5.	INVENTORIES

The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:

	March 31, 2019			June 30, 2018
Raw materials	$	4,656,868		$	5,083,436
Work-in-process		11,055,488			10,659,786
Finished goods		18,689,812			17,483,773
Finished goods on consignment		1,517,104			523,971
Supplies inventory		127,968			45,572
Less: inventory reserves		(2,345,000	)		(1,968,000	)
Total	$	33,702,240		$	31,828,538

Short-term portion	$	11,376,031		$	10,979,891
Long-term portion		22,326,209			20,848,647
Total	$	33,702,240		$	31,828,538

The Company’s work-in-process inventories include raw SiC crystals on which processing costs, such as labor and sawing, have been incurred; and components, such as metal castings and finished good moissanite jewels, that have been issued to jobs in the manufacture of finished jewelry. The Company’s moissanite jewel manufacturing process involves the production of intermediary shapes, called “preforms,” that vary depending upon the expected size and shape of the finished jewel. To maximize manufacturing efficiencies, preforms may be made in advance of current finished inventory needs but remain in work-in-process inventories. As of March 31, 2019 and June 30, 2018, work-in-process inventories issued to active production jobs approximated $2.17 million and $2.45 million, respectively.

The Company’s jewels do not degrade in quality over time and inventory generally consists of the shapes and sizes most commonly used in the jewelry industry. In addition, the majority of jewel inventory is not mounted in finished jewelry settings and is therefore not subject to fashion trends nor is obsolescence a significant factor.

The Company manufactures finished jewelry featuring moissanite. Relative to loose moissanite jewels, finished jewelry is more fashion-oriented and subject to styling trends that could render certain designs obsolete over time. While we expect expansion of our finished jewelry product offerings over time, the majority of the Company’s finished jewelry featuring moissanite is held in inventory for resale and largely consists of such core designs as stud earrings, solitaire and three-stone rings, pendants, and bracelets. We believe these finished jewelry products are less subject to significant obsolescence risk due to their classic styling. In addition, the Company generally holds smaller quantities of designer-inspired and trend moissanite fashion jewelry that is available for resale through retail companies and through its Online Channels segment. The Company also carries a limited amount of inventory as part of its sample line that is used in the selling process to its customers.

The Company’s operating subsidiaries carry no net inventories, and inventory is transferred without intercompany markup from the parent entity as product line cost of goods sold when sold to the end consumer.

The Company’s total inventories, net of reserves, consisted of the following as of the dates presented:

	March 31, 2019		June 30, 2018
Finished jewelry:
Raw materials	$	687,848	$	595,649
Work-in-process		1,137,519		1,196,268
Finished goods		6,577,000		5,517,951
Finished goods on consignment		1,287,508		476,648
Total finished jewelry	$	9,689,875	$	7,786,516
Loose jewels:
Raw materials	$	3,969,020	$	4,487,787
Work-in-process		9,917,967		9,463,518
Finished goods		9,791,814		10,015,822
Finished goods on consignment		205,596		29,323
Total loose jewels		23,884,397		23,996,450
Total supplies inventory		127,968		45,572
Total inventory	$	33,702,240	$	31,828,538

Total net finished jewelry inventories at March 31, 2019 and June 30, 2018, including inventory on consignment net of reserves and finished jewelry featuring moissanite manufactured by the Company, were $9.69 million and $7.79 million, respectively. Total net loose jewel inventories at March 31, 2019 and June 30, 2018, including inventory on consignment net of reserves, were $23.88 million and $24.00 million, respectively.

As of March 31, 2019 and June 30, 2018, management established an obsolescence reserve of $1.68 million and $1.30 million, respectively. Typically, in the jewelry industry, slow-moving or discontinued lines are sold as closeouts or liquidated in sales channels such as third-party online marketplaces, drop-ship, and other pure-play, exclusively e-commerce outlets. Regularly, management reviews the legacy loose jewel inventory for any lower of cost or net realizable value and obsolescence issues. Accordingly, based on ongoing feedback from distribution customers on the value of some of these goods, management identified some of the remaining inventory of these lower quality goods that could not be sold at its current carrying value. Accordingly, management’s analysis revealed that while certain of these items sold during the three and nine months ended March 31, 2019, the remaining items in the Company’s legacy inventory required an increase in the lower of cost or net realizable value reserve to approximately $1.64 million as of March 31, 2019 from $1.29 million as of June 30, 2018. As of March 31, 2019 and June 30, 2018, management identified certain finished jewelry that was obsolete due to damage and other factors that indicate the finished jewelry is unsaleable, and established an obsolescence reserve of $39,000 and $7,000, respectively, for the carrying costs in excess of any estimated scrap values. Management reviews the finished jewelry inventory on an ongoing basis for any lower of cost or net realizable value and obsolescence issues.

As of March 31, 2019 and June 30, 2018 management established a rework reserve for recut and repairs of $481,000 and $534,000, respectively. Loose jewel inventories at March 31, 2019 and June 30, 2018 included recut reserves of $481,000 and $418,000, respectively. The finished jewelry inventories at March 31, 2019 and June 30, 2018 include a repairs reserve of $0 and $116,000, respectively.

As of March 31, 2019 and June 30, 2018 management established a shrinkage reserve of $187,000 and $136,000, respectively. The loose jewel inventories at March 31, 2019 and June 30, 2018 include shrinkage reserves of $44,000 and $48,000, respectively. The finished jewelry inventories at March 31, 2019 and June 30, 2018 include shrinkage reserves of $143,000 and $88,000, respectively.

Periodically, the Company ships finished goods inventory to certain Traditional segment customers on consignment terms. Under these terms, the customer assumes the risk of loss and has an absolute right of return for a specified period. Included in the total shrinkage reserve is the shrinkage reserve for finished goods on consignment of $24,000 and $18,000 as of March 31, 2019 and June 30, 2018, respectively, to allow for certain loose jewels and finished jewelry on consignment with certain Traditional segment customers that may not be returned or may be returned in a condition that does not meet the Company’s current grading or quality standards. The loose jewel inventories on consignment at March 31, 2019 and June 30, 2018 include shrinkage reserves of $10,000 and $11,000, respectively. The finished jewelry inventories on consignment at March 31, 2019 and June 30, 2018 include shrinkage reserves of $14,000 and $7,000, respectively.

The need for adjustments to inventory-related reserves and valuation allowances is evaluated on a period-by-period basis. Changes to the Company’s inventory reserves and allowances are accounted for in the current accounting period in which a change in such reserves and allowances is observed and deemed appropriate, including changes in management’s estimates used in the process to determine such reserves and valuation allowances.