Material Agreement (Form 8-K)

Note Conversion Agreement

As previously disclosed, on June 24, 2025, Charles & Colvard, Ltd. (the "Company") entered into a Convertible Secured Note Purchase Agreement (the "Note Purchase Agreement") with Ethara Capital LLC (the "Holder"), a Delaware limited liability company. James Tu, Chairman of the Company's Board of Directors (the "Board"), and Ruten Bhanderi, a member of the Board, might be considered affiliates of the Holder. In connection with the Note Purchase Agreement, the Company issued a convertible secured note (the "Note") to the Holder for an aggregate total purchase price of $2.0 million, issued in two tranches: (i) an initial closing in the amount of $500,000 on July 3, 2025, and (ii) a subsequent and final closing of $1.5 million on July 21, 2025. On August 29, 2025, the Company entered into a Note Conversion Agreement (the "Note Conversion Agreement") with the Holder whereby the parties agreed to convert $200,000.00 in principal and accrued but unpaid interest on the Note into 1,353,180 shares of the Company's common stock at a conversion price of $0.1478 set forth in the Note, which was the 30-day volume weighted average price of the Company's common stock at the time the Note Purchase Agreement was executed. The foregoing description of the Note Conversion Agreement does not purport to be complete and is qualified in its entirety by the full text of the Note Conversion Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.

The disclosure provided in Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 3.02. On August 29, 2025, the Company issued 1,353,180 unregistered shares of its common stock, in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506(b) of Regulation D promulgated thereunder. The Company's reliance on Section 4(a)(2) and Rule 506(b) in issuing the shares is based on the following factors: (1) the issuance of the shares is an isolated private transaction by the Company that does not involve a public offering, (2) the Holder is the only recipient of the shares, (3) the negotiations for the issuance of the shares took place directly between the Holder and the Company, and (4) the Holder represented that it is an accredited investor as defined in Rule 501(a) of Regulation D, with sufficient experience and ability to evaluate and bear the risks of the investment.