SEGMENT INFORMATION AND GEOGRAPHIC DATA

9 Months Ended

Mar. 31, 2021

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 through two operating and reportable segments based on its distribution channels to sell its product lines, loose jewels and finished jewelry: its “Online Channels” segment, which consists of e-commerce outlets including charlesandcolvard.com, moissaniteoutlet.com, third-party online marketplaces, drop-ship retail, and other pure-play, exclusively e-commerce outlets; and its “Traditional” segment, which consists of wholesale and retail customers. The accounting policies of the Online Channels segment and Traditional segment 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 the Consolidated Financial Statements in the 2020 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. The Company’s product line cost of goods sold is defined as product cost of goods sold, excluding non-capitalized expenses from the Company’s manufacturing and production control departments, comprising personnel costs, depreciation, leases, utilities, and corporate overhead allocations; freight out; inventory write-downs; and other inventory adjustments, comprising costs of quality issues, and damaged goods.

The Company allocates certain general and administrative expenses between its Online Channels segment and its Traditional segment based on net sales and number of employees to arrive at segment operating income. Unallocated expenses remain in its Traditional segment.

Summary financial information by reportable segment is as follows:

	Three Months Ended March 31, 2021
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	4,902,964	$	1,316,928	$	6,219,892
Loose jewels		680,804		2,535,360		3,216,164
Total	$	5,583,768	$	3,852,288	$	9,436,056
Product line cost of goods sold
Finished jewelry	$	2,045,519	$	1,006,417	$	3,051,936
Loose jewels		246,302		1,222,036		1,468,338
Total	$	2,291,821	$	2,228,453	$	4,520,274
Product line gross profit
Finished jewelry	$	2,857,445	$	310,511	$	3,167,956
Loose jewels		434,502		1,313,324		1,747,826
Total	$	3,291,947	$	1,623,835	$	4,915,782
Operating income	$	751,953	$	286,618	$	1,038,571
Depreciation and amortization	$	67,373	$	81,077	$	148,450
Capital expenditures	$	22,770	$	55,858	$	78,628

	Three Months Ended March 31, 2020
	Online Channels			Traditional			Total
Net sales
Finished jewelry	$	2,922,439		$	557,729		$	3,480,168
Loose jewels		915,818			2,095,062			3,010,880
Total	$	3,838,257		$	2,652,791		$	6,491,048
Product line cost of goods sold
Finished jewelry	$	1,286,865		$	302,636		$	1,589,501
Loose jewels		395,999			1,116,050			1,512,049
Total	$	1,682,864		$	1,418,686		$	3,101,550
Product line gross profit
Finished jewelry	$	1,635,574		$	255,093		$	1,890,667
Loose jewels		519,819			979,012			1,498,831
Total	$	2,155,393		$	1,234,105		$	3,389,498
Operating loss	$	(332,837	)	$	(5,861,033	)	$	(6,193,870	)
Depreciation and amortization	$	49,333		$	82,686		$	132,019
Capital expenditures	$	34,250		$	39,347		$	73,597

	Nine Months Ended March 31, 2021
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	15,114,765	$	3,705,663	$	18,820,428
Loose jewels		2,520,576		8,168,136		10,688,712
Total	$	17,635,341	$	11,873,799	$	29,509,140
Product line cost of goods sold
Finished jewelry	$	6,242,635	$	2,565,737	$	8,808,372
Loose jewels		947,417		4,070,446		5,017,863
Total	$	7,190,052	$	6,636,183	$	13,826,235
Product line gross profit
Finished jewelry	$	8,872,130	$	1,139,926	$	10,012,056
Loose jewels		1,573,159		4,097,690		5,670,849
Total	$	10,445,289	$	5,237,616	$	15,682,905
Operating income	$	3,021,067	$	1,412,758	$	4,433,825
Depreciation and amortization	$	180,946	$	238,565	$	419,511
Capital expenditures	$	195,695	$	150,417	$	346,112

	Nine Months Ended March 31, 2020
	Online Channels		Traditional			Total
Net sales
Finished jewelry	$	11,044,107	$	2,732,403		$	13,776,510
Loose jewels		2,584,534		8,397,515			10,982,049
Total	$	13,628,641	$	11,129,918		$	24,758,559
Product line cost of goods sold
Finished jewelry	$	4,739,488	$	1,517,037		$	6,256,525
Loose jewels		1,067,062		4,326,093			5,393,155
Total	$	5,806,550	$	5,843,130		$	11,649,680
Product line gross profit
Finished jewelry	$	6,304,619	$	1,215,366		$	7,519,985
Loose jewels		1,517,472		4,071,422			5,588,894
Total	$	7,822,091	$	5,286,788		$	13,108,879
Operating income (loss)	$	62,591	$	(5,339,831	)	$	(5,277,240	)
Depreciation and amortization	$	131,356	$	234,966		$	366,322
Capital expenditures	$	245,175	$	149,650		$	394,825

The Company does not allocate any assets to the reportable segments, and, therefore, no asset information is reported to the chief operating decision maker or disclosed in the financial information for each segment.

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

	Three Months Ended March 31,					Nine Months Ended March 31,
	2021			2020		2021			2020
Product line cost of goods sold	$	4,520,274		$	3,101,550	$	13,826,235		$	11,649,680
Non-capitalized manufacturing and production control expenses		398,073			286,722		1,122,715			1,104,241
Freight out		191,700			153,081		683,580			425,433
Inventory write-off		23,000			5,471,992		128,000			5,620,991
Other inventory adjustments		(39,595	)		158,587		(303,315	)		(221,276	)
Cost of goods sold	$	5,093,452		$	9,171,932	$	15,457,215		$	18,579,069

The Company recognizes sales by geographic area based on the country in which the customer is based. Sales to international end consumers made through the Company’s transactional websites, charlesandcolvard.com and moissaniteoutlet.com, are included in international sales for financial reporting purposes. A portion of the Company’s Traditional segment sales made to international wholesale distributors represents products sold internationally that may be re-imported to U.S. retailers.

The following presents net sales by geographic area:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2021		2020		2021		2020
Net sales
United States	$	8,969,267	$	6,153,787	$	27,857,667	$	22,560,974
International		466,789		337,261		1,651,473		2,197,585
Total	$	9,436,056	$	6,491,048	$	29,509,140	$	24,758,559