SEGMENT INFORMATION AND GEOGRAPHIC DATA

6 Months Ended

Jun. 30, 2013

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

The Company manages its business primarily by its two distribution channels that it uses to sell its loose jewel and finished jewelry product lines. Accordingly, the Company determined its two operating and reporting segments to be wholesale distribution transacted through the parent entity and direct-to-consumer distribution transacted through the Company’s wholly owned operating subsidiaries, Moissanite.com, LLC and Charles & Colvard Direct, LLC. 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 2012 Annual Report.

The Company evaluates the financial performance of its segments based on net sales; product line gross profit, or the excess of product line sales over product line cost of goods sold; and operating income (loss). The Company’s inventories are maintained in the parent entity’s wholesale distribution segment and are transferred without intercompany markup to the operating subsidiaries as product line cost of goods sold when sold to the end consumer. Product line cost of goods sold is defined as product cost of goods sold in each of the Company’s wholesale distribution and direct-to-consumer distribution operating segments 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; inventory valuation allowance adjustments; and other inventory adjustments, comprising costs of quality issues, damaged goods, and inventory write-offs.

The Company allocates certain general and administrative and information technology-related expenses from its parent entity to its two direct-to-consumer operating subsidiaries primarily based on net sales and headcount, respectively. Unallocated expenses, which also include interest and taxes, remain in the parent entity’s wholesale distribution segment.

Summary financial information by reporting segment is as follows:

	Three Months Ended June 30,
	2013								2012
	Wholesale		Direct-to- Consumer			Total			Wholesale		Direct-to- Consumer			Total
Net sales
Loose jewels	$	3,984,058	$	91,238		$	4,075,296		$	4,031,721	$	54,100		$	4,085,821
Finished jewelry		1,905,430		531,774			2,437,204			715,394		257,012			972,406
Total	$	5,889,488	$	623,012		$	6,512,500		$	4,747,115	$	311,112		$	5,058,227
Product line cost of goods sold
Loose jewels	$	1,334,472	$	11,795		$	1,346,267		$	1,109,333	$	7,340		$	1,116,673
Finished jewelry		1,330,109		290,816			1,620,925			6,896		106,034			112,930
Total	$	2,664,581	$	302,611		$	2,967,192		$	1,116,229	$	113,374		$	1,229,603
Product line gross profit
Loose jewels	$	2,649,586	$	79,443		$	2,729,029		$	2,922,388	$	46,760		$	2,969,148
Finished jewelry		575,321		240,958			816,279			708,498		150,978			859,476
Total	$	3,224,907	$	320,401		$	3,545,308		$	3,630,886	$	197,738		$	3,828,624
Operating income (loss)	$	624,419	$	(1,482,730	)	$	(858,311	)	$	1,219,750	$	(681,852	)	$	537,898
Depreciation and amortization	$	101,876	$	90,486		$	192,362		$	98,985	$	50,022		$	149,007
Capital expenditures	$	108,645	$	5,968		$	114,613		$	128,849	$	5,236		$	134,085

	Six Months Ended June 30,
	2013								2012
	Wholesale		Direct-to- Consumer			Total			Wholesale		Direct-to- Consumer			Total
Net sales
Loose jewels	$	8,278,212	$	144,998		$	8,423,210		$	6,445,640	$	93,598		$	6,539,238
Finished jewelry		3,634,153		960,211			4,594,364			2,306,955		390,419			2,697,374
Total	$	11,912,365	$	1,105,209		$	13,017,574		$	8,752,595	$	484,017		$	9,236,612
Product line cost of goods sold
Loose jewels	$	3,050,412	$	18,542		$	3,068,954		$	1,916,272	$	12,014		$	1,928,286
Finished jewelry		1,931,079		473,467			2,404,546			720,328		153,775			874,103
Total	$	4,981,491	$	492,009		$	5,473,500		$	2,636,600	$	165,789		$	2,802,389
Product line gross profit
Loose jewels	$	5,227,800	$	126,456		$	5,354,256		$	4,529,368	$	81,584		$	4,610,952
Finished jewelry		1,703,074		486,744			2,189,818			1,586,627		236,644			1,823,271
Total	$	6,930,874	$	613,200		$	7,544,074		$	6,115,995	$	318,228		$	6,434,223
Operating income (loss)	$	2,264,325	$	(2,601,109	)	$	(336,784	)	$	1,161,620	$	(1,340,524	)	$	(178,904	)
Depreciation and amortization	$	192,855	$	191,894		$	384,749		$	177,725	$	87,882		$	265,607
Capital expenditures	$	189,316	$	13,294		$	202,610		$	369,118	$	116,760		$	485,878

	June 30, 2013									December 31, 2012
	Wholesale			Direct-to- Consumer			Total			Wholesale			Direct-to- Consumer			Total
Total assets		$	55,133,852		$	5,817,876		$	60,951,728		$	58,823,642		$	1,053,049		$	59,876,691

A reconciliation of the Company’s product line cost of goods sold to cost of goods sold as reported in the consolidated financial statements is as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
Product line cost of goods sold	$	2,967,192	$	1,229,603		$	5,473,500	$	2,802,389
Non-capitalized manufacturing and production control expenses		208,389		332,259			608,640		738,388
Freight out		51,453		24,114			87,962		41,497
Inventory valuation allowances		94,000		72,000			75,000		26,000
Other inventory adjustments		68,281		(15,217	)		26,191		62,171
Cost of goods sold	$	3,389,315	$	1,642,759		$	6,271,293	$	3,670,445

The Company’s net inventories by product line maintained in the parent entity’s wholesale distribution segment are as follows:

	June 30, 2013		December 31, 2012
Loose jewels
Raw materials	$	2,845,538	$	3,189,320
Work-in-process		8,736,576		3,650,322
Finished goods		17,255,067		19,074,526
Finished goods on consignment		108,405		75,131
Total	$	28,945,586	$	25,989,299
Finished jewelry
Raw materials	$	299,425	$	259,366
Work-in-process		629,928		250,628
Finished goods		5,815,319		5,451,178
Finished goods on consignment		604,308		748,022
Total	$	7,348,980	$	6,709,194

Supplies inventories of approximately $91,000 and $98,000 at June 30, 2013 and December 31, 2012, respectively, included in finished goods inventories in the consolidated financial statements are omitted from inventories by product line 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 wholesale distribution segment sales represents products sold internationally that may be re-imported to United States (“U.S.”) retailers. Sales to international end consumers made by the Company’s direct-to-consumer distribution segment are included in U.S. sales because products are shipped and invoiced to a U.S.-based intermediary party that assumes all international shipping and credit risks. The following presents certain data by geographic area:

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Net sales
United States	$	5,373,178	$	4,028,212	$	10,485,467	$	7,419,159
International		1,139,322		1,030,015		2,532,107		1,817,453
Total	$	6,512,500	$	5,058,227	$	13,017,574	$	9,236,612

	June 30, 2013		December 31, 2012
Property and equipment, net
United States	$	1,528,557	$	1,746,792
International		-		-
Total	$	1,528,557	$	1,746,792

	June 30, 2013		December 31, 2012
Intangible assets, net
United States	$	209,972	$	152,038
International		169,482		194,694
Total	$	379,454	$	346,732