Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2015 | Nov. 10, 2015 | |
Document and Entity Information [Abstract] | ||
Entity Registrant Name | CHARLES & COLVARD LTD | |
Entity Central Index Key | 1,015,155 | |
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 | 21,111,585 | |
Document Fiscal Year Focus | 2,015 | |
Document Fiscal Period Focus | Q3 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2015 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($) | Sep. 30, 2015 | Dec. 31, 2014 |
Current assets: | ||
Cash and cash equivalents | $ 5,602,261 | $ 4,007,341 |
Accounts receivable, net | 2,859,599 | 5,510,253 |
Inventory, net | 12,807,883 | 13,320,639 |
Prepaid expenses and other assets | 1,072,054 | 602,850 |
Total current assets | 22,341,797 | 23,441,083 |
Long-term assets: | ||
Inventory, net | 21,185,270 | 25,617,990 |
Property and equipment, net | 1,545,650 | 1,859,355 |
Intangible assets, net | 118,345 | 216,947 |
Other assets | 233,697 | 291,022 |
Total long-term assets | 23,082,962 | 27,985,314 |
TOTAL ASSETS | 45,424,759 | 51,426,397 |
Current liabilities: | ||
Accounts payable | 3,296,955 | 3,286,086 |
Accrued cooperative advertising | 28,000 | 220,000 |
Accrued expenses and other liabilities | 1,171,645 | 684,577 |
Total current liabilities | 4,496,600 | 4,190,663 |
Long-term liabilities: | ||
Accrued expenses and other liabilities | 736,742 | 809,879 |
Accrued income taxes | 417,261 | 407,682 |
Total long-term liabilities | 1,154,003 | 1,217,561 |
Total liabilities | $ 5,650,603 | $ 5,408,224 |
Commitments and contingencies | ||
Shareholders' equity: | ||
Common stock, no par value | $ 54,240,247 | $ 53,949,001 |
Additional paid-in capital - stock-based compensation | 12,786,308 | 11,628,503 |
Accumulated deficit | (27,252,399) | (19,559,331) |
Total shareholders' equity | 39,774,156 | 46,018,173 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 45,424,759 | $ 51,426,397 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - $ / shares | Sep. 30, 2015 | Dec. 31, 2014 |
Shareholders' equity | ||
Common stock, par value (in dollars per share) | $ 0 | $ 0 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) [Abstract] | ||||
Net sales | $ 6,518,064 | $ 4,521,894 | $ 22,372,000 | $ 18,431,094 |
Costs and expenses: | ||||
Cost of goods sold | 3,890,791 | 3,268,803 | 15,196,231 | 12,256,826 |
Sales and marketing | 3,008,840 | 2,520,426 | 9,500,074 | 6,886,651 |
General and administrative | 1,574,903 | 1,790,588 | 5,343,064 | 5,543,269 |
Research and development | 6,351 | 3,863 | 15,455 | 15,364 |
Loss on abandonment of assets | 0 | 0 | 0 | 2,201 |
Total costs and expenses | 8,480,885 | 7,583,680 | 30,054,824 | 24,704,311 |
Loss from operations | (1,962,821) | (3,061,786) | (7,682,824) | (6,273,217) |
Other income (expense): | ||||
Interest income | 0 | 2 | 11 | 51 |
Interest expense | (17) | (583) | (801) | (901) |
Gain on sale of long-term assets | 0 | 0 | 125 | 0 |
Total other expense, net | (17) | (581) | (665) | (850) |
Loss before income taxes | (1,962,838) | (3,062,367) | (7,683,489) | (6,274,067) |
Income tax net expense | (3,243) | (3,093) | (9,579) | (4,048,870) |
Net loss | $ (1,966,081) | $ (3,065,460) | $ (7,693,068) | $ (10,322,937) |
Net loss per common share: | ||||
Basic (in dollars per share) | $ (0.10) | $ (0.15) | $ (0.38) | $ (0.51) |
Diluted (in dollars per share) | $ (0.10) | $ (0.15) | $ (0.38) | $ (0.51) |
Weighted average number of shares used in computing net loss per common share: | ||||
Basic (in shares) | 20,571,340 | 20,357,333 | 20,336,839 | 20,272,897 |
Diluted (in shares) | 20,571,340 | 20,357,333 | 20,336,839 | 20,272,897 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (7,693,068) | $ (10,322,937) |
Adjustments to reconcile net loss to net cash provided by operating activities: | ||
Depreciation and amortization | 663,450 | 861,658 |
Stock-based compensation | 1,276,285 | 1,289,904 |
Provision for uncollectible accounts | 29,000 | 897,878 |
Provision for sales returns | (505,000) | (853,000) |
Provision for inventory reserves | 213,000 | 281,000 |
Provision for deferred income taxes | 0 | 4,039,723 |
Loss on abandonment of assets | 0 | 2,201 |
Gain on sale of long-term assets | (125) | 0 |
Changes in assets and liabilities: | ||
Accounts receivable | 3,126,654 | 4,693,941 |
Inventory | 4,732,476 | 982,806 |
Prepaid expenses and other assets, net | (411,879) | (298,681) |
Accounts payable | 10,869 | (1,066,740) |
Accrued cooperative advertising | (192,000) | 4,000 |
Accrued income taxes | 9,579 | 9,147 |
Other accrued liabilities | 413,931 | 629,999 |
Net cash provided by operating activities | 1,673,172 | 1,150,899 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Purchases of property and equipment | (205,451) | (1,007,506) |
Patent, license rights, and trademark costs | (45,742) | (55,518) |
Proceeds from sale of assets | 175 | 0 |
Net cash used in investing activities | (251,018) | (1,063,024) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Stock option exercises | 172,766 | 0 |
Net cash provided by financing activities | 172,766 | 0 |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 1,594,920 | 87,875 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 4,007,341 | 2,573,405 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | 5,602,261 | 2,661,280 |
Supplemental disclosure of cash flow information: | ||
Cash paid during the period for interest | 801 | 901 |
Cash paid during the period for income taxes | $ 0 | $ 0 |
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS | 9 Months Ended |
Sep. 30, 2015 | |
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 ® |
BASIS OF PRESENTATION AND SIGNI
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2015 | |
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 condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2014 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, 2014 filed with the SEC on March 13, 2015 (the “2014 Annual Report”). The accompanying condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 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 - Use of Estimates - T Reclassifications - Recently Adopted/Issued Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a new accounting standard that supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the new standard 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. The new standard 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, 2017, 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 the standard recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of the pending adoption of the standard on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard in 2018. In August 2014, the FASB issued new accounting guidance intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This new accounting guidance provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. This new accounting guidance is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect this new accounting guidance to have a material impact on its consolidated financial statements. In July 2015, the FASB issued new accounting guidance that will require an entity to measure inventory valued under the average cost method from the lower of cost or market to the lower of cost or net realizable value, with net realizable value defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current guidance on inventory measurement. This guidance is effective on a prospective basis for public entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted as of the beginning of an interim or annual reporting period. All other new and recently issued, but not yet effective, accounting pronouncements have been deemed to be not relevant to the Company and therefore are not expected to have any impact once adopted. |
SEGMENT INFORMATION AND GEOGRAP
SEGMENT INFORMATION AND GEOGRAPHIC DATA | 9 Months Ended |
Sep. 30, 2015 | |
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. During 2014, the Company Previously, the Company determined it managed its business through two distribution channels, wholesale distribution and direct-to-consumer. While the Company has always managed its businesses as three separate operating segments, it previously aggregated the Moissanite.com, LLC and Charles & Colvard Direct, LLC operating segments into a single reportable segment for reporting purposes. The two wholly owned operating subsidiaries that previously were aggregated under the direct-to-consumer segment are now each being presented as a separate reportable segment. The Company believes aggregation of the two subsidiaries into one reportable segment for reporting purposes is no longer warranted due to changes in how it sources product and sells directly to consumers, including changes in the management structure, strategic initiatives, and changes in sales models made during the year ended December 31, 2014 for each of the two wholly owned subsidiaries. Certain amounts for the three and nine months ended September 30, 2014 have been reclassified to conform to the current period presentation as a result of this change in reportable segments. T The Company allocates certain general and administrative expenses from its parent entity to its two direct-to-consumer distribution segments primarily based on net sales and number of employees. Unallocated expenses, which also include interest and taxes, remain in the parent entity’s wholesale distribution segment. Summary financial information by reportable segment is as follows: Three Months Ended September 30, 2015 Wholesale Moissanite.com Charles & Colvard Direct Total Net sales Loose jewels $ 2,734,545 $ 132,809 $ (45 ) $ 2,867,309 Finished jewelry 1,167,883 1,064,915 1,417,957 3,650,755 Total $ 3,902,428 $ 1,197,724 $ 1,417,912 $ 6,518,064 Product line cost of goods sold Loose jewels $ 1,468,123 $ 21,874 $ - $ 1,489,997 Finished jewelry 877,869 519,740 429,129 1,826,738 Total $ 2,345,992 $ 541,614 $ 429,129 $ 3,316,735 Product line gross profit Loose jewels $ 1,266,422 $ 110,935 $ (45 ) $ 1,377,312 Finished jewelry 290,014 545,175 988,828 1,824,017 Total $ 1,556,436 $ 656,110 $ 988,783 $ 3,201,329 Operating loss $ (271,269 ) $ (312,715 ) $ (1,378,837 ) $ (1,962,821 ) Depreciation and amortization $ 166,971 $ 27,776 $ 28,027 $ 222,774 Capital expenditures $ 42,677 $ - $ 7,589 $ 50,266 Three Months Ended September 30, 2014 Wholesale Moissanite.com Charles & Colvard Direct Total Net sales Loose jewels $ 2,164,134 $ 160,100 $ - $ 2,324,234 Finished jewelry 1,282,122 516,003 399,535 2,197,660 Total $ 3,446,256 $ 676,103 $ 399,535 $ 4,521,894 Product line cost of goods sold Loose jewels $ 1,392,197 $ 31,812 $ 309 $ 1,424,318 Finished jewelry 1,091,012 235,127 121,119 1,447,258 Total $ 2,483,209 $ 266,939 $ 121,428 $ 2,871,576 Product line gross profit Loose jewels $ 771,937 $ 128,288 $ (309 ) $ 899,916 Finished jewelry 191,110 280,876 278,416 750,402 Total $ 963,047 $ 409,164 $ 278,107 $ 1,650,318 Operating loss $ (1,803,857 ) $ (360,160 ) $ (897,769 ) $ (3,061,786 ) Depreciation and amortization $ 191,640 $ 51,139 $ 30,135 $ 272,914 Capital expenditures $ 50,840 $ - $ - $ 50,840 Nine Months Ended September 30, 2015 Wholesale Moissanite.com Charles & Colvard Direct Total Net sales Loose jewels $ 10,050,497 $ 404,213 $ (45 ) $ 10,454,665 Finished jewelry 4,686,747 3,158,316 4,072,272 11,917,335 Total $ 14,737,244 $ 3,562,529 $ 4,072,227 $ 22,372,000 Product line cost of goods sold Loose jewels $ 6,710,697 $ 62,693 $ 65 $ 6,773,455 Finished jewelry 3,309,852 1,533,759 1,007,994 5,851,605 Total $ 10,020,549 $ 1,596,452 $ 1,008,059 $ 12,625,060 Product line gross profit Loose jewels $ 3,339,800 $ 341,520 $ (110 ) $ 3,681,210 Finished jewelry 1,376,895 1,624,557 3,064,278 6,065,730 Total $ 4,716,695 $ 1,966,077 $ 3,064,168 $ 9,746,940 Operating loss $ (3,123,326 ) $ (994,738 ) $ (3,564,760 ) $ (7,682,824 ) Depreciation and amortization $ 490,821 $ 91,470 $ 81,159 $ 663,450 Capital expenditures $ 187,877 $ 533 $ 17,041 $ 205,451 Nine Months Ended September 30, 2014 Wholesale Moissanite.com Charles & Colvard Direct Total Net sales Loose jewels $ 9,534,930 $ 478,859 $ 1,508 $ 10,015,297 Finished jewelry 5,914,325 1,613,472 888,000 8,415,797 Total $ 15,449,255 $ 2,092,331 $ 889,508 $ 18,431,094 Product line cost of goods sold Loose jewels $ 5,208,277 $ 78,986 $ 753 $ 5,288,016 Finished jewelry 4,748,828 817,036 267,007 5,832,871 Total $ 9,957,105 $ 896,022 $ 267,760 $ 11,120,887 Product line gross profit Loose jewels $ 4,326,653 $ 399,873 $ 755 $ 4,727,281 Finished jewelry 1,165,497 796,436 620,993 2,582,926 Total $ 5,492,150 $ 1,196,309 $ 621,748 $ 7,310,207 Operating loss $ (2,936,861 ) $ (1,096,174 ) $ (2,240,182 ) $ (6,273,217 ) Depreciation and amortization $ 585,333 $ 195,391 $ 80,934 $ 861,658 Capital expenditures $ 1,007,506 $ - $ - $ 1,007,506 September 30, 2015 Wholesale Moissanite.com Charles & Colvard Direct Total Total assets $ 45,270,712 $ 66,342 $ 87,705 $ 45,424,759 December 31, 2014 Wholesale Moissanite.com Charles & Colvard Direct Total Total assets $ 51,183,888 $ 128,049 $ 114,460 $ 51,426,397 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, 2015 2014 2015 2014 Product line cost of goods sold $ 3,316,735 $ 2,871,576 $ 12,625,060 $ 11,120,887 Non-capitalized manufacturing and production control expenses 386,571 93,274 1,034,143 504,441 Freight out 82,118 57,165 284,108 193,141 Inventory valuation allowances (402,000 ) 254,943 213,000 323,943 Other inventory adjustments 507,367 (8,155 ) 1,039,920 114,414 Cost of goods sold $ 3,890,791 $ 3,268,803 $ 15,196,231 $ 12,256,826 The Company’s net inventories by product line maintained in the parent entity’s wholesale distribution segment are as follows: September 30, 2015 December 31, 2014 Loose jewels Raw materials $ 6,650,522 $ 4,658,692 Work-in-process 5,539,032 5,752,103 Finished goods 16,916,698 21,495,873 Finished goods on consignment 40,811 46,284 Total $ 29,147,063 $ 31,952,952 Finished jewelry Raw materials $ 179,415 $ 258,707 Work-in-process 761,312 540,576 Finished goods 3,730,908 5,557,417 Finished goods on consignment 142,183 578,200 Total $ 4,813,818 $ 6,934,900 Supplies inventories of approximately $32,000 and $51,000 at September 30, 2015 and December 31, 2014, 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’s two operating subsidiaries comprising the two direct-to-consumer distribution segments carry no net inventories, and inventory is transferred without intercompany markup from the parent entity’s wholesale distribution segment as product line cost of goods sold when sold to the end consumer. 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 two segments 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, 2015 2014 2015 2014 Net sales United States $ 5,599,245 $ 3,502,180 $ 20,317,860 $ 16,478,654 International 918,819 1,019,714 2,054,140 1,952,440 Total $ 6,518,064 $ 4,521,894 $ 22,372,000 $ 18,431,094 September 30, 2015 December 31, 2014 Property and equipment, net United States $ 1,545,650 $ 1,859,355 International - - Total $ 1,545,650 $ 1,859,355 September 30, 2015 December 31, 2014 Intangible assets, net United States $ 17,525 $ 39,050 International 100,820 177,897 Total $ 118,345 $ 216,947 |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Sep. 30, 2015 | |
FAIR VALUE MEASUREMENTS [Abstract] | |
FAIR VALUE MEASUREMENTS | 4. FAIR VALUE MEASUREMENTS U · Level 1 - · Level 2 - · Level 3 - 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. 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. |
INVENTORIES
INVENTORIES | 9 Months Ended |
Sep. 30, 2015 | |
INVENTORIES [Abstract] | |
INVENTORIES | 5. INVENTORIES The Company’s total inventories, net of reserves, consisted of the following as of September 30, 2015 and December 31, 2014: September 30, 2015 December 31, 2014 Raw materials $ 6,829,937 $ 4,917,399 Work-in-process 6,300,344 6,292,679 Finished goods 21,805,878 27,985,067 Finished goods on consignment 203,994 677,484 Less inventory reserves (1,147,000 ) (934,000 ) Total $ 33,993,153 $ 38,938,629 Current portion $ 12,807,883 $ 13,320,639 Long-term portion 21,185,270 25,617,990 Total $ 33,993,153 $ 38,938,629 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. 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, 2015 and December 31, 2014, work-in-process inventories issued to active production jobs approximated $2.29 million and $2.05 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 had the exclusive right in the U.S. through August 2015 and has the exclusive right in many other countries through mid-2016 to produce and sell created SiC for use in jewelry applications. During the nine months ended September 30, 2015, management identified an opportunity to sell approximately $2.28 million of slow moving loose jewel inventory of less desirable quality. As a result of this sale and feedback from customers on the value of some of these goods, the Company determined a lower of cost or market reserve of $293,000 was required on some of the remaining inventory of these lower quality goods. In view of the foregoing factors, management has concluded that no excess or obsolete loose jewel inventory reserve requirements existed as of September 30, 2015 on goods other than the lower quality goods noted previously. The Company manufactures finished jewelry featuring moissanite. Relative to loose moissanite jewels, finished jewelry is more fashion oriented and subject to styling trends that could render certain designs obsolete. 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. The Company also purchases fashion finished jewelry comprised of base metals and non-precious gemstones for sale through Lulu Avenue ® 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 . Total net loose jewel inventories at September 30, 2015 and December 31, 2014, including inventory on consignment net of reserves, were $29.15 million and $31.95 million, respectively. The loose jewel inventories at September 30, 2015 and December 31, 2014 include shrinkage reserves of $61,000 and $17,000, respectively, with $5,000 and $17,000 of shrinkage reserves on inventory on consignment at September 30, 2015 and December 31, 2014, respectively. Loose jewel inventories at September 30, 2015 and December 31, 2014 also include recut reserves of $362,000 and $216,000, respectively. Total net jewelry inventories at September 30, 2015 and December 31, 2014, 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 ® The need for adjustments to inventory reserves is evaluated on a period-by-period basis. |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2015 | |
INCOME TAXES [Abstract] | |
INCOME TAXES | 6. INCOME TAXES The Company recognized an income tax net expense of approximately $3,000 for each of the three months ended September 30, 2015 and 2014. The Company recognized an income tax net expense of approximately $10,000 for the nine months ended September 30, 2015 compared to an income tax net expense of $4.05 million for the nine months ended September 30, 2014. 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. For the three and nine months ended September 30, 2015, the Company recognized $3,000 and $10,000, respectively, of income tax expense for estimated tax, penalties, and interest associated with uncertain tax positions. During the three and nine months ended September 30, 2014, the Company also recognized approximately $3,000 and $10,000, respectively, of income tax expense for estimated tax, penalties, and interest associated with uncertain tax positions. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2015 | |
COMMITMENTS AND CONTINGENCIES [Abstract] | |
COMMITMENTS AND CONTINGENCIES | 7. COMMITMENTS AND CONTINGENCIES Lease Commitments In March 2004, the Company entered into a seven-year lease, for approximately 16,500 square feet of mixed-use space from an unaffiliated third party. In January 2011, the Company amended the lease to extend the term through January 2017 with 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. The Company recognizes rent expense on a straight-line basis, giving consideration to the rent holidays and escalations, the lease signing and moving allowance paid to the Company, and the rent abatement. As of September 30, 2015, the Company’s future minimum payments under the operating leases were as follows: 2015 $ 140,038 2016 569,138 2017 584,789 2018 600,871 2019 617,395 Thereafter 1,176,330 Total $ 3,688,561 Rent expense for the three months ended September 30, 2015 and 2014 was approximately $124,000 and $134,000, respectively. Rent expense for the nine months ended September 30, 2015 and 2014 was approximately $379,000 and $249,000, 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 committed to purchase from Cree a minimum of 50%, by dollar volume, of its raw material SiC crystal requirements. If the Company’s orders required Cree to expand beyond specified production levels, the Company committed to purchase certain minimum quantities. On December 12, 2014, the Company entered into a new exclusive supply agreement with Cree (the “New Supply Agreement”), which superseded and replaced (with respect to materials ordered subsequent to the effective date of the New Supply Agreement) the exclusive supply agreement that was set to expire in 2015. Under the New Supply Agreement, subject to certain terms and conditions, the Company agreed to exclusively purchase from Cree, and Cree agreed to exclusively supply, 100% of the Company’s required SiC materials in quarterly installments that must equal or exceed a set minimum order quantity. The initial term of the New Supply Agreement will expire on June 24, 2018, unless extended by the parties. The Company also has one option to unilaterally extend the term of the agreement for an additional two-year period, subject to certain conditions. The Company’s total purchase commitment under the New Supply Agreement until June 2018 is dependent upon the size of the SiC material and ranges between approximately $29.6 million and approximately $31.5 million. During the nine months ended September 30, 2015 and 2014, the Company purchased approximately $4.95 million and $4.62 million, respectively, of SiC crystals from Cree. |
LINE OF CREDIT
LINE OF CREDIT | 9 Months Ended |
Sep. 30, 2015 | |
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, 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. Wells Fargo’s security interest in certain SiC materials is subordinate to Cree’s security interest in such materials pursuant to the New Supply Agreement and an Intercreditor Agreement with Wells Fargo. The Credit Facility is evidenced by a credit and security agreement, dated as of June 25, 2014 and amended as of September 16, 2014 and December 12, 2014 (collectively, 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, 2015, the Company had not borrowed against the Credit Facility. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2015 | |
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 September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Employee stock options $ 207,722 $ 271,888 $ 514,183 $ 664,310 Consultant stock options 46,394 - 87,842 - Restricted stock awards 248,827 207,526 674,260 625,594 Income tax benefit - (150,846 ) - (218,543 ) Totals $ 502,943 $ 328,568 $ 1,276,285 $ 1,071,361 No stock-based compensation was capitalized as a cost of inventory during the three and nine months ended September 30, 2015 and 2014. Stock Options - Shares Weighted Average Exercise Price Outstanding, December 31, 2014 1,665,946 $ 2.93 Granted 1,033,765 $ 1.31 Exercised (241,752 ) $ 0.71 Forfeited (124,731 ) $ 3.20 Expired (447,103 ) $ 3.12 Outstanding, September 30, 2015 1,886,125 $ 2.27 The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2015 was $0.74. The total fair value of stock options that vested during the nine months ended September 30, 2015 was approximately $659,000. 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, 2015: Dividend yield 0.0 % Expected volatility 64.5 % Risk-free interest rate 1.62 % Expected lives (years) 5.66 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 expected lives of the stock options issued in 2014 and the first nine months of 2015 represent the estimated period of time until exercise or forfeiture and are based on the simplified method of using the mid-point between the vesting term and the original contractual term. Stock options issued prior to 2014 were expensed using expected lives that represented the time until exercise or forfeiture using historical information. The following table summarizes information about stock options outstanding at September 30, 2015: Options Outstanding Options Exercisable Options Vested or Expected to Vest Balance as of 9/30/2015 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Balance as of 9/30/2015 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Balance as of 9/30/2015 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price 1,886,125 8.61 $ 2.27 774,002 7.49 $ 2.99 1,778,336 8.56 $ 2.30 As of September 30, 2015, the unrecognized stock-based compensation expense related to unvested stock options was approximately $992,000, which is expected to be recognized over a weighted average period of approximately 20 months. The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at September 30, 2015 was approximately $89,000, $30,000, and $83,000, respectively. This amount is before applicable income taxes and represents the closing market price of the Company’s common stock at September 30, 2015 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, 2015, the aggregate intrinsic value of stock options exercised was approximately $0 and $167,000, respectively. Restricted Stock - Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2014 287,006 $ 3.29 Granted 487,500 $ 1.38 Vested (246,375 ) $ 2.84 Canceled - $ - Unvested, September 30, 2015 528,131 $ 1.74 As of September 30, 2015, the unrecognized stock-based compensation expense related to unvested restricted stock was approximately $556,000, which is expected to be recognized over a weighted average period of approximately seven months. Dividends |
NET LOSS PER COMMON SHARE
NET LOSS PER COMMON SHARE | 9 Months Ended |
Sep. 30, 2015 | |
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 consist of stock options and unvested restricted shares that would have been antidilutive in the application of the treasury stock method in accordance with the “Earnings Per Share” topic of the FASB Accounting Standards Codification. The following table reconciles the differences between the basic and diluted earnings per share presentations: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Numerator: Net loss $ (1,966,081 ) $ (3,065,460 ) $ (7,693,068 ) $ (10,322,937 ) Denominator: Weighted average common shares outstanding: Basic 20,571,340 20,357,333 20,336,839 20,272,897 Stock options - - - - Fully diluted 20,571,340 20,357,333 20,336,839 20,272,897 Net loss per common share: Basic $ (0.10 ) $ (0.15 ) $ (0.38 ) $ (0.51 ) Diluted $ (0.10 ) $ (0.15 ) $ (0.38 ) $ (0.51 ) For the three and nine months ended September 30, 2015, stock options to purchase approximately 1.89 million shares and 528,000 unvested restricted shares, and for 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 antidilutive to net loss per common share. |
MAJOR CUSTOMERS AND CONCENTRATI
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | 9 Months Ended |
Sep. 30, 2015 | |
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 and trade accounts receivable. The Company maintains cash and cash equivalents with high-quality financial institutions. 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, 2015 and December 31, 2014 approximated $5.15 million and $3.70 million, 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, . 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. At times, a portion of the Company’s accounts receivable will be due from customers that have individual balances in excess of 10% of the Company’s total net accounts receivable. The following is a summary of customers that represent greater than or equal to 10% of total net accounts receivable: September 30, 2015 December 31, 2014 Customer A 16 % 28 % Customer B 19 % 10 % 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, 2015 2014 2015 2014 Customer A 11 % 27 % 26 % 29 % Customer B 3 % 3 % 7 % 11 % Customer C 1 % 13 % 1 % 3 % Customer D 1 % 1 % -1 % 13 % The Company records its sales return allowance at the corporate level based on several factors including historical sales return activity and specific allowances for known customer returns. For this disclosure, the Company reports the customer activity without effect of specific sales return allowances. Customer D returned goods in excess of its purchases during the nine months ended September 30, 2015; however, these returns did not affect current period revenue as these returns had been specifically reserved as of December 31, 2014. As these returns were received from Customer D, the Company reduced its sales return allowance related to these returns. |
BASIS OF PRESENTATION AND SIG17
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2015 | |
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract] | |
Basis of Presentation and Principles of Consolidation | Basis of Presentation and Principles of Consolidation - The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2014 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, 2014 filed with the SEC on March 13, 2015 (the “2014 Annual Report”). The accompanying condensed consolidated financial statements as of and for the three and nine months ended September 30, 2015 and 2014 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 | Significant Accounting Policies - |
Use of Estimates | Use of Estimates - T |
Reclassifications | Reclassifications - |
Recently Adopted/Issued Accounting Pronouncements | Recently Adopted/Issued Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a new accounting standard that supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the new standard 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. The new standard 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, 2017, 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 the standard recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of the pending adoption of the standard on its consolidated financial statements and has not yet determined the method by which the Company will adopt the standard in 2018. In August 2014, the FASB issued new accounting guidance intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This new accounting guidance provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. This new accounting guidance is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company does not expect this new accounting guidance to have a material impact on its consolidated financial statements. In July 2015, the FASB issued new accounting guidance that will require an entity to measure inventory valued under the average cost method from the lower of cost or market to the lower of cost or net realizable value, with net realizable value defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current guidance on inventory measurement. This guidance is effective on a prospective basis for public entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted as of the beginning of an interim or annual reporting period. All other new and recently issued, but not yet effective, accounting pronouncements have been deemed to be not relevant to the Company and therefore are not expected to have any impact once adopted. |
SEGMENT INFORMATION AND GEOGR18
SEGMENT INFORMATION AND GEOGRAPHIC DATA (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |
Summary information by segment | Summary financial information by reportable segment is as follows: Three Months Ended September 30, 2015 Wholesale Moissanite.com Charles & Colvard Direct Total Net sales Loose jewels $ 2,734,545 $ 132,809 $ (45 ) $ 2,867,309 Finished jewelry 1,167,883 1,064,915 1,417,957 3,650,755 Total $ 3,902,428 $ 1,197,724 $ 1,417,912 $ 6,518,064 Product line cost of goods sold Loose jewels $ 1,468,123 $ 21,874 $ - $ 1,489,997 Finished jewelry 877,869 519,740 429,129 1,826,738 Total $ 2,345,992 $ 541,614 $ 429,129 $ 3,316,735 Product line gross profit Loose jewels $ 1,266,422 $ 110,935 $ (45 ) $ 1,377,312 Finished jewelry 290,014 545,175 988,828 1,824,017 Total $ 1,556,436 $ 656,110 $ 988,783 $ 3,201,329 Operating loss $ (271,269 ) $ (312,715 ) $ (1,378,837 ) $ (1,962,821 ) Depreciation and amortization $ 166,971 $ 27,776 $ 28,027 $ 222,774 Capital expenditures $ 42,677 $ - $ 7,589 $ 50,266 Three Months Ended September 30, 2014 Wholesale Moissanite.com Charles & Colvard Direct Total Net sales Loose jewels $ 2,164,134 $ 160,100 $ - $ 2,324,234 Finished jewelry 1,282,122 516,003 399,535 2,197,660 Total $ 3,446,256 $ 676,103 $ 399,535 $ 4,521,894 Product line cost of goods sold Loose jewels $ 1,392,197 $ 31,812 $ 309 $ 1,424,318 Finished jewelry 1,091,012 235,127 121,119 1,447,258 Total $ 2,483,209 $ 266,939 $ 121,428 $ 2,871,576 Product line gross profit Loose jewels $ 771,937 $ 128,288 $ (309 ) $ 899,916 Finished jewelry 191,110 280,876 278,416 750,402 Total $ 963,047 $ 409,164 $ 278,107 $ 1,650,318 Operating loss $ (1,803,857 ) $ (360,160 ) $ (897,769 ) $ (3,061,786 ) Depreciation and amortization $ 191,640 $ 51,139 $ 30,135 $ 272,914 Capital expenditures $ 50,840 $ - $ - $ 50,840 Nine Months Ended September 30, 2015 Wholesale Moissanite.com Charles & Colvard Direct Total Net sales Loose jewels $ 10,050,497 $ 404,213 $ (45 ) $ 10,454,665 Finished jewelry 4,686,747 3,158,316 4,072,272 11,917,335 Total $ 14,737,244 $ 3,562,529 $ 4,072,227 $ 22,372,000 Product line cost of goods sold Loose jewels $ 6,710,697 $ 62,693 $ 65 $ 6,773,455 Finished jewelry 3,309,852 1,533,759 1,007,994 5,851,605 Total $ 10,020,549 $ 1,596,452 $ 1,008,059 $ 12,625,060 Product line gross profit Loose jewels $ 3,339,800 $ 341,520 $ (110 ) $ 3,681,210 Finished jewelry 1,376,895 1,624,557 3,064,278 6,065,730 Total $ 4,716,695 $ 1,966,077 $ 3,064,168 $ 9,746,940 Operating loss $ (3,123,326 ) $ (994,738 ) $ (3,564,760 ) $ (7,682,824 ) Depreciation and amortization $ 490,821 $ 91,470 $ 81,159 $ 663,450 Capital expenditures $ 187,877 $ 533 $ 17,041 $ 205,451 Nine Months Ended September 30, 2014 Wholesale Moissanite.com Charles & Colvard Direct Total Net sales Loose jewels $ 9,534,930 $ 478,859 $ 1,508 $ 10,015,297 Finished jewelry 5,914,325 1,613,472 888,000 8,415,797 Total $ 15,449,255 $ 2,092,331 $ 889,508 $ 18,431,094 Product line cost of goods sold Loose jewels $ 5,208,277 $ 78,986 $ 753 $ 5,288,016 Finished jewelry 4,748,828 817,036 267,007 5,832,871 Total $ 9,957,105 $ 896,022 $ 267,760 $ 11,120,887 Product line gross profit Loose jewels $ 4,326,653 $ 399,873 $ 755 $ 4,727,281 Finished jewelry 1,165,497 796,436 620,993 2,582,926 Total $ 5,492,150 $ 1,196,309 $ 621,748 $ 7,310,207 Operating loss $ (2,936,861 ) $ (1,096,174 ) $ (2,240,182 ) $ (6,273,217 ) Depreciation and amortization $ 585,333 $ 195,391 $ 80,934 $ 861,658 Capital expenditures $ 1,007,506 $ - $ - $ 1,007,506 September 30, 2015 Wholesale Moissanite.com Charles & Colvard Direct Total Total assets $ 45,270,712 $ 66,342 $ 87,705 $ 45,424,759 December 31, 2014 Wholesale Moissanite.com Charles & Colvard Direct Total Total assets $ 51,183,888 $ 128,049 $ 114,460 $ 51,426,397 |
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, 2015 2014 2015 2014 Product line cost of goods sold $ 3,316,735 $ 2,871,576 $ 12,625,060 $ 11,120,887 Non-capitalized manufacturing and production control expenses 386,571 93,274 1,034,143 504,441 Freight out 82,118 57,165 284,108 193,141 Inventory valuation allowances (402,000 ) 254,943 213,000 323,943 Other inventory adjustments 507,367 (8,155 ) 1,039,920 114,414 Cost of goods sold $ 3,890,791 $ 3,268,803 $ 15,196,231 $ 12,256,826 |
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, 2015 December 31, 2014 Loose jewels Raw materials $ 6,650,522 $ 4,658,692 Work-in-process 5,539,032 5,752,103 Finished goods 16,916,698 21,495,873 Finished goods on consignment 40,811 46,284 Total $ 29,147,063 $ 31,952,952 Finished jewelry Raw materials $ 179,415 $ 258,707 Work-in-process 761,312 540,576 Finished goods 3,730,908 5,557,417 Finished goods on consignment 142,183 578,200 Total $ 4,813,818 $ 6,934,900 |
Data by geographic area | The following presents certain data by geographic area: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Net sales United States $ 5,599,245 $ 3,502,180 $ 20,317,860 $ 16,478,654 International 918,819 1,019,714 2,054,140 1,952,440 Total $ 6,518,064 $ 4,521,894 $ 22,372,000 $ 18,431,094 September 30, 2015 December 31, 2014 Property and equipment, net United States $ 1,545,650 $ 1,859,355 International - - Total $ 1,545,650 $ 1,859,355 September 30, 2015 December 31, 2014 Intangible assets, net United States $ 17,525 $ 39,050 International 100,820 177,897 Total $ 118,345 $ 216,947 |
INVENTORIES (Tables)
INVENTORIES (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
INVENTORIES [Abstract] | |
Schedule of inventory, net of reserves | The Company’s total inventories, net of reserves, consisted of the following as of September 30, 2015 and December 31, 2014: September 30, 2015 December 31, 2014 Raw materials $ 6,829,937 $ 4,917,399 Work-in-process 6,300,344 6,292,679 Finished goods 21,805,878 27,985,067 Finished goods on consignment 203,994 677,484 Less inventory reserves (1,147,000 ) (934,000 ) Total $ 33,993,153 $ 38,938,629 Current portion $ 12,807,883 $ 13,320,639 Long-term portion 21,185,270 25,617,990 Total $ 33,993,153 $ 38,938,629 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
COMMITMENTS AND CONTINGENCIES [Abstract] | |
Future minimum payments under operating lease | As of September 30, 2015, the Company’s future minimum payments under the operating leases were as follows: 2015 $ 140,038 2016 569,138 2017 584,789 2018 600,871 2019 617,395 Thereafter 1,176,330 Total $ 3,688,561 |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
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 September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Employee stock options $ 207,722 $ 271,888 $ 514,183 $ 664,310 Consultant stock options 46,394 - 87,842 - Restricted stock awards 248,827 207,526 674,260 625,594 Income tax benefit - (150,846 ) - (218,543 ) Totals $ 502,943 $ 328,568 $ 1,276,285 $ 1,071,361 |
Summary of the stock option activity | The following is a summary of the stock option activity for the nine months ended September 30, 2015: Shares Weighted Average Exercise Price Outstanding, December 31, 2014 1,665,946 $ 2.93 Granted 1,033,765 $ 1.31 Exercised (241,752 ) $ 0.71 Forfeited (124,731 ) $ 3.20 Expired (447,103 ) $ 3.12 Outstanding, September 30, 2015 1,886,125 $ 2.27 |
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, 2015: Dividend yield 0.0 % Expected volatility 64.5 % Risk-free interest rate 1.62 % Expected lives (years) 5.66 |
Information about stock options outstanding | The following table summarizes information about stock options outstanding at September 30, 2015: Options Outstanding Options Exercisable Options Vested or Expected to Vest Balance as of 9/30/2015 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Balance as of 9/30/2015 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Balance as of 9/30/2015 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price 1,886,125 8.61 $ 2.27 774,002 7.49 $ 2.99 1,778,336 8.56 $ 2.30 |
Restricted stock activity | The following is a summary of the restricted stock activity for the nine months ended September 30, 2015: Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2014 287,006 $ 3.29 Granted 487,500 $ 1.38 Vested (246,375 ) $ 2.84 Canceled - $ - Unvested, September 30, 2015 528,131 $ 1.74 |
NET LOSS PER COMMON SHARE (Tabl
NET LOSS PER COMMON SHARE (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
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 September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Numerator: Net loss $ (1,966,081 ) $ (3,065,460 ) $ (7,693,068 ) $ (10,322,937 ) Denominator: Weighted average common shares outstanding: Basic 20,571,340 20,357,333 20,336,839 20,272,897 Stock options - - - - Fully diluted 20,571,340 20,357,333 20,336,839 20,272,897 Net loss per common share: Basic $ (0.10 ) $ (0.15 ) $ (0.38 ) $ (0.51 ) Diluted $ (0.10 ) $ (0.15 ) $ (0.38 ) $ (0.51 ) |
MAJOR CUSTOMERS AND CONCENTRA23
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract] | |
Summary of customers that represent greater than or equal to 10% of total gross sales | The following is a summary of customers that represent greater than or equal to 10% of total net accounts receivable: September 30, 2015 December 31, 2014 Customer A 16 % 28 % Customer B 19 % 10 % 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, 2015 2014 2015 2014 Customer A 11 % 27 % 26 % 29 % Customer B 3 % 3 % 7 % 11 % Customer C 1 % 13 % 1 % 3 % Customer D 1 % 1 % -1 % 13 % |
SEGMENT INFORMATION AND GEOGR24
SEGMENT INFORMATION AND GEOGRAPHIC DATA (Details) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015USD ($) | Sep. 30, 2014USD ($) | Sep. 30, 2015USD ($)Segment | Sep. 30, 2014USD ($) | Dec. 31, 2014USD ($) | |
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract] | |||||
Number of operating segments | Segment | 3 | ||||
Number of reportable segments | Segment | 3 | ||||
Summary information by segment [Abstract] | |||||
Net sales | $ 6,518,064 | $ 4,521,894 | $ 22,372,000 | $ 18,431,094 | |
Product line cost of goods sold | 3,316,735 | 2,871,576 | 12,625,060 | 11,120,887 | |
Product line gross profit | 3,201,329 | 1,650,318 | 9,746,940 | 7,310,207 | |
Operating loss | (1,962,821) | (3,061,786) | (7,682,824) | (6,273,217) | |
Depreciation and amortization | 222,774 | 272,914 | 663,450 | 861,658 | |
Capital expenditures | 50,266 | 50,840 | 205,451 | 1,007,506 | |
Total assets | 45,424,759 | 45,424,759 | $ 51,426,397 | ||
Cost of Goods Sold [Abstract] | |||||
Cost of goods sold | 3,890,791 | 3,268,803 | 15,196,231 | 12,256,826 | |
Inventories, net [Abstract] | |||||
Raw materials | 6,829,937 | 6,829,937 | 4,917,399 | ||
Work-in-process | 6,300,344 | 6,300,344 | 6,292,679 | ||
Supplies inventories | 32,000 | 32,000 | 51,000 | ||
Loose Jewels [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 2,867,309 | 2,324,234 | 10,454,665 | 10,015,297 | |
Product line cost of goods sold | 1,489,997 | 1,424,318 | 6,773,455 | 5,288,016 | |
Product line gross profit | 1,377,312 | 899,916 | 3,681,210 | 4,727,281 | |
Inventories, net [Abstract] | |||||
Raw materials | 6,650,522 | 6,650,522 | 4,658,692 | ||
Work-in-process | 5,539,032 | 5,539,032 | 5,752,103 | ||
Finished goods | 16,916,698 | 16,916,698 | 21,495,873 | ||
Finished goods on consignment | 40,811 | 40,811 | 46,284 | ||
Total | 29,147,063 | 29,147,063 | 31,952,952 | ||
Finished Jewelry [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 3,650,755 | 2,197,660 | 11,917,335 | 8,415,797 | |
Product line cost of goods sold | 1,826,738 | 1,447,258 | 5,851,605 | 5,832,871 | |
Product line gross profit | 1,824,017 | 750,402 | 6,065,730 | 2,582,926 | |
Inventories, net [Abstract] | |||||
Raw materials | 179,415 | 179,415 | 258,707 | ||
Work-in-process | 761,312 | 761,312 | 540,576 | ||
Finished goods | 3,730,908 | 3,730,908 | 5,557,417 | ||
Finished goods on consignment | 142,183 | 142,183 | 578,200 | ||
Total | 4,813,818 | 4,813,818 | 6,934,900 | ||
Operating and Reporting Segments [Member] | Wholesale [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 3,902,428 | 3,446,256 | 14,737,244 | 15,449,255 | |
Product line cost of goods sold | 2,345,992 | 2,483,209 | 10,020,549 | 9,957,105 | |
Product line gross profit | 1,556,436 | 963,047 | 4,716,695 | 5,492,150 | |
Operating loss | (271,269) | (1,803,857) | (3,123,326) | (2,936,861) | |
Depreciation and amortization | 166,971 | 191,640 | 490,821 | 585,333 | |
Capital expenditures | 42,677 | 50,840 | 187,877 | 1,007,506 | |
Total assets | 45,270,712 | 45,270,712 | 51,183,888 | ||
Operating and Reporting Segments [Member] | Wholesale [Member] | Loose Jewels [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 2,734,545 | 2,164,134 | 10,050,497 | 9,534,930 | |
Product line cost of goods sold | 1,468,123 | 1,392,197 | 6,710,697 | 5,208,277 | |
Product line gross profit | 1,266,422 | 771,937 | 3,339,800 | 4,326,653 | |
Operating and Reporting Segments [Member] | Wholesale [Member] | Finished Jewelry [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 1,167,883 | 1,282,122 | 4,686,747 | 5,914,325 | |
Product line cost of goods sold | 877,869 | 1,091,012 | 3,309,852 | 4,748,828 | |
Product line gross profit | 290,014 | 191,110 | 1,376,895 | 1,165,497 | |
Operating and Reporting Segments [Member] | Moissanite.com [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 1,197,724 | 676,103 | 3,562,529 | 2,092,331 | |
Product line cost of goods sold | 541,614 | 266,939 | 1,596,452 | 896,022 | |
Product line gross profit | 656,110 | 409,164 | 1,966,077 | 1,196,309 | |
Operating loss | (312,715) | (360,160) | (994,738) | (1,096,174) | |
Depreciation and amortization | 27,776 | 51,139 | 91,470 | 195,391 | |
Capital expenditures | 0 | 0 | 533 | 0 | |
Total assets | 66,342 | 66,342 | 128,049 | ||
Operating and Reporting Segments [Member] | Moissanite.com [Member] | Loose Jewels [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 132,809 | 160,100 | 404,213 | 478,859 | |
Product line cost of goods sold | 21,874 | 31,812 | 62,693 | 78,986 | |
Product line gross profit | 110,935 | 128,288 | 341,520 | 399,873 | |
Operating and Reporting Segments [Member] | Moissanite.com [Member] | Finished Jewelry [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 1,064,915 | 516,003 | 3,158,316 | 1,613,472 | |
Product line cost of goods sold | 519,740 | 235,127 | 1,533,759 | 817,036 | |
Product line gross profit | 545,175 | 280,876 | 1,624,557 | 796,436 | |
Operating and Reporting Segments [Member] | Charles & Colvard Direct [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 1,417,912 | 399,535 | 4,072,227 | 889,508 | |
Product line cost of goods sold | 429,129 | 121,428 | 1,008,059 | 267,760 | |
Product line gross profit | 988,783 | 278,107 | 3,064,168 | 621,748 | |
Operating loss | (1,378,837) | (897,769) | (3,564,760) | (2,240,182) | |
Depreciation and amortization | 28,027 | 30,135 | 81,159 | 80,934 | |
Capital expenditures | 7,589 | 0 | 17,041 | 0 | |
Total assets | 87,705 | 87,705 | $ 114,460 | ||
Operating and Reporting Segments [Member] | Charles & Colvard Direct [Member] | Loose Jewels [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | (45) | 0 | (45) | 1,508 | |
Product line cost of goods sold | 0 | 309 | 65 | 753 | |
Product line gross profit | (45) | (309) | (110) | 755 | |
Operating and Reporting Segments [Member] | Charles & Colvard Direct [Member] | Finished Jewelry [Member] | |||||
Summary information by segment [Abstract] | |||||
Net sales | 1,417,957 | 399,535 | 4,072,272 | 888,000 | |
Product line cost of goods sold | 429,129 | 121,119 | 1,007,994 | 267,007 | |
Product line gross profit | 988,828 | 278,416 | 3,064,278 | 620,993 | |
Segment Reconciling Items [Member] | |||||
Cost of Goods Sold [Abstract] | |||||
Non-capitalized manufacturing and production control expenses | 386,571 | 93,274 | 1,034,143 | 504,441 | |
Freight out | 82,118 | 57,165 | 284,108 | 193,141 | |
Inventory valuation allowances | (402,000) | 254,943 | 213,000 | 323,943 | |
Other inventory adjustments | $ 507,367 | $ (8,155) | $ 1,039,920 | $ 114,414 |
SEGMENT INFORMATION AND GEOGR25
SEGMENT INFORMATION AND GEOGRAPHIC DATA, Data by Geographic Area (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Net sales [Abstract] | |||||
Net sales | $ 6,518,064 | $ 4,521,894 | $ 22,372,000 | $ 18,431,094 | |
Property and Equipment, Net [Member] | |||||
Assets by geographical area [Abstract] | |||||
Total | 1,545,650 | 1,545,650 | $ 1,859,355 | ||
Intangible Assets, Net [Member] | |||||
Assets by geographical area [Abstract] | |||||
Total | 118,345 | 118,345 | 216,947 | ||
Reportable Geographical Components [Member] | United States [Member] | |||||
Net sales [Abstract] | |||||
Net sales | 5,599,245 | 3,502,180 | 20,317,860 | 16,478,654 | |
Reportable Geographical Components [Member] | United States [Member] | Property and Equipment, Net [Member] | |||||
Assets by geographical area [Abstract] | |||||
Total | 1,545,650 | 1,545,650 | 1,859,355 | ||
Reportable Geographical Components [Member] | United States [Member] | Intangible Assets, Net [Member] | |||||
Assets by geographical area [Abstract] | |||||
Total | 17,525 | 17,525 | 39,050 | ||
Reportable Geographical Components [Member] | International [Member] | |||||
Net sales [Abstract] | |||||
Net sales | 918,819 | $ 1,019,714 | 2,054,140 | $ 1,952,440 | |
Reportable Geographical Components [Member] | International [Member] | Property and Equipment, Net [Member] | |||||
Assets by geographical area [Abstract] | |||||
Total | 0 | 0 | 0 | ||
Reportable Geographical Components [Member] | International [Member] | Intangible Assets, Net [Member] | |||||
Assets by geographical area [Abstract] | |||||
Total | $ 100,820 | $ 100,820 | $ 177,897 |
INVENTORIES (Details)
INVENTORIES (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2015 | Dec. 31, 2014 | |
Total inventories, net of reserves [Abstract] | ||
Raw materials | $ 6,829,937 | $ 4,917,399 |
Work-in-process | 6,300,344 | 6,292,679 |
Finished goods | 21,805,878 | 27,985,067 |
Finished goods on consignment | 203,994 | 677,484 |
Less inventory reserves | (1,147,000) | (934,000) |
Total | 33,993,153 | 38,938,629 |
Current portion | 12,807,883 | 13,320,639 |
Long-term portion | $ 21,185,270 | 25,617,990 |
Period considered for classification of long term inventory | 12 months | |
Work-in-process inventories issued to active production jobs | $ 2,290,000 | 2,050,000 |
Sale of slow moving loose jewel inventory of less desirable quality | 2,280,000 | |
Lower of cost or market reserve | 293,000 | |
Inventory reserve for obsolescence | 183,000 | 250,000 |
Carrying value of inventory reserve for obsolescence of moissanite | 115,000 | 31,000 |
Shrinkage reserve for finished goods on consignment | 21,000 | 53,000 |
Inventory of net loose jewels | 29,150,000 | 31,950,000 |
Inventory reserve for shrinkage of loose jewels | 61,000 | 17,000 |
Inventory reserve for shrinkage of loose jewels on consignment | 5,000 | 17,000 |
Inventory reserve for recuts | 362,000 | 216,000 |
Inventory of net jewelry | 4,810,000 | 6,930,000 |
Scrap reserve | 4,000 | 101,000 |
Inventory reserve for shrinkage of finished jewelry | 59,000 | 192,000 |
Inventory reserve for shrinkage of finished jewelry on consignment | 16,000 | 36,000 |
Inventory reserve for shrinkage of finished jewelry on repairs | $ 49,000 | $ 127,000 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
INCOME TAXES [Abstract] | ||||
Income tax expense (benefit) | $ 3,243 | $ 3,093 | $ 9,579 | $ 4,048,870 |
Income tax expense for estimated tax, penalties, and interest for other uncertain tax positions | $ 3,000 | $ 3,000 | $ 10,000 | $ 10,000 |
COMMITMENTS AND CONTINGENCIES28
COMMITMENTS AND CONTINGENCIES (Details) | Dec. 12, 2014USD ($)Option | Dec. 09, 2013ft² | Sep. 30, 2015USD ($)ft² | Sep. 30, 2014USD ($) | Sep. 30, 2015USD ($)ft² | Sep. 30, 2014USD ($) | May. 23, 2014USD ($) | Oct. 31, 2013USD ($) |
Lease Commitments [Abstract] | ||||||||
Period of lease | 7 years | |||||||
Land subject to leases (in square feet) | ft² | 36,350 | 16,500 | 16,500 | |||||
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 | |||||||
Period for which rent is abated | 7 months | |||||||
Rent expense | $ 124,000 | $ 134,000 | $ 379,000 | $ 249,000 | ||||
Future minimum payments under operating lease [Abstract] | ||||||||
2,015 | 140,038 | 140,038 | ||||||
2,016 | 569,138 | 569,138 | ||||||
2,017 | 584,789 | 584,789 | ||||||
2,018 | 600,871 | 600,871 | ||||||
2,019 | 617,395 | 617,395 | ||||||
Thereafter | 1,176,330 | 1,176,330 | ||||||
Total | 3,688,561 | $ 3,688,561 | ||||||
Purchase Commitments [Abstract] | ||||||||
Period of exclusive supply agreement | 2 years | 10 years | ||||||
Percentage committed to be purchased | 100.00% | 50.00% | ||||||
Number of option to unilaterally extend the term | Option | 1 | |||||||
Minimum purchase commitment in initial new order | $ 29,600,000 | 4,000,000 | $ 4,000,000 | |||||
Maximum purchase commitment in initial new order | $ 31,500,000 | |||||||
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 | $ 4,950,000 | $ 4,620,000 |
LINE OF CREDIT (Details)
LINE OF CREDIT (Details) - USD ($) | Jun. 25, 2014 | Sep. 20, 2013 | Sep. 30, 2015 |
PNC Bank [Member] | Line of Credit Note [Member] | |||
Line of Credit Facility [Line Items] | |||
Revolving line of credit | $ 10,000,000 | ||
Line of credit maturity date | Jun. 15, 2015 | ||
Line of credit, description of variable rate basis | One-month LIBOR rate | ||
PNC Bank [Member] | LIBOR [Member] | Line of Credit Note [Member] | |||
Line of Credit Facility [Line Items] | |||
Line of credit, spread on variable rate | 1.50% | ||
Wells Fargo [Member] | Line of Credit [Member] | |||
Line of Credit Facility [Line Items] | |||
Revolving line of credit | $ 10,000,000 | ||
Line of credit maturity date | Jun. 25, 2017 | ||
Line of credit, description of variable rate basis | Wells Fargo’s 3-month LIBOR rate | ||
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 | 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 | 3.00% | ||
Prepaid advance fee for reduction in first year after closing | 2.00% | ||
Prepaid advance fee for reduction in Second year after closing | 1.00% | ||
Prepaid advance fee for reduction, thereafter | 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 | ||
Wells Fargo [Member] | LIBOR [Member] | Line of Credit [Member] | |||
Line of Credit Facility [Line Items] | |||
Line of credit, spread on variable rate | 2.50% |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | |
Components of the Company's stock based compensation included in net income [Abstract] | |||||
Income tax benefit | $ 0 | $ (150,846) | $ 0 | $ (218,543) | |
Totals | 502,943 | 328,568 | 1,276,285 | 1,071,361 | |
Employee Stock Options [Member] | |||||
Components of the Company's stock based compensation included in net income [Abstract] | |||||
Allocated share-based compensation expense | $ 207,722 | 271,888 | $ 514,183 | 664,310 | |
Shares [Roll Forward] | |||||
Outstanding, December 31, 2014 | 1,665,946 | ||||
Granted (in shares) | 1,033,765 | ||||
Exercised (in shares) | (241,752) | ||||
Forfeited (in shares) | (124,731) | ||||
Expired (in shares) | (447,103) | ||||
Outstanding, September 30, 2015 | 1,886,125 | 1,886,125 | |||
Weighted Average Exercise Price [Roll Forward] | |||||
Outstanding, December 31, 2014 (in dollars per share) | $ 2.93 | ||||
Granted (in dollars per share) | 1.31 | ||||
Exercised (in dollars per share) | 0.71 | ||||
Forfeited (in dollars per share) | 3.20 | ||||
Expired (in dollars per share) | 3.12 | ||||
Outstanding, September 30, 2015 (in dollars per share) | $ 2.27 | $ 2.27 | |||
Weighted average assumptions for stock options [Abstract] | |||||
Dividend yield | 0.00% | ||||
Expected volatility | 64.50% | ||||
Risk-free interest rate | 1.62% | ||||
Expected lives | 5 years 7 months 28 days | ||||
Options Outstanding [Abstract] | |||||
Balance as of 9/30/2015 (in shares) | 1,886,125 | 1,665,946 | 1,886,125 | ||
Weighted average remaining contractual life | 8 years 7 months 10 days | ||||
Weighted average exercise price (in dollars per share) | $ 2.27 | $ 2.93 | $ 2.27 | ||
Options Exercisable [Abstract] | |||||
Balance as of 9/30/2015 (in shares) | 774,002 | ||||
Weighted average remaining contractual life | 7 years 5 months 26 days | ||||
Weighted average exercise price (in dollars per share) | $ 2.99 | ||||
Options Vested or Expected to Vest [Abstract] | |||||
Balance as of 9/30/2015 (in shares) | 1,778,336 | ||||
Weighted average remaining contractual life | 8 years 6 months 22 days | ||||
Weighted average exercise price (in dollars per share) | $ 2.30 | ||||
Stock-based compensation capitalized as a cost of inventory | $ 0 | 0 | $ 0 | 0 | |
Fair value of stock options (in dollars per share) | $ 0.74 | ||||
Fair value of stock options vested | $ 659,000 | ||||
Unrecognized stock-based compensation expense related to unvested awards | $ 992,000 | ||||
Total compensation cost not yet recognized, period for recognition | 20 months | ||||
Aggregate intrinsic value of stock options outstanding | 89,000 | ||||
Aggregate intrinsic value of stock options exercisable | 30,000 | ||||
Aggregate intrinsic value of stock options vested and expected to vest | 83,000 | ||||
Aggregate intrinsic value of stock options exercised | 0 | $ 167,000 | |||
Consultant Stock Options [Member] | |||||
Components of the Company's stock based compensation included in net income [Abstract] | |||||
Allocated share-based compensation expense | 46,394 | 0 | 87,842 | 0 | |
Restricted Stock [Member] | |||||
Components of the Company's stock based compensation included in net income [Abstract] | |||||
Allocated share-based compensation expense | $ 248,827 | $ 207,526 | $ 674,260 | $ 625,594 | |
Options Vested or Expected to Vest [Abstract] | |||||
Unrecognized stock-based compensation expense related to unvested awards | $ 556,000 | ||||
Total compensation cost not yet recognized, period for recognition | 7 months | ||||
Shares [Roll Forward] | |||||
Unvested, December 31, 2014 (in shares) | 287,006 | ||||
Granted (in shares) | 487,500 | ||||
Vested (in shares) | (246,375) | ||||
Canceled (in shares) | 0 | ||||
Unvested, September 30, 2015 (in shares) | 528,131 | 528,131 | |||
Weighted Average Grant Date Fair Value [Roll Forward] | |||||
Unvested, December 31, 2014 (in dollars per share) | $ 3.29 | ||||
Granted (in dollars per share) | 1.38 | ||||
Vested (in dollars per share) | 2.84 | ||||
Canceled (in dollars per share) | 0 | ||||
Unvested, September 30, 2015 (in dollars per share) | $ 1.74 | $ 1.74 |
NET LOSS PER COMMON SHARE (Deta
NET LOSS PER COMMON SHARE (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Numerator [Abstract] | ||||
Net loss | $ (1,966,081) | $ (3,065,460) | $ (7,693,068) | $ (10,322,937) |
Weighted average common shares outstanding [Abstract] | ||||
Basic (in shares) | 20,571,340 | 20,357,333 | 20,336,839 | 20,272,897 |
Stock options (in shares) | 0 | 0 | 0 | 0 |
Fully diluted (in shares) | 20,571,340 | 20,357,333 | 20,336,839 | 20,272,897 |
Net loss per common share [Abstract] | ||||
Basic (in dollars per share) | $ (0.10) | $ (0.15) | $ (0.38) | $ (0.51) |
Diluted (in dollars per share) | $ (0.10) | $ (0.15) | $ (0.38) | $ (0.51) |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Stock options to purchase shares and non vested restricted shares (in shares) | 528,000 | 528,000 | ||
Stock Options [Member] | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Stock options to purchase shares and non vested restricted shares (in shares) | 1,890,000 | 1,630,000 | 1,890,000 | 1,630,000 |
MAJOR CUSTOMERS AND CONCENTRA32
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
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 | $ 5,150,000 | 5,150,000 | $ 3,700,000 | ||
Increase in allowance for doubtful accounts | $ 815,000 | ||||
Minimum [Member] | |||||
Concentration Risk [Line Items] | |||||
Period of customer payments on trade receivables | 30 days | ||||
Maximum [Member] | |||||
Concentration Risk [Line Items] | |||||
Period of customer payments on trade receivables | 90 days | ||||
Trade Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer A [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration risk, percentage | 16.00% | 28.00% | |||
Trade Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer B [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration risk, percentage | 19.00% | 10.00% | |||
Total Gross Sales [Member] | |||||
Concentration Risk [Line Items] | |||||
Percentage of gross sales used as benchmark | 10.00% | ||||
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer A [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration risk, percentage | 11.00% | 27.00% | 26.00% | 29.00% | |
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer B [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration risk, percentage | 3.00% | 3.00% | 7.00% | 11.00% | |
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer C [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration risk, percentage | 1.00% | 13.00% | 1.00% | 3.00% | |
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer D [Member] | |||||
Concentration Risk [Line Items] | |||||
Concentration risk, percentage | 1.00% | 1.00% | (1.00%) | 13.00% |