SEGMENT INFORMATION AND GEOGRAPHIC DATA

12 Months Ended

Dec. 31, 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 product lines, loose jewels and finished jewelry. 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.”

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 expenses from its parent entity to its two direct-to-consumer operating subsidiaries primarily based on net sales. 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:

	Year Ended December 31, 2013
	Wholesale		Direct-to- Consumer			Total
Net sales
Loose jewels	$	18,136,062		347,933			18,483,995
Finished jewelry		7,438,340		2,564,852			10,003,192
Total	$	25,574,402		2,912,785			28,487,187
Product line cost of goods sold
Loose jewels	$	7,588,838		57,537			7,646,375
Finished jewelry		4,094,157		1,205,415			5,299,572
Total	$	11,682,995		1,262,952			12,945,947
Product line gross profit
Loose jewels	$	10,547,224		290,396			10,837,620
Finished jewelry		3,344,183		1,359,437			4,703,620
Total	$	13,891,407		1,649,833			15,541,240
Operating income (loss)	$	3,652,153		(5,232,437	)		(1,580,284	)
Depreciation and amortization	$	481,993		380,690			862,683
Total assets	$	61,702,449		621,403			62,323,852
Capital expenditures	$	744,679		55,688			800,367

	Year Ended December 31, 2012
	Wholesale		Direct-to- Consumer			Total
Net sales
Loose jewels	$	14,770,191	$	221,207		$	14,991,398
Finished jewelry		6,044,727		1,414,373			7,459,100
Total	$	20,814,918	$	1,635,580		$	22,450,498
Product line cost of goods sold
Loose jewels	$	4,551,052	$	135,474		$	4,686,526
Finished jewelry		2,884,728		702,730			3,587,458
Total	$	7,435,780	$	838,204		$	8,273,984
Product line gross profit
Loose jewels	$	10,219,139	$	85,733		$	10,304,872
Finished jewelry		3,159,999		711,643			3,871,642
Total	$	13,379,138	$	797,376		$	14,176,514
Operating income (loss)	$	4,370,028	$	(4,110,438	)	$	259,590
Depreciation and amortization	$	390,044	$	218,121		$	608,165
Total assets	$	58,823,642	$	1,053,049		$	59,876,691
Capital expenditures	$	425,736	$	443,250		$	868,986

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:

	Year Ended December 31,
	2013		2012
Product line cost of goods sold	$	12,945,947	$	8,273,984
Non-capitalized manufacturing and production control expenses		532,928		1,348,029
Freight out		201,911		111,639
Inventory valuation allowances		264,000		93,000
Other inventory adjustments		655,391		145,011
Cost of goods sold	$	14,600,177	$	9,971,663

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

	December 31,
	2013		2012
Loose jewels
Raw materials	$	3,311,375	$	3,189,320
Work-in-process		9,526,769		3,650,322
Finished goods		20,002,881		19,074,526
Finished goods on consignment		32,948		75,131
Total	$	32,873,973	$	25,989,299
Finished jewelry
Raw materials	$	270,043	$	259,366
Work-in-process		764,355		250,628
Finished goods		8,117,035		5,451,178
Finished goods on consignment		299,514		748,022
Total	$	9,450,947	$	6,709,194

Supplies inventories of approximately $87,000 and $98,000 at December 31, 2013 and 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’s operating subsidiaries comprising the direct-to-consumer distribution segment carry no net inventories, and inventory is transferred without intercompany markup from the parent entity’s wholesale distribution segment as product line cost of goods sold when sold to the end consumer.

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 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:

	Year Ended December 31,
	2013		2012
Net sales
United States	$	20,684,397	$	16,869,397
International		7,802,790		5,581,101
Total	$	28,487,187	$	22,450,498

	December 31,
	2013		2012
Property and equipment, net
United States	$	1,717,692	$	1,746,792
International		-		-
Total	$	1,717,692	$	1,746,792

	December 31,
	2013		2012
Intangible assets, net
United States	$	70,830	$	152,038
International		255,037		194,694
Total	$	325,867	$	346,732