SEGMENT INFORMATION AND GEOGRAPHIC DATA

12 Months Ended

Dec. 31, 2014

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.

During 2014, the Company began managing its business primarily through the three distribution channels that it uses to sell its product lines, loose jewels and finished jewelry. Accordingly, the Company determined its three operating and reportable segments to be wholesale distribution transacted through the parent entity, and the two direct-to-consumer distribution channels transacted through the Company’s wholly owned operating subsidiaries, Moissanite.com, LLC and Charles & Colvard Direct, LLC.  The accounting policies of these three segments are the same as those described in Note 2, “Basis of Presentation and Significant Accounting Policies.”

Previously, the Company determined it managed its business through two distribution channels, wholesale distribution and direct-to-consumer.  While the Company has always managed its businesses as three separate operating segments, it previously aggregated the Moissanite.com, LLC and Charles & Colvard Direct, LLC operating segments into a single operating segment for reporting purposes.  The two wholly owned operating subsidiaries that previously were aggregated under the direct-to-consumer segment are now each being presented as a separate reportable segment.  The Company believes aggregation of the two subsidiaries into one reportable segment for reporting purposes is no longer warranted due to changes in how it sources product and sells directly to consumers, including changes in the management structure, strategic initiatives and changes in sales models, made during the year ended December 31, 2014 for each of the two wholly owned subsidiaries.  Certain amounts from 2013 have been reclassified to conform to the current year presentation as a result of this change in reportable segments.

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). Product line cost of goods sold is defined as product cost of goods sold in each of the Company’s wholesale distribution and two 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 distribution segments primarily based on net sales and number of employees. Unallocated expenses, which also include interest and taxes, remain in the parent entity’s wholesale distribution segment.

Summary financial information by reportable segment is as follows:

	Year Ended December 31, 2014
	Wholesale			Moissanite.com			Charles & Colvard Direct			Total
Net sales
Loose jewels	$	12,324,045			600,505			1,820			12,926,370
Finished jewelry		8,452,800			2,812,158			1,449,321			12,714,279
Total	$	20,776,845			3,412,663			1,451,141			25,640,649
Product line cost of goods sold
Loose jewels	$	7,458,355			100,851			7,623			7,566,829
Finished jewelry		6,584,937			1,371,056			472,189			8,428,182
Total	$	14,043,292			1,471,907			479,812			15,995,011
Product line gross profit
Loose jewels	$	4,865,690			499,654			(5,803	)		5,359,541
Finished jewelry		1,867,863			1,441,102			977,132			4,286,097
Total	$	6,733,553			1,940,756			971,329			9,645,638
Operating loss	$	(4,802,435	)		(1,265,035	)		(2,976,754	)		(9,044,224	)
Depreciation and amortization	$	887,287			174,562			46,106			1,107,955
Total assets	$	51,183,888			128,049			114,460			51,426,397
Capital expenditures	$	1,093,055			1,386			1,262			1,095,703

	Year Ended December 31, 2013
	Wholesale		Moissanite.com			Charles & Colvard Direct			Total
Net sales
Loose jewels	$	18,136,062		347,933			-			18,483,995
Finished jewelry		7,438,340		2,152,018			412,834			10,003,192
Total	$	25,574,402		2,499,951			412,834			28,487,187
Product line cost of goods sold
Loose jewels	$	7,588,838		53,941			3,596			7,646,375
Finished jewelry		4,094,157		1,095,489			109,926			5,299,572
Total	$	11,682,995		1,149,430			113,522			12,945,947
Product line gross profit
Loose jewels	$	10,547,224		293,992			(3,596	)		10,837,620
Finished jewelry		3,344,183		1,056,529			302,908			4,703,620
Total	$	13,891,407		1,350,521			299,312			15,541,240
Operating income (loss)	$	3,652,153		(1,951,526	)		(3,280,911	)		(1,580,284	)
Depreciation and amortization	$	481,993		263,372			117,318			862,683
Total assets	$	61,702,449		469,217			152,186			62,323,852
Capital expenditures	$	744,679		47,801			7,887			800,367

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,
	2014		2013
Product line cost of goods sold	$	15,995,011	$	12,945,947
Non-capitalized manufacturing and production control expenses		949,385		532,928
Freight out		284,944		201,911
Inventory valuation allowances		295,000		264,000
Other inventory adjustments		488,995		655,391
Cost of goods sold	$	18,013,335	$	14,600,177

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

	December 31,
	2014		2013
Loose jewels
Raw materials	$	4,658,692	$	3,311,375
Work-in-process		5,752,103		9,526,769
Finished goods		21,495,873		20,002,881
Finished goods on consignment		46,284		32,948
Total	$	31,952,952	$	32,873,973
Finished jewelry
Raw materials	$	258,707	$	270,043
Work-in-process		540,576		764,355
Finished goods		5,557,417		8,117,035
Finished goods on consignment		578,200		299,514
Total	$	6,934,900	$	9,450,947

Supplies inventories of approximately $51,000 and $87,000 at December 31, 2014 and 2013, 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 two operating subsidiaries comprising the two direct-to-consumer distribution segments 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 two direct-to-consumer distribution segments 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,
	2014		2013
Net sales
United States	$	22,101,974	$	20,684,397
International		3,538,675		7,802,790
Total	$	25,640,649	$	28,487,187

	December 31,
	2014		2013
Property and equipment, net
United States	$	1,859,355	$	1,717,692
International		-		-
Total	$	1,859,355	$	1,717,692

	December 31,
	2014		2013
Intangible assets, net
United States	$	39,050	$	70,830
International		177,897		255,037
Total	$	216,947	$	325,867