SCHEDULE: Ethara Capital Boosts Stake in Charles & Colvard to 42.79%

Ethara Capital LLC has significantly increased its ownership in Charles & Colvard LTD to 42.79% through a convertible note conversion and irrevocable voting proxies.

Summary

• Ethara Capital LLC now beneficially owns 1,913,302 shares of Charles & Colvard LTD common stock, representing 42.79% of the outstanding shares as of August 29, 2025.
• This stake was acquired through a $2.0 million convertible secured note, issued in two tranches: $500,000 on July 3, 2025, and $1.5 million on July 21, 2025.
• On August 29, 2025, $200,000 in principal and accrued interest from the note was converted into 1,353,180 shares at a conversion price of $0.1478 per share.
• Ethara Capital also secured irrevocable voting proxies for an additional 560,122 shares from current and former board members, including Ollin B. Sykes, Neal I. Goldman, Don O'Connell, and Anne M. Butler.
• The transaction's stated purpose is to improve Charles & Colvard's balance sheet and align Ethara Capital's interests with other shareholders.

Sentiment

Score: 7

Explanation: The investment provides capital and strengthens the balance sheet, but the significant concentration of voting power and potential future dilution warrant careful monitoring.

Positives

• Ethara Capital's $2.0 million investment provides capital to improve Charles & Colvard's balance sheet.
• The conversion of $200,000 of debt to equity reduces the company's liabilities.
• The alignment of Ethara Capital's interests with other shareholders suggests a commitment to long-term value creation.
• The irrevocable proxies from board members consolidate voting power, potentially streamlining strategic decisions.

Negatives

• Ethara Capital LLC now holds a substantial 42.79% stake and significant voting power, which could lead to a concentration of control.
• The conversion price of $0.1478 per share, while based on a 30-day VWAP at the time of the Note Purchase Agreement, could be perceived as dilutive depending on the market price at conversion.

Risks

• Concentration of voting power with Ethara Capital LLC, potentially influencing corporate governance and strategic direction.
• Potential for future dilution if the remaining convertible note principal is converted into common stock.
• The security interest granted to Ethara Capital LLC in all tangible and intangible personal property of the Issuer could impact other creditors or future financing.

Future Outlook

The transaction aims to improve the Company's balance sheet and align the Reporting Person's interests with other shareholders, suggesting a long-term commitment to the company's performance and strategic direction.

Management Comments

• The purpose of the transaction was to improve the Company's balance sheet and to further align the Reporting Person's interests with the other shareholders of the Company.

Industry Context

Ethara Capital LLC's controlling persons are associated with Bhanderi Lab Grown Diamonds, Inc., a leading Chemical Vapor Deposition (CVD) lab-grown diamond manufacturer. This significant investment and increased influence in Charles & Colvard, a prominent player in the lab-grown gemstone industry, could signal a strategic move to consolidate or expand influence within the lab-grown diamond and moissanite market, potentially leveraging synergies in manufacturing, distribution, or market strategy.

Corporate Governance

Stakeholder Impact

• Shareholders: Increased capital for the company, but potential dilution from future note conversions and significant concentration of voting power with Ethara Capital LLC.
• Creditors: Ethara Capital LLC holds a secured interest in all company assets, potentially affecting the priority of other creditors.
• Management/Board: Ethara Capital LLC's substantial voting power and board member proxies will likely influence strategic direction and corporate decisions.

Next Steps

• Potential future conversion of the remaining principal and interest of the $2.0 million convertible secured note into common stock.
• Ethara Capital LLC will exercise its voting power over the beneficially owned shares and shares under irrevocable proxy.
• The Company will place restrictive legends on certificates representing the Secured Interests.

Key Dates

Recommendation

While the capital injection and debt conversion are positive for Charles & Colvard's balance sheet, the significant concentration of voting power with Ethara Capital LLC introduces a new dynamic. Investors should hold to observe how this new controlling interest influences strategic direction, operational performance, and future capital allocation. The long-term implications of this consolidated control need to be assessed before making a stronger buy or sell recommendation.

Keywords

Charles & Colvard, Ethara Capital, Convertible Note, SEC Filing, Schedule 13D, Beneficial Ownership, Corporate Governance, Lab Grown Diamonds, Jewelry, Investment, Shareholder Proxy