the acquisition worth recorded inside treasury
inventory.

In the course of the three-month interval ended September 30, 2022, we repurchased
roughly 358,000 shares of our widespread inventory for an combination worth of
roughly $452,000 pursuant to the repurchase authorization. We repurchased
no shares of our widespread inventory throughout the three-month interval ended September 30,
2021.

Working Actions and Money Flows

We require money to fund our working bills and dealing capital necessities,
together with outlays for capital expenditures. As of September 30, 2022, our
principal sources of liquidity had been money and money equivalents totaling $11.57
million, commerce accounts receivable of $1.56 million, and internet present stock
of $12.09 million, as in comparison with money and money equivalents totaling $15.67
million, commerce accounts receivable of $2.22 million, and internet present stock
of $11.02 million as of June 30, 2022. We additionally had entry throughout the three-month
interval ended September 30, 2022 to a $5.00 million money collateralized line of
credit score facility, or the JPMorgan Chase Credit score Facility, that we obtained
efficient July 9, 2021, as amended July 28, 2022, from JPMorgan Chase Financial institution,
N.A., or JPMorgan Chase.

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In the course of the three months ended September 30, 2022, our working capital decreased
by roughly $4.13 million to $24.93 million from $29.06 million at June 30,
2022. As described extra totally under, the lower in working capital at
September 30, 2022 is primarily attributable to a rise in our accounts
payable, a lower in our accounts receivables, a rise in our short-term
working lease liabilities, the classification of the notice receivable as
noncurrent as of September 30, 2022 as in comparison with present as of June 30, 2022,
and a internet lower in our money, money equivalents, and restricted money. These
elements had been offset partially by a lower in our accrued bills and different
liabilities, a rise in our allocation of stock from long-term to
short-term because of the next anticipated promote by means of of stock available within the
upcoming interval, and a rise in our pay as you go bills and different property. Our
money used for investing actions had been principally for construction-in-process
expenditures associated to our retail enlargement program and the development of our
first Signature Showroom and different leasehold enhancements in our company
places of work. Our money used for Financing Actions had been principally for our share
repurchase program.

In the course of the three months ended September 30, 2022, roughly $3.67 million of
money was utilized by our operations. The first drivers of our use of money had been an
enhance in stock of $3.17 million to construct stock for the upcoming
calendar year-end vacation season; a internet loss within the quantity of roughly
$890,000; a lower in accrued bills and different liabilities of $599,000; and
a rise in pay as you go bills and different property of $37,000. These elements had been
offset partially by a lower in accounts receivable of $695,000; and an
enhance in accounts payable of $317,000.

Accounts receivable decreased principally as a result of decreased stage of gross sales
throughout the three months ended September 30, 2022, as in contrast with the gross sales
throughout the interval main as much as June 30, 2022. Occasionally, now we have
provided prolonged Conventional phase buyer fee phrases past 90 days to
sure credit-worthy clients. Due to the continued influence of the pandemic
on the worldwide economic system, the extension of those phrases might not instantly enhance
liquidity on account of ongoing current-period gross sales, which we anticipate might
proceed to be pressured as a result of results of the continued pandemic. In
addition, we consider our opponents and different distributors within the wholesale jewellery
trade have expanded their use of prolonged fee phrases and, in combination, we
consider that, by means of our use of prolonged fee phrases, we offer a
aggressive response in our market throughout the present international financial
surroundings. We consider that we're unable to estimate the influence of those
actions on our internet gross sales, however we consider that if we ceased offering prolonged
fee phrases, we might be at a aggressive drawback for some Conventional
phase clients within the market throughout this financial interval and that our
internet gross sales and income would possible be adversely impacted.

We manufactured roughly $2.83 million and $2.43 million in unfastened jewels
and $4.97 million and $4.43 million in completed jewellery, which incorporates the fee
of the unfastened jewels and the acquisition of treasured metals and labor in connection
with jewellery manufacturing, throughout the three months ended September 30, 2022 and
2021, respectively. We anticipate our purchases of treasured metals and labor to
enhance as we enhance our completed jewellery enterprise. As well as, the value of
gold has fluctuated considerably over the previous decade, leading to increased
retail worth factors for gold jewellery. As a result of the market costs of gold and
different treasured metals are past our management, upward worth tendencies might have a
damaging influence on our working money stream as we manufacture completed jewellery.

Traditionally, our uncooked materials inventories of SiC crystals had been bought
beneath unique provide agreements with a restricted variety of suppliers. As a result of
the provision agreements restricted the sale of those crystals completely to us,
the suppliers negotiated minimal buy commitments with us that, when
mixed with diminished gross sales ranges throughout prior durations during which the acquisition
commitments had been in impact, have resulted in ranges of inventories which are
increased than we'd in any other case keep. As of September 30, 2022 and June 30,
2022, $24.48 million and $22.49 million of our inventories had been categorized as
long-term property. Unfastened jewel gross sales and completed jewellery that we manufacture
will make the most of each the completed items unfastened jewels presently on-hand and, as we
deplete sure sizes and styles, our on-hand uncooked materials SiC crystals of $1.99
million and new uncooked materials that we buy pursuant to the Provide Settlement.

Our extra detailed description of our inventories is included in Be aware 5 to our
condensed consolidated monetary statements in Half I, Merchandise 1, “Monetary
Statements”, of this Quarterly Report on Type 10-Q.

As of September 30, 2022, all of our remaining federal revenue tax credit had
expired or been utilized, and subsequently, are usually not obtainable to be carried ahead
to offset future revenue taxes. As of September 30, 2022, we additionally had a federal
tax internet working loss carryforward of roughly $16.53 million expiring
between 2034 and 2037, or that don't have any expiration, which can be utilized to offset
towards future federal taxable revenue; North Carolina tax internet working loss
carryforwards of roughly $19.77 million expiring between 2023 and 2035;
and numerous different state tax internet working loss carryforwards expiring between
2023 and 2040, which can be utilized to offset towards future state taxable revenue.

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Brief-Time period Capital Assets

Line of Credit score

Efficient July 7, 2021, we obtained from JPMorgan Chase our $5.00 million money
collateralized JPMorgan Chase Credit score Facility. The JPMorgan Chase Credit score
Facility could also be used for basic company and dealing capital functions,
together with permitted acquisitions and sure further indebtedness for
borrowed cash, installment obligations, and obligations beneath capital and
working leases. The JPMorgan Chase Credit score Facility is secured by a money
deposit within the quantity of $5.05 million held by JPMorgan Chase as collateral for
the road of credit score facility. Efficient July 28, 2022, the JPMorgan Chase Credit score
Facility was amended to, amongst different issues, prolong the maturity date to July
31, 2023, and append our obligations beneath the JPMorgan Chase Credit score Facility to
be assured by our wholly owned subsidiaries, Charles & Colvard Direct, LLC,
charlesandcolvard.com, LLC, and moissaniteoutlet.com, LLC.

Every advance beneath the JPMorgan Chase Credit score Facility, as amended, accrues
curiosity at a fee equal to the sum of JPMorgan Chase's month-to-month secured
in a single day financing fee, or the SOFR fee, to which JPMorgan Chase is topic
with respect to the adjusted SOFR fee as established by the U.S.Federal
Reserve Board, plus a margin of 1.25% each year and an unsecured to secured
rate of interest adjustment of 0.10% each year. Previous to its modification, every
advance beneath the JPMorgan Chase Credit score Facility would have accrued curiosity at
a fee equal to JPMorgan Chase's month-to-month LIBOR fee multiplied by a statutory
reserve fee for eurocurrency funding to which JPMorgan Chase is topic with
respect to the adjusted LIBOR fee as established by the U.S.Federal Reserve
Board, plus a margin of 1.25% each year. Curiosity is calculated month-to-month on an
precise/360-day foundation and payable month-to-month in arrears. Principal excellent
throughout an occasion of default, at JPMorgan Chase's choice, accrues curiosity at a
fee of three% each year in extra of the above fee. Any advance could also be pay as you go in
entire or partly at any time.

As of September 30, 2022, we had not borrowed towards the JPMorgan Chase Credit score
Facility.

Lengthy-Time period Capital Commitments

Contractual Settlement

On December 12, 2014, we entered into the Provide Settlement with Wolfspeed. Below
the Provide Settlement, topic to sure phrases and circumstances, we agreed to
completely buy from Wolfspeed, and Wolfspeed agreed to completely provide,
100% of our required SiC supplies in quarterly installments that should equal or
exceed a set minimal order amount. The preliminary time period of the Provide Settlement
was scheduled to run out on June 24, 2018, until prolonged by the events.
Efficient June 22, 2018, the Provide Settlement was amended to increase the
expiration date to June 25, 2023. The Provide Settlement, as amended, additionally
offers for the unique manufacturing of our premium moissanite product, Endlessly
One™ and supplied us with one choice, topic to sure circumstances, to
unilaterally prolong the time period of the Provide Settlement for an extra two-year
interval following the expiration of the preliminary time period. As well as, the modification
to the Provide Settlement established a course of by which Wolfspeed might start
producing alternate SiC materials based mostly on our specs that can give us
the pliability to make use of the supplies in a broader number of our merchandise, as
nicely as to allow us to buy sure quantities of SiC supplies from third
events beneath restricted circumstances. On August 26, 2020, the Provide Settlement was
additional amended, efficient June 30, 2020, to increase the expiration date to June
29, 2025, which can be additional prolonged by mutual settlement of the events. The
Provide Settlement was additionally amended to, amongst different issues, (i) unfold our whole
buy dedication beneath the Provide Settlement within the quantity of roughly
$52.95 million over the time period of the Provide Settlement, as amended; (ii) set up
a course of by which Wolfspeed has agreed to just accept buy orders in extra of
the agreed-upon minimal buy dedication, topic to sure circumstances; and
(iii) allow us to buy revised quantities of SiC supplies from third events
beneath restricted circumstances. Our whole buy dedication beneath the Provide
Settlement, as amended, till June 2025 is roughly $52.95 million, of which
roughly $24.75 million stays to be bought as of September 30, 2022.

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In the course of the three months ended September 30, 2022 and 2021, we bought
roughly $1.80 million and $1.50 million, respectively, of SiC crystals
from Wolfspeed pursuant to the phrases of the Provide Settlement, as amended. Going
ahead, we anticipate to make use of current money and money equivalents and entry to different
working capital assets, together with however not restricted to the potential issuance
of fairness securities, along with future money anticipated to be supplied by
working actions to finance our buy dedication beneath the Provide
Settlement, as amended.

Liquidity and Capital Traits

We consider that our current money and money equivalents and money anticipated to be
supplied by working actions mixed will likely be enough to satisfy our working
capital and capital expenditure wants over the following twelve months.

From a long-term perspective, we consider that our ongoing entry to capital
markets, together with however not restricted to the issuance of fairness securities and even
potential debt securities, coupled with money supplied by working actions in
future durations past the following twelve months, will proceed to supply us with
the required liquidity to satisfy our long-term working capital and capital
expenditure necessities.

In reference to our short- and long-term capital assets, now we have an
efficient shelf registration assertion on Type S-3 on file with the SEC that
permits us to periodically provide and promote, individually or in any mixture,
shares of widespread inventory, shares of most popular inventory, warrants to buy shares
of widespread inventory or most popular inventory, and items consisting of any mixture of
the foregoing varieties of securities, as much as a complete of $25.00 million, of which all
is offered. Nonetheless, we might provide and promote not more than one-third of our
public float (which is the combination market worth of our excellent widespread
inventory held by non-affiliates) in any 12-month interval. Our capacity to subject
fairness securities beneath the shelf registration assertion is topic to market
circumstances, which can be in flip, topic to, amongst different issues, the potential
disruption and volatility that could be brought on by ongoing results of the COVID-19
pandemic. Any capital increase shouldn't be assured and might not be at phrases that may be
acceptable to us.

Our future capital necessities and the adequacy of accessible funds will rely
on many elements, together with the continued uncertainty surrounding COVID-19 that
might result in additional disruption and volatility within the international capital markets as
nicely as its influence on our fee of gross sales development; the enlargement of our gross sales and
advertising and marketing actions; the timing and extent of uncooked supplies and labor purchases
in reference to unfastened jewel manufacturing to assist our moissanite jewels and
lab grown diamond enterprise and treasured metals and labor purchases in connection
with jewellery manufacturing to assist our completed jewellery enterprise; the timing of
capital expenditures; and the danger elements described in additional element in "Threat
Components" in Half II, Merchandise 1A, of this Quarterly Report on Type 10-Q and in Half
I, Merchandise 1A, of our 2022 Annual Report on Type 10-Ok.

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