Document_and_Entity_Informatio
Document and Entity Information | 9 Months Ended | |
Sep. 30, 2014 | Nov. 12, 2014 | |
Document and Entity Information [Abstract] | ' | ' |
Entity Registrant Name | 'CHARLES & COLVARD LTD | ' |
Entity Central Index Key | '0001015155 | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Well-known Seasoned Issuer | 'No | ' |
Entity Voluntary Filers | 'No | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Common Stock, Shares Outstanding | ' | 20,357,333 |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q3 | ' |
Document Type | '10-Q | ' |
Amendment Flag | 'false | ' |
Document Period End Date | 30-Sep-14 | ' |
CONDENSED_CONSOLIDATED_BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Current assets: | ' | ' |
Cash and cash equivalents | $2,661,280 | $2,573,405 |
Accounts receivable, net | 5,505,913 | 10,244,732 |
Inventory, net | 15,833,756 | 13,074,428 |
Prepaid expenses and other assets | 981,795 | 951,635 |
Deferred income taxes | 0 | 1,197,832 |
Total current assets | 24,982,744 | 28,042,032 |
Long-term assets: | ' | ' |
Inventory, net | 25,314,540 | 29,337,674 |
Property and equipment, net | 1,983,865 | 1,717,692 |
Intangible assets, net | 258,859 | 325,867 |
Deferred income taxes | 0 | 2,841,891 |
Other assets | 327,217 | 58,696 |
Total long-term assets | 27,884,481 | 34,281,820 |
TOTAL ASSETS | 52,867,225 | 62,323,852 |
Current liabilities: | ' | ' |
Accounts payable | 2,603,811 | 3,670,551 |
Accrued cooperative advertising | 192,000 | 188,000 |
Accrued expenses and other liabilities | 578,908 | 642,186 |
Total current liabilities | 3,374,719 | 4,500,737 |
Long-term liabilities: | ' | ' |
Accrued rent | 693,277 | 0 |
Accrued income taxes | 404,589 | 395,442 |
Total long-term liabilities | 1,097,866 | 395,442 |
Total liabilities | 4,472,585 | 4,896,179 |
Commitments and contingencies | ' | ' |
Shareholders' equity: | ' | ' |
Common stock, no par value | 53,949,001 | 53,949,001 |
Additional paid-in capital - stock-based compensation | 11,230,884 | 9,940,980 |
Accumulated deficit | -16,785,245 | -6,462,308 |
Total shareholders' equity | 48,394,640 | 57,427,673 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $52,867,225 | $62,323,852 |
CONDENSED_CONSOLIDATED_BALANCE1
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) (USD $) | Sep. 30, 2014 | Dec. 31, 2013 |
Shareholders' equity | ' | ' |
Common stock, par value (in dollars per share) | $0 | $0 |
CONDENSED_CONSOLIDATED_STATEME
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) [Abstract] | ' | ' | ' | ' |
Net sales | $4,521,894 | $6,858,252 | $18,431,094 | $19,875,826 |
Costs and expenses: | ' | ' | ' | ' |
Cost of goods sold | 3,268,803 | 3,805,227 | 12,256,826 | 10,076,520 |
Sales and marketing | 2,520,426 | 2,449,679 | 6,886,651 | 7,228,883 |
General and administrative | 1,790,588 | 1,723,676 | 5,543,269 | 3,917,461 |
Research and development | 3,863 | 6,755 | 15,364 | 21,779 |
Loss on abandonment of assets | 0 | 0 | 2,201 | 95,052 |
Total costs and expenses | 7,583,680 | 7,985,337 | 24,704,311 | 21,339,695 |
Loss from operations | -3,061,786 | -1,127,085 | -6,273,217 | -1,463,869 |
Other income (expense): | ' | ' | ' | ' |
Interest income | 2 | 5,135 | 51 | 19,609 |
Interest expense | -583 | -202 | -901 | -1,176 |
Total other (expense) income, net | -581 | 4,933 | -850 | 18,433 |
Loss before income taxes | -3,062,367 | -1,122,152 | -6,274,067 | -1,445,436 |
Income tax net (expense) benefit | -3,093 | -88,550 | -4,048,870 | 49,422 |
Net loss | ($3,065,460) | ($1,210,702) | ($10,322,937) | ($1,396,014) |
Net loss per common share: | ' | ' | ' | ' |
Basic (in dollars per share) | ($0.15) | ($0.06) | ($0.51) | ($0.07) |
Diluted (in dollars per share) | ($0.15) | ($0.06) | ($0.51) | ($0.07) |
Weighted average number of shares used in computing net loss per common share: | ' | ' | ' | ' |
Basic (in shares) | 20,357,333 | 20,001,543 | 20,272,897 | 19,825,532 |
Diluted (in shares) | 20,357,333 | 20,001,543 | 20,272,897 | 19,825,532 |
CONDENSED_CONSOLIDATED_STATEME1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Sep. 30, 2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ' | ' |
Net loss | ($10,322,937) | ($1,396,014) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ' | ' |
Depreciation and amortization | 861,658 | 584,734 |
Amortization of bond premium | 0 | 4,069 |
Stock-based compensation | 1,289,904 | 1,192,823 |
Provision for uncollectible accounts | 897,878 | 17,195 |
Provision for sales returns | -853,000 | -101,000 |
Provision for inventory reserves | 281,000 | 197,000 |
Provision (benefit) for deferred income taxes | 4,039,723 | -66,092 |
Loss on abandonment of assets | 2,201 | 95,052 |
Changes in assets and liabilities: | ' | ' |
Accounts receivable | 4,693,941 | -816,011 |
Interest receivable | 0 | -3,907 |
Inventory | 982,806 | -7,817,735 |
Prepaid expenses and other assets, net | -298,681 | -282,582 |
Accounts payable | -1,066,740 | 2,966,274 |
Accrued cooperative advertising | 4,000 | 293,000 |
Accrued income taxes | 9,147 | 8,771 |
Other accrued liabilities | 629,999 | 5,365 |
Net cash provided by (used in) operating activities | 1,150,899 | -5,119,058 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ' | ' |
Purchases of property and equipment | -1,007,506 | -673,588 |
Patent, license rights, and trademark costs | -55,518 | -109,658 |
Net cash used in investing activities | -1,063,024 | -783,246 |
CASH FLOWS FROM FINANCING ACTIVITIES: | ' | ' |
Stock option exercises | 0 | 241,265 |
Net cash provided by financing activities | 0 | 241,265 |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 87,875 | -5,661,039 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 2,573,405 | 11,860,842 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | 2,661,280 | 6,199,803 |
Supplemental disclosures of cash flow information: | ' | ' |
Cash paid during the period for interest | 901 | 1,176 |
Cash paid during the period for income taxes | $0 | $7,899 |
DESCRIPTION_OF_BUSINESS
DESCRIPTION OF BUSINESS | 9 Months Ended | |
Sep. 30, 2014 | ||
DESCRIPTION OF BUSINESS [Abstract] | ' | |
DESCRIPTION OF BUSINESS | ' | |
1 | DESCRIPTION OF BUSINESS | |
Charles & Colvard, Ltd. (the “Company”), a North Carolina corporation founded in 1995, manufactures, markets, and distributes Charles & Colvard Created Moissanite® jewels (hereinafter referred to as moissanite or moissanite jewels), finished jewelry featuring moissanite, and fashion finished jewelry for sale in the worldwide jewelry market. Moissanite, also known by its chemical name of silicon carbide (“SiC”), is a rare mineral first discovered in a meteor crater. Because naturally occurring SiC crystals are too small for commercial use, larger crystals must be grown in a laboratory. Leveraging its advantage of being the sole source worldwide of created moissanite jewels, the Company’s strategy is to establish itself with reputable, high-quality, and sophisticated brands and to position moissanite as an affordable, luxurious alternative to other gems, such as diamond. The Company believes this is possible due to moissanite’s exceptional brilliance, fire, luster, durability, and rarity like no other jewel available on the market. The Company sells loose moissanite jewels and finished jewelry at wholesale to distributors, manufacturers, and retailers and at retail to end consumers through its wholly owned operating subsidiaries Moissanite.com, LLC and Charles & Colvard Direct, LLC. |
BASIS_OF_PRESENTATION_AND_SIGN
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended | |
Sep. 30, 2014 | ||
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ' | |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | ' | |
2 | BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | |
Basis of Presentation and Principles of Consolidation - The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. However, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, the unaudited statements in this Quarterly Report on Form 10-Q include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014. | ||
The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2014 and 2013 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2013 is derived from the audited financial statements as of that date. The accompanying statements should be read in conjunction with the audited financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 27, 2014 (the “2013 Annual Report”). | ||
The accompanying condensed consolidated financial statements as of and for the three and nine months ended September 30, 2014 and 2013 include the accounts of the Company and its wholly owned subsidiaries Moissanite.com, LLC, formed in 2011; Charles & Colvard Direct, LLC, formed in 2011; and Charles & Colvard (HK) Ltd., the Company’s Hong Kong subsidiary that became a dormant entity in the second quarter of 2009 and the operations of which ceased in 2008. All intercompany accounts have been eliminated. | ||
Significant Accounting Policies - In the opinion of the Company’s management, the significant accounting policies used for the three and nine months ended September 30, 2014 are consistent with those used for the year ended December 31, 2013. Accordingly, please refer to the 2013 Annual Report for the Company’s significant accounting policies. | ||
Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates impacting the Company’s condensed consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, deferred tax assets, uncertain tax positions, stock compensation expense, and cooperative advertising. Actual results could differ materially from those estimates. | ||
Reclassifications - Certain amounts in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current year presentation. | ||
Recently Adopted/Issued Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. | ||
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard in 2017. |
SEGMENT_INFORMATION_AND_GEOGRA
SEGMENT INFORMATION AND GEOGRAPHIC DATA | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
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 primarily by its two distribution channels that it uses to sell its product lines, loose jewels and finished jewelry. Accordingly, the Company determined its two operating and reporting segments to be wholesale distribution transacted through the parent entity and direct-to-consumer distribution transacted through the Company’s wholly owned operating subsidiaries, Moissanite.com, LLC and Charles & Colvard Direct, LLC. The accounting policies for these segments 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 Consolidated Financial Statements in the 2013 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 (loss). The Company’s inventories are maintained in the parent entity’s wholesale distribution segment and are transferred without intercompany markup to the operating subsidiaries as product line cost of goods sold when sold to the end consumer. Product line cost of goods sold is defined as product cost of goods sold in each of the Company’s wholesale distribution and 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 and information technology-related expenses from its parent entity to its two direct-to-consumer operating subsidiaries primarily based on net sales and headcount, respectively. Unallocated expenses, which also include interest and taxes, remain in the parent entity’s wholesale distribution segment. | |||||||||||||||||||||||||
Summary financial information by reporting segment is as follows: | |||||||||||||||||||||||||
Three Months Ended September 30, | |||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Wholesale | Direct-to- | Total | Wholesale | Direct-to- | Total | ||||||||||||||||||||
Consumer | Consumer | ||||||||||||||||||||||||
Net sales | |||||||||||||||||||||||||
Loose jewels | $ | 2,164,134 | $ | 160,100 | $ | 2,324,234 | $ | 4,744,308 | $ | 77,011 | $ | 4,821,319 | |||||||||||||
Finished jewelry | 1,282,122 | 915,538 | 2,197,660 | 1,610,485 | 426,448 | 2,036,933 | |||||||||||||||||||
Total | $ | 3,446,256 | $ | 1,075,638 | $ | 4,521,894 | $ | 6,354,793 | $ | 503,459 | $ | 6,858,252 | |||||||||||||
Product line cost of goods sold | |||||||||||||||||||||||||
Loose jewels | $ | 1,392,197 | $ | 32,121 | $ | 1,424,318 | $ | 2,214,152 | $ | 16,878 | $ | 2,231,030 | |||||||||||||
Finished jewelry | 1,091,012 | 356,246 | 1,447,258 | 795,711 | 213,566 | 1,009,277 | |||||||||||||||||||
Total | $ | 2,483,209 | $ | 388,367 | $ | 2,871,576 | $ | 3,009,863 | $ | 230,444 | $ | 3,240,307 | |||||||||||||
Product line gross profit | |||||||||||||||||||||||||
Loose jewels | $ | 771,937 | $ | 127,979 | $ | 899,916 | $ | 2,530,156 | $ | 60,133 | $ | 2,590,289 | |||||||||||||
Finished jewelry | 191,110 | 559,292 | 750,402 | 814,774 | 212,882 | 1,027,656 | |||||||||||||||||||
Total | $ | 963,047 | $ | 687,271 | $ | 1,650,318 | $ | 3,344,930 | $ | 273,015 | $ | 3,617,945 | |||||||||||||
Operating (loss) income | $ | (1,803,857 | ) | $ | (1,257,929 | ) | $ | (3,061,786 | ) | $ | 175,342 | $ | (1,302,427 | ) | $ | (1,127,085 | ) | ||||||||
Depreciation and amortization | $ | 191,640 | $ | 81,274 | $ | 272,914 | $ | 108,763 | $ | 91,222 | $ | 199,985 | |||||||||||||
Capital expenditures | $ | 50,840 | $ | - | $ | 50,840 | $ | 452,288 | $ | 18,600 | $ | 470,888 | |||||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Wholesale | Direct-to- | Total | Wholesale | Direct-to- | Total | ||||||||||||||||||||
Consumer | Consumer | ||||||||||||||||||||||||
Net sales | |||||||||||||||||||||||||
Loose jewels | $ | 9,534,727 | $ | 480,500 | $ | 10,015,227 | $ | 13,022,685 | $ | 221,957 | $ | 13,244,642 | |||||||||||||
Finished jewelry | 5,914,391 | 2,501,476 | 8,415,867 | 5,244,474 | 1,386,710 | 6,631,184 | |||||||||||||||||||
Total | $ | 15,449,118 | $ | 2,981,976 | $ | 18,431,094 | $ | 18,267,159 | $ | 1,608,667 | $ | 19,875,826 | |||||||||||||
Product line cost of goods sold | |||||||||||||||||||||||||
Loose jewels | $ | 5,208,277 | $ | 79,739 | $ | 5,288,016 | $ | 5,264,563 | $ | 35,420 | $ | 5,299,983 | |||||||||||||
Finished jewelry | 4,748,828 | 1,084,043 | 5,832,871 | 2,726,789 | 687,034 | 3,413,823 | |||||||||||||||||||
Total | $ | 9,957,105 | $ | 1,163,782 | $ | 11,120,887 | $ | 7,991,352 | $ | 722,454 | $ | 8,713,806 | |||||||||||||
Product line gross profit | |||||||||||||||||||||||||
Loose jewels | $ | 4,326,450 | $ | 400,761 | $ | 4,727,211 | $ | 7,758,122 | $ | 186,537 | $ | 7,944,659 | |||||||||||||
Finished jewelry | 1,165,563 | 1,417,433 | 2,582,996 | 2,517,685 | 699,676 | 3,217,361 | |||||||||||||||||||
Total | $ | 5,492,013 | $ | 1,818,194 | $ | 7,310,207 | $ | 10,275,807 | $ | 886,213 | $ | 11,162,020 | |||||||||||||
Operating (loss) income | $ | (2,936,998 | ) | $ | (3,336,219 | ) | $ | (6,273,217 | ) | $ | 2,443,939 | $ | (3,907,808 | ) | $ | (1,463,869 | ) | ||||||||
Depreciation and amortization | $ | 585,333 | $ | 276,325 | $ | 861,658 | $ | 301,618 | $ | 283,116 | $ | 584,734 | |||||||||||||
Capital expenditures | $ | 1,007,506 | $ | - | $ | 1,007,506 | $ | 641,694 | $ | 31,894 | $ | 673,588 | |||||||||||||
30-Sep-14 | 31-Dec-13 | ||||||||||||||||||||||||
Wholesale | Direct-to- | Total | Wholesale | Direct-to- | Total | ||||||||||||||||||||
Consumer | Consumer | ||||||||||||||||||||||||
Total assets | $ | 52,632,244 | $ | 234,981 | $ | 52,867,225 | $ | 61,702,449 | $ | 621,403 | $ | 62,323,852 | |||||||||||||
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||
Product line cost of goods sold | $ | 2,871,576 | $ | 3,240,307 | $ | 11,120,887 | $ | 8,713,806 | |||||||||||||||||
Non-capitalized manufacturing and production control expenses | 93,274 | 380,369 | 504,441 | 989,009 | |||||||||||||||||||||
Freight out | 57,165 | 39,850 | 193,141 | 127,812 | |||||||||||||||||||||
Inventory valuation allowances | 254,943 | 122,000 | 323,943 | 197,000 | |||||||||||||||||||||
Other inventory adjustments | (8,155 | ) | 22,701 | 114,414 | 48,893 | ||||||||||||||||||||
Cost of goods sold | $ | 3,268,803 | $ | 3,805,227 | $ | 12,256,826 | $ | 10,076,520 | |||||||||||||||||
The Company’s net inventories by product line maintained in the parent entity’s wholesale distribution segment are as follows: | |||||||||||||||||||||||||
September 30, | December 31, | ||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Loose jewels | |||||||||||||||||||||||||
Raw materials | $ | 4,460,081 | $ | 3,311,375 | |||||||||||||||||||||
Work-in-process | 6,268,709 | 9,526,769 | |||||||||||||||||||||||
Finished goods | 22,256,573 | 20,002,881 | |||||||||||||||||||||||
Finished goods on consignment | 102,545 | 32,948 | |||||||||||||||||||||||
Total | $ | 33,087,908 | $ | 32,873,973 | |||||||||||||||||||||
Finished jewelry | |||||||||||||||||||||||||
Raw materials | $ | 275,070 | $ | 270,043 | |||||||||||||||||||||
Work-in-process | 597,833 | 764,355 | |||||||||||||||||||||||
Finished goods | 6,620,708 | 8,117,035 | |||||||||||||||||||||||
Finished goods on consignment | 504,221 | 299,514 | |||||||||||||||||||||||
Total | $ | 7,997,832 | $ | 9,450,947 | |||||||||||||||||||||
Supplies inventories of approximately $63,000 and $87,000 at September 30, 2014 and December 31, 2013, respectively, included in finished goods inventories in the condensed 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 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 United States (“U.S.”) retailers. Sales to international end consumers made by the Company’s direct-to-consumer distribution segment 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: | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||
Net sales | |||||||||||||||||||||||||
United States | $ | 3,502,180 | $ | 3,852,627 | $ | 16,478,654 | $ | 14,338,094 | |||||||||||||||||
International | 1,019,714 | 3,005,625 | 1,952,440 | 5,537,732 | |||||||||||||||||||||
Total | $ | 4,521,894 | $ | 6,858,252 | $ | 18,431,094 | $ | 19,875,826 | |||||||||||||||||
September 30, | December 31, | ||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Property and equipment, net | |||||||||||||||||||||||||
United States | $ | 1,983,865 | $ | 1,717,692 | |||||||||||||||||||||
International | - | - | |||||||||||||||||||||||
Total | $ | 1,983,865 | $ | 1,717,692 | |||||||||||||||||||||
September 30, | December 31, | ||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Intangible assets, net | |||||||||||||||||||||||||
United States | $ | 46,150 | $ | 70,830 | |||||||||||||||||||||
International | 212,709 | 255,037 | |||||||||||||||||||||||
Total | $ | 258,859 | $ | 325,867 |
FAIR_VALUE_MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended | ||
Sep. 30, 2014 | |||
FAIR VALUE MEASUREMENTS [Abstract] | ' | ||
FAIR VALUE MEASUREMENTS | ' | ||
4 | FAIR VALUE MEASUREMENTS | ||
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy consists of three levels based on the reliability of inputs, as follows: | |||
· | Level 1 - quoted prices in active markets for identical assets and liabilities | ||
· | Level 2 - inputs other than Level 1 quoted prices that are directly or indirectly observable | ||
· | Level 3 - unobservable inputs that are not corroborated by market data | ||
The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by management of the Company. The instruments identified as subject to fair value measurements on a recurring basis are cash and cash equivalents, trade accounts receivable, trade accounts payable, and accrued expenses. All instruments are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these instruments. |
INVENTORIES
INVENTORIES | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
INVENTORIES [Abstract] | ' | ||||||||
INVENTORIES | ' | ||||||||
5 | INVENTORIES | ||||||||
Assets that are measured at fair value on a non-recurring basis include property and equipment, leasehold improvements, and intangible assets, comprising patents, license rights, and trademarks. These items are recognized at fair value when they are considered to be impaired. Level 3 inputs are primarily based on the estimated future cash flows of the asset determined by market inquiries to establish fair market value of used machinery or future revenue expected to be generated with the assistance of patents, license rights, and trademarks. | |||||||||
The Company’s total inventories, net of reserves, consisted of the following as of September 30, 2014 and December 31, 2013: | |||||||||
September 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Raw materials | $ | 4,735,151 | $ | 3,581,418 | |||||
Work-in-process | 6,866,542 | 10,291,124 | |||||||
Finished goods | 29,820,837 | 28,771,098 | |||||||
Finished goods on consignment | 645,766 | 407,462 | |||||||
Less inventory reserves | (920,000 | ) | (639,000 | ) | |||||
Total | $ | 41,148,296 | $ | 42,412,102 | |||||
Current portion | $ | 15,833,756 | $ | 13,074,428 | |||||
Long-term portion | 25,314,540 | 29,337,674 | |||||||
Total | $ | 41,148,296 | $ | 42,412,102 | |||||
Inventories are stated at the lower of cost or market on an average cost basis. Inventory costs include direct material and labor, inbound freight, purchasing and receiving costs, inspection costs, and warehousing costs. Any inventory on hand at the measurement date in excess of the Company’s current requirements based on historical and anticipated levels of sales is classified as long-term on the Company’s consolidated balance sheets. The Company’s classification of long-term inventory requires it to estimate the portion of on-hand inventory that can be realized over the next 12 months and does not include precious metal, labor, and other inventory purchases expected to be both purchased and realized over the next 12 months. | |||||||||
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 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 September 30, 2014 and December 31, 2013, work-in-process inventories issued to active production jobs approximated $1.92 million and $4.09 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 has very small market penetration in the worldwide jewelry market, and the Company has the exclusive right in the U.S. through mid-2015 and in many other countries through mid-2016 to produce and sell created SiC for use in jewelry applications. In view of the foregoing factors, management has concluded that no excess or obsolete loose jewel inventory reserve requirements existed as of September 30, 2014. | |||||||||
In 2010, the Company began manufacturing 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. The majority of the Company’s finished jewelry featuring moissanite is held in inventory for resale and consists of such basic designs as stud earrings, solitaire and three-stone rings, pendants, and bracelets that tend not to be subject to significant obsolescence risk due to their classic styling. In addition, the Company manufactures small individual quantities of designer-inspired moissanite fashion jewelry as part of its sample line that are used in the selling process to its wholesale customers. | |||||||||
In 2011, the Company began purchasing fashion finished jewelry comprised of base metals and non-precious gemstones for sale through Lulu Avenue®, the direct-to-consumer home party division of the Company’s wholly owned operating subsidiary, Charles & Colvard Direct, LLC. This finished jewelry is fashion oriented and subject to styling trends that may change with each catalog season, of which there are several each year. Typically in the jewelry industry, slow-moving or discontinued lines are sold as closeouts or liquidated in alternative sales channels. The Company reviews the finished jewelry inventory on an ongoing basis for any lower of cost or market and obsolescence issues. The Company identified certain fashion finished jewelry inventory that could not be sold due to damage or branding issues and established an obsolescence reserve of $225,000 as of September 30, 2014 and $128,000 as of December 31, 2013, for the carrying costs in excess of any estimated scrap values. As of September 30, 2014, the Company identified certain finished jewelry featuring moissanite that was obsolete and established an obsolescence reserve of $66,000 for the carrying costs in excess of any estimated scrap values. | |||||||||
Periodically, the Company ships finished goods inventory to wholesale 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. Finished goods on consignment at September 30, 2014 and December 31, 2013 are net of shrinkage reserves of $39,000 and $75,000, respectively, to allow for certain loose jewels and finished jewelry on consignment with wholesale 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. | |||||||||
Total net loose jewel inventories at September 30, 2014 and December 31, 2013, including inventory on consignment net of reserves, were $33.09 million and $32.87 million, respectively. The loose jewel inventories at September 30, 2014 and December 31, 2013 include shrinkage reserves of $0 and $2,000, respectively, with $3,000 and $0 of shrinkage reserves on inventory on consignment at September 30, 2014 and December 31, 2013, respectively. Loose jewel inventories at September 30, 2014 and December 31, 2013 also include recuts reserves of $224,000 and $172,000, respectively. | |||||||||
Total net jewelry inventories at September 30, 2014 and December 31, 2013, including inventory on consignment net of reserves, finished jewelry featuring moissanite manufactured by the Company since entering the finished jewelry business in 2010, and fashion finished jewelry purchased by the Company for sale through Lulu Avenue®, were $8.00 million and $9.45 million, respectively. Jewelry inventories consist primarily of finished goods, a portion of which the Company acquired as part of a January 2009 settlement agreement with a former manufacturer customer to reduce the outstanding receivable to the Company. Due to the lack of a plan to market this inventory at that time, a jewelry inventory reserve was established to reduce the majority of the acquired jewelry inventory value to scrap value, or the amount the Company would expect to obtain by melting the gold in the jewelry and returning to loose-jewel finished goods inventory those jewels that meet grading standards. The scrap reserve established for this acquired inventory at the time of the agreement is adjusted at each reporting period for the market price of gold and has generally declined as the associated jewelry is sold down. At September 30, 2014, the balance increased to $118,000 from $106,000 at December 31, 2013 as a result of a sales return, offset in part by sell down of the inventory during the quarter. Because the finished jewelry the Company began manufacturing in 2010 after it entered that business was made pursuant to an operational plan to market and sell the inventory, it is not subject to this reserve. The finished jewelry inventories at September 30, 2014 and December 31, 2013 also include shrinkage reserves of $144,000 and $180,000, respectively, including shrinkage reserves of $36,000 and $75,000 on inventory on consignment, respectively; and a repairs reserve of $140,000 and $51,000, respectively. | |||||||||
The need for adjustments to inventory reserves is evaluated on a period-by-period basis. |
INCOME_TAXES
INCOME TAXES | 9 Months Ended | |
Sep. 30, 2014 | ||
INCOME TAXES [Abstract] | ' | |
INCOME TAXES | ' | |
6 | INCOME TAXES | |
The Company recognized an income tax net expense of approximately $3,000 for the three months ended September 30, 2014 compared to an income tax net expense of approximately $89,000 for the three months ended September 30, 2013. The Company recognized an income tax net expense of $4.05 million for the nine months ended September 30, 2014 compared to an income tax net benefit of $49,000 for the nine months ended September 30, 2013. | ||
As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax assets. The Company’s management determined that sufficient positive evidence existed as of December 31, 2013 to conclude that it is more likely than not that deferred tax assets of $4.04 million were realizable. A valuation allowance remained at December 31, 2013 against certain deferred tax assets relating to state net operating loss carryforwards from the Company’s e-commerce and home party operating subsidiaries due to the timing uncertainty of when the subsidiaries will generate cumulative positive taxable income to utilize the associated deferred tax assets. A valuation allowance also remained at December 31, 2013 against certain deferred tax assets relating to investment loss carryforwards because the Company’s management does not anticipate it will generate sufficient investment income to utilize the carryforwards. The Company’s management also previously considered various strategic alternatives, resulting in management determining that a valuation allowance was not necessary at that time. During the nine months ended September 30, 2014, the Company’s management determined that such strategic alternatives were no longer in the Company’s best interest. Accordingly, the Company’s management concluded that the positive evidence was no longer sufficient to offset available negative evidence, primarily as a result of the pre-tax operating loss for the nine months ended September 30, 2014. As a result, the Company’s management concluded that it was uncertain that the Company would have sufficient future taxable income to utilize its deferred tax assets, and therefore, the Company established a valuation allowance against its deferred tax assets, resulting in a tax expense of $4.05 million for the nine months ended September 30, 2014. During the three and nine months ended September 30, 2014, the Company also recognized approximately $3,000 and $9,000, respectively, of income tax expense for estimated tax, penalties, and interest associated with uncertain tax positions. | ||
For the three months ended September 30, 2013, the Company recognized $89,000 of current period income tax expense, offsetting an income tax benefit recorded in the first half of 2013 of approximately $138,000. The resulting income tax net benefit of $49,000 for the nine months ended September 30, 2013 represents an effective tax rate of 1.6% on the year-to-date pre-tax book loss. The effective tax rate for the nine months ended September 30, 2013 differs from the federal statutory rate of 34.0% primarily due to the impact of state income taxes, stock-based compensation expense that is not deductible for tax purposes, and other book-to-tax reconciling items. This effective tax rate decreased from December 31, 2012 due to anticipation of lower taxable income in 2013, despite an additional $7,000 of income tax expense that was accrued and paid in the first quarter of 2013 related to the prior tax year, primarily for adjustment of the federal alternative minimum tax. Additionally, during the three months ended September 30, 2013 the Company paid $1,000 with a state tax filing for 2012 that was in excess of estimated payments. The Company recorded approximately $129,000 of income tax expense during the three months ended September 30, 2013 to reflect lower anticipated taxable income for the full year than had been previously estimated, which reduced the tax benefit for the nine months ended September 30, 2013 to $18,000. In addition, the Company recorded $44,000 and $48,000 of income tax benefit for discrete permanent tax deduction differences during the three and nine months ended September 30, 2013 and approximately $3,000 and $9,000 of income tax expense for estimated tax, penalties, and interest associated with uncertain tax positions during the three and nine months ended September 30, 2013, respectively. |
COMMITMENTS_AND_CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended | ||||
Sep. 30, 2014 | |||||
COMMITMENTS AND CONTINGENCIES [Abstract] | ' | ||||
COMMITMENTS AND CONTINGENCIES | ' | ||||
7 | COMMITMENTS AND CONTINGENCIES | ||||
Lease Commitments | |||||
In March 2004, the Company entered into a seven-year lease, beginning in August 2004, for approximately 16,500 square feet of mixed-use space from an unaffiliated third party at a base cost with escalations throughout the lease term plus additional common-area expenses based on the Company’s proportionate share of the lessor’s operating costs. The lease provided for two rent holidays, during which no rent was payable, and a moving allowance. In January 2011, the Company amended the lease effective January 1, 2011 to extend the term through January 2017 in exchange for a reduced rental rate and 50% rent abatement in the first 12 months of the extended term. The amended lease included 3% annual rent escalations and a one-time option to terminate the lease effective as of July 31, 2014. The Company exercised this right to terminate the lease by giving notice to the lessor prior to October 31, 2013. The cost to terminate the lease effective July 31, 2014 was approximately $112,000, which the Company paid at the time notice was given to terminate the lease. This amount reflects all unamortized lease transaction costs, including, without limitation, all rent abated since January 1, 2011, plus two months’ rent at the then-current rental rate. On December 9, 2013, the Company entered into a Lease Agreement, as amended on December 23, 2013 and April 15, 2014 (the “Lease Agreement”), for a new corporate headquarters, which occupies approximately 36,350 square feet of office, storage, and light manufacturing space. The Company took possession of the leased property on May 23, 2014 once certain improvements to the leased space were completed. These improvements and other lease signing and moving incentives offered by the landlord totaled approximately $550,000 and $73,000, respectively, which will be amortized over the life of the lease. Included in the Lease Agreement is a seven-month rent abatement period effective June 2014 through December 2014. | |||||
The Company recognizes rent expense on a straight-line basis, giving consideration to the rent holidays and escalations, the lease signing and moving allowance to be paid to the Company, and the rent abatement. | |||||
As of September 30, 2014, the Company’s future minimum payments under the operating leases were as follows: | |||||
2014 | $ | - | |||
2015 | 553,905 | ||||
2016 | 569,138 | ||||
2017 | 584,789 | ||||
2018 | 600,871 | ||||
Thereafter | 1,793,725 | ||||
Total | $ | 4,102,428 | |||
Rent expense for the three months ended September 30, 2014 and 2013 was approximately $134,000 and $55,000, respectively. Rent expense for the nine months ended September 30, 2014 and 2013 was approximately $249,000 and $188,000, respectively. | |||||
Purchase Commitments | |||||
On June 6, 1997, the Company entered into an amended and restated exclusive supply agreement with Cree, Inc. (“Cree”). The exclusive supply agreement had an initial term of ten years that was extended in January 2005 to July 2015. In connection with the amended and restated exclusive supply agreement, the Company has committed to purchase from Cree a minimum of 50%, by dollar volume, of its raw material SiC crystal requirements. If the Company’s orders require Cree to expand beyond specified production levels, the Company must commit to purchase certain minimum quantities. Effective February 8, 2013, the Company entered into an amendment to a prior letter agreement with Cree, which provides a framework for the Company’s purchases of SiC crystals under the amended and restated exclusive supply agreement. Pursuant to this amendment, the Company agreed to purchase at least $4.00 million of SiC crystals in an initial new order. After the initial new order, the Company has agreed to issue non-cancellable, quarterly orders that must equal or exceed a set minimum order quantity. The total purchase commitment under the amendment until July 2015, including the initial new order, is dependent upon the grade of the material and ranges between approximately $7.64 million and approximately $18.56 million. During the nine months ended September 30, 2014 and 2013, the Company purchased approximately $4.62 million and $9.54 million, respectively, of SiC crystals under the exclusive supply agreement. |
LINE_OF_CREDIT
LINE OF CREDIT | 9 Months Ended | |
Sep. 30, 2014 | ||
LINE OF CREDIT [Abstract] | ' | |
LINE OF CREDIT | ' | |
8 | LINE OF CREDIT | |
On September 20, 2013, the Company obtained a $10,000,000 revolving line of credit (the “Line of Credit”) from PNC Bank, National Association (“PNC Bank”) for general corporate and working capital purposes. The Line of Credit was evidenced by a Committed Line of Credit Note, dated September 20, 2013 (the “Note”), which was set to mature on June 15, 2015. The interest rate under the Note was the one-month LIBOR rate (adjusted daily) plus 1.50%, calculated on an actual/360 basis. | ||
The Line of Credit was also governed by a loan agreement, dated September 20, 2013 (the “Loan Agreement”) and was guaranteed by Charles & Colvard Direct, LLC, and Moissanite.com, LLC. The Line of Credit was secured by a lien on substantially all assets of the Company and its subsidiaries. | ||
Effective June 25, 2014, the Line of Credit was terminated concurrent with the Company entering into a new banking relationship with Wells Fargo Bank, National Association (“Wells Fargo”). The Company had not utilized the Line of Credit. The Company recognized the remaining $19,000 of deferred legal expenses associated with this Line of Credit upon termination. | ||
On June 25, 2014, the Company and its wholly owned subsidiaries, Charles & Colvard Direct, LLC, and Moissanite.com, LLC (collectively, the “Borrowers”), obtained a $10,000,000 asset-based revolving credit facility (the “Credit Facility”) from Wells Fargo. The Credit Facility will be used for general corporate and working capital purposes, including transaction fees and expenses incurred in connection therewith and the issuance of letters of credit up to a $1,000,000 sublimit. The Credit Facility will mature on June 25, 2017. | ||
The Credit Facility includes a $5,000,000 sublimit for advances that are supported by a 90% guaranty provided by the U.S. Export-Import Bank. Advances under the Credit Facility are limited to a borrowing base, which is computed by applying specified advance rates to the value of the Borrowers’ eligible accounts and inventory, less reserves. Advances against inventory are further subject to an initial $3,000,000 maximum. The Borrowers must maintain a minimum of $1,000,000 in excess availability at all times. There are no other financial covenants. | ||
Each advance accrues interest at a rate equal to Wells Fargo’s 3-month LIBOR rate plus 2.50%, calculated on an actual/360 basis and payable monthly in arrears. Principal outstanding during an event of default accrues interest at a rate of 3% in excess of the above rate. Any advance may be prepaid in whole or in part at any time. In addition, the maximum line amount may be reduced by the Company in whole or part at any time, subject to a fee equal to 2% of any reduction in the first year after closing, 1% of any reduction in the second year after closing, and 0% thereafter. There are no mandatory prepayments or line reductions. | ||
The Credit Facility is secured by a lien on substantially all assets of the Borrowers, each of which is jointly and severally liable for all obligations thereunder. | ||
The Credit Facility is evidenced by a credit and security agreement, dated as of June 25, 2014 (the “Credit Agreement”), and customary ancillary documents. The Credit Agreement contains customary covenants, representations and cash dominion provisions, including a financial reporting covenant and limitations on dividends, distributions, debt, contingent obligations, liens, loans, investments, mergers, acquisitions, divestitures, subsidiaries, affiliate transactions, and changes in control. | ||
Events of default under the Credit Facility include, without limitation, (1) any impairment of the Export-Import Bank guaranty, unless the guaranteed advances are repaid within two business days, (2) an event of default under any other indebtedness of the Borrowers in excess of $200,000, and (3) a material adverse change in the ability of the Borrowers to perform their obligations under the Credit Agreement or in the Borrowers’ assets, liabilities, businesses or prospects, or other circumstances that Wells Fargo believes may impair the prospect of repayment. If an event of default occurs, Wells Fargo is entitled to take enforcement action, including acceleration of amounts due under the Credit Agreement and foreclosure upon collateral. | ||
The Credit Agreement contains other customary terms, including indemnity, expense reimbursement, yield protection, and confidentiality provisions. Wells Fargo is permitted to assign the Credit Facility. | ||
As of September 30, 2014, the Company had not borrowed against the Credit Facility. |
STOCKBASED_COMPENSATION
STOCK-BASED COMPENSATION | 9 Months Ended | ||||||||||||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||||||||||||
STOCK- BASED COMPENSATION [Abstract] | ' | ||||||||||||||||||||||||||||||||||
STOCK- BASED COMPENSATION | ' | ||||||||||||||||||||||||||||||||||
9 | STOCK-BASED COMPENSATION | ||||||||||||||||||||||||||||||||||
The following table summarizes the components of the Company’s stock-based compensation included in net loss: | |||||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
Employee stock options | $ | 271,888 | $ | 246,771 | $ | 664,310 | $ | 547,268 | |||||||||||||||||||||||||||
Restricted stock awards | 207,526 | 202,419 | 625,594 | 645,555 | |||||||||||||||||||||||||||||||
Income tax (benefit) expense | (150,846 | ) | 190,855 | (218,543 | ) | (10,329 | ) | ||||||||||||||||||||||||||||
Totals | $ | 328,568 | $ | 640,045 | $ | 1,071,361 | $ | 1,182,494 | |||||||||||||||||||||||||||
No stock-based compensation was capitalized as a cost of inventory during the three and nine months ended September 30, 2014 and 2013. | |||||||||||||||||||||||||||||||||||
Stock Options - The following is a summary of the stock option activity for the nine months ended September 30, 2014: | |||||||||||||||||||||||||||||||||||
Shares | Weighted | ||||||||||||||||||||||||||||||||||
Average | |||||||||||||||||||||||||||||||||||
Exercise Price | |||||||||||||||||||||||||||||||||||
Outstanding, December 31, 2013 | 1,204,297 | $ | 3.14 | ||||||||||||||||||||||||||||||||
Granted | 495,000 | $ | 2.56 | ||||||||||||||||||||||||||||||||
Exercised | - | $ | - | ||||||||||||||||||||||||||||||||
Forfeited | (30,775 | ) | $ | 2.51 | |||||||||||||||||||||||||||||||
Expired | (37,576 | ) | $ | 3.84 | |||||||||||||||||||||||||||||||
Outstanding, September 30, 2014 | 1,630,946 | $ | 2.96 | ||||||||||||||||||||||||||||||||
The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2014 was $1.78. The total fair value of stock options that vested during the nine months ended September 30, 2014 was approximately $727,000. The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions for stock options granted during the nine months ended September 30, 2014: | |||||||||||||||||||||||||||||||||||
Dividend yield | 0 | % | |||||||||||||||||||||||||||||||||
Expected volatility | 92.9 | % | |||||||||||||||||||||||||||||||||
Risk-free interest rate | 1.65 | % | |||||||||||||||||||||||||||||||||
Expected lives (years) | 5 | ||||||||||||||||||||||||||||||||||
Although the Company issued dividends in prior years, a dividend yield of zero was used due to the uncertainty of future dividend payments. Volatility is a measure of the amount by which a financial variable such as share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company estimates expected volatility giving primary consideration to the historical volatility of its common stock. The risk-free interest rate is based on the published yield available on U.S. Treasury issues with an equivalent term remaining equal to the expected life of the stock option. The expected lives of the stock options represent the estimated period of time until exercise or forfeiture and are based on historical experience of similar awards. | |||||||||||||||||||||||||||||||||||
The following table summarizes information about stock options outstanding at September 30, 2014: | |||||||||||||||||||||||||||||||||||
Options Outstanding | Options Exercisable | Options Vested or Expected to Vest | |||||||||||||||||||||||||||||||||
Balance | Weighted | Weighted | Balance | Weighted | Weighted | Balance | Weighted | Weighted | |||||||||||||||||||||||||||
as of | Average | Average | as of | Average | Average | as of | Average | Average | |||||||||||||||||||||||||||
9/30/14 | Remaining | Exercise | 9/30/14 | Remaining | Exercise | 9/30/14 | Remaining | Exercise | |||||||||||||||||||||||||||
Contractual | Price | Contractual | Price | Contractual | Price | ||||||||||||||||||||||||||||||
Life | Life | Life | |||||||||||||||||||||||||||||||||
(Years) | (Years) | (Years) | |||||||||||||||||||||||||||||||||
1,630,946 | 7.83 | $ | 2.96 | 1,012,453 | 7.01 | $ | 2.73 | 1,543,723 | 7.74 | $ | 2.95 | ||||||||||||||||||||||||
As of September 30, 2014, the unrecognized stock-based compensation expense related to unvested stock options was approximately $1.06 million, which is expected to be recognized over a weighted average period of approximately 25 months. | |||||||||||||||||||||||||||||||||||
The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at September 30, 2014 were each approximately $357,000. This amount is before applicable income taxes and represents the closing market price of the Company’s common stock at September 30, 2014 less the grant price, multiplied by the number of stock options that had a grant price that is less than the closing market price. This amount represents the amount that would have been received by the optionees had these stock options been exercised on that date. During the three and nine months ended September 30, 2014, no stock options were exercised. | |||||||||||||||||||||||||||||||||||
Restricted Stock - The following is a summary of the restricted stock activity for the nine months ended September 30, 2014: | |||||||||||||||||||||||||||||||||||
Shares | Weighted | ||||||||||||||||||||||||||||||||||
Average | |||||||||||||||||||||||||||||||||||
Grant Date | |||||||||||||||||||||||||||||||||||
Fair Value | |||||||||||||||||||||||||||||||||||
Unvested, December 31, 2013 | 350,903 | $ | 4.26 | ||||||||||||||||||||||||||||||||
Granted | 160,032 | $ | 2.22 | ||||||||||||||||||||||||||||||||
Vested | (209,916 | ) | $ | 4.12 | |||||||||||||||||||||||||||||||
Canceled | - | $ | - | ||||||||||||||||||||||||||||||||
Unvested, September 30, 2014 | 301,019 | $ | 3.27 | ||||||||||||||||||||||||||||||||
As of September 30, 2014, the unrecognized stock-based compensation expense related to unvested restricted stock was approximately $755,000, which is expected to be recognized over a weighted average period of approximately 15 months. | |||||||||||||||||||||||||||||||||||
Dividends - The Company has not paid any cash dividends in the current year through September 30, 2014. |
NET_LOSS_PER_COMMON_SHARE
NET LOSS PER COMMON SHARE | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
NET LOSS PER COMMON SHARE [Abstract] | ' | ||||||||||||||||
NET LOSS PER COMMON SHARE | ' | ||||||||||||||||
10 | NET LOSS PER COMMON SHARE | ||||||||||||||||
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted net loss per common share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the periods. Common equivalent shares consist of stock options that are computed using the treasury stock method. Antidilutive stock awards are comprised of stock options and unvested restricted shares which would have been antidilutive in the application of the treasury stock method in accordance with the “Earnings Per Share” topic of the Financial Accounting Standard Board Accounting Standards Codification. | |||||||||||||||||
The following table reconciles the differences between the basic and diluted earnings per share presentations: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Numerator: | |||||||||||||||||
Net loss | $ | (3,065,460 | ) | $ | (1,210,702 | ) | $ | (10,322,937 | ) | $ | (1,396,014 | ) | |||||
Denominator: | |||||||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 20,357,333 | 20,001,543 | 20,272,897 | 19,825,532 | |||||||||||||
Stock options | - | - | - | - | |||||||||||||
Fully diluted | 20,357,333 | 20,001,543 | 20,272,897 | 19,825,532 | |||||||||||||
Net loss per common share: | |||||||||||||||||
Basic | $ | (0.15 | ) | $ | (0.06 | ) | $ | (0.51 | ) | $ | (0.07 | ) | |||||
Diluted | $ | (0.15 | ) | (0.06 | ) | $ | (0.51 | ) | $ | (0.07 | ) | ||||||
For each of the three and nine months ended September 30, 2014, stock options to purchase approximately 1.63 million shares were excluded from the computation of diluted net loss per common share because the exercise price of the stock options was greater than the average market price of the common shares or the effect of inclusion of such amounts would be anti-dilutive to net loss per common share. For each of the three and nine months ended September 30, 2013, stock options to purchase approximately 1.20 million shares were excluded from the computation of diluted net loss per common share because the exercise price of the stock options was greater than the average market price of the common shares or the effect of inclusion of such amounts would be anti-dilutive to net loss per common share. |
MAJOR_CUSTOMERS_AND_CONCENTRAT
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | ' | ||||||||||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | ' | ||||||||||||||||
11 | MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | ||||||||||||||||
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and trade accounts receivable. The Company maintains cash and cash equivalents and investments with high-quality financial institutions and invests in low-risk securities, primarily money market funds or long-term U.S. government agency obligations. At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurable limits of $250,000 per depositor at each financial institution. Amounts on deposit in excess of FDIC insurable limits at September 30, 2014 and December 31, 2013 approximated $2.38 million and $270,000, respectively. | |||||||||||||||||
Trade receivables potentially subject the Company to credit risk. The Company’s standard wholesale customer payment terms on trade receivables are generally between 30 and 90 days, though it may offer extended terms with specific customers and on significant orders from time to time. The Company believes its competitors and other vendors in the wholesale jewelry industry have also expanded their use of extended payment terms and, in aggregate, the Company believes that by expanding its use of extended payment terms, it has provided a competitive response in its market and that its net sales have been favorably impacted. The Company is unable to estimate the impact of this program on its net sales, but if it ceased providing extended payment terms in select instances, the Company believes it would not be competitive for some wholesale customers in the marketplace and that its net sales and profits would likely decrease. The Company extends credit to its customers based upon a number of factors, including an evaluation of the customer’s financial condition and credit history, the customer’s payment history with the Company, the customer’s reputation in the trade, and/or an evaluation of the Company’s opportunity to introduce its moissanite jewels or finished jewelry featuring moissanite to new or expanded markets. Collateral is not generally required from customers. The need for an allowance for doubtful accounts is determined based upon factors surrounding the credit risk of specific customers, historical trends, and other information. The Company has increased its allowance for doubtful accounts by approximately $800,000 due to one customer that has become past due on its payment arrangement. | |||||||||||||||||
As of September 30, 2014 and December 31, 2013, one customer accounted for 30% and 21%, respectively, of trade accounts receivable. No other customers accounted for more than 10% of trade accounts receivable at December 31, 2013. As of September 30, 2014, one other customer accounted for 12% of trade accounts receivable. | |||||||||||||||||
A significant portion of sales is derived from certain customer relationships. The following is a summary of customers that represent greater than or equal to 10% of total gross sales: | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Customer A | 27 | % | 17 | % | 29 | % | 16 | % | |||||||||
Customer B | 0 | % | 19 | % | 0 | % | 7 | % | |||||||||
Customer C | 0 | % | 17 | % | 0 | % | 8 | % | |||||||||
Customer D | 3 | % | 7 | % | 11 | % | 8 | % | |||||||||
Customer E | 13 | % | 1 | % | 3 | % | 1 | % | |||||||||
Customer F | 1 | % | 9 | % | 13 | % | 8 | % |
BASIS_OF_PRESENTATION_AND_SIGN1
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2014 | |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ' |
Basis of Presentation and Principles of Consolidation | ' |
Basis of Presentation and Principles of Consolidation - The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. However, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, the unaudited statements in this Quarterly Report on Form 10-Q include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014. | |
The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2014 and 2013 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2013 is derived from the audited financial statements as of that date. The accompanying statements should be read in conjunction with the audited financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 27, 2014 (the “2013 Annual Report”). | |
The accompanying condensed consolidated financial statements as of and for the three and nine months ended September 30, 2014 and 2013 include the accounts of the Company and its wholly owned subsidiaries Moissanite.com, LLC, formed in 2011; Charles & Colvard Direct, LLC, formed in 2011; and Charles & Colvard (HK) Ltd., the Company’s Hong Kong subsidiary that became a dormant entity in the second quarter of 2009 and the operations of which ceased in 2008. All intercompany accounts have been eliminated. | |
Use of Estimates | ' |
Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates impacting the Company’s condensed consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, deferred tax assets, uncertain tax positions, stock compensation expense, and cooperative advertising. Actual results could differ materially from those estimates. | |
Reclassifications | ' |
Reclassifications - Certain amounts in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current year presentation. | |
Recently Adopted/Issued Accounting Pronouncements | ' |
Recently Adopted/Issued Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. | |
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard in 2017. |
SEGMENT_INFORMATION_AND_GEOGRA1
SEGMENT INFORMATION AND GEOGRAPHIC DATA (Tables) | 9 Months Ended | ||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | ' | ||||||||||||||||||||||||
Summary information by segment | ' | ||||||||||||||||||||||||
Summary financial information by reporting segment is as follows: | |||||||||||||||||||||||||
Three Months Ended September 30, | |||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Wholesale | Direct-to- | Total | Wholesale | Direct-to- | Total | ||||||||||||||||||||
Consumer | Consumer | ||||||||||||||||||||||||
Net sales | |||||||||||||||||||||||||
Loose jewels | $ | 2,164,134 | $ | 160,100 | $ | 2,324,234 | $ | 4,744,308 | $ | 77,011 | $ | 4,821,319 | |||||||||||||
Finished jewelry | 1,282,122 | 915,538 | 2,197,660 | 1,610,485 | 426,448 | 2,036,933 | |||||||||||||||||||
Total | $ | 3,446,256 | $ | 1,075,638 | $ | 4,521,894 | $ | 6,354,793 | $ | 503,459 | $ | 6,858,252 | |||||||||||||
Product line cost of goods sold | |||||||||||||||||||||||||
Loose jewels | $ | 1,392,197 | $ | 32,121 | $ | 1,424,318 | $ | 2,214,152 | $ | 16,878 | $ | 2,231,030 | |||||||||||||
Finished jewelry | 1,091,012 | 356,246 | 1,447,258 | 795,711 | 213,566 | 1,009,277 | |||||||||||||||||||
Total | $ | 2,483,209 | $ | 388,367 | $ | 2,871,576 | $ | 3,009,863 | $ | 230,444 | $ | 3,240,307 | |||||||||||||
Product line gross profit | |||||||||||||||||||||||||
Loose jewels | $ | 771,937 | $ | 127,979 | $ | 899,916 | $ | 2,530,156 | $ | 60,133 | $ | 2,590,289 | |||||||||||||
Finished jewelry | 191,110 | 559,292 | 750,402 | 814,774 | 212,882 | 1,027,656 | |||||||||||||||||||
Total | $ | 963,047 | $ | 687,271 | $ | 1,650,318 | $ | 3,344,930 | $ | 273,015 | $ | 3,617,945 | |||||||||||||
Operating (loss) income | $ | (1,803,857 | ) | $ | (1,257,929 | ) | $ | (3,061,786 | ) | $ | 175,342 | $ | (1,302,427 | ) | $ | (1,127,085 | ) | ||||||||
Depreciation and amortization | $ | 191,640 | $ | 81,274 | $ | 272,914 | $ | 108,763 | $ | 91,222 | $ | 199,985 | |||||||||||||
Capital expenditures | $ | 50,840 | $ | - | $ | 50,840 | $ | 452,288 | $ | 18,600 | $ | 470,888 | |||||||||||||
Nine Months Ended September 30, | |||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Wholesale | Direct-to- | Total | Wholesale | Direct-to- | Total | ||||||||||||||||||||
Consumer | Consumer | ||||||||||||||||||||||||
Net sales | |||||||||||||||||||||||||
Loose jewels | $ | 9,534,727 | $ | 480,500 | $ | 10,015,227 | $ | 13,022,685 | $ | 221,957 | $ | 13,244,642 | |||||||||||||
Finished jewelry | 5,914,391 | 2,501,476 | 8,415,867 | 5,244,474 | 1,386,710 | 6,631,184 | |||||||||||||||||||
Total | $ | 15,449,118 | $ | 2,981,976 | $ | 18,431,094 | $ | 18,267,159 | $ | 1,608,667 | $ | 19,875,826 | |||||||||||||
Product line cost of goods sold | |||||||||||||||||||||||||
Loose jewels | $ | 5,208,277 | $ | 79,739 | $ | 5,288,016 | $ | 5,264,563 | $ | 35,420 | $ | 5,299,983 | |||||||||||||
Finished jewelry | 4,748,828 | 1,084,043 | 5,832,871 | 2,726,789 | 687,034 | 3,413,823 | |||||||||||||||||||
Total | $ | 9,957,105 | $ | 1,163,782 | $ | 11,120,887 | $ | 7,991,352 | $ | 722,454 | $ | 8,713,806 | |||||||||||||
Product line gross profit | |||||||||||||||||||||||||
Loose jewels | $ | 4,326,450 | $ | 400,761 | $ | 4,727,211 | $ | 7,758,122 | $ | 186,537 | $ | 7,944,659 | |||||||||||||
Finished jewelry | 1,165,563 | 1,417,433 | 2,582,996 | 2,517,685 | 699,676 | 3,217,361 | |||||||||||||||||||
Total | $ | 5,492,013 | $ | 1,818,194 | $ | 7,310,207 | $ | 10,275,807 | $ | 886,213 | $ | 11,162,020 | |||||||||||||
Operating (loss) income | $ | (2,936,998 | ) | $ | (3,336,219 | ) | $ | (6,273,217 | ) | $ | 2,443,939 | $ | (3,907,808 | ) | $ | (1,463,869 | ) | ||||||||
Depreciation and amortization | $ | 585,333 | $ | 276,325 | $ | 861,658 | $ | 301,618 | $ | 283,116 | $ | 584,734 | |||||||||||||
Capital expenditures | $ | 1,007,506 | $ | - | $ | 1,007,506 | $ | 641,694 | $ | 31,894 | $ | 673,588 | |||||||||||||
30-Sep-14 | 31-Dec-13 | ||||||||||||||||||||||||
Wholesale | Direct-to- | Total | Wholesale | Direct-to- | Total | ||||||||||||||||||||
Consumer | Consumer | ||||||||||||||||||||||||
Total assets | $ | 52,632,244 | $ | 234,981 | $ | 52,867,225 | $ | 61,702,449 | $ | 621,403 | $ | 62,323,852 | |||||||||||||
Schedule of reconciliation of product line cost of goods sold to cost of goods sold as reported in consolidated financial statements | ' | ||||||||||||||||||||||||
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||
Product line cost of goods sold | $ | 2,871,576 | $ | 3,240,307 | $ | 11,120,887 | $ | 8,713,806 | |||||||||||||||||
Non-capitalized manufacturing and production control expenses | 93,274 | 380,369 | 504,441 | 989,009 | |||||||||||||||||||||
Freight out | 57,165 | 39,850 | 193,141 | 127,812 | |||||||||||||||||||||
Inventory valuation allowances | 254,943 | 122,000 | 323,943 | 197,000 | |||||||||||||||||||||
Other inventory adjustments | (8,155 | ) | 22,701 | 114,414 | 48,893 | ||||||||||||||||||||
Cost of goods sold | $ | 3,268,803 | $ | 3,805,227 | $ | 12,256,826 | $ | 10,076,520 | |||||||||||||||||
Schedule of inventories by product line maintained in its wholesale distribution segment | ' | ||||||||||||||||||||||||
The Company’s net inventories by product line maintained in the parent entity’s wholesale distribution segment are as follows: | |||||||||||||||||||||||||
September 30, | December 31, | ||||||||||||||||||||||||
2014 | 2013 | ||||||||||||||||||||||||
Loose jewels | |||||||||||||||||||||||||
Raw materials | $ | 4,460,081 | $ | 3,311,375 | |||||||||||||||||||||
Work-in-process | 6,268,709 | 9,526,769 | |||||||||||||||||||||||
Finished goods | 22,256,573 | 20,002,881 | |||||||||||||||||||||||
Finished goods on consignment | 102,545 | 32,948 | |||||||||||||||||||||||
Total | $ | 33,087,908 | $ | 32,873,973 | |||||||||||||||||||||
Finished jewelry | |||||||||||||||||||||||||
Raw materials | $ | 275,070 | $ | 270,043 | |||||||||||||||||||||
Work-in-process | 597,833 | 764,355 | |||||||||||||||||||||||
Finished goods | 6,620,708 | 8,117,035 | |||||||||||||||||||||||
Finished goods on consignment | 504,221 | 299,514 | |||||||||||||||||||||||
Total | $ | 7,997,832 | $ | 9,450,947 | |||||||||||||||||||||
Data by geographic area | ' | ||||||||||||||||||||||||
The following presents certain data by geographic area: | |||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||
Net sales | |||||||||||||||||||||||||
United States | $ | 3,502,180 | $ | 3,852,627 | $ | 16,478,654 | $ | 14,338,094 | |||||||||||||||||
International | 1,019,714 | 3,005,625 | 1,952,440 | 5,537,732 | |||||||||||||||||||||
Total | $ | 4,521,894 | $ | 6,858,252 | $ | 18,431,094 | $ | 19,875,826 |
INVENTORIES_Tables
INVENTORIES (Tables) | 9 Months Ended | ||||||||
Sep. 30, 2014 | |||||||||
INVENTORIES [Abstract] | ' | ||||||||
Schedule of inventory, net of reserves | ' | ||||||||
The Company’s total inventories, net of reserves, consisted of the following as of September 30, 2014 and December 31, 2013: | |||||||||
September 30, | December 31, | ||||||||
2014 | 2013 | ||||||||
Raw materials | $ | 4,735,151 | $ | 3,581,418 | |||||
Work-in-process | 6,866,542 | 10,291,124 | |||||||
Finished goods | 29,820,837 | 28,771,098 | |||||||
Finished goods on consignment | 645,766 | 407,462 | |||||||
Less inventory reserves | (920,000 | ) | (639,000 | ) | |||||
Total | $ | 41,148,296 | $ | 42,412,102 | |||||
Current portion | $ | 15,833,756 | $ | 13,074,428 | |||||
Long-term portion | 25,314,540 | 29,337,674 | |||||||
Total | $ | 41,148,296 | $ | 42,412,102 |
COMMITMENTS_AND_CONTINGENCIES_
COMMITMENTS AND CONTINGENCIES (Tables) | 9 Months Ended | ||||
Sep. 30, 2014 | |||||
COMMITMENTS AND CONTINGENCIES [Abstract] | ' | ||||
Future minimum payments under operating lease | ' | ||||
As of September 30, 2014, the Company’s future minimum payments under the operating leases were as follows: | |||||
2014 | $ | - | |||
2015 | 553,905 | ||||
2016 | 569,138 | ||||
2017 | 584,789 | ||||
2018 | 600,871 | ||||
Thereafter | 1,793,725 | ||||
Total | $ | 4,102,428 |
STOCKBASED_COMPENSATION_Tables
STOCK-BASED COMPENSATION (Tables) | 9 Months Ended | ||||||||||||||||||||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||||||||||||||||||||
STOCK- BASED COMPENSATION [Abstract] | ' | ||||||||||||||||||||||||||||||||||
Schedule for components of stock based compensation | ' | ||||||||||||||||||||||||||||||||||
The following table summarizes the components of the Company’s stock-based compensation included in net loss: | |||||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
Employee stock options | $ | 271,888 | $ | 246,771 | $ | 664,310 | $ | 547,268 | |||||||||||||||||||||||||||
Restricted stock awards | 207,526 | 202,419 | 625,594 | 645,555 | |||||||||||||||||||||||||||||||
Income tax (benefit) expense | (150,846 | ) | 190,855 | (218,543 | ) | (10,329 | ) | ||||||||||||||||||||||||||||
Totals | $ | 328,568 | $ | 640,045 | $ | 1,071,361 | $ | 1,182,494 | |||||||||||||||||||||||||||
Summary of the stock option activity | ' | ||||||||||||||||||||||||||||||||||
Stock Options - The following is a summary of the stock option activity for the nine months ended September 30, 2014: | |||||||||||||||||||||||||||||||||||
Shares | Weighted | ||||||||||||||||||||||||||||||||||
Average | |||||||||||||||||||||||||||||||||||
Exercise Price | |||||||||||||||||||||||||||||||||||
Outstanding, December 31, 2013 | 1,204,297 | $ | 3.14 | ||||||||||||||||||||||||||||||||
Granted | 495,000 | $ | 2.56 | ||||||||||||||||||||||||||||||||
Exercised | - | $ | - | ||||||||||||||||||||||||||||||||
Forfeited | (30,775 | ) | $ | 2.51 | |||||||||||||||||||||||||||||||
Expired | (37,576 | ) | $ | 3.84 | |||||||||||||||||||||||||||||||
Outstanding, September 30, 2014 | 1,630,946 | $ | 2.96 | ||||||||||||||||||||||||||||||||
Weighted average assumptions for stock options granted | ' | ||||||||||||||||||||||||||||||||||
The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions for stock options granted during the nine months ended September 30, 2014: | |||||||||||||||||||||||||||||||||||
Dividend yield | 0 | % | |||||||||||||||||||||||||||||||||
Expected volatility | 92.9 | % | |||||||||||||||||||||||||||||||||
Risk-free interest rate | 1.65 | % | |||||||||||||||||||||||||||||||||
Expected lives (years) | 5 | ||||||||||||||||||||||||||||||||||
Information about stock options outstanding | ' | ||||||||||||||||||||||||||||||||||
The following table summarizes information about stock options outstanding at September 30, 2014: | |||||||||||||||||||||||||||||||||||
Options Outstanding | Options Exercisable | Options Vested or Expected to Vest | |||||||||||||||||||||||||||||||||
Balance | Weighted | Weighted | Balance | Weighted | Weighted | Balance | Weighted | Weighted | |||||||||||||||||||||||||||
as of | Average | Average | as of | Average | Average | as of | Average | Average | |||||||||||||||||||||||||||
9/30/14 | Remaining | Exercise | 9/30/14 | Remaining | Exercise | 9/30/14 | Remaining | Exercise | |||||||||||||||||||||||||||
Contractual | Price | Contractual | Price | Contractual | Price | ||||||||||||||||||||||||||||||
Life | Life | Life | |||||||||||||||||||||||||||||||||
(Years) | (Years) | (Years) | |||||||||||||||||||||||||||||||||
1,630,946 | 7.83 | $ | 2.96 | 1,012,453 | 7.01 | $ | 2.73 | 1,543,723 | 7.74 | $ | 2.95 | ||||||||||||||||||||||||
Restricted stock activity | ' | ||||||||||||||||||||||||||||||||||
Restricted Stock - The following is a summary of the restricted stock activity for the nine months ended September 30, 2014: | |||||||||||||||||||||||||||||||||||
Shares | Weighted | ||||||||||||||||||||||||||||||||||
Average | |||||||||||||||||||||||||||||||||||
Grant Date | |||||||||||||||||||||||||||||||||||
Fair Value | |||||||||||||||||||||||||||||||||||
Unvested, December 31, 2013 | 350,903 | $ | 4.26 | ||||||||||||||||||||||||||||||||
Granted | 160,032 | $ | 2.22 | ||||||||||||||||||||||||||||||||
Vested | (209,916 | ) | $ | 4.12 | |||||||||||||||||||||||||||||||
Canceled | - | $ | - | ||||||||||||||||||||||||||||||||
Unvested, September 30, 2014 | 301,019 | $ | 3.27 |
NET_LOSS_PER_COMMON_SHARE_Tabl
NET LOSS PER COMMON SHARE (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
NET LOSS PER COMMON SHARE [Abstract] | ' | ||||||||||||||||
Reconciliation of the differences between the basic and fully diluted earnings per share | ' | ||||||||||||||||
The following table reconciles the differences between the basic and diluted earnings per share presentations: | |||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Numerator: | |||||||||||||||||
Net loss | $ | (3,065,460 | ) | $ | (1,210,702 | ) | $ | (10,322,937 | ) | $ | (1,396,014 | ) | |||||
Denominator: | |||||||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 20,357,333 | 20,001,543 | 20,272,897 | 19,825,532 | |||||||||||||
Stock options | - | - | - | - | |||||||||||||
Fully diluted | 20,357,333 | 20,001,543 | 20,272,897 | 19,825,532 | |||||||||||||
Net loss per common share: | |||||||||||||||||
Basic | $ | (0.15 | ) | $ | (0.06 | ) | $ | (0.51 | ) | $ | (0.07 | ) | |||||
Diluted | $ | (0.15 | ) | (0.06 | ) | $ | (0.51 | ) | $ | (0.07 | ) |
MAJOR_CUSTOMERS_AND_CONCENTRAT1
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Tables) | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | |||||||||||||||||
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | ' | ||||||||||||||||
Summary of customers that represent greater than or equal to 10% of total gross sales | ' | ||||||||||||||||
A significant portion of sales is derived from certain customer relationships. The following is a summary of customers that represent greater than or equal to 10% of total gross sales: | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Customer A | 27 | % | 17 | % | 29 | % | 16 | % | |||||||||
Customer B | 0 | % | 19 | % | 0 | % | 7 | % | |||||||||
Customer C | 0 | % | 17 | % | 0 | % | 8 | % | |||||||||
Customer D | 3 | % | 7 | % | 11 | % | 8 | % | |||||||||
Customer E | 13 | % | 1 | % | 3 | % | 1 | % | |||||||||
Customer F | 1 | % | 9 | % | 13 | % | 8 | % |
SEGMENT_INFORMATION_AND_GEOGRA2
SEGMENT INFORMATION AND GEOGRAPHIC DATA (Details) (USD $) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
Segment | |||||
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | ' | ' | ' | ' | ' |
Number of operating segments | ' | ' | 2 | ' | ' |
Number of reportable segments | ' | ' | 2 | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | $4,521,894 | $6,858,252 | $18,431,094 | $19,875,826 | ' |
Product line cost of goods sold | 2,871,576 | 3,240,307 | 11,120,887 | 8,713,806 | ' |
Product line gross profit | 1,650,318 | 3,617,945 | 7,310,207 | 11,162,020 | ' |
Operating (loss) income | -3,061,786 | -1,127,085 | -6,273,217 | -1,463,869 | ' |
Depreciation and amortization | 272,914 | 199,985 | 861,658 | 584,734 | ' |
Capital expenditures | 50,840 | 470,888 | 1,007,506 | 673,588 | ' |
Total assets | 52,867,225 | ' | 52,867,225 | ' | 62,323,852 |
Cost of goods sold | 3,268,803 | 3,805,227 | 12,256,826 | 10,076,520 | ' |
Inventories, net [Abstract] | ' | ' | ' | ' | ' |
Raw materials | 4,735,151 | ' | 4,735,151 | ' | 3,581,418 |
Work-in-process | 6,866,542 | ' | 6,866,542 | ' | 10,291,124 |
Supplies inventories | 63,000 | ' | 63,000 | ' | 87,000 |
Product Line Cost of Goods Sold [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Product line cost of goods sold | 2,871,576 | 3,240,307 | 11,120,887 | 8,713,806 | ' |
Non-Capitalized Manufacturing and Production Control Expenses [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Product line cost of goods sold | 93,274 | 380,369 | 504,441 | 989,009 | ' |
Freight Out [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Product line cost of goods sold | 57,165 | 39,850 | 193,141 | 127,812 | ' |
Inventory Valuation Allowances [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Product line cost of goods sold | 254,943 | 122,000 | 323,943 | 197,000 | ' |
Other Inventory Adjustments [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Product line cost of goods sold | -8,155 | 22,701 | 114,414 | 48,893 | ' |
Loose Jewels [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | 2,324,234 | 4,821,319 | 10,015,227 | 13,244,642 | ' |
Product line cost of goods sold | 1,424,318 | 2,231,030 | 5,288,016 | 5,299,983 | ' |
Product line gross profit | 899,916 | 2,590,289 | 4,727,211 | 7,944,659 | ' |
Inventories, net [Abstract] | ' | ' | ' | ' | ' |
Raw materials | 4,460,081 | ' | 4,460,081 | ' | 3,311,375 |
Work-in-process | 6,268,709 | ' | 6,268,709 | ' | 9,526,769 |
Finished goods | 22,256,573 | ' | 22,256,573 | ' | 20,002,881 |
Finished goods on consignment | 102,545 | ' | 102,545 | ' | 32,948 |
Total | 33,087,908 | ' | 33,087,908 | ' | 32,873,973 |
Finished Jewelry [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | 2,197,660 | 2,036,933 | 8,415,867 | 6,631,184 | ' |
Product line cost of goods sold | 1,447,258 | 1,009,277 | 5,832,871 | 3,413,823 | ' |
Product line gross profit | 750,402 | 1,027,656 | 2,582,996 | 3,217,361 | ' |
Inventories, net [Abstract] | ' | ' | ' | ' | ' |
Raw materials | 275,070 | ' | 275,070 | ' | 270,043 |
Work-in-process | 597,833 | ' | 597,833 | ' | 764,355 |
Finished goods | 6,620,708 | ' | 6,620,708 | ' | 8,117,035 |
Finished goods on consignment | 504,221 | ' | 504,221 | ' | 299,514 |
Total | 7,997,832 | ' | 7,997,832 | ' | 9,450,947 |
Operating and Reporting Segments [Member] | Wholesale [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | 3,446,256 | 6,354,793 | 15,449,118 | 18,267,159 | ' |
Product line cost of goods sold | 2,483,209 | 3,009,863 | 9,957,105 | 7,991,352 | ' |
Product line gross profit | 963,047 | 3,344,930 | 5,492,013 | 10,275,807 | ' |
Operating (loss) income | -1,803,857 | 175,342 | -2,936,998 | 2,443,939 | ' |
Depreciation and amortization | 191,640 | 108,763 | 585,333 | 301,618 | ' |
Capital expenditures | 50,840 | 452,288 | 1,007,506 | 641,694 | ' |
Total assets | 52,632,244 | ' | 52,632,244 | ' | 61,702,449 |
Operating and Reporting Segments [Member] | Wholesale [Member] | Loose Jewels [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | 2,164,134 | 4,744,308 | 9,534,727 | 13,022,685 | ' |
Product line cost of goods sold | 1,392,197 | 2,214,152 | 5,208,277 | 5,264,563 | ' |
Product line gross profit | 771,937 | 2,530,156 | 4,326,450 | 7,758,122 | ' |
Operating and Reporting Segments [Member] | Wholesale [Member] | Finished Jewelry [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | 1,282,122 | 1,610,485 | 5,914,391 | 5,244,474 | ' |
Product line cost of goods sold | 1,091,012 | 795,711 | 4,748,828 | 2,726,789 | ' |
Product line gross profit | 191,110 | 814,774 | 1,165,563 | 2,517,685 | ' |
Operating and Reporting Segments [Member] | Direct-to-Consumer [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | 1,075,638 | 503,459 | 2,981,976 | 1,608,667 | ' |
Product line cost of goods sold | 388,367 | 230,444 | 1,163,782 | 722,454 | ' |
Product line gross profit | 687,271 | 273,015 | 1,818,194 | 886,213 | ' |
Operating (loss) income | -1,257,929 | -1,302,427 | -3,336,219 | -3,907,808 | ' |
Depreciation and amortization | 81,274 | 91,222 | 276,325 | 283,116 | ' |
Capital expenditures | 0 | 18,600 | 0 | 31,894 | ' |
Total assets | 234,981 | ' | 234,981 | ' | 621,403 |
Operating and Reporting Segments [Member] | Direct-to-Consumer [Member] | Loose Jewels [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | 160,100 | 77,011 | 480,500 | 221,957 | ' |
Product line cost of goods sold | 32,121 | 16,878 | 79,739 | 35,420 | ' |
Product line gross profit | 127,979 | 60,133 | 400,761 | 186,537 | ' |
Operating and Reporting Segments [Member] | Direct-to-Consumer [Member] | Finished Jewelry [Member] | ' | ' | ' | ' | ' |
Summary information by segment [Abstract] | ' | ' | ' | ' | ' |
Net sales | 915,538 | 426,448 | 2,501,476 | 1,386,710 | ' |
Product line cost of goods sold | 356,246 | 213,566 | 1,084,043 | 687,034 | ' |
Product line gross profit | $559,292 | $212,882 | $1,417,433 | $699,676 | ' |
SEGMENT_INFORMATION_AND_GEOGRA3
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Data by Geographic Area (Details) (USD $) | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | ||||||||||||||||||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Dec. 31, 2013 | |
Property and Equipment, Net [Member] | Property and Equipment, Net [Member] | Intangible Assets, Net [Member] | Intangible Assets, Net [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | Reportable Geographical Components [Member] | |||||
United States [Member] | United States [Member] | United States [Member] | United States [Member] | United States [Member] | United States [Member] | United States [Member] | United States [Member] | International [Member] | International [Member] | International [Member] | International [Member] | International [Member] | International [Member] | International [Member] | International [Member] | |||||||||
Property and Equipment, Net [Member] | Property and Equipment, Net [Member] | Intangible Assets, Net [Member] | Intangible Assets, Net [Member] | Property and Equipment, Net [Member] | Property and Equipment, Net [Member] | Intangible Assets, Net [Member] | Intangible Assets, Net [Member] | |||||||||||||||||
Net sales [Abstract] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Net sales | $4,521,894 | $6,858,252 | $18,431,094 | $19,875,826 | ' | ' | ' | ' | $3,502,180 | $3,852,627 | $16,478,654 | $14,338,094 | ' | ' | ' | ' | $1,019,714 | $3,005,625 | $1,952,440 | $5,537,732 | ' | ' | ' | ' |
Assets by geographical area [Abstract] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Total | ' | ' | ' | ' | $1,983,865 | $1,717,692 | $258,859 | $325,867 | ' | ' | ' | ' | $1,983,865 | $1,717,692 | $46,150 | $70,830 | ' | ' | ' | ' | $0 | $0 | $212,709 | $255,037 |
INVENTORIES_Details
INVENTORIES (Details) (USD $) | 9 Months Ended | |
Sep. 30, 2014 | Dec. 31, 2013 | |
Total inventories, net of reserves [Abstract] | ' | ' |
Raw materials | $4,735,151 | $3,581,418 |
Work-in-process | 6,866,542 | 10,291,124 |
Finished goods | 29,820,837 | 28,771,098 |
Finished goods on consignment | 645,766 | 407,462 |
Less inventory reserves | -920,000 | -639,000 |
Total | 41,148,296 | 42,412,102 |
Current portion | 15,833,756 | 13,074,428 |
Long-term portion | 25,314,540 | 29,337,674 |
Period considered for classification of long term inventory | '12 months | ' |
Work-in-process inventories issued to active production jobs | 1,920,000 | 4,090,000 |
Inventory reserve for obsolescence | 225,000 | 128,000 |
Carrying value of inventory reserve for obsolescence of moissanite | 66,000 | 66,000 |
Shrinkage reserve for finished goods on consignment | 36,000 | 75,000 |
Inventory of net loose jewels | 33,090,000 | 32,870,000 |
Inventory reserve for shrinkage of loose jewels | 0 | 2,000 |
Inventory reserve for shrinkage of loose jewels on consignment | 3,000 | 0 |
Inventory reserve for recuts | 224,000 | 172,000 |
Inventory of net jewelry | 8,000,000 | 9,450,000 |
Scrap reserve | 118,000 | 106,000 |
Inventory reserve for shrinkage of finished jewelry | 144,000 | 180,000 |
Inventory reserve for shrinkage of finished jewelry on consignment | 36,000 | 75,000 |
Inventory reserve for shrinkage of finished jewelry on repairs | $140,000 | $51,000 |
INCOME_TAXES_Details
INCOME TAXES (Details) (USD $) | 3 Months Ended | 6 Months Ended | 9 Months Ended | ||||
Sep. 30, 2014 | Sep. 30, 2013 | Mar. 31, 2013 | Jun. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Dec. 31, 2013 | |
INCOME TAXES [Abstract] | ' | ' | ' | ' | ' | ' | ' |
Income tax net (expense) benefit | ($3,093) | ($88,550) | ' | ' | ($4,048,870) | $49,422 | ' |
Deferred tax assets | ' | ' | ' | ' | ' | ' | 4,040,000 |
Income tax expense for estimated tax, penalties, and interest for other uncertain tax positions | 3,000 | 3,000 | ' | ' | 9,000 | 9,000 | ' |
Current period income tax benefit (expense) | ' | 89,000 | ' | 138,000 | ' | ' | ' |
Effective income tax rate (in hundredths) | ' | ' | ' | ' | ' | 1.60% | ' |
Federal statutory income tax rate (in hundredths) | ' | ' | ' | ' | ' | 34.00% | ' |
Increases related to prior year tax positions | ' | 1,000 | 7,000 | ' | ' | ' | ' |
Income tax expense recorded to reflect lower anticipated taxable income | ' | 129,000 | ' | ' | ' | ' | ' |
Reduced tax benefit due to lower anticipated taxable income | ' | ' | ' | ' | ' | 18,000 | ' |
Income tax benefit for discreet permanent tax deduction | ' | $44,000 | ' | ' | ' | $48,000 | ' |
COMMITMENTS_AND_CONTINGENCIES_1
COMMITMENTS AND CONTINGENCIES (Details) (USD $) | 0 Months Ended | 3 Months Ended | 9 Months Ended | ||||
Dec. 09, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | 23-May-14 | Oct. 31, 2013 | |
sqft | sqft | RentHoliday | |||||
sqft | |||||||
Lease Commitments [Abstract] | ' | ' | ' | ' | ' | ' | ' |
Period of lease | ' | ' | ' | '7 years | ' | ' | ' |
Land subject to leases (in square feet) | 36,350 | 16,500 | ' | 16,500 | ' | ' | ' |
Number of rent holidays | ' | ' | ' | 2 | ' | ' | ' |
Percentage of rent abatement (in hundredths) | ' | ' | ' | 50.00% | ' | ' | ' |
Period for which rent is abated | '7 months | ' | ' | '12 months | ' | ' | ' |
Annual rent escalations (in hundredths) | ' | ' | ' | 3.00% | ' | ' | ' |
Cost to terminate lease | ' | ' | ' | ' | ' | ' | $112,000 |
Number of months included in costs to terminate lease | ' | ' | ' | '2 months | ' | ' | ' |
Leasehold improvements offered by landlord | ' | ' | ' | ' | ' | 550,000 | ' |
Lease signing and moving incentives offered by landlord | ' | ' | ' | ' | ' | 73,000 | ' |
Future minimum payments under operating lease [Abstract] | ' | ' | ' | ' | ' | ' | ' |
2014 | ' | 0 | ' | 0 | ' | ' | ' |
2015 | ' | 553,905 | ' | 553,905 | ' | ' | ' |
2016 | ' | 569,138 | ' | 569,138 | ' | ' | ' |
2017 | ' | 584,789 | ' | 584,789 | ' | ' | ' |
2018 | ' | 600,871 | ' | 600,871 | ' | ' | ' |
Thereafter | ' | 1,793,725 | ' | 1,793,725 | ' | ' | ' |
Total | ' | 4,102,428 | ' | 4,102,428 | ' | ' | ' |
Rent expense | ' | 134,000 | 55,000 | 249,000 | 188,000 | ' | ' |
Purchase Commitments [Abstract] | ' | ' | ' | ' | ' | ' | ' |
Period of exclusive supply agreement | ' | ' | ' | '10 years | ' | ' | ' |
Percentage committed to be purchased (in hundredths) | ' | ' | ' | 50.00% | ' | ' | ' |
Minimum purchase commitment in initial new order | ' | 4,000,000 | ' | 4,000,000 | ' | ' | ' |
Minimum purchase commitment under the amendment | ' | 7,640,000 | ' | 7,640,000 | ' | ' | ' |
Maximum purchase commitment under amendment | ' | 18,560,000 | ' | 18,560,000 | ' | ' | ' |
Actual purchases under purchase amendment | ' | ' | ' | $4,620,000 | $9,540,000 | ' | ' |
LINE_OF_CREDIT_Details
LINE OF CREDIT (Details) (USD $) | 0 Months Ended | 9 Months Ended | ||
Sep. 20, 2013 | Jun. 25, 2014 | Sep. 30, 2014 | Jun. 25, 2014 | |
PNC Bank [Member] | Wells Fargo [Member] | Wells Fargo [Member] | Wells Fargo [Member] | |
Line of Credit Note [Member] | Line of Credit [Member] | Line of Credit [Member] | Line of Credit [Member] | |
Line of Credit Facility [Line Items] | ' | ' | ' | ' |
Revolving line of credit | $10,000,000 | ' | ' | $10,000,000 |
Line of credit maturity date | 15-Jun-15 | 25-Jun-17 | ' | ' |
Line of credit, description of variable rate basis | 'One-month LIBOR rate | ' | 'Wells Fargobs 3-month LIBOR rate | ' |
Line of credit, spread on variable rate (in hundredths) | 1.50% | ' | 2.50% | ' |
Basis for calculation of LIBOR rate (adjusted daily) | 'actual / 360 | ' | 'actual / 360 | ' |
Legal fees | ' | 19,000 | ' | ' |
Line of credit facility, sublimit for letter of credit | ' | ' | ' | 1,000,000 |
Line of credit facility, sublimit for advances | ' | ' | 5,000,000 | ' |
Percentage of Advances, Guaranteed by bank (in hundredths) | ' | ' | 90.00% | ' |
Maximum advances against inventory | ' | ' | 3,000,000 | ' |
Minimum Excess Availability Of Inventory At All Times Required For Advances | ' | ' | 1,000,000 | ' |
Interest rate in event of default in excess of standard rate (in hundredths) | ' | ' | 3.00% | ' |
Prepaid advance fee for reduction in first year after closing (in hundredths) | ' | ' | 2.00% | ' |
Prepaid advance fee for reduction in Second year after closing (in hundredths) | ' | ' | 1.00% | ' |
Prepaid advance fee for reduction, thereafter (in hundredths) | ' | ' | 0.00% | ' |
Number of business day within which guaranteed advances to be repaid | ' | ' | '2 days | ' |
Maximum indebtedness to be maintained in the event of default to avoid triggering of default terms | ' | ' | 200,000 | ' |
Advances against line of credit | ' | ' | $0 | ' |
STOCKBASED_COMPENSATION_Detail
STOCK-BASED COMPENSATION (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Components of the Company's stock based compensation included in net income [Abstract] | ' | ' | ' | ' |
Income tax (benefit) expense | ($150,846) | $190,855 | ($218,543) | ($10,329) |
Totals | 328,568 | 640,045 | 1,071,361 | 1,182,494 |
Stock Options [Member] | ' | ' | ' | ' |
Components of the Company's stock based compensation included in net income [Abstract] | ' | ' | ' | ' |
Allocated share-based compensation expense | 271,888 | 246,771 | 664,310 | 547,268 |
Stock-based compensation capitalized as a cost of inventory | 0 | 0 | 0 | 0 |
Shares [Roll Forward] | ' | ' | ' | ' |
Outstanding, December 31, 2013 (in shares) | ' | ' | 1,204,297 | ' |
Granted (in shares) | ' | ' | 495,000 | ' |
Exercised (in shares) | ' | ' | 0 | ' |
Forfeited (in shares) | ' | ' | -30,775 | ' |
Expired (in shares) | ' | ' | -37,576 | ' |
Outstanding, September 30, 2014 | 1,630,946 | ' | 1,630,946 | ' |
Weighted Average Exercise Price [Roll Forward] | ' | ' | ' | ' |
Outstanding, December 31, 2013 (in dollars per share) | ' | ' | $3.14 | ' |
Granted (in dollars per share) | ' | ' | $2.56 | ' |
Exercised (in dollars per share) | ' | ' | $0 | ' |
Forfeited (in dollars per share) | ' | ' | $2.51 | ' |
Expired (in dollars per share) | ' | ' | $3.84 | ' |
Outstanding, September 30, 2014 (in dollars per share) | $2.96 | ' | $2.96 | ' |
Fair value of stock options (in dollars per share) | ' | ' | $1.78 | ' |
Fair value of stock options vested | ' | ' | 727,000 | ' |
Weighted average assumptions for stock options [Abstract] | ' | ' | ' | ' |
Dividend yield (in hundredths) | ' | ' | 0.00% | ' |
Expected volatility (in hundredths) | ' | ' | 92.90% | ' |
Risk-free interest rate (in hundredths) | ' | ' | 1.65% | ' |
Expected lives | ' | ' | '5 years | ' |
Options Outstanding [Abstract] | ' | ' | ' | ' |
Balance as of 9/30/2014 (in shares) | 1,630,946 | ' | 1,630,946 | ' |
Weighted Average Remaining Contractual Life | ' | ' | '7 years 9 months 29 days | ' |
Weighted Average Exercise Price (in dollars per share) | $2.96 | ' | $2.96 | ' |
Options Exercisable [Abstract] | ' | ' | ' | ' |
Balance as of 9/30/2014 (in shares) | 1,012,453 | ' | 1,012,453 | ' |
Weighted Average Remaining Contractual Life | ' | ' | '7 years 0 months 4 days | ' |
Weighted Average Exercise Price (in dollars per share) | $2.73 | ' | $2.73 | ' |
Options Vested or Expected to Vest [Abstract] | ' | ' | ' | ' |
Balance as of 9/30/2014 (in shares) | 1,543,723 | ' | 1,543,723 | ' |
Weighted Average Remaining Contractual Life | ' | ' | '7 years 8 months 26 days | ' |
Weighted Average Exercise Price (in dollars per share) | $2.95 | ' | $2.95 | ' |
Unrecognized stock-based compensation expense related to unvested awards | 1,060,000 | ' | 1,060,000 | ' |
Total compensation cost not yet recognized, period for recognition | ' | ' | '25 months | ' |
Aggregate intrinsic value of stock options outstanding | 357,000 | ' | 357,000 | ' |
Aggregate intrinsic value of stock options exercisable | 357,000 | ' | 357,000 | ' |
Aggregate intrinsic value of stock options vested and expected to vest | 357,000 | ' | 357,000 | ' |
Aggregate intrinsic value of stock options exercised | 0 | ' | 0 | ' |
Restricted Stock [Member] | ' | ' | ' | ' |
Components of the Company's stock based compensation included in net income [Abstract] | ' | ' | ' | ' |
Allocated share-based compensation expense | 207,526 | 202,419 | 625,594 | 645,555 |
Options Vested or Expected to Vest [Abstract] | ' | ' | ' | ' |
Unrecognized stock-based compensation expense related to unvested awards | $755,000 | ' | $755,000 | ' |
Total compensation cost not yet recognized, period for recognition | ' | ' | '15 months | ' |
Shares [Roll Forward] | ' | ' | ' | ' |
Unvested, December 31, 2013 (in shares) | ' | ' | 350,903 | ' |
Granted (in shares) | ' | ' | 160,032 | ' |
Vested (in shares) | ' | ' | -209,916 | ' |
Canceled (in shares) | ' | ' | 0 | ' |
Unvested, September 30, 2014 (in shares) | 301,019 | ' | 301,019 | ' |
Weighted Average Grant Date Fair Value [Roll Forward] | ' | ' | ' | ' |
Unvested, December 31, 2013 (in dollars per share) | ' | ' | $4.26 | ' |
Granted (in dollars per share) | ' | ' | $2.22 | ' |
Vested (in dollars per share) | ' | ' | $4.12 | ' |
Canceled (in dollars per share) | ' | ' | $0 | ' |
Unvested, September 30, 2014 (in dollars per share) | $3.27 | ' | $3.27 | ' |
NET_LOSS_PER_COMMON_SHARE_Deta
NET LOSS PER COMMON SHARE (Details) (USD $) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Numerator [Abstract] | ' | ' | ' | ' |
Net loss | ($3,065,460) | ($1,210,702) | ($10,322,937) | ($1,396,014) |
Weighted average common shares outstanding [Abstract] | ' | ' | ' | ' |
Basic (in shares) | 20,357,333 | 20,001,543 | 20,272,897 | 19,825,532 |
Stock options (in shares) | 0 | 0 | 0 | 0 |
Fully diluted (in shares) | 20,357,333 | 20,001,543 | 20,272,897 | 19,825,532 |
Net loss per common share [Abstract] | ' | ' | ' | ' |
Basic (in dollars per share) | ($0.15) | ($0.06) | ($0.51) | ($0.07) |
Diluted (in dollars per share) | ($0.15) | ($0.06) | ($0.51) | ($0.07) |
Stock Options [Member] | ' | ' | ' | ' |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ' | ' | ' | ' |
Stock options to purchase shares (in shares) | 1,630,000 | 1,200,000 | 1,630,000 | 1,200,000 |
MAJOR_CUSTOMERS_AND_CONCENTRAT2
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details) (USD $) | 9 Months Ended | 9 Months Ended | 12 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | 3 Months Ended | 9 Months Ended | ||||||||||||||||
Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2014 | Sep. 30, 2014 | Dec. 31, 2013 | Sep. 30, 2014 | Sep. 30, 2014 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | Sep. 30, 2014 | Sep. 30, 2013 | |
Minimum [Member] | Maximum [Member] | Trade Accounts Receivable [Member] | Trade Accounts Receivable [Member] | Trade Accounts Receivable [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | Total Gross Sales [Member] | |||
Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | Customer Concentration Risk [Member] | ||||||
Customer 1 [Member] | Customer 1 [Member] | Customer 2 [Member] | Customer A [Member] | Customer A [Member] | Customer A [Member] | Customer A [Member] | Customer B [Member] | Customer B [Member] | Customer B [Member] | Customer B [Member] | Customer C [Member] | Customer C [Member] | Customer C [Member] | Customer C [Member] | Customer D [Member] | Customer D [Member] | Customer D [Member] | Customer D [Member] | Customer E [Member] | Customer E [Member] | Customer E [Member] | Customer E [Member] | Customer F [Member] | Customer F [Member] | Customer F [Member] | Customer F [Member] | ||||||
Concentration Risk [Line Items] | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Insurance coverage per depositor at each financial institution | $250,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Interest-bearing amounts on deposit in excess of FDIC insurable limits | 2,380,000 | 270,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Period of customer payments on trade receivables | ' | ' | '30 days | '90 days | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Increase in allowance for doubtful accounts | $800,000 | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |
Concentration risk, percentage (in hundredths) | ' | ' | ' | ' | 30.00% | 21.00% | 12.00% | ' | 27.00% | 17.00% | 29.00% | 16.00% | 0.00% | 19.00% | 0.00% | 7.00% | 0.00% | 17.00% | 0.00% | 8.00% | 3.00% | 7.00% | 11.00% | 8.00% | 13.00% | 1.00% | 3.00% | 1.00% | 1.00% | 9.00% | 13.00% | 8.00% |
Percentage of gross sales used as benchmark (in hundredths) | ' | ' | ' | ' | ' | ' | ' | 10.00% | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' | ' |