SEGMENT INFORMATION AND GEOGRAPHIC DATA

12 Months Ended

Dec. 31, 2015

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 and 2015, the Company managed its business primarily through the three distribution channels that it used 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.” On March 4, 2016, the Company divested its direct-to-consumer home party business previously operated through its Charles & Colvard Direct, LLC (dba Lulu Avenue^®) subsidiary.  Consequently, for future periods the Company will re-evaluate how it manages its business and discloses its operating and 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 to arrive at segment operating loss. 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, 2015
	Wholesale			Moissanite.com			Charles & Colvard Direct			Total
Net sales
Loose jewels	$	14,581,554		$	531,695		$	(45	)	$	15,113,204
Finished jewelry		5,683,478			4,896,565			5,073,870			15,653,913
Total	$	20,265,032		$	5,428,260		$	5,073,825		$	30,767,117
Product line cost of goods sold
Loose jewels	$	9,375,195		$	83,964		$	65		$	9,459,224
Finished jewelry		3,867,080			2,429,684			1,242,623			7,539,387
Total	$	13,242,275		$	2,513,648		$	1,242,688		$	16,998,611
Product line gross profit
Loose jewels	$	5,206,359		$	447,731		$	(110	)	$	5,653,980
Finished jewelry		1,816,398			2,466,881			3,831,247			8,114,526
Total	$	7,022,757		$	2,914,612		$	3,831,137		$	13,768,506
Operating loss	$	(3,736,111	)	$	(1,328,117	)	$	(4,485,787	)	$	(9,550,015	)
Depreciation and amortization	$	652,326		$	106,461		$	104,566		$	863,353
Total assets	$	43,881,011		$	174,899		$	84,928		$	44,140,838
Capital expenditures	$	291,372		$	116,080		$	20,676		$	428,128

	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

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,
	2015		2014
Product line cost of goods sold	$	16,998,611	$	15,995,011
Non-capitalized manufacturing and production control expenses		1,388,567		949,385
Freight out		698,840		284,944
Inventory valuation allowances		436,000		295,000
Other inventory adjustments		1,030,689		488,995
Cost of goods sold	$	20,552,707	$	18,013,335

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

	December 31,
	2015		2014
Loose jewels
Raw materials	$	6,741,712	$	4,658,692
Work-in-process		5,516,799		5,752,103
Finished goods		15,877,436		21,495,873
Finished goods on consignment		55,388		46,284
Total	$	28,191,335	$	31,952,952
Finished jewelry
Raw materials	$	190,427	$	258,707
Work-in-process		514,946		540,576
Finished goods		3,193,569		5,557,417
Finished goods on consignment		200,613		578,200
Total	$	4,099,555	$	6,934,900

Supplies inventories of approximately $38,000 and $51,000 at December 31, 2015 and 2014, 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,
	2015		2014
Net sales
United States	$	27,297,901	$	22,101,974
International		3,469,216		3,538,675
Total	$	30,767,117	$	25,640,649

	December 31,
	2015		2014
Property and equipment, net
United States	$	1,615,683	$	1,859,355
International		-		-
Total	$	1,615,683	$	1,859,355

	December 31,
	2015		2014
Intangible assets, net
United States	$	15,362	$	39,050
International		55,724		177,897
Total	$	71,086	$	216,947