SEGMENT INFORMATION AND GEOGRAPHIC DATA

9 Months Ended

Mar. 31, 2023

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, including its own Charles & Colvard Signature Showroom. 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 2022 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 for the periods presented is as follows:

	Three Months Ended March 31, 2023
	Online Channels			Traditional			Total
Net sales
Finished jewelry	$	4,130,314		$	1,190,987		$	5,321,301
Loose jewels		486,084			834,414			1,320,498
Total	$	4,616,398		$	2,025,401		$	6,641,799
Product line cost of goods sold
Finished jewelry	$	1,880,504		$	959,817		$	2,840,321
Loose jewels		197,145			448,114			645,259
Total	$	2,077,649		$	1,407,931		$	3,485,580
Product line gross profit
Finished jewelry	$	2,249,810		$	231,170		$	2,480,980
Loose jewels		288,939			386,300			675,239
Total	$	2,538,749		$	617,470		$	3,156,219
Operating loss	$	(999,028	)	$	(1,173,091	)	$	(2,172,119	)
Depreciation and amortization	$	47,876		$	120,509		$	168,385
Capital expenditures	$	14,202		$	252,545		$	266,747

	Three Months Ended March 31, 2022
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	5,720,197	$	1,700,394	$	7,420,591
Loose jewels		634,617		1,696,627		2,331,244
Total	$	6,354,814	$	3,397,021	$	9,751,835
Product line cost of goods sold
Finished jewelry	$	2,560,952	$	1,148,912	$	3,709,864
Loose jewels		229,714		784,272		1,013,986
Total	$	2,790,666	$	1,933,184	$	4,723,850
Product line gross profit
Finished jewelry	$	3,159,245	$	551,482	$	3,710,727
Loose jewels		404,903		912,355		1,317,258
Total	$	3,564,148	$	1,463,837	$	5,027,985
Operating income	$	350,276	$	65,592	$	415,868
Depreciation and amortization	$	52,613	$	59,374	$	111,987
Capital expenditures	$	28,145	$	446,445	$	474,590

	Nine Months Ended March 31, 2023
	Online Channels			Traditional			Total
Net sales
Finished jewelry	$	15,657,343		$	3,640,572		$	19,297,915
Loose jewels		1,657,369			3,426,719			5,084,088
Total	$	17,314,712		$	7,067,291		$	24,382,003
Product line cost of goods sold
Finished jewelry	$	7,296,812		$	2,335,540		$	9,632,352
Loose jewels		623,129			1,719,004			2,342,133
Total	$	7,919,941		$	4,054,544		$	11,974,485
Product line gross profit
Finished jewelry	$	8,360,531		$	1,305,032		$	9,665,563
Loose jewels		1,034,240			1,707,715			2,741,955
Total	$	9,394,771		$	3,012,747		$	12,407,518
Operating income	$	(1,954,975	)	$	(2,683,786	)	$	(4,638,761	)
Depreciation and amortization	$	167,769		$	309,516		$	477,285
Capital expenditures	$	173,810		$	710,220		$	884,030

	Nine Months Ended March 31, 2022
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	18,659,690	$	4,986,354	$	23,646,044
Loose jewels		2,388,584		7,750,653		10,139,237
Total	$	21,048,274	$	12,737,007	$	33,785,281
Product line cost of goods sold
Finished jewelry	$	7,705,127	$	3,043,196	$	10,748,323
Loose jewels		877,604		3,630,393		4,507,997
Total	$	8,582,731	$	6,673,589	$	15,256,320
Product line gross profit
Finished jewelry	$	10,954,563	$	1,943,158	$	12,897,721
Loose jewels		1,510,980		4,120,260		5,631,240
Total	$	12,465,543	$	6,063,418	$	18,528,961
Operating income	$	2,104,674	$	711,123	$	2,815,797
Depreciation and amortization	$	173,786	$	176,412	$	350,198
Capital expenditures	$	114,445	$	1,135,851	$	1,250,296

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,
	2023		2022			2023		2022
Product line cost of goods sold	$	3,485,580	$	4,723,850		$	11,974,485	$	15,256,320
Non-capitalized manufacturing and production control expenses		596,344		484,299			1,660,231		1,243,528
Freight out		216,817		294,143			851,171		976,855
Inventory write-downs		-		-			119,000		232,000
Other inventory adjustments		194,384		(205,762	)		46,023		(361,677	)
Cost of goods sold	$	4,493,125	$	5,296,530		$	14,650,910	$	17,347,026

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,
	2023		2022		2023		2022
Net sales
United States	$	6,545,336	$	9,390,774	$	23,630,410	$	32,237,221
International		96,463		361,061		751,593		1,548,060
Total	$	6,641,799	$	9,751,835	$	24,382,003	$	33,785,281