SEGMENT INFORMATION AND GEOGRAPHIC DATA

6 Months Ended

Dec. 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, charlesandcolvarddirect.com, madeshopping.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 2023 Annual Report.

The Company evaluates the financial performance of its segments based on net sales and product line gross profit, or the excess of product line sales over product line cost of goods sold. 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.

Summary financial information by reportable segment is as follows:

	Three Months Ended December 31, 2023
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	6,343,510	$	1,047,842	$	7,391,352
Loose jewels		310,707		203,580		514,287
Total	$	6,654,217	$	1,251,422	$	7,905,639
Product line cost of goods sold
Finished jewelry	$	3,392,715	$	525,801	$	3,918,516
Loose jewels		96,448		104,545		200,993
Total	$	3,489,163	$	630,346	$	4,119,509
Product line gross profit
Finished jewelry	$	2,950,795	$	522,041	$	3,472,836
Loose jewels		214,259		99,035		313,294
Total	$	3,165,054	$	621,076	$	3,786,130
Depreciation and amortization	$	45,392	$	133,337	$	178,729
Capital expenditures	$	179,559	$	98,691	$	278,250

	Three Months Ended December 31, 2022
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	7,123,440	$	1,312,768	$	8,436,208
Loose jewels		722,388		1,207,526		1,929,914
Total	$	7,845,828	$	2,520,294	$	10,366,122
Product line cost of goods sold
Finished jewelry	$	3,446,197	$	739,134	$	4,185,331
Loose jewels		263,285		607,965		871,250
Total	$	3,709,482	$	1,347,099	$	5,056,581
Product line gross profit
Finished jewelry	$	3,677,243	$	573,634	$	4,250,877
Loose jewels		459,103		599,561		1,058,664
Total	$	4,136,346	$	1,173,195	$	5,309,541
Depreciation and amortization	$	56,505	$	114,684	$	171,189
Capital expenditures	$	22,620	$	164,263	$	186,883

	Six Months Ended December 31, 2023
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	9,940,523	$	1,752,088	$	11,692,611
Loose jewels		630,381		535,670		1,166,051
Total	$	10,570,904	$	2,287,758	$	12,858,662
Product line cost of goods sold
Finished jewelry	$	4,968,315	$	909,368	$	5,877,683
Loose jewels		196,426		243,941		440,367
Total	$	5,164,741	$	1,153,309	$	6,318,050
Product line gross profit
Finished jewelry	$	4,972,208	$	842,720	$	5,814,928
Loose jewels		433,955		291,729		725,684
Total	$	5,406,163	$	1,134,449	$	6,540,612
Depreciation and amortization	$	94,151	$	262,868	$	357,019
Capital expenditures	$	299,704	$	195,598	$	495,302

	Six Months Ended December 31, 2022
	Online Channels		Traditional		Total
Net sales
Finished jewelry	$	11,527,029	$	2,449,585	$	13,976,614
Loose jewels		1,171,285		2,592,305		3,763,590
Total	$	12,698,314	$	5,041,890	$	17,740,204
Product line cost of goods sold
Finished jewelry	$	5,416,308	$	1,375,723	$	6,792,031
Loose jewels		425,984		1,270,889		1,696,873
Total	$	5,842,292	$	2,646,612	$	8,488,904
Product line gross profit
Finished jewelry	$	6,110,721	$	1,073,862	$	7,184,583
Loose jewels		745,301		1,321,416		2,066,717
Total	$	6,856,022	$	2,395,278	$	9,251,300
Depreciation and amortization	$	119,892	$	189,008	$	308,900
Capital expenditures	$	159,608	$	457,675	$	617,283

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 December 31,						Six Months Ended December 31,
	2023			2022			2023			2022
Product line cost of goods sold	$	4,119,509		$	5,056,581		$	6,318,050		$	8,488,904
Non-capitalized manufacturing and production control expenses		664,578			686,834			1,262,463			1,063,887
Freight out		338,249			358,617			542,465			634,354
Inventory write-downs		-			-			-			119,000
Other inventory adjustments		(72,389	)		(30,257	)		(64,524	)		(148,360	)
Cost of goods sold	$	5,049,947		$	6,071,775		$	8,058,454		$	10,157,785

A reconciliation of the Company’s consolidated product line gross profit to the Company’s consolidated net loss before income taxes is as follows:

	Three Months Ended December 31,						Six Months Ended December 31,
	2023			2022			2023			2022
Product line gross profit	$	3,786,130		$	5,309,541		$	6,540,612		$	9,251,300
Non-allocated cost of goods sold		(930,438	)		(1,015,194	)		(1,740,404	)		(1,668,881	)
Sales and marketing		(4,296,324	)		(4,339,684	)		(7,018,289	)		(7,447,630	)
General and administrative		(1,497,061	)		(1,187,955	)		(3,351,329	)		(2,601,431	)
Other income (expense) net		71,788			59,574			164,048			99,776
Loss before income taxes	$	(2,865,905	)	$	(1,173,718	)	$	(5,405,362	)	$	(2,366,866	)

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 data by geographic area:

	Three Months Ended December 31,				Six Months Ended December 31,
	2023		2022		2023		2022
Net sales
United States	$	7,742,776	$	9,989,702	$	12,511,686	$	17,085,074
International		162,863		376,420		346,976		655,130
Total	$	7,905,639	$	10,366,122	$	12,858,662	$	17,740,204