SCHEDULE 13D/A: Activist Group Challenges Charles & Colvard Board

A group of investors, led by Duc Pham and Riverstyx Capital, has formed to challenge Charles & Colvard's board, citing concerns over company trajectory, dilutive financing, and seeking board representation.

Summary

• A group of reporting persons, including Riverstyx Capital Management LLC and Duc Pham, beneficially owns an aggregate of 532,216 shares of Charles & Colvard Ltd. common stock, representing approximately 11.9% of the outstanding class.
• The group has expressed deep concern regarding the company's current trajectory and intends to seek election to the Board of Directors at the 2025 Annual Meeting of Shareholders.
• The reporting persons have formed a group to nominate a slate of directors and solicit proxies to effect change in the Board's composition, believing it is necessary to protect and enhance shareholder value.
• The group is involved in litigation in the North Carolina Business Court to compel the Issuer to hold its Annual Meeting and to challenge the validity of a recent issuance of approximately 1,353,180 shares via the Ethara convertible note.
• They believe the Ethara financing was highly dilutive and undertaken for entrenchment purposes, seeking judicial relief to prevent disenfranchisement of existing shareholders.
• Duc Pham, a long-term investor, has increased his position and, through an irrevocable proxy from Don Pham, now holds voting power over approximately 6.7% of the company's outstanding shares for the 2025 Annual Meeting.

Sentiment

Score: 3

Explanation: The sentiment is largely negative regarding the company's current state and management actions, as evidenced by concerns over trajectory, dilutive financing, and alleged entrenchment. However, the activist group's intervention could be seen as a potential catalyst for positive change, introducing a degree of uncertainty rather than outright despair.

Positives

• The formation of an activist investor group could lead to improved corporate governance and strategic direction for Charles & Colvard.
• The group's intent to seek board representation and propose a strategy focused on governance reform, financial stabilization, and operational turnaround could unlock shareholder value.

Negatives

• The reporting persons are deeply concerned about the company's current trajectory, indicating potential underlying operational or financial issues.
• The recent issuance of approximately 1,353,180 shares through the Ethara convertible note is considered highly dilutive by the activist group.
• The group alleges that the Ethara financing was undertaken for entrenchment purposes, suggesting potential conflicts of interest within current management or the board.

Risks

• The company's current trajectory is a significant concern, implying risks related to ongoing business performance and financial health.
• The recent issuance of 1,353,180 shares from the Ethara convertible note poses a dilution risk to existing shareholders.
• Ongoing litigation in the North Carolina Business Court regarding the Annual Meeting and the validity of the Ethara convertible note introduces legal and operational uncertainty.
• The potential for management entrenchment, as alleged by the reporting persons, could hinder necessary corporate reforms and shareholder value creation.
• Shareholders face a risk of disenfranchisement if the Annual Meeting is not held or if the dilutive share issuance is upheld.

Future Outlook

The reporting persons intend to propose a strategy focused on governance reform, financial stabilization, and operational turnaround. They will seek election to the Board of Directors at the 2025 Annual Meeting and continue litigation to compel the meeting and challenge the validity of the Ethara convertible note issuance. Depending on various factors, they may take additional actions regarding their investment.

Management Comments

• Duc Pham is deeply concerned about the Company's current trajectory.
• The Reporting Persons believe that change in the composition of the Issuer's Board of Directors is necessary to protect and enhance shareholder value.
• The Reporting Persons believe that the Ethara financing was highly dilutive and undertaken for entrenchment purposes.

Industry Context

This filing represents a classic activist investor scenario, where a significant shareholder group, dissatisfied with current company performance and governance, seeks to exert influence and effect change. Such situations are common in industries where companies may be perceived as underperforming or mismanaged, leading to calls for strategic shifts and board refreshment.

Management Changes

Corporate Governance

Legal Proceedings

• The reporting persons are party to litigation in the North Carolina Business Court compelling the Issuer to hold the Annual Meeting of Shareholders.
• The litigation also challenges the validity of the Issuer's recent issuance of approximately 1,353,180 shares pursuant to the Ethara convertible note.

Related Party Transactions

• On August 20, 2025, Duc Pham entered into an irrevocable proxy with Don Pham, granting Duc Pham limited voting power over 144,000 shares held by Don Pham for the 2025 Annual Meeting of Shareholders. Duc Pham does not have dispositive or economic power over these shares.

Stakeholder Impact

• Shareholders: Potential for increased shareholder value if the activist campaign is successful in driving governance reform and operational improvements, but also faces uncertainty and potential costs associated with litigation and a proxy contest.
• Management and Board of Directors: Will face increased scrutiny and pressure from the activist group, potentially leading to significant changes in leadership and strategic direction.
• Employees: Potential for strategic shifts and operational changes resulting from new board leadership, which could impact roles and company culture.

Next Steps

• The reporting persons will seek election to the Issuer's Board of Directors at the 2025 Annual Meeting of Shareholders.
• They will propose a strategy focused on governance reform, financial stabilization, and operational turnaround.
• The group will continue litigation in the North Carolina Business Court to compel the Annual Meeting and challenge the validity of the Ethara convertible note issuance.
• They will solicit proxies in support of their nominated slate of directors.

Key Dates

Recommendation

The filing details a significant activist campaign by a group of investors, including a major shareholder, who are deeply concerned about the company's trajectory, dilutive financing, and corporate governance. While the current state of the company appears problematic, as highlighted by the activist group, the initiation of a proxy fight and litigation introduces a major catalyst for change. The outcome of this activism is uncertain; it could lead to positive reforms and value creation if successful, or prolonged uncertainty and costs if unsuccessful or contentious. Therefore, a 'hold' recommendation is appropriate for seasoned investors, acknowledging both the inherent risks and the potential for a turnaround driven by shareholder pressure, rather than making a definitive 'buy' or 'sell' based solely on the current negative assessment.

Keywords

Charles & Colvard, CTHR, Activist Investor, Corporate Governance, Proxy Fight, Board Election, Shareholder Value, Litigation, Dilutive Financing, Schedule 13D, Beneficial Ownership