Charles & Colvard (CTHR) 10-Q 5 May 17 2017 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2017	May 01, 2017
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		21,629,685
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2017

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($)	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 6,629,587	$ 7,427,273
Accounts receivable, net	2,234,486	2,794,626
Inventory, net	9,498,212	9,770,206
Prepaid expenses and other assets	618,570	682,083
Total current assets	18,980,855	20,674,188
Long-term assets:
Inventory, net	19,426,350	18,360,211
Property and equipment, net	1,481,841	1,391,116
Intangible assets, net	9,372	8,808
Other assets	70,100	71,453
Total long-term assets	20,987,663	19,831,588
TOTAL ASSETS	39,968,518	40,505,776
Current liabilities:
Accounts payable	3,900,663	3,977,149
Accrued cooperative advertising	54,000	50,000
Accrued expenses and other liabilities	660,076	581,107
Total current liabilities	4,614,739	4,608,256
Long-term liabilities:
Accrued expenses and other liabilities	564,440	594,916
Accrued income taxes	448,071	433,983
Total long-term liabilities	1,012,511	1,028,899
Total liabilities	5,627,250	5,637,155
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock, no par value; 50,000,000 shares authorized; 21,629,685 and 21,369,885 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively	54,243,816	54,243,816
Additional paid-in capital	14,315,249	14,282,956
Accumulated deficit	(34,217,797)	(33,658,151)
Total shareholders' equity	34,341,268	34,868,621
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 39,968,518	$ 40,505,776

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
Shareholders' equity
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	21,629,685	21,369,885
Common stock, shares outstanding (in shares)	21,629,685	21,369,885

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) [Abstract]
Net sales	$ 5,645,382	$ 11,393,271
Costs and expenses:
Cost of goods sold	3,220,615	9,163,888
Sales and marketing	1,915,335	1,528,585
General and administrative	1,054,171	1,442,695
Research and development	819	1,868
Total costs and expenses	6,190,940	12,137,036
Loss from operations	(545,558)	(743,765)
Other expense:
Interest expense	0	(1,507)
Total other expense	0	(1,507)
Loss before income taxes from continuing operations	(545,558)	(745,272)
Income tax net expense from continuing operations	(14,088)	(3,243)
Net loss from continuing operations	(559,646)	(748,515)
Discontinued Operations:
Loss from discontinued operations	0	(574,370)
Gain on sale of assets from discontinued operations	0	15,463
Net loss from discontinued operations	0	(558,907)
Net loss	$ (559,646)	$ (1,307,422)
Net loss per common share:
Basic - continuing operations (in dollars per share)	$ (0.03)	$ (0.04)
Basic - discontinued operations (in dollars per share)	0	(0.02)
Basic - total (in dollars per share)	(0.03)	(0.06)
Diluted - continuing operations (in dollars per share)	(0.03)	(0.04)
Diluted - discontinued operations (in dollars per share)	0	(0.02)
Diluted - total (in dollars per share)	$ (0.03)	$ (0.06)
Weighted average number of shares used in computing net loss per common share:
Basic (in shares)	21,118,335	20,730,419
Diluted (in shares)	21,118,335	20,730,419

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (559,646)	$ (1,307,422)
Net loss from discontinued operations	0	(558,907)
Net loss from continuing operations	(559,646)	(748,515)
Adjustments to reconcile net loss from continuing operations to net cash (used in) provided by operating activities of continuing operations
Depreciation and amortization	107,656	146,491
Stock-based compensation	32,293	285,076
Provision for uncollectible accounts	9,000	(93,558)
Provision for sales returns	80,000	(34,000)
Provision for inventory reserves	(266,000)	55,000
Changes in operating assets and liabilities:
Accounts receivable	471,140	1,340,615
Inventory	(528,145)	7,259,887
Prepaid expenses and other assets, net	64,866	8,698
Accounts payable	(76,486)	(1,310,599)
Accrued cooperative advertising	4,000	7,000
Accrued income taxes	14,088	3,243
Accrued expenses and other liabilities	48,493	(199,136)
Net cash (used in) provided by operating activities of continuing operations	(598,741)	6,720,202
Net cash used in operating activities of discontinued operations	0	(744,511)
Net cash (used in) provided by operating activities	(598,741)	5,975,691
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(197,953)	(38,505)
Intangible assets	(992)	0
Net cash used in investing activities of continuing operations	(198,945)	(38,505)
Net cash provided by investing activities of discontinued operations	0	368,671
Net cash (used in) provided investing activities	(198,945)	330,166
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(797,686)	6,305,857
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	7,427,273	5,274,305
CASH AND CASH EQUIVALENTS, END OF PERIOD	6,629,587	11,580,162
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$ 0	$ 1,507

DESCRIPTION OF BUSINESS

DESCRIPTION OF BUSINESS	3 Months Ended
	Mar. 31, 2017
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 ® The Company sells loose moissanite jewels and finished jewelry at wholesale to distributors, manufacturers, retailers, TV shopping networks, and designers, and at retail to end consumers through its wholly owned operating subsidiaries, charlesandcolvard.com, LLC (formerly Moissanite.com, LLC) and Charles & Colvard Direct, LLC (until March 2016), and through third-party marketplaces. As oissanite.com, LLC to charlesandcolvard.com, LLC. In February 2016, the Company Lulu Avenue ® Note 12, “Discontinued Operations.”

BASIS OF PRESENTATION AND SIGNI

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Mar. 31, 2017
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 months ended March 31, 2017 and 2016 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2016 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, 2016 filed with the SEC on March 10, 2017 (the “2016 Annual Report”). The accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2017 and 2016 include the accounts of the Company and its wholly owned subsidiaries charlesandcolvard.com, LLC (formerly Moissanite.com, LLC), All intercompany accounts have been eliminated. Significant Accounting Policies - Discontinued Operations - The results of operations for businesses that have been disposed of or classified as held-for-sale are segregated from the results of the Company’s continuing operations and classified as discontinued operations for each period presented in the Company’s consolidated income statement. Similarly, the assets and liabilities of such businesses are presented as discontinued operations for each period presented on the Company’s consolidated balance sheet. 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 has begun reviewing its significant contracts and continues to assess the impact of adoption of this accounting standard. In February 2016, the FASB issued new guidance that establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company currently expects that upon adoption of this new standard, ROU assets and liabilities will be recognized in the balance sheet in amounts that will be material.

SEGMENT INFORMATION AND GEOGRAP

SEGMENT INFORMATION AND GEOGRAPHIC DATA	3 Months Ended
	Mar. 31, 2017
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. Previously, the Company managed its business through two operating and reportable segments: wholesale distribution transacted through the parent entity, and the direct-to-consumer distribution channel transacted through the Company’s wholly owned operating subsidiary, charlesandcolvard.com, LLC (formerly Moissanite.com, LLC). During the three months ended March 31, 2017, the Company began managing its business through two newly defined operating and reportable segments based on its distribution channels to sell its product lines, loose jewels and finished jewelry: its “Traditional” segment, which consists of wholesale, retail, and television customers; and its “Online Channels” segment, which consists of e-commerce customers including charlesandcolvard.com, marketplaces, drop-ship, and other pure-play, exclusively e-commerce customers. The accounting policies of the Traditional segment and Online Channels segment are the same as those described in Note 2, “Basis of Presentation and Significant Accounting Policies” of this Quarterly Report on Form 10-Q and in the Notes to the Consolidated Financial Statements in the 2016 Annual Report. T The Company allocates certain general and administrative expenses from its Traditional segment to its Online Channels segment primarily based on net sales and number of employees to arrive at segment operating loss. Unallocated expenses, which also include interest and taxes, remain in its Traditional segment. Summary financial information by reportable segment is as follows: Three Months Ended March 31, 2017 Traditional Online Channels Total Net sales Loose jewels $ 3,212,216 $ 717,504 $ 3,929,720 Finished jewelry 276,777 1,438,885 1,715,662 Total $ 3,488,993 $ 2,156,389 $ 5,645,382 Product line cost of goods sold Loose jewels $ 1,673,661 $ 316,469 $ 1,990,130 Finished jewelry 249,552 564,660 814,212 Total $ 1,923,213 $ 881,129 $ 2,804,342 Product line gross profit Loose jewels $ 1,538,555 $ 401,035 $ 1,939,590 Finished jewelry 27,225 874,225 901,450 Total $ 1,565,780 $ 1,275,260 $ 2,841,040 Operating loss $ (448,998 ) $ (96,560 ) $ (545,558 ) Depreciation and amortization $ 79,381 $ 28,275 $ 107,656 Capital expenditures $ 194,332 $ 3,621 $ 197,953 Three Months Ended March 31, 2016 Traditional Online Channels Total Net sales Loose jewels $ 9,083,502 $ 557,096 $ 9,640,598 Finished jewelry 254,630 1,498,043 1,752,673 Total $ 9,338,132 $ 2,055,139 11,393,271 Product line cost of goods sold Loose jewels $ 7,625,495 $ 188,565 $ 7,814,060 Finished jewelry 91,912 673,195 765,107 Total $ 7,717,407 $ 861,760 $ 8,579,167 Product line gross profit Loose jewels $ 1,458,007 $ 368,531 $ 1,826,538 Finished jewelry 162,718 824,848 987,566 Total $ 1,620,725 $ 1,193,379 $ 2,814,104 Operating (loss) income $ (816,997 ) $ 73,232 $ (743,765 ) Depreciation and amortization $ 132,048 $ 14,443 $ 146,491 Capital expenditures $ 36,903 $ 1,602 $ 38,505 The Company does not allocate any assets to the reportable segments, and, therefore, no asset information is reported to the chief operating decision maker and disclosed in the financial information for each segment. A reconciliation of the Company’s product line cost of goods sold to cost of goods sold as reported in the condensed consolidated financial statements is as follows: Three Months Ended March 31, 2017 2016 Product line cost of goods sold $ 2,804,342 $ 8,579,167 Non-capitalized manufacturing and production control expenses 367,749 410,750 Freight out 70,797 72,058 Inventory valuation allowances (266,000 ) 55,000 Other inventory adjustments 243,727 46,913 Cost of goods sold $ 3,220,615 $ 9,163,888 The Company recognizes sales by geographic area based on the country in which the customer is based. A portion of the Company’s Traditional segment sales made to international wholesale distributors represents products sold internationally that may be re-imported to U.S. retailers. Sales to international end consumers made by the Company’s Online Channels 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. All intangible assets as of March 31, 2017 and December 31, 2016 are held in the United States. The following presents certain data by geographic area: Three Months Ended March 31, 2017 2016 Net sales United States $ 5,242,341 $ 10,641,982 International 403,041 751,289 Total $ 5,645,382 $ 11,393,271 March 31, 2017 December 31, 2016 Property and equipment, net United States $ 1,481,841 $ 1,391,116 International - - Total $ 1,481,841 $ 1,391,116

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS	3 Months Ended
	Mar. 31, 2017
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 financial instruments identified as subject to fair value measurements on a recurring basis are cash and cash equivalents, trade accounts receivable, and trade accounts payable. All financial instruments are reflected in the consolidated balance sheets at carrying value, which approximates fair value due to the short-term nature of these financial 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	3 Months Ended
	Mar. 31, 2017
INVENTORIES [Abstract]
INVENTORIES	5. INVENTORIES The Company’s total inventories, net of reserves, consisted of the following as of March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Raw materials $ 3,683,641 $ 3,106,617 Work-in-process 10,692,257 11,048,126 Finished goods 15,296,594 15,074,896 Finished goods on consignment 553,070 467,778 Less inventory reserves (1,301,000 ) (1,567,000 ) Total $ 28,924,562 $ 28,130,417 Short-term portion $ 9,498,212 $ 9,770,206 Long-term portion 19,426,350 18,360,211 Total $ 28,924,562 $ 28,130,417 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 March 31, 2017 and December 31, 2016, work-in-process inventories issued to active production jobs approximated $5.78 million and $7.18 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. Presently, 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 the exclusive right in many other countries into the third quarter of 2016 to produce and sell created SiC for use in jewelry applications. During the years ended December 31, 2016 and 2015, management identified an opportunity to sell approximately $6.77 million and $2.28 million, respectively, of legacy loose jewel inventory of less desirable quality. As a result of these sales and feedback from customers on the value of some of these goods, the Company determined a lower of cost or market reserve of $529,000 and $517,000 as of March 31, 2017 and December 31, 2016, respectively, was required on some of the remaining inventory of these lower quality goods. 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 Traditional segment customers. Prior to March 2016, the Company purchased fashion finished jewelry comprising 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 . The Company’s total inventories, net of reserves, consisted of the following as of March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Loose jewels Raw materials $ 3,088,681 $ 2,586,045 Work-in-process 10,054,559 10,589,424 Finished goods 9,695,751 9,455,393 Finished goods on consignment 98,533 5,473 Total loose jewels $ 22,937,524 $ 22,636,335 Finished jewelry Raw materials $ 594,960 $ 520,572 Work-in-process 637,698 458,702 Finished goods 4,308,333 4,081,275 Finished goods on consignment 405,537 416,305 Total finished jewelry $ 5,946,528 $ 5,476,854 Total supplies inventory $ 40,510 $ 17,228 Total inventory $ 28,924,562 $ 28,130,417 Total net loose jewel inventories at March 31, 2017 and December 31, 2016, including inventory on consignment net of reserves, were $22.94 million and $22.64 million, respectively. The loose jewel inventories at March 31, 2017 and December 31, 2016 include shrinkage reserves of $83,000 and $67,000, respectively, which includes $11,000 and $7,000 of shrinkage reserves on inventory on consignment at March 31, 2017 and December 31, 2016, respectively. Loose jewel inventories at March 31, 2017 and December 31, 2016 also include recut reserves of $438,000 and $425,000, respectively. Total net jewelry inventories at March 31, 2017 and December 31, 2016, including inventory on consignment net of reserves and finished jewelry featuring moissanite manufactured by the Company, were $5.95 million and $5.48 million, respectively. The finished jewelry inventories at March 31, 2017 and December 31, 2016 also include shrinkage reserves of $114,000 and $102,000, respectively, including shrinkage reserves of $38,000 and $39,000 on inventory on consignment, respectively; and a repairs reserve of $66,000 and $29,000, respectively. The need for adjustments to inventory reserves is evaluated on a period-by-period basis.

INCOME TAXES

INCOME TAXES	3 Months Ended
	Mar. 31, 2017
INCOME TAXES [Abstract]
INCOME TAXES	6. INCOME TAXES The Company recognized an income tax net expense for estimated tax, penalties, and interest associated with uncertain tax positions of approximately $14,000 and $3,000 for the three months ended March 31, 2017 and 2016, respectively. 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.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	3 Months Ended
	Mar. 31, 2017
COMMITMENTS AND CONTINGENCIES [Abstract]
COMMITMENTS AND CONTINGENCIES	7. COMMITMENTS AND CONTINGENCIES Purchase Commitments On December 12, 2014, the Company entered into a new exclusive supply agreement (the “Supply Agreement”) with Cree, Inc. (“Cree”), which superseded and replaced the exclusive supply agreement that was set to expire in 2015. Under the 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 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 Supply Agreement until June 2018 is dependent upon the size of the SiC material and ranges between approximately $29.60 million and approximately $31.50 million. As of March 31, 2017, the Company’s remaining purchase commitment through June 2018 under the Supply Agreement ranges from approximately $12.33 million to approximately $14.23 million. During the three months ended March 31, 2017 and 2016, the Company purchased approximately $2.21 million and $1.91 million, respectively, of SiC crystals from Cree.

LINE OF CREDIT

LINE OF CREDIT	3 Months Ended
	Mar. 31, 2017
LINE OF CREDIT [Abstract]
LINE OF CREDIT	8. LINE OF CREDIT On June 25, 2014, the Company and its wholly owned subsidiaries, Charles & Colvard Direct, LLC, and Moissanite.com, LLC (now charlesandcolvard.com LLC) (collectively, the “Borrowers”), obtained a $10,000,000 asset-based revolving credit facility (the “Credit Facility”) from Wells Fargo Bank, National Association (“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. Accordingly, the Company is currently reviewing various credit facility alternatives. 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 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, as amended (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 March 31, 2017, the Company had not borrowed against the Credit Facility.

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION	3 Months Ended
	Mar. 31, 2017
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 March 31, 2017 2016 Employee stock options $ 71,323 $ 139,183 Consultant stock options - 50,248 Restricted stock awards (39,030 ) 144,591 Totals $ 32,293 $ 334,022 No stock-based compensation was capitalized as a cost of inventory during the three months ended March 31, 2017 or 2016. Included in total stock-based compensation is approximately $0 and $49,000 for the three months ended March 31, 2017 and 2016, respectively, related to discontinued operations. Stock Options - Shares Weighted Average Exercise Price Outstanding, December 31, 2016 2,134,898 $ 1.99 Granted 125,454 $ 1.04 Forfeited (23,625 ) $ 1.86 Expired (417,002 ) $ 3.08 Outstanding, March 31, 2017 1,819,725 $ 1.68 The weighted average grant date fair value of stock options granted during the three months ended March 31, 2017 was $0.59. The total fair value of stock options that vested during the three months ended March 31, 2017 was approximately $127,000. 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 three months ended March 31, 2017: Dividend yield 0.0 % Expected volatility 63.3 % Risk-free interest rate 1.96 % Expected lives (years) 5.51 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 issued since 2014 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. Expected forfeitures are based on the historical forfeiture rates by employee class. The following table summarizes information about stock options outstanding at March 31, 2017: Options Outstanding Options Exercisable Options Vested or Expected to Vest Balance as of 3/31/2017 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Balance as of 3/31/2017 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Balance as of 3/31/2017 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price 1,819,725 7.48 $ 1.68 1,170,784 6.58 $ 1.95 1,736,717 7.40 $ 1.70 As of March 31, 2017, the unrecognized stock-based compensation expense related to unvested stock options was approximately $281,000, which is expected to be recognized over a weighted average period of approximately 22 months. The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at March 31, 2017 was approximately $11,000. This amount is before applicable income taxes and represents the closing market price of the Company’s common stock at March 31, 2017 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 months ended March 31, 2017, no stock options were exercised. Restricted Stock - Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2016 359,400 $ 0.91 Granted 420,000 $ 1.11 Vested (202,953 ) $ 0.91 Canceled (160,200 ) $ 0.91 Unvested, March 31, 2017 416,247 $ 1.11 As of March 31, 2017, the estimated unrecognized stock-based compensation expense related to unvested restricted shares subject to achievement of performance goals was approximately $427,000, all of which is expected to be recognized over a weighted average period of approximately 11 months. Dividends

NET LOSS PER COMMON SHARE

NET LOSS PER COMMON SHARE	3 Months Ended
	Mar. 31, 2017
NET LOSS PER COMMON SHARE [Abstract]
NET LOSS PER COMMON SHARE	10. NET LOSS PER COMMON SHARE Basic net loss from continuing and discontinued operations per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the periods. Diluted net loss from continuing and discontinued operations 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 net loss per share presentations: Three Months Ended March 31, 2017 2016 Numerator: Net loss from continuing operations $ (559,646 ) $ (748,515 ) Net loss from discontinued operations - (558,907 ) Net loss $ (559,646 ) $ (1,307,422 ) Denominator: Weighted average common shares outstanding: Basic and Diluted 21,118,335 20,730,419 Net loss per common share: Basic – continuing operations $ (0.03 ) $ (0.04 ) Basic – discontinued operations - (0.02 ) Basic – total $ (0.03 ) $ (0.06 ) Diluted – continuing operations $ (0.03 ) $ (0.04 ) Diluted – discontinued operations - (0.02 ) Diluted – total $ (0.03 ) $ (0.06 ) For the three months ended March 31, 2017 and 2016, stock options to purchase approximately 1.82 and 2.37 million shares, respectively, 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 the three months ended March 31, 2017 and 2016, approximately 416,000 and 564,000, respectively, of restricted shares that have been issued but not yet vested have been excluded from the computation of diluted net loss per common share.

MAJOR CUSTOMERS AND CONCENTRATI

MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK	3 Months Ended
	Mar. 31, 2017
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. At times, cash balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurable limits of $250,000 per depositor at each financial institution. The Company has never experienced any losses related to these balances. Non-interest-bearing amounts on deposit in excess of FDIC insurable limits at March 31, 2017 approximated $6.31 million. 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 that is verified through trade association reference services, 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 of 10% or more of the Company’s total gross accounts receivable. The following is a summary of customers that represent 10% or more of total gross accounts receivable: March 31, 2017 December 31, 2016 Customer A 23 % ** % Customer B * % 13 % *Customer B did not have a balance that represented 10% or more of the total gross accounts receivable as of March 31, 2017. **Customer A did not have a balance that represented 10% or more of the total gross accounts receivable as of December 31, 2016. A significant portion of sales is derived from certain customer relationships. The following is a summary of customers that represent 10% or more of total gross sales: Three Months Ended March 31, 2017 2016 Customer A 25 % ** % Customer C 10 % ** % Customer D * % 59 % *Customer D did not have a balance that represented 10% or more of total gross sales for the three months ended March 31, 2017. **Customers A and C did not have individual balances that represented 10% or more of total gross sales for the three months ended March 31, 2016.

DISCONTINUED OPERATIONS

DISCONTINUED OPERATIONS	3 Months Ended
	Mar. 31, 2017
DISCONTINUED OPERATIONS [Abstract]
DISCONTINUED OPERATIONS	12. DISCONTINUED OPERATIONS On March 4, 2016, the Company and Charles & Colvard Direct, LLC (“Direct”) a wholly-owned subsidiary of the Company, entered into an asset purchase agreement (the “Purchase Agreement”) with Yanbal, pursuant to which Yanbal agreed to purchase certain assets of Direct (the “Transferred Assets”). The transactions contemplated by the Purchase Agreement also closed on March 4, 2016 (the “Closing Date”). The Company determined that the sale of these assets represented a strategic shift that will have a major effect on the Company’s operations and financial results. The Company made the decision to divest of these assets after careful analysis of the Company’s core competencies, go-to-market strategies, and intent to advance toward profitability. Pursuant to the terms of the Purchase Agreement, the Transferred Assets included, among other things, (i) an inventory credit to be used towards $250,000 in existing non-moissanite and moissanite inventory as of the Closing Date, consisting of Direct’s current jewelry offered under the “Lulu Avenue” trademarks, (ii) all existing marketing collateral such as packaging and catalogs for Direct’s current jewelry offered under the “Lulu Avenue” trademarks as of the Closing Date, (iii) certain assigned contracts, (iv) style advisor and customer lists, and (v) all intellectual property rights owned by the Company and Direct and used solely in connection with the operation of Direct’s direct-to-consumer home party business for the sale of fashion jewelry and related products and services in the United States, excluding the “Lulu Avenue” and “Love Knot” trademarks and other “Lulu Avenue” specific intellectual property such as the domain name www.luluavenue.com and all content located on such website (the “Lulu Intellectual Property”). The inventory credit and an exclusive, nontransferable license to use the Lulu Intellectual Property that was also granted to Yanbal on the Closing Date expired on July 31, 2016. After the Closing Date, the Company and Direct may not engage in the direct-to-consumer home party business and may not solicit style advisors or customers of the direct-to-consumer home party business. The Company had also agreed to provide to Yanbal certain transition services, which services ended August 31, 2016. The purchase price for the Transferred Assets was $500,000 with selling expenses of approximately $131,000, resulting in a net purchase price of approximately $369,000. The Company recorded a liability associated with $35,000 of expense related to certain style advisor incentives and reduced prepaid expenses by $60,000 related to contracts acquired by Yanbal. There were no assets or liabilities related to discontinued operations at March 31, 2017 or December 31, 2016. The following table presents the major classes of line items constituting pretax loss from discontinued operations: Three Months Ended March 31, 2017 2016 Net sales $ - $ 717,073 Costs and expenses: Cost of goods sold - 259,089 Sales and marketing - 863,808 General and administrative - 168,535 Interest expense - 11 Total costs and expenses - 1,291,443 Loss from discontinued operations - (574,370 ) Other income: Gain on sale of long-term assets - 15,463 Total other income, net - 15,463 Pretax loss from discontinued operations $ - $ (558,907 )

BASIS OF PRESENTATION AND SIG18

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
	Mar. 31, 2017
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 months ended March 31, 2017 and 2016 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2016 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, 2016 filed with the SEC on March 10, 2017 (the “2016 Annual Report”). The accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2017 and 2016 include the accounts of the Company and its wholly owned subsidiaries charlesandcolvard.com, LLC (formerly Moissanite.com, LLC), All intercompany accounts have been eliminated.
Significant Accounting Policies	Significant Accounting Policies -
Discontinued Operations	Discontinued Operations - The results of operations for businesses that have been disposed of or classified as held-for-sale are segregated from the results of the Company’s continuing operations and classified as discontinued operations for each period presented in the Company’s consolidated income statement. Similarly, the assets and liabilities of such businesses are presented as discontinued operations for each period presented on the Company’s consolidated balance sheet.
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 has begun reviewing its significant contracts and continues to assess the impact of adoption of this accounting standard. In February 2016, the FASB issued new guidance that establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company currently expects that upon adoption of this new standard, ROU assets and liabilities will be recognized in the balance sheet in amounts that will be material.

SEGMENT INFORMATION AND GEOGR19

SEGMENT INFORMATION AND GEOGRAPHIC DATA (Tables)	3 Months Ended
	Mar. 31, 2017
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract]
Summary information by reportable segment	Summary financial information by reportable segment is as follows: Three Months Ended March 31, 2017 Traditional Online Channels Total Net sales Loose jewels $ 3,212,216 $ 717,504 $ 3,929,720 Finished jewelry 276,777 1,438,885 1,715,662 Total $ 3,488,993 $ 2,156,389 $ 5,645,382 Product line cost of goods sold Loose jewels $ 1,673,661 $ 316,469 $ 1,990,130 Finished jewelry 249,552 564,660 814,212 Total $ 1,923,213 $ 881,129 $ 2,804,342 Product line gross profit Loose jewels $ 1,538,555 $ 401,035 $ 1,939,590 Finished jewelry 27,225 874,225 901,450 Total $ 1,565,780 $ 1,275,260 $ 2,841,040 Operating loss $ (448,998 ) $ (96,560 ) $ (545,558 ) Depreciation and amortization $ 79,381 $ 28,275 $ 107,656 Capital expenditures $ 194,332 $ 3,621 $ 197,953 Three Months Ended March 31, 2016 Traditional Online Channels Total Net sales Loose jewels $ 9,083,502 $ 557,096 $ 9,640,598 Finished jewelry 254,630 1,498,043 1,752,673 Total $ 9,338,132 $ 2,055,139 11,393,271 Product line cost of goods sold Loose jewels $ 7,625,495 $ 188,565 $ 7,814,060 Finished jewelry 91,912 673,195 765,107 Total $ 7,717,407 $ 861,760 $ 8,579,167 Product line gross profit Loose jewels $ 1,458,007 $ 368,531 $ 1,826,538 Finished jewelry 162,718 824,848 987,566 Total $ 1,620,725 $ 1,193,379 $ 2,814,104 Operating (loss) income $ (816,997 ) $ 73,232 $ (743,765 ) Depreciation and amortization $ 132,048 $ 14,443 $ 146,491 Capital expenditures $ 36,903 $ 1,602 $ 38,505
Schedule of reconciliation of product line cost of goods sold to cost of goods sold as reported in condensed consolidated financial statements	The Company does not allocate any assets to the reportable segments, and, therefore, no asset information is reported to the chief operating decision maker and disclosed in the financial information for each segment. A reconciliation of the Company’s product line cost of goods sold to cost of goods sold as reported in the condensed consolidated financial statements is as follows: Three Months Ended March 31, 2017 2016 Product line cost of goods sold $ 2,804,342 $ 8,579,167 Non-capitalized manufacturing and production control expenses 367,749 410,750 Freight out 70,797 72,058 Inventory valuation allowances (266,000 ) 55,000 Other inventory adjustments 243,727 46,913 Cost of goods sold $ 3,220,615 $ 9,163,888
Data by geographic area	The following presents certain data by geographic area: Three Months Ended March 31, 2017 2016 Net sales United States $ 5,242,341 $ 10,641,982 International 403,041 751,289 Total $ 5,645,382 $ 11,393,271 March 31, 2017 December 31, 2016 Property and equipment, net United States $ 1,481,841 $ 1,391,116 International - - Total $ 1,481,841 $ 1,391,116

INVENTORIES (Tables)

INVENTORIES (Tables)	3 Months Ended
	Mar. 31, 2017
INVENTORIES [Abstract]
Schedule of inventory, net of reserves	The Company’s total inventories, net of reserves, consisted of the following as of March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Raw materials $ 3,683,641 $ 3,106,617 Work-in-process 10,692,257 11,048,126 Finished goods 15,296,594 15,074,896 Finished goods on consignment 553,070 467,778 Less inventory reserves (1,301,000 ) (1,567,000 ) Total $ 28,924,562 $ 28,130,417 Short-term portion $ 9,498,212 $ 9,770,206 Long-term portion 19,426,350 18,360,211 Total $ 28,924,562 $ 28,130,417
Schedule of inventories by product line maintained in its wholesale distribution segment	The Company’s total inventories, net of reserves, consisted of the following as of March 31, 2017 and December 31, 2016: March 31, 2017 December 31, 2016 Loose jewels Raw materials $ 3,088,681 $ 2,586,045 Work-in-process 10,054,559 10,589,424 Finished goods 9,695,751 9,455,393 Finished goods on consignment 98,533 5,473 Total loose jewels $ 22,937,524 $ 22,636,335 Finished jewelry Raw materials $ 594,960 $ 520,572 Work-in-process 637,698 458,702 Finished goods 4,308,333 4,081,275 Finished goods on consignment 405,537 416,305 Total finished jewelry $ 5,946,528 $ 5,476,854 Total supplies inventory $ 40,510 $ 17,228 Total inventory $ 28,924,562 $ 28,130,417

STOCK-BASED COMPENSATION (Table

STOCK-BASED COMPENSATION (Tables)	3 Months Ended
	Mar. 31, 2017
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 March 31, 2017 2016 Employee stock options $ 71,323 $ 139,183 Consultant stock options - 50,248 Restricted stock awards (39,030 ) 144,591 Totals $ 32,293 $ 334,022
Summary of the stock option activity	The following is a summary of the stock option activity for the three months ended March 31, 2017: Shares Weighted Average Exercise Price Outstanding, December 31, 2016 2,134,898 $ 1.99 Granted 125,454 $ 1.04 Forfeited (23,625 ) $ 1.86 Expired (417,002 ) $ 3.08 Outstanding, March 31, 2017 1,819,725 $ 1.68
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 three months ended March 31, 2017: Dividend yield 0.0 % Expected volatility 63.3 % Risk-free interest rate 1.96 % Expected lives (years) 5.51
Information about stock options outstanding	The following table summarizes information about stock options outstanding at March 31, 2017: Options Outstanding Options Exercisable Options Vested or Expected to Vest Balance as of 3/31/2017 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Balance as of 3/31/2017 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price Balance as of 3/31/2017 Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price 1,819,725 7.48 $ 1.68 1,170,784 6.58 $ 1.95 1,736,717 7.40 $ 1.70
Restricted stock activity	The following is a summary of the restricted stock activity for the three months ended March 31, 2017: Shares Weighted Average Grant Date Fair Value Unvested, December 31, 2016 359,400 $ 0.91 Granted 420,000 $ 1.11 Vested (202,953 ) $ 0.91 Canceled (160,200 ) $ 0.91 Unvested, March 31, 2017 416,247 $ 1.11

NET LOSS PER COMMON SHARE (Tabl

NET LOSS PER COMMON SHARE (Tables)	3 Months Ended
	Mar. 31, 2017
NET LOSS PER COMMON SHARE [Abstract]
Reconciliation of basic and diluted net loss per share	The following table reconciles the differences between the basic and diluted net loss per share presentations: Three Months Ended March 31, 2017 2016 Numerator: Net loss from continuing operations $ (559,646 ) $ (748,515 ) Net loss from discontinued operations - (558,907 ) Net loss $ (559,646 ) $ (1,307,422 ) Denominator: Weighted average common shares outstanding: Basic and Diluted 21,118,335 20,730,419 Net loss per common share: Basic – continuing operations $ (0.03 ) $ (0.04 ) Basic – discontinued operations - (0.02 ) Basic – total $ (0.03 ) $ (0.06 ) Diluted – continuing operations $ (0.03 ) $ (0.04 ) Diluted – discontinued operations - (0.02 ) Diluted – total $ (0.03 ) $ (0.06 )

MAJOR CUSTOMERS AND CONCENTRA23

MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Tables)	3 Months Ended
	Mar. 31, 2017
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK [Abstract]
Summary of customers that represent greater than or equal to 10% of total gross sales and receivables	The following is a summary of customers that represent 10% or more of total gross accounts receivable: March 31, 2017 December 31, 2016 Customer A 23 % ** % Customer B * % 13 % *Customer B did not have a balance that represented 10% or more of the total gross accounts receivable as of March 31, 2017. **Customer A did not have a balance that represented 10% or more of the total gross accounts receivable as of December 31, 2016. A significant portion of sales is derived from certain customer relationships. The following is a summary of customers that represent 10% or more of total gross sales: Three Months Ended March 31, 2017 2016 Customer A 25 % ** % Customer C 10 % ** % Customer D * % 59 % *Customer D did not have a balance that represented 10% or more of total gross sales for the three months ended March 31, 2017. **Customers A and C did not have individual balances that represented 10% or more of total gross sales for the three months ended March 31, 2016.

DISCONTINUED OPERATIONS (Tables

DISCONTINUED OPERATIONS (Tables)	3 Months Ended
	Mar. 31, 2017
DISCONTINUED OPERATIONS [Abstract]
Summary of discontinued operations	The following table presents the major classes of line items constituting pretax loss from discontinued operations: Three Months Ended March 31, 2017 2016 Net sales $ - $ 717,073 Costs and expenses: Cost of goods sold - 259,089 Sales and marketing - 863,808 General and administrative - 168,535 Interest expense - 11 Total costs and expenses - 1,291,443 Loss from discontinued operations - (574,370 ) Other income: Gain on sale of long-term assets - 15,463 Total other income, net - 15,463 Pretax loss from discontinued operations $ - $ (558,907 )

DESCRIPTION OF BUSINESS (Detail

DESCRIPTION OF BUSINESS (Details)	Mar. 04, 2016USD ($)
Yanbal USA Inc. [Member]
Business Acquisition [Line Items]
Purchase price for transferred assets	$ 500,000

SEGMENT INFORMATION AND GEOGR26

SEGMENT INFORMATION AND GEOGRAPHIC DATA (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2017USD ($)Segment	Mar. 31, 2016USD ($)	Dec. 31, 2016Segment
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract]
Number of operating segments | Segment	2		2
Number of reportable segments | Segment	2		2
Summary information by segment [Abstract]
Net sales	$ 5,645,382	$ 11,393,271
Product line cost of goods sold	3,220,615	9,163,888
Operating (loss) income	(545,558)	(743,765)
Depreciation and amortization	107,656	146,491
Capital expenditures	197,953	38,505
Continuing Operations [Member]
Summary information by segment [Abstract]
Net sales	5,645,382	11,393,271
Product line cost of goods sold	2,804,342	8,579,167
Product line gross profit	2,841,040	2,814,104
Operating (loss) income	(545,558)	(743,765)
Depreciation and amortization	107,656	146,491
Capital expenditures	197,953	38,505
Continuing Operations [Member] | Loose Jewels [Member]
Summary information by segment [Abstract]
Net sales	3,929,720	9,640,598
Product line cost of goods sold	1,990,130	7,814,060
Product line gross profit	1,939,590	1,826,538
Continuing Operations [Member] | Finished Jewelry [Member]
Summary information by segment [Abstract]
Net sales	1,715,662	1,752,673
Product line cost of goods sold	814,212	765,107
Product line gross profit	901,450	987,566
Operating and Reportable Segments [Member] | Continuing Operations [Member] | Traditional Segment [Member]
Summary information by segment [Abstract]
Net sales	3,488,993	9,338,132
Product line cost of goods sold	1,923,213	7,717,407
Product line gross profit	1,565,780	1,620,725
Operating (loss) income	(448,998)	(816,997)
Depreciation and amortization	79,381	132,048
Capital expenditures	194,332	36,903
Operating and Reportable Segments [Member] | Continuing Operations [Member] | Traditional Segment [Member] | Loose Jewels [Member]
Summary information by segment [Abstract]
Net sales	3,212,216	9,083,502
Product line cost of goods sold	1,673,661	7,625,495
Product line gross profit	1,538,555	1,458,007
Operating and Reportable Segments [Member] | Continuing Operations [Member] | Traditional Segment [Member] | Finished Jewelry [Member]
Summary information by segment [Abstract]
Net sales	276,777	254,630
Product line cost of goods sold	249,552	91,912
Product line gross profit	27,225	162,718
Operating and Reportable Segments [Member] | Continuing Operations [Member] | Online Channels [Member]
Summary information by segment [Abstract]
Net sales	2,156,389	2,055,139
Product line cost of goods sold	881,129	861,760
Product line gross profit	1,275,260	1,193,379
Operating (loss) income	(96,560)	73,232
Depreciation and amortization	28,275	14,443
Capital expenditures	3,621	1,602
Operating and Reportable Segments [Member] | Continuing Operations [Member] | Online Channels [Member] | Loose Jewels [Member]
Summary information by segment [Abstract]
Net sales	717,504	557,096
Product line cost of goods sold	316,469	188,565
Product line gross profit	401,035	368,531
Operating and Reportable Segments [Member] | Continuing Operations [Member] | Online Channels [Member] | Finished Jewelry [Member]
Summary information by segment [Abstract]
Net sales	1,438,885	1,498,043
Product line cost of goods sold	564,660	673,195
Product line gross profit	874,225	824,848
Segment Reconciling Items [Member] | Continuing Operations [Member]
Summary information by segment [Abstract]
Product line cost of goods sold	3,220,615	9,163,888
Segment Reconciling Items [Member] | Continuing Operations [Member] | Product Line Cost of Goods Sold [Member]
Summary information by segment [Abstract]
Product line cost of goods sold	2,804,342	8,579,167
Segment Reconciling Items [Member] | Continuing Operations [Member] | Non-Capitalized Manufacturing and Production Control Expenses [Member]
Summary information by segment [Abstract]
Product line cost of goods sold	367,749	410,750
Segment Reconciling Items [Member] | Continuing Operations [Member] | Freight Out [Member]
Summary information by segment [Abstract]
Product line cost of goods sold	70,797	72,058
Segment Reconciling Items [Member] | Continuing Operations [Member] | Inventory Valuation Allowances [Member]
Summary information by segment [Abstract]
Product line cost of goods sold	(266,000)	55,000
Segment Reconciling Items [Member] | Continuing Operations [Member] | Other Inventory Adjustments [Member]
Summary information by segment [Abstract]
Product line cost of goods sold	$ 243,727	$ 46,913

SEGMENT INFORMATION AND GEOGR27

SEGMENT INFORMATION AND GEOGRAPHIC DATA, Data by Geographic Area (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Net sales [Abstract]
Net sales	$ 5,645,382	$ 11,393,271
Assets by geographical area [Abstract]
Property and equipment, net	1,481,841		$ 1,391,116
Continuing Operations [Member]
Net sales [Abstract]
Net sales	5,645,382	11,393,271
Assets by geographical area [Abstract]
Property and equipment, net	1,481,841		1,391,116
Reportable Geographical Components [Member] | Continuing Operations [Member] | United States [Member]
Net sales [Abstract]
Net sales	5,242,341	10,641,982
Assets by geographical area [Abstract]
Property and equipment, net	1,481,841		1,391,116
Reportable Geographical Components [Member] | Continuing Operations [Member] | International [Member]
Net sales [Abstract]
Net sales	403,041	$ 751,289
Assets by geographical area [Abstract]
Property and equipment, net	$ 0		$ 0

INVENTORIES (Details)

INVENTORIES (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Total inventories, net of reserves [Abstract]
Raw materials	$ 3,683,641	$ 3,106,617
Work-in-process	10,692,257	11,048,126
Finished goods	15,296,594	15,074,896
Finished goods on consignment	553,070	467,778
Total supplies inventory	40,510	17,228
Less inventory reserves	(1,301,000)	(1,567,000)
Total	28,924,562	28,130,417
Short-term portion	9,498,212	9,770,206
Long-term portion	$ 19,426,350	18,360,211
Period considered for classification of long term inventory	12 months
Work-in-process inventories issued to active production jobs	$ 5,780,000	7,180,000
Sale of slow moving loose jewel inventory of less desirable quality		6,770,000	$ 2,280,000
Lower of cost or market reserve	529,000	517,000
Inventory reserve for obsolescence	49,000	169,000
Carrying value of inventory reserve for obsolescence of moissanite	22,000	258,000
Shrinkage reserve for finished goods on consignment	49,000	46,000
Inventory of net loose jewels	22,940,000	22,640,000
Inventory reserve for shrinkage of loose jewels	83,000	67,000
Inventory reserve for shrinkage of loose jewels on consignment	11,000	7,000
Inventory reserve for recut	438,000	425,000
Inventory of net jewelry	5,950,000	5,480,000
Inventory reserve for shrinkage of finished jewelry	114,000	102,000
Inventory reserve for shrinkage of finished jewelry on consignment	38,000	39,000
Inventory reserve for shrinkage of finished jewelry on repairs	66,000	29,000
Loose Jewels [Member]
Total inventories, net of reserves [Abstract]
Raw materials	3,088,681	2,586,045
Work-in-process	10,054,559	10,589,424
Finished goods	9,695,751	9,455,393
Finished goods on consignment	98,533	5,473
Total	22,937,524	22,636,335
Finished Jewelry [Member]
Total inventories, net of reserves [Abstract]
Raw materials	594,960	520,572
Work-in-process	637,698	458,702
Finished goods	4,308,333	4,081,275
Finished goods on consignment	405,537	416,305
Total	$ 5,946,528	$ 5,476,854

INCOME TAXES (Details)

INCOME TAXES (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
INCOME TAXES [Abstract]
Income tax expense for estimated tax, penalties, and interest for other uncertain tax positions	$ 14,000	$ 3,000

COMMITMENTS AND CONTINGENCIES (

COMMITMENTS AND CONTINGENCIES (Details)	3 Months Ended
	Mar. 31, 2017USD ($)Option	Mar. 31, 2016USD ($)
Long-term Purchase Commitment [Line Items]
Percentage committed to be purchased	100.00%
Number of option to unilaterally extend the term | Option	1
Period of exclusive supply agreement	2 years
Actual purchases under purchase amendment	$ 2,210,000	$ 1,910,000
Minimum [Member]
Long-term Purchase Commitment [Line Items]
Purchase commitment in initial new order	29,600,000
Remaining purchase commitment	12,330,000
Maximum [Member]
Long-term Purchase Commitment [Line Items]
Purchase commitment in initial new order	31,500,000
Remaining purchase commitment	$ 14,230,000

LINE OF CREDIT (Details)

LINE OF CREDIT (Details) - Wells Fargo [Member] - Line of Credit [Member]	3 Months Ended
	Mar. 31, 2017USD ($)
Line of Credit Facility [Line Items]
Revolving line of credit	$ 10,000,000
Line of credit maturity date	Jun. 25, 2017
Line of credit facility, sublimit for advances	$ 5,000,000
Percentage of advances, guaranteed by bank	90.00%
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
Advances against line of credit	$ 0
Maximum [Member]
Line of Credit Facility [Line Items]
Line of credit facility, sublimit for letter of credit	1,000,000
Advances against inventory	3,000,000
Indebtedness to be maintained in the event of default to avoid triggering of default terms	200,000
Minimum [Member]
Line of Credit Facility [Line Items]
Excess availability of inventory at all times required for advances	$ 1,000,000
LIBOR [Member]
Line of Credit Facility [Line Items]
Line of credit, spread on variable rate	2.50%
Line of credit, description of variable rate basis	Wells Fargo’s 3-month LIBOR rate
Debt instrument, term of variable rate	3 months

STOCK-BASED COMPENSATION (Detai

STOCK-BASED COMPENSATION (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017
Components of the Company's stock based compensation included in net income [Abstract]
Share-based compensation expense	$ 32,293	$ 334,022
Employee Stock Options [Member]
Components of the Company's stock based compensation included in net income [Abstract]
Share-based compensation expense	$ 71,323	139,183
Stock Option Activity [Roll Forward]
Outstanding, beginning balance (in shares)	2,134,898
Granted (in shares)	125,454
Forfeited (in shares)	(23,625)
Expired (in shares)	(417,002)
Outstanding, ending balance (in shares)	1,819,725
Weighted Average Exercise Price [Roll Forward]
Outstanding, beginning balance (in dollars per share)	$ 1.99
Granted (in dollars per share)	1.04
Forfeited (in dollars per share)	1.86
Expired (in dollars per share)	3.08
Outstanding, ending balance (in dollars per share)	$ 1.68
Weighted average assumptions for stock options [Abstract]
Dividend yield	0.00%
Expected volatility	63.30%
Risk-free interest rate	1.96%
Expected lives	5 years 6 months 4 days
Options Outstanding [Abstract]
Balance as of end of period (in shares)	2,134,898		1,819,725
Weighted average remaining contractual life	7 years 5 months 23 days
Weighted average exercise price (in dollars per share)	$ 1.99		$ 1.68
Options Exercisable [Abstract]
Balance as of end of period (in shares)			1,170,784
Weighted average remaining contractual life	6 years 6 months 29 days
Weighted average exercise price (in dollars per share)			$ 1.95
Options Vested or Expected to Vest [Abstract]
Balance as of end of period (in shares)			1,736,717
Weighted average remaining contractual life	7 years 4 months 24 days
Weighted average exercise price (in dollars per share)			$ 1.70
Additional Disclosures [Abstract]
Stock-based compensation capitalized as a cost of inventory	$ 0	0
Fair value of stock options (in dollars per share)	$ 0.59
Fair value of stock options vested	$ 127,000
Unrecognized stock-based compensation expense related to unvested awards			$ 281,000
Total compensation cost not yet recognized, period for recognition	22 months
Aggregate intrinsic value of stock options outstanding			11,000
Aggregate intrinsic value of stock options exercisable			11,000
Aggregate intrinsic value of stock options vested or expected to vest			11,000
Aggregate intrinsic value of stock options exercised	$ 0
Employee Stock Options [Member] | Discontinued Operations [Member]
Components of the Company's stock based compensation included in net income [Abstract]
Share-based compensation expense	0	49,000
Consultant Stock Options [Member]
Components of the Company's stock based compensation included in net income [Abstract]
Share-based compensation expense	0	50,248
Restricted Stock Awards [Member]
Components of the Company's stock based compensation included in net income [Abstract]
Share-based compensation expense	$ (39,030)	$ 144,591
Additional Disclosures [Abstract]
Unrecognized stock-based compensation expense related to unvested awards			$ 427,000
Total compensation cost not yet recognized, period for recognition	11 months
Restricted Stock Activity [Roll Forward]
Unvested, beginning balance (in shares)	359,400
Granted (in shares)	420,000
Vested (in shares)	(202,953)
Canceled (in shares)	(160,200)
Unvested, ending balance (in shares)	416,247
Weighted Average Grant Date Fair Value [Roll Forward]
Unvested, beginning balance (in dollars per share)	$ 0.91
Granted (in dollars per share)	1.11
Vested (in dollars per share)	0.91
Canceled (in dollars per share)	0.91
Unvested, ending balance (in dollars per share)	$ 1.11

NET LOSS PER COMMON SHARE (Deta

NET LOSS PER COMMON SHARE (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Numerator [Abstract]
Net loss from continuing operations	$ (559,646)	$ (748,515)
Net loss from discontinued operations	0	(558,907)
Net loss	$ (559,646)	$ (1,307,422)
Weighted average common shares outstanding [Abstract]
Basic and Diluted (in shares)	21,118,335	20,730,419
Net loss per common share [Abstract]
Basic - continuing operations (in dollars per share)	$ (0.03)	$ (0.04)
Basic - discontinued operations (in dollars per share)	0	(0.02)
Basic - total (in dollars per share)	(0.03)	(0.06)
Diluted - continuing operations (in dollars per share)	(0.03)	(0.04)
Diluted - discontinued operations (in dollars per share)	0	(0.02)
Diluted - total (in dollars per share)	$ (0.03)	$ (0.06)
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares excluded from the computation of diluted net loss per common share (in shares)	1,820,000	2,370,000
Restricted Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Shares excluded from the computation of diluted net loss per common share (in shares)	416,000	564,000

MAJOR CUSTOMERS AND CONCENTRA34

MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details) - USD ($)	3 Months Ended				12 Months Ended
	Mar. 31, 2017		Mar. 31, 2016		Dec. 31, 2016
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	$ 6,310,000
Write-off of accounts receivable related to customer					$ 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	23.00%					[1]
Trade Accounts Receivable [Member] | Customer Concentration Risk [Member] | Customer B [Member]
Concentration Risk [Line Items]
Concentration risk, percentage		[2]			13.00%
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer A [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	25.00%			[3]
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer C [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	10.00%			[3]
Total Gross Sales [Member] | Customer Concentration Risk [Member] | Customer D [Member]
Concentration Risk [Line Items]
Concentration risk, percentage		[4]	59.00%
[1]	Customer A did not have a balance that represented 10% or more of the total gross accounts receivable as of December 31, 2016.
[2]	Customer B did not have a balance that represented 10% or more of the total gross accounts receivable as of March 31, 2017.
[3]	Customers A and C did not have individual balances that represented 10% or more of total gross sales for the three months ended March 31, 2016.
[4]	Customer D did not have a balance that represented 10% or more of total gross sales for the three months ended March 31, 2017.

DISCONTINUED OPERATIONS (Detail

DISCONTINUED OPERATIONS (Details) - USD ($)	Mar. 04, 2016	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Inventory credit		$ 49,000		$ 169,000
Other income [Abstract]
Gain on sale of long-term assets		0	$ 15,463
Pretax loss from discontinued operations		0	(574,370)
Yanbal USA Inc. [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Inventory credit	$ 250,000
Discontinued operations, purchase price for transferred assets, gross	500,000
Discontinued operations, purchase agreement selling expenses	131,000
Discontinued operations, purchase price for transferred assets, net	369,000
Discontinued operations, expense related to certain style advisor incentives	35,000
Discontinued operations, reduction in prepaid expenses	$ 60,000
Assets Related to Discontinued Operations [Abstract]
Discontinued operations, assets		0		0
Discontinued operations, liabilities		0		$ 0
Disposal Group, Including Discontinued Operation, Income Statement Disclosures [Abstract]
Net sales		0	717,073
Costs and expenses [Abstract]
Cost of goods sold		0	259,089
Sales and marketing		0	863,808
General and administrative		0	168,535
Interest expense		0	11
Total costs and expenses		0	1,291,443
Loss from discontinued operations		0	(574,370)
Other income [Abstract]
Gain on sale of long-term assets		0	15,463
Total other income, net		0	15,463
Pretax loss from discontinued operations		$ 0	$ (558,907)