SEGMENT INFORMATION AND GEOGRAPHIC DATA

9 Months Ended

Sep. 30, 2011

Segment Information and Geographic Data [Abstract]

SEGMENT INFORMATION AND GEOGRAPHIC DATA

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 decisions and assessing performance as the source of the Company's operating and reportable segments.

The Company manages its business primarily by its product lines. Accordingly, the Company determined its two operating and reporting segments to be loose jewels and finished jewelry. The accounting policies of these segments 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 Consolidated Financial Statements in the 2010 Annual Report.

The Company evaluates the performance of its segments based on net sales and segment gross profit, or the excess of product sales over segment cost of goods sold. Segment 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, utilities, and corporate overhead allocations; freight out; manufacturing and physical inventory variances; inventory valuation allowance adjustments; and costs of quality issues and damaged goods. Accordingly, also excluded from the Company's segment performance measures are operating expenses, comprising sales and marketing, general and administrative, and research and development expenses; interest; and taxes.

Summary information by segment is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Loose jewels
Net sales	$	2,209,049	$	2,833,170	$	7,249,173	$	8,227,342
Segment cost of goods sold		562,476		935,246		2,224,390		2,973,975
Segment gross profit	$	1,646,573	$	1,897,924	$	5,024,783	$	5,253,367
Finished jewelry
Net sales	$	682,060	$	169,438	$	1,613,772	$	957,570
Segment cost of goods sold		222,684		107,416		742,287		944,537
Segment gross profit	$	459,376	$	62,022	$	871,485	$	13,033

A reconciliation of the Company's segment 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,
	2011			2010			2011			2010
Segment cost of goods sold	$	785,160		$	1,042,662		$	2,966,677		$	3,918,512
Non-capitalized manufacturing and production control expenses		235,252			112,600			573,380			238,194
Freight out		14,255			10,280			47,413			33,009
Inventory variances and valuation adjustments		(220,834	)		(127,000	)		(161,982	)		(696,747	)
Costs of quality issues and damaged goods		5,476			51,058			18,977			54,877
Cost of goods sold	$	819,309		$	1,089,600		$	3,444,465		$	3,547,845

The Company's net inventories by segment are as follows:

	September 30, 2011		December 31, 2010
Loose jewels
Raw materials	$	6,466,973	$	6,700,628
Work-in-process		2,157,707		2,132,910
Finished goods		22,831,736		25,384,397
Finished goods on consignment		643,639		558,149
Totals	$	32,100,055	$	34,776,084
Finished jewelry
Raw materials	$	217,022	$	292,611
Work-in-process		179,061		69,276
Finished goods		3,112,022		1,483,787
Finished goods on consignment		851,530		635,117
Totals	$	4,359,635	$	2,480,791

Supplies inventories of approximately $128,000 and $126,000 at September 30, 2011 and December 31, 2010, respectively, included in finished goods inventories in the consolidated financial statements are omitted from inventories by segment because they are used in both product lines and are not maintained separately.

The Company recognizes sales by geographic area based on the country in which the customer is based. A portion of the Company's international sales represents products sold internationally that may be re-imported to United States (“U.S.”) retailers. The following presents certain data by geographic area:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Net sales
United States	$	1,808,602	$	1,904,846	$	5,162,913	$	5,375,593
International		1,082,507		1,097,762		3,700,032		3,809,319
Totals	$	2,891,109	$	3,002,608	$	8,862,945	$	9,184,912

	September 30, 2011		December 31, 2010
Property and equipment, net
United States	$	985,965	$	377,352
International		-		-
Totals	$	985,965	$	377,352

	September 30, 2011		December 31, 2010
Patent and license rights, net
United States	$	72,773	$	80,864
International		176,302		171,678
Totals	$	249,075	$	252,542