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.

The following table summarizes information about stock options outstanding at March 31, 2016:

Options Outstanding						Options Exercisable						Options Vested or Expected to Vest
Balance as of 3/31/2016		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 3/31/2016		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Balance as of 3/31/2016		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
	2,371,183		7.80	$	2.11		1,261,390		6.60	$	2.53		2,285,268		7.74	$	2.14

As of March 31, 2016, the unrecognized stock-based compensation expense related to unvested stock options was approximately $683,000, which is expected to be recognized over a weighted average period of approximately 19 months.

The aggregate intrinsic value of stock options outstanding, exercisable, and vested or expected to vest at March 31, 2016 were each approximately $30,000. This amount is before applicable income taxes and represents the closing market price of the Company’s common stock at March 31, 2016 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, 2016, no stock options were exercised.

Restricted Stock - The following is a summary of the restricted stock activity for the three months ended March 31, 2016:

	Shares			Weighted Average Grant Date Fair Value
Unvested, December 31, 2015		425,000		$	1.87
Granted		509,250		$	.93
Vested		(254,523	)	$	1.42
Canceled		(116,100	)	$	1.42
Unvested, March 31, 2016		563,627		$	1.32

As of March 31, 2016, the unrecognized stock-based compensation expense related to unvested restricted stock was approximately $517,000, which is expected to be recognized over a weighted average period of approximately ten months.

Dividends - The Company has not paid any cash dividends in the current year through March 31, 2016.

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.

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The following table reconciles the differences between the basic and diluted earnings per share presentations:

	Three Months Ended March 31,
	2016			2015
Numerator:
Net loss from continuing operations		(748,515	)		(640,879	)
Net loss from discontinued operations		(558,907	)		(1,038,572	)
Net loss	$	(1,307,422	)	$	(1,679,451	)

Denominator:
Weighted average common shares outstanding:
Basic		20,730,419			20,107,504
Stock options		-			-
Diluted		20,730,419			20,107,504

Net loss per common share:
Basic – continuing operations	$	(0.04	)	$	(0.03	)
Basic – discontinued operations		(0.02	)		(0.05	)
Basic – total	$	(0.06	)	$	(0.08	)

Diluted – continuing operations	$	(0.04	)	$	(0.03	)
Diluted – discontinued operations		(0.02	)		(0.05	)
Diluted – total	$	(0.06	)	$	(0.08	)

For the three months ended March 31, 2016 and 2015, stock options to purchase approximately 2.37 and 1.95 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, 2016 and 2015, approximately 564,000 and 347,000 unvested restricted shares, respectively, were excluded because the inclusion of such amounts would be anti-dilutive to net loss per common share.

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. 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 March 31, 2016 and December 31, 2015 approximated $11.28 million and $4.92 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, though it may offer extended terms with specific customers and on significant orders from time to time. The Company believes its competitors and other vendors in the wholesale jewelry industry have also expanded their use of extended payment terms and, in aggregate, the Company believes that by expanding its use of extended payment terms, it has provided a competitive response in its market and that its net sales have been favorably impacted. The Company is unable to estimate the impact of this program on its net sales, but if it ceased providing extended payment terms in select instances, the Company believes it would not be competitive for some wholesale customers in the marketplace and that its net sales and profits would likely decrease. The Company extends credit to its customers based upon a number of factors, including an evaluation of the customer’s financial condition and credit history 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. Collateral is not generally required from customers. The need for an allowance for doubtful accounts is determined based upon factors surrounding the credit risk of specific customers, historical trends, and other information. The Company has not experienced any significant accounts receivable write-offs related to revenue arrangements with extended payment terms. However, the Company’s allowance for doubtful accounts includes approximately $815,000 related to one customer that has become past due on its payment arrangement.

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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:

	March 31, 2016			December 31, 2015
Customer A		23	%		17	%
Customer B		10	%		10	%
Customer C		19	%		14	%
Customer D		*			11	%

*Customer D did not have individual balances that represented a significant portion of total net accounts receivable as of March 31, 2016.

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 from continuing operations:

	Three Months Ended March 31,
	2016			2015
Customer A		59	%		28	%
Customer B		*			20	%

*Customer B did not represent a significant portion of sales for the three months ended March 31, 2016.

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 of 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 will expire 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 has also agreed to provide to Yanbal certain transition services.

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.

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The following table presents the major classes of line items constituting assets and liabilities related to discontinued operations:

	March 31, 2016		December 31, 2015
Prepaid expenses and other assets	$	72,000	$	83,000
Total assets	$	72,000	$	83,000

Accounts payable	$	143,000	$	140,000
Accrued expenses and other liabilities		307,000		209,000
Total liabilities	$	450,000	$	349,000

The following table presents the major classes of line items constituting pretax loss from discontinued operations:

	Three Months Ended March 31,
	2016			2015
Net sales	$	717,073		$	1,360,978
Costs and expenses:
Cost of goods sold		259,089			415,280
Sales and marketing		863,808			1,615,420
General and administrative		168,535			368,850
Interest expense		11			-
Total costs and expenses		1,291,443			2,399,550
Loss from discontinued operations		(574,370	)		(1,038,572	)
Other (expense) income:

Gain on sale of long-term assets		15,463			-
Total other (expense) income, net		15,463			-
Pretax loss from discontinued operations		(558,907	)		(1,038,572	)

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Statements expressing expectations regarding our future and projections relating to products, sales, revenues, and earnings are typical of such statements and are made under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations, and contentions and are not historical facts and typically are identified by use of terms such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” and similar words, although some forward-looking statements are expressed differently.

All forward-looking statements are subject to the risks and uncertainties inherent in predicting the future. You should be aware that although the forward-looking statements included herein represent management’s current judgment and expectations, our actual results may differ materially from those projected, stated, or implied in these forward-looking statements as a result of many factors including, but not limited to, the following:

Our future financial performance depends upon increased consumer awareness and acceptance, growth of sales of our products, and operational execution of our strategic initiatives.

We are currently substantially dependent on a limited number of distributors, jewelry manufacturers, and retailers for the sale of our products.

The execution of our business plans could significantly impact our liquidity.

Our business and our results of operations could be materially adversely affected as a result of our inability to fulfill orders on a timely basis.

The financial difficulties or insolvency of one or more of our major customers or their lack of willingness and ability to market our products could adversely affect results.

We expect to remain dependent upon Cree, Inc., or Cree, for the sole supply of our silicon carbide, or SiC, crystals for the foreseeable future.

We face intense competition in the worldwide jewelry industry.

Our President and Chief Executive Officer transition involves significant risks, and our ability to successfully manage this transition and other organizational change could impact our business.

Our failure to maintain compliance with NASDAQ’s continued listing requirements could result in the delisting of our common stock.

Our current wholesale customers may potentially perceive us as a competitor in the finished jewelry business.

We may experience quality control challenges from time to time that can result in lost revenue and harm to our brands and reputation.

Our business and our results of operations could be materially adversely affected as a result of general economic and market conditions.

We are subject to certain risks due to our international distribution channels and vendors.

Sales of moissanite jewelry could be dependent upon the pricing of precious metals, which is beyond our control.

Seasonality of our business may adversely affect our net sales and operating income.

We may not be able to adequately protect our intellectual property, which could harm the value of our products and brands and adversely affect our business.

A failure of our information technology infrastructure or a failure to protect confidential information of our customers and our network against security breaches could adversely impact our business and operations.

If the e-commerce opportunity changes dramatically or if e-commerce technology or providers change their models, our results of operations may be adversely affected.

If we fail to evaluate, implement, and integrate strategic acquisition or disposition opportunities successfully, our business may suffer.

Governmental regulation and oversight might adversely impact our operations.

Some anti-takeover provisions of our charter documents may delay or prevent a takeover of our company.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur except as required by the federal securities laws, and you are urged to review and consider disclosures that we make in the reports that we file with the Securities and Exchange Commission, or SEC, that discuss other factors relevant to our business.

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The following discussion is designed to provide a better understanding of our unaudited condensed consolidated financial statements, including a brief discussion of our business and products, key factors that impacted our performance, and a summary of our operating results. This information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the condensed consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2015. Historical results and percentage relationships among any amounts in the condensed consolidated financial statements are not necessarily indicative of trends in operating results for future periods.

Overview

We manufacture, market and distribute Charles & Colvard Created Moissanite^® (which we refer to as moissanite or moissanite jewels) and finished jewelry featuring moissanite for sale in the worldwide jewelry market. Moissanite, also known by its chemical name silicon carbide, or SiC, is a rare mineral first discovered in a meteor crater. Because naturally occurring SiC crystals are too small for commercial use, larger crystals must be grown in a laboratory. Leveraging our advantage of being the original and leading worldwide source of created moissanite jewels, our strategy is to establish Charles & Colvard with reputable, high-quality, and sophisticated brands and to position moissanite as an ethically-sourced, affordable, and luxurious alternative to other gemstones such as diamond. We believe this is possible due to moissanite’s exceptional brilliance, fire, durability, and rarity like no other jewel available on the market. We sell loose moissanite jewels and finished jewelry at wholesale to distributors, manufacturers, and retailers and at retail to end consumers through our wholly owned operating subsidiaries, Moissanite.com, LLC and Charles & Colvard Direct, LLC (until March 2016), and through third-party marketplaces.

In February 2016, we made the strategic decision to explore a potential divestiture of our direct-to-consumer home party business operated through our Charles & Colvard Direct, LLC (dba Lulu Avenue^®) subsidiary. After careful analysis of our core competencies, go-to-market strategies, and intent to advance toward profitability, the management team and Board of Directors determined a divestiture of this distribution channel to be in our and our shareholders’ best interests. On March 4, 2016, we and Charles & Colvard Direct, LLC entered into an asset purchase agreement with Yanbal USA, Inc., or Yanbal, under which Yanbal purchased certain assets related to our direct-to-consumer home party business for $500,000 and assumed certain liabilities related to such assets.

During the three months ended March 31, 2016 and 2015, we managed our business primarily through our three distribution channels that we used to sell our product lines, loose jewels and finished jewelry, which included Charles and Colvard Direct, LLC. As a result of the divestiture of our direct-to-consumer home party business operated through our Charles & Colvard Direct, LLC (dba Lulu Avenue^®) subsidiary, during the three months ended March 31, 2016, we began managing our business primarily through our two continuing distribution channels. Accordingly, for the three months ended March 31, 2016 and 2015, our reportable segments are our wholesale distribution channel transacted through our parent entity, and our direct-to-consumer distribution channel transacted through the wholly owned operating subsidiary, Moissanite.com, LLC. We are now presenting the operating results of Charles and Colvard Direct, LLC as a discontinued operation.

We sell our loose moissanite jewels at wholesale to some of the largest distributors and manufacturers in the world, which mount them into fine jewelry to be sold at retail outlets and via the Internet. We also sell loose moissanite jewels and finished jewelry featuring moissanite at wholesale to retailers, TV shopping networks, and designers to be sold to end consumers and directly to consumers through our e-commerce sales channel Moissanite.com and third-party marketplaces. We believe our continued and expanding use of multiple sales channels to the jewelry trade and the end consumer with branded finished jewelry featuring moissanite creates a compelling consumer value proposition with the potential to drive increased demand.

We have and will continue to focus on our core business of manufacturing and distributing the loose moissanite jewel and finished jewelry featuring moissanite through wholesale sales channels, because this is currently the primary way we reach consumers. We believe there is opportunity to grow our wholesale business and to capture a larger share of the jewelry market as we execute our strategy to increase consumer awareness of moissanite.

Our wholesale finished jewelry business has expanded through select retailers and television shopping networks. We believe there is significant opportunity to further expand our wholesale finished jewelry business through e-commerce, television shopping, and other retailers. In September 2015, we shipped Forever Brilliant^® moissanite jewelry for a 50-store test with a nationwide U.S. retailer. Based on the results of the test we were informed by the retailer that at this time they did not want to move forward with carrying moissanite in their stores. We continue to work with other retailers to expand our finished jewelry business.

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Our future growth strategy is closely linked to our vision statement: “To be an innovative, disruptive leader in the jewelry industry by offering a socially responsible created jewel that will last forever at a revolutionary value.” We plan to accomplish this vision by growing our core loose jewel and finished jewelry wholesale distribution segment with key distributors, jewelry manufacturers, and retailers while working to develop and expand our continuing direct-to-consumer distribution segment, which is conducted through our e-commerce subsidiary, Moissanite.com, LLC. We also intend to expand our multi-channel e-commerce footprint through third-party marketplaces, comparison shopping engines, affiliate networks, social commerce sites and more. We plan to support these initiatives by increasing consumer awareness through a broad digital marketing footprint, clearly communicating to the consumer the value proposition of our products, and developing and distributing leading global brands for our moissanite jewel and finished jewelry featuring moissanite with an unrelenting focus on quality and design. Our key strategies for 2016 are as follows:

Expansion of Forever One^TM. In September 2015, we launched Forever One™ – our first colorless moissanite jewel. We introduced Forever One^TM to the market with a limited launch. It was met with great enthusiasm from channel partners and existing customers. We intend to leverage this momentum, and expand our Forever One^TM assortment (more shapes and sizes) throughout 2016 via a series of scheduled product releases.

A move up-market. Over the years our core product supplier, Cree, has improved its proprietary processes for SiC production. It is this 20-year evolution that has enabled the launch of our colorless jewel, Forever One^TM. With this improvement in core product comes the opportunity for us to move up-market – competing directly with diamond for share of wallet. Over the next few years, we plan to sell our remaining Forever Classic^TM inventory, leaving only Forever Brilliant^® and Forever One^TM products for sale. We believe that this higher quality product line positions us for a move up-market to higher end retail opportunities. We do anticipate new providers of moissanite to enter the market, as our U.S. exclusive patent expired in 2015, and international patents will be expiring this year. We know how challenging it is to create high-quality moissanite and anticipate it will take emerging providers significant time and investment to bring meaningful and competitive products to market. As we experienced ourselves, we anticipate these new providers evolving from low-end moissanite quality, and do not anticipate competition in the near-colorless (Forever Brilliant^®) or colorless (Forever One^TM) range for some time to come. To differentiate ourselves from emerging competition and to ensure our customers they are receiving a reputable and high-quality jewel, each Charles & Colvard Created Moissanite^® jewel is backed by a Limited Lifetime Warranty and Certificate of Authenticity – our commitment to our customers that their purchase is guaranteed to retain its fire and brilliance forever.

Expansion of our jewelry line. We intend to expand our jewelry product line in 2016 to include increased focus on the bridal category. We plan to curate a blend of our own finished jewelry featuring moissanite with products from select artisan jewelers. This broadened collection will be available to our retail and wholesale partners as well as promoted on our e-commerce site and third-party transactional websites. During the first quarter of 2016, we hired a Vice President of Merchandising to implement this initiative.

Growth within our traditional channels. We have enjoyed 20 years of partnership with industry leaders in the wholesale and retail spaces. We believe these traditional channels represent fertile ground for our move up-market, and we are already working with several existing partners to expand their product lines to include Forever One^TM. With this new, extraordinary, upscale product we believe we have an opportunity to both expand our relationship with existing partners and onboard new partners. A continued presence for Charles & Colvard Created Moissanite^® in traditional retail channels remains an important way for us to create touchpoints directly with consumers by providing them an opportunity to see and believe the beauty and brilliance of moissanite. During the first quarter of 2016, we launched moissanite on a TV shopping network with limited hours. During 2015 this customer only sold our jewelry on their website. This is an example of creating growth within our traditional channels.

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Expansion of our direct-to-consumer e-commerce business. Our direct-to-consumer e-commerce website, Moissanite.com, features an intuitive site design with robust functionality to enhance the customer experience and convert traffic into sales. We continue to develop the website’s finished jewelry collections and its loose moissanite jewel assortment by featuring a variety of shapes and sizes, and invest in targeted advertising and marketing campaigns to drive traffic to the site. During 2016, we intend to expand our e-commerce footprint by providing our products for sale through additional e-commerce channels and emerging social commerce channels. We believe our direct-to-consumer e-commerce sales channels will not only add to our top-line revenues, but will also play a key role in our campaign to increase overall consumer awareness of moissanite. We also envision e-commerce as a part of a broader effort to establish online connections with consumers that builds our brand and subsequently our business with wholesale and retail partners.

A laser focus on millennials. Millennials are the largest age group in U.S. history, and they are moving into their prime spending years. Millennials have less money to spend and are often encumbered with debt, with student loans taking up a significant chunk of postgraduate millennials’ income. They are the first ‘digital natives,’ known for spending significant time online, especially within their social networks. When they do partake in traditional pastimes such as listening to music or watching television, they do so streaming from their digital devices. And most importantly, they are socially and ethically-responsible individuals. Millennials proactively seek out goods and services that align with their core principles, and become devoted and vocal advocates of brands that embody ‘green’ practices. Our socially responsible and ethically-sourced loose jewel and finished jewelry products align directly with the principles and purchasing preferences of the millennial, and our quality and price point offer unprecedented value to the cost-conscious millennial. During the first quarter of 2016, we hired an outside agency to help us build a brand strategy and architecture and develop a brand design and messaging aligned with this target market. Throughout 2016, we plan to proactively engage this market through a multi-channel traditional and digital marketing strategy, as outlined below.

Our go-to-market strategy. In order to expand existing channels while reaching our millennial targets, we intend to reconstruct our promotional and go-to-market strategies. In 2016, we plan to:

Develop significant educational content to help the market understand moissanite, the availability of our expanded selection of loose jewels and finished jewelry featuring moissanite, and our commitment to corporate social responsibility in the products we bring to market and the way we operate our business. We also plan to deliver background content relative to the mined diamond industry to help the consumer understand the significant difference in practices between the created gemstone and jewel industry versus the mined diamond industry. We anticipate being disruptive in the industry and intend to be an authority on the topics of social injustices and environmental impact in the mined diamond industry, the upsurge of created gemstones and jewels, and the social and ethical appeal of created gemstones and jewels to the market.

Expand our traditional channels. We plan to foster existing relationships designed to move channel partners up-market with us, while onboarding new partners who we believe are well positioned to help us bring Forever One^TM to market. We intend to focus our efforts on additional television channels, new wholesale and retail opportunities, an expanded drop-ship network, a presence with independent jewelers, and more.

Execute an aggressive social media strategy to directly reach consumers. Leveraging our own social media properties and those of third parties, we believe we will create a dialogue that enables a ‘pull’ strategy which draws consumers to us to learn about and acquire our products.

Expand our online presence including an aggressive push of our product to e-commerce marketplaces, comparison shopping engines, affiliate networks, social commerce sites, and more. We intend to couple these postings with a significant digital marketing presence to deliver online advertising and search engine results to the consumer at the time they are searching for related products.

Adopt new and emerging technologies to deliver our message. In order to remain relevant and in front of today’s rapidly-evolving consumer, it is incumbent on us to study and adopt new technologies as the consumer demands them. A prime example is advancements in streaming video and the increasing impact video has on consumer education and behavior. We believe this is a significant shift, and one we need to employ in our online toolkit. We will strive to adopt this and other technologies to enhance our own e-commerce property as well as third-party outlets to tell our story.

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As we execute our strategy to build and reinvest in our businesses, significant expenses and investment of cash will be required ahead of the revenue streams we expect in the future, and this will result in some unprofitable reporting periods in 2016. Despite this, we have maintained as one of our primary goals to generate positive cash flow from continuing operations to protect our cash position. We were successful in achieving this goal during 2015 and in the first three months of 2016 as we were able to reduce our inventories and aggressively collect on our trade accounts receivable balances. We will continue to monitor our cash burn rate and collection efforts as we grow the business.

Our total consolidated net sales for the three months ended March 31, 2016 of $11.39 million were 62% greater than total consolidated net sales during the three months ended March 31, 2015. Wholesale distribution segment net sales for the three months ended March 31, 2016 of $10.06 million were 70% greater than wholesale distribution segment net sales during the three months ended March 31, 2015. Direct-to-consumer e-commerce distribution segment net sales for the three months ended March 31, 2016 of $1.33 million were 21% greater than direct-to-consumer e-commerce distribution segment net sales during the three months ended March 31, 2015. Our direct-to-consumer home party distribution segment that is now a discontinued operation had net sales during the three months ended March 31, 2016 of $717,000, which were 47% lower than direct-to-consumer home party distribution segment sales during the three months ended March 31, 2015.

Loose jewel sales comprised 85% of our total consolidated net sales for the three months ended March 31, 2016 and increased 152% to $9.64 million, compared with $3.82 million in the same period of 2015. Finished jewelry sales for the three months ended March 31, 2016 comprised 15% of our total consolidated net sales and decreased 45% to $1.75 million, compared with $3.19 million in the same period of 2015.

Operating expenses from continuing operations decreased by $252,000, or 8%, to $2.97 million for the three months ended March 31, 2016, compared with $3.23 million in the same period of 2015. Of this decrease, general and administrative expenses decreased $423,000, or 23%, to $1.44 million primarily as a result of the transition of our President and Chief Executive Officer and increased legal expenses associated with the transition in March 2015. Sales and marketing expenses increased $171,000, or 13%, to $1.53 million, primarily as a result of increased cooperative advertising with our wholesale distribution customers. As we grow our business, we intend to continue to closely manage our operating expenses by seeking the most cost effective and efficient solutions for our operating requirements. We recorded a net loss of $1.31 million, or $0.06 per diluted share, for the three months ended March 31, 2016, primarily due to lower margins on greater sales, and increased sales and marketing expenses as we implement our new sales and marketing strategies. These increases were offset by the decreased general and administrative expenses.

The execution of our strategy to grow our company, with the ultimate goal of increasing consumer awareness and clearly communicating the value proposition of moissanite, is challenging and not without risk. As such, there can be no assurance that future results for each reporting period will exceed past results in sales, operating cash flow, and/or net income due to the challenging business environment in which we operate and our investment in various initiatives to support our growth strategies. However, as we execute our growth strategy and messaging initiatives, we remain committed to our current priorities of generating positive cash flow and strengthening our financial position while both monetizing our existing inventory and manufacturing our created moissanite loose jewels and finished jewelry featuring moissanite to meet sales demand. We believe the results of these efforts will propel our revenue growth and profitability and further enhance shareholder value in coming years, but we fully recognize the business and economic challenges that we face.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which we prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent assets and liabilities. “Critical accounting policies and estimates” are defined as those most important to the financial statement presentation and that require the most difficult, subjective, or complex judgments. We base our estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Under different assumptions and/or conditions, actual results of operations may materially differ. We have disclosed our critical accounting policies and estimates in our Annual Report on Form 10-K for the year ended December 31, 2015, and that disclosure should be read in conjunction with this Quarterly Report on Form 10-Q.

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Results of Operations

The following table sets forth certain consolidated statements of operations data for the three months ended March 31, 2016 and 2015:

	Three Months Ended March 31,
	2016			2015
Net sales	$	11,393,271		$	7,016,086
Costs and expenses:
Cost of goods sold		9,163,888			4,428,623
Sales and marketing		1,528,585			1,357,944
General and administrative		1,442,695			1,865,363
Research and development		1,868			2,061
Total costs and expenses		12,137,036			7,653,991
Loss from operations		(743,765	)		(637,905	)
Other (expense) income:
Interest income		-			11
Interest expense		(1,507	)		(17	)
Gain on sale of long-term assets		-			125
Total other (expense) income, net		(1,507	)		119
Loss before income taxes from continuing operations before income taxes		(745,272	)		(637,786	)
Income tax net expense from continuing operations		(3,243	)		(3,093	)
Net loss from continuing operations		(748,515	)		(640,879	)

Discontinued operations
Loss from discontinued operations		(574,370	)		(1,038,572	)
Gain on sale of assets from discontinued operations		15,463			-
Income tax benefit from discontinued operations		-			-
Net loss from discontinued operations		(558,907	)		(1,038,572	)
Net loss	$	(1,307,422	)	$	(1,679,451	)

Consolidated Net Sales

Consolidated net sales for the three months ended March 31, 2016 and 2015 comprise the following:

		Three Months Ended March 31,				Change
		2016		2015		Dollars	Percent
Loose jewels	$	9,640,598	$	3,821,159	$	5,819,439	152	%
Finished jewelry		1,752,673		3,194,927		(1,442,254)	-45	%
Total consolidated net sales	$	11,393,271	$	7,016,086	$	4,377,185	62	%

Consolidated net sales were $11.39 million for the three months ended March 31, 2016 compared to $7.02 million for the three months ended March 31, 2015, an increase of $4.38 million, or 62%. The increase in consolidated net sales for the three months ended March 31, 2016 was due primarily to the sale of approximately $6.77 million of slow-moving inventory to our largest domestic customer as a result of our efforts to reduce inventories, and the growth in sales of our direct-to-consumer e-commerce business, Moissanite.com, which increased 21% to $1.33 million, compared to the corresponding period of the prior year. International sales by our wholesale business increased by $137,000, or 22%, to $751,000 for the three months ended March 31, 2016 compared to the corresponding period of the prior year. We anticipate orders and related sales of loose moissanite jewels and finished jewelry featuring moissanite in both our wholesale distribution segment and our direct-to-consumer e-commerce distribution segment will improve as we execute our growth strategies.

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Sales of loose jewels represented 85% of total consolidated net sales for the three months ended March 31, 2016, compared to 54% of total consolidated net sales for the corresponding period of the prior year. For the three months ended March 31, 2016, loose jewel sales were $9.64 million compared to $3.82 million for the corresponding period of the prior year, an increase of $5.82 million, or 152%. The increase for the three months ended March 31, 2016 was primarily due to the sale of slow-moving inventory during the quarter and the increase in international sales as we serve distributors in the China and Hong Kong markets. We have been evaluating each of our current international wholesale distributors, and others, to determine the best long-term partner within these markets, as well as enforcing the collection from one customer with which we are in dispute. As a result, our sales in these markets may fluctuate significantly each reporting period.

Sales of finished jewelry represented 15% of total consolidated net sales for the three months ended March 31, 2016, compared to 46% of total consolidated net sales for the corresponding period of the prior year. For the three months ended March 31, 2016, finished jewelry sales were $1.75 million compared to $3.19 million for the corresponding period of the prior year, a decrease of $1.44 million, or 45%. This decrease was primarily attributable to lower sales through our wholesale distribution segment as we have transitioned our largest customer to larger purchases of loose jewels and fewer purchases of finished jewelry. This decrease was offset in part by the growth of our direct-to-consumer e-commerce business which had increased finished jewelry sales of 25% to $1.22 million.

United States, or U.S., net sales accounted for approximately 93% of total consolidated net sales for the three months ended March 31, 2016, compared to 91% of total consolidated net sales for the corresponding period of the prior year. U.S. net sales increased to $10.64 million, or 66%, during the three months ended March 31, 2016 from the corresponding period of the prior year primarily as a result of the sale of $6.77 million of slow-moving inventory to our largest domestic customer, and the increased sales of our direct-to-consumer e-commerce business.

Our largest U.S. customer during the three months ended March 31, 2016 accounted for 59% of total consolidated sales compared to 28% during the same period of 2015. One other U.S. customer accounted for 20% of total consolidated sales during the three months ended March 31, 2015, but did not account for a significant portion of our total consolidated sales during the same period of 2016. We expect that we will remain dependent on our ability, and that of our largest customers, to maintain and enhance retail programs. A change in or loss of any of these customer or retailer relationships could have a material adverse effect on our results of operations.

International net sales accounted for approximately 7% of total consolidated net sales for the three months ended March 31, 2016, compared to 9% of total consolidated net sales for the corresponding period of the prior year. International sales increased 22% during the three months ended March 31, 2016, from the corresponding period of the prior year as we serve distributors in the China and Hong Kong markets. We have been evaluating each of the distributors in these markets, and others, to determine the best long-term partner within these markets, as well as enforcing the collection from one customer with which we are in dispute. As a result, our sales in these markets may continue to fluctuate significantly each reporting period.

We did not have an international customer account for more than 10% of total consolidated sales during the three months ended March 31, 2016 or 2015. A portion of our international consolidated sales represents jewels sold internationally that may be re-imported to U.S. retailers. Our top three international distributors by sales volume during the three months ended March 31, 2016 were located in India, Hong Kong, and Taiwan.

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Costs and Expenses

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2016 and 2015 are as follows:

	Three Months Ended March 31,				Change
	2016		2015		Dollars		Percent
Product line cost of goods sold
Loose jewels	$	7,814,060	$	2,221,174	$	5,592,886		252	%
Finished jewelry		765,107		1,708,170		(943,063)		-55	%
Total product line cost of goods sold		8,579,167		3,929,344		4,649,823		118	%
Non-product line cost of goods sold		584,721		499,279		85,442		17	%
Total cost of goods sold	$	9,163,888	$	4,428,623	$	4,735,265		107	%

Total cost of goods sold was $9.16 million for the three months ended March 31, 2016 compared to $4.43 million for the three months ended March 31, 2015, an increase of $4.74 million, or 107%. Product line cost of goods sold is defined as product cost of goods sold in each of our wholesale distribution and direct-to-consumer e-commerce distribution segments excluding non-capitalized expenses from our manufacturing and production control departments, comprising personnel costs, depreciation, rent, utilities, and corporate overhead allocations; freight out; inventory valuation allowance adjustments; and other inventory adjustments, comprising costs of quality issues, damaged goods, and inventory write-offs.

The increase in cost of goods sold for the three months ended March 31, 2016 compared to the same period in 2015 was primarily due to a $6.77 million sale of slow-moving loose gemstone inventory at low margins and an increase in non-product line cost of goods sold of $85,000, or 17%. The net increase in non-product line cost of goods sold comprises a $264,000 increase in non-capitalized manufacturing and production control expenses primarily due to timing of receiving work in process into inventory and allocating overhead, and a $4,000 increase in freight out due to increased sales volume. These increases were offset in part by a $149,000 decrease in the change in inventory valuation allowances, including inventory shrinkage, recuts, repairs, and scrap reserves, and a $33,000 decrease in other inventory adjustments. See Note 3, “Segment Information and Geographic Data,” in the Notes to Condensed Consolidated Financial Statements for further discussion of non-product line cost of goods sold.

Sales and Marketing

Sales and marketing expenses for the three months ended March 31, 2016 and 2015 are as follows:

	Three Months Ended March 31,				Change
	2016		2015		Dollars		Percent
Sales and marketing	$	1,528,585	$	1,357,944	$	170,641		13	%

Sales and marketing expenses were $1.53 million for the three months ended March 31, 2016 compared to $1.36 million for the three months ended March 31, 2015, an increase of $171,000, or 13%.

The increase in sales and marketing expenses for the three months ended March 31, 2016 compared to the same period in 2015 was primarily due to a $185,000 increase in advertising; a $35,000 increase in recruiting fees; a $23,000 increase in market research; and a $13,000 increase in professional services primarily related to public relations. These increases were partially offset by a $45,000 decrease in travel expense due to fewer international trips; a $16,000 decrease in depreciation expense related to the Moissanite.com e-commerce direct sales platform; a $13,000 decrease in office-related expense; and an $11,000 decrease in compensation expenses.

The increase in advertising expenses for the three months ended March 31, 2016 compared to the same period in 2015 comprises a $155,000 increase in cooperative advertising and an increase in internet marketing of $34,000, offset in part by a $4,000 decrease in print media expenses to develop and promote brand awareness campaigns.

Compensation costs for the three months ended March 31, 2016 compared to the same period in 2015 decreased primarily as a result of a decrease in commissions of $139,000 for sales to specific wholesale customers under which commission plans of sales representatives are based. This decrease was partially offset by a $53,000 increase in salaries and related employee benefits; a $38,000 increase in bonus expense, a $21,000 increase in stock-based compensation expense, a $10,000 increase in relocation expense, and a $6,000 increase in severance expense.

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General and Administrative

General and administrative expenses for the three months ended March 31, 2016 and 2015 are as follows:

	Three Months Ended March 31,				Change
	2016		2015		Dollars			Percent
General and administrative	$	1,442,695	$	1,865,363	$	(422,668	)		-23	%

General and administrative expenses were $1.44 million for the three months ended March 31, 2016 compared to $1.87 million for the three months ended March 31, 2015, a decrease of $423,000, or 23%.

The decrease in general and administrative expenses for the three months ended March 31, 2016 compared to the same period in 2015 was primarily due to a $184,000 decrease in compensation expenses; a $101,000 decrease in professional services; a $95,000 decrease in bad debt expense associated with our allowance for doubtful accounts reserve policy; a $35,000 decrease in board retainer fees; a $32,000 decrease in depreciation and amortization expense; and a $9,000 decrease in business and franchise taxes. These decreases were partially offset by a $30,000 increase in office-related expenses and a $3,000 increase in travel expense.

Compensation expenses decreased for the three months ended March 31, 2016 compared to the same period in 2015 primarily due to a decrease in severance expense of $335,000 associated with the departure of a former President and Chief Executive Officer and a decrease in stock-based compensation expense of $91,000, of which $55,000 was related to the transition of our President and Chief Executive Officer in the prior year period. These decreases were partially offset by an increase in salaries and related employee benefits in the aggregate of $207,000 and an increase in bonus expense of $35,000.

Professional services decreased for the three months ended March 31, 2016 compared to the same period in 2015 primarily due to a decrease in legal fees of $86,000, of which approximately $85,000 was related to the transition of our President and Chief Executive Officer in the prior year period; a $17,000 decrease in audit and tax services primarily due to the timing of work performed; and a decrease of $37,000 in public relations expenses that are now included as part of the marketing function. These decreases were partially offset by an increase of $39,000 in consulting and other professional services primarily related to human resources and sales and use tax projects.

Research and Development

Research and development expenses for the three months ended March 31, 2016 and 2015 are as follows:

	Three Months Ended March 31,				Change
	2016		2015		Dollars			Percent
Research and development	$	1,868	$	2,061	$	(193	)		-9	%

Research and development expenses were approximately $2,000 for the three months ended March 31, 2016 compared to approximately $2,000 for the three months ended March 31, 2015, a decrease of less than $1,000, or 9%.

Research and development expenses for the three months ended March 31, 2016 compared to the same period in 2015 were approximately the same due to a $1,000 decrease in compensation costs and office expenses for time and materials allocated by operations personnel to research and development activities, partially offset by a $1,000 increase in purchases of materials for testing.

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Interest Expense

Interest expense for the three months ended March 31, 2016 and 2015 is as follows:

	Three Months Ended March 31,				Change
	2016		2015		Dollars		Percent
Interest expense	$	1,507	$	17	$	1,490		8,765	%

Interest expense was approximately $2,000 for the three months ended March 31, 2016 compared to approximately $0 for the three months ended March 31, 2015, an increase of approximately $2,000, or 8,765%.

The increase in interest expense resulted primarily from the interest charged on the balance of amounts due for late filings of compliance returns in various sales and use tax jurisdictions around the country. These interest charges were realized at the time of filing once we were able to complete the registration and filing process, and to compile accurate information for future timely filings.

Provision for Income Taxes

We recognized an income tax net expense of approximately $3,000 for each of the three-month periods ended March 31, 2016 and 2015 for estimated tax, penalties, and interest associated with uncertain tax positions.

As of each reporting date, management considers new evidence, both positive and negative, that could impact its view with regard to future realization of deferred tax assets. As of March 31, 2016 and December 31, 2015, management determined that sufficient positive evidence continued to exist to conclude it was uncertain that we would have sufficient future taxable income to utilize our deferred tax assets, and therefore, we maintained a valuation allowance against our deferred tax assets.

Liquidity and Capital Resources

We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures. As of March 31, 2016, our principal sources of liquidity were cash and cash equivalents totaling $11.58 million, trade accounts receivable of $2.64 million, and current inventory of $10.45 million, as compared to cash and cash equivalents totaling $5.27 million, trade accounts receivable of $3.85 million, and current inventory of $10.74 million as of December 31, 2015. As described more fully below, we also have access to a $10 million credit facility.

During the three months ended March 31, 2016, our working capital increased by approximately $6.13 million to $22.16 million from $16.03 million at December 31, 2015. As described more fully below, the increase in working capital at March 31, 2016 is primarily attributable to an increase in our cash and cash equivalents due to our increased cash from operations, a decrease in trade accounts payable, and a net decrease in accrued expenses and other liabilities. These increases were partially offset by a decrease in trade accounts receivable, a decreased allocation of inventory to short-term, a decrease in prepaid expenses and other assets, and an increase in accrued cooperative advertising.

During the three months ended March 31, 2016, $6.72 million of cash was provided by continuing operations and $745,000 of cash was used by discontinued operations. The primary drivers of positive cash flow were a decrease in inventory of $7.26 million, a decrease in trade accounts receivable of $1.34 million, and a decrease in prepaid expenses of $9,000. These factors were partially offset by a decrease in trade accounts payable of $1.31 million and our loss of $749,000 that included $359,000 of non-cash expenses, and a decrease in accrued liabilities of $189,000. Accounts receivable decreased primarily as a result of collection efforts during the first three months of 2016 on sales made in the third and fourth quarters of 2015. We did not offer any extended wholesale customer payment terms during the three months ended March 31, 2016; however, we may offer these terms from time to time, which may not immediately increase liquidity as a result of current-period sales. We believe our competitors and other vendors in the wholesale jewelry industry have expanded their use of extended payment terms and, in aggregate, we believe that through our use of extended payment terms, we have provided a competitive response in our market and that our net sales have been favorably impacted. We are unable to estimate the impact of this program on our net sales, but if we ceased providing extended payment terms in select instances, we believe we would not be competitive for some wholesale customers in the marketplace and that our net sales and profits would likely decrease. Generally, we have not experienced any significant accounts receivable write-offs related to revenue arrangements with extended payment terms; however, we have increased our reserves for uncollectible accounts primarily due to one customer with extended terms and are pursuing legal proceedings to collect on the outstanding balances. We do not believe the terms are a factor with this customer’s non-payment. Inventories decreased primarily as a result of sales, including a $6.77 million sale of slow-moving jewels to our largest customer, offset in part by the purchase of new raw material SiC crystals during the quarter pursuant to our exclusive supply agreement, or the Supply Agreement, with Cree, which we entered into on December 12, 2014; purchases of jewelry castings, findings, and other jewelry components; and production of moissanite jewels. Prepaid expenses and other assets decreased primarily as a result of the timing of insurance premium payments and other payments in advance of goods or services received. Accounts payable decreased primarily as a result of the timing of costs incurred but not yet paid as of March 31, 2016 associated with inventory-related purchases and professional services incurred but not yet due under our vendors’ payment terms.

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We manufactured approximately $1.79 million in loose jewels and $2.35 million in finished jewelry, which includes the cost of the loose jewels and the purchase of precious metals and labor in connection with jewelry production, during the three months ended March 31, 2016. We expect our purchases of precious metals and labor to increase as we increase our finished jewelry business. In addition, from the beginning of 2006 through the first quarter of 2016, the price of gold has increased significantly (approximately 132%), resulting in higher retail price points for gold jewelry. Because the market price of gold and other precious metals is beyond our control, the upward price trends could continue and have a negative impact on our operating cash flow as we manufacture finished jewelry.

Historically, our raw material inventories of SiC crystals had been purchased under exclusive supply agreements with a limited number of suppliers. Because the supply agreements restricted the sale of these crystals exclusively to us, the suppliers negotiated minimum purchase commitments with us that, when combined with our reduced sales during the periods when the purchase commitments were in effect, have resulted in levels of inventories that are higher than we might otherwise maintain. As of March 31, 2016, $14.56 million of our inventories were classified as long-term assets. Loose jewel sales and finished jewelry that we manufacture will utilize both the finished good loose jewels currently on-hand and, as we deplete certain shapes and sizes, our on-hand raw material SiC crystals of $5.58 million and new raw material that we are purchasing from Cree.

On December 12, 2014, we entered into the Supply Agreement with Cree, our long-time SiC raw materials supplier. Under the Supply Agreement, subject to certain terms and conditions, we agreed to exclusively purchase from Cree, and Cree agreed to exclusively supply, 100% of our 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. We also have one option to unilaterally extend the term of the agreement for an additional two-year period, subject to certain conditions. Our total purchase commitment under the 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 three months ended March 31, 2016, we purchased approximately $1.91 million of SiC crystals from Cree. We expect to use existing cash and cash equivalents and other working capital, together with future cash expected to be provided by operating activities and, if necessary, our credit facility described below, to finance our purchase commitment under the Supply Agreement.

We made no income tax payments during the three months ended March 31, 2016. As of March 31, 2016, we had approximately $882,000 of remaining federal income tax credits, $533,000 of which expire between 2018 and 2021 and the balance without an expiration, which can be carried forward to offset future income taxes. As of March 31, 2016, we also had a federal tax net operating loss carryforward of approximately $12.21 million expiring between 2020 and 2034, which can be used to offset against future federal taxable income, a North Carolina tax net operating loss carryforward of approximately $18.05 million expiring between 2023 and 2030, and various other state tax net operating loss carryforwards expiring between 2016 and 2034, which can be used to offset against future state taxable income.

On June 25, 2014, we and our wholly owned subsidiaries, Charles & Colvard Direct, LLC and Moissanite.com, LLC, collectively referred to as the Borrowers, obtained the Credit Facility from Wells Fargo Bank, National Association, or Wells Fargo, which is a $10,000,000 asset-based revolving credit facility. 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. We must maintain a minimum of $1,000,000 in excess availability at all times. There are no other financial covenants.

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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 us 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 and amended as of September 16, 2014 and December 12, 2014, or 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, 2016, we had not borrowed against the Credit Facility.

We believe that our existing cash and cash equivalents and other working capital, together with future cash expected to be provided by operating activities, will be sufficient to meet our working capital and capital expenditure needs over the next 12 months. Our future capital requirements and the adequacy of available funds will depend on many factors, including our rate of sales growth; the expansion of our sales and marketing activities; the timing and extent of raw materials and labor purchases in connection with loose jewel production to support our moissanite jewel business and precious metals and labor purchases in connection with jewelry production to support our finished jewelry business; the timing of capital expenditures; and risk factors described in more detail in “Risk Factors” in this report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015. We obtained the Credit Facility to mitigate these risks to our cash and liquidity position. Also, we may make investments in, or acquisitions of, complementary businesses, which could also require us to seek additional equity or debt financing.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.

Controls and Procedures

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Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

We routinely review our internal control over financial reporting and from time to time make changes intended to enhance the effectiveness of our internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate. During the three months ended March 31, 2016, we made no changes to our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that we believe materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

There are no material pending legal proceedings to which we are a party or to which any of our property is subject.

Item 1A.

Risk Factors

We discuss in our Annual Report on Form 10-K for the year ended December 31, 2015 various risks that may materially affect our business. Except as set forth below, there have been no material changes to such risks.

Our failure to maintain compliance with NASDAQ’s continued listing requirements could result in the delisting of our common stock. Our common stock is currently listed on The NASDAQ Global Select Market. In order to maintain this listing, we must satisfy minimum financial and other requirements. In the past, we have received a notification letter from NASDAQ indicating that we were not in compliance with listing requirements because the minimum bid price of our common stock closed below $1.00 per share for 30 consecutive business days. However, NASDAQ subsequently notified us that we had regained compliance with the minimum bid price requirement. If we fail to satisfy NASDAQ’s listing requirements in the future, we expect to take actions to regain compliance, but we can provide no assurance that any such action would prevent our common stock from dropping below the NASDAQ minimum bid price requirement or prevent future non-compliance with NASDAQ’s listing requirements. If our common stock is delisted from NASDAQ, the delisting could substantially decrease trading in our common stock and adversely affect the market liquidity of our common stock; adversely affect our ability to obtain financing on acceptable terms, if at all; and may result in the potential loss of confidence by investors, suppliers, customers, and employees and fewer business development opportunities. Additionally, the market price of our common stock may decline further and shareholders may lose some or all of their investment.

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Item 6.

Exhibits

The following exhibits are being filed herewith and are numbered in accordance with Item 601 of Regulation S-K:

Exhibit No.	Description
2.1	Asset Purchase Agreement, effective March 4, 2016, by and among Yanbal USA, Inc., Charles & Colvard, Ltd., and Charles & Colvard Direct, LLC (incorporated herein by reference to Exhibit 2.1 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2016)

2.2	List of Schedules Omitted from Asset Purchase Agreement included as Exhibit 2.1 above (incorporated herein by reference to Exhibit 2.2 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2016)

10.1	Charles & Colvard, Ltd. 2016 Senior Management Equity Incentive Program, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.42 to our Annual Report on Form 10-K for the year ended December 31, 2015)

10.2	First Amendment to Employment Agreement, dated March 8, 2016, by and between Charles & Colvard, Ltd. and Steve Larkin (incorporated herein by reference to Exhibit 10.46 to our Annual Report on Form 10-K for the year ended December 31, 2015)

31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101	The following materials from Charles & Colvard, Ltd.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CHARLES & COLVARD, LTD.

	By:	/s/ Suzanne T. Miglucci
April 29, 2016		Suzanne T. Miglucci
		President and Chief Executive Officer

	By:	/s/ Kyle Macemore
April 29, 2016		Kyle Macemore
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and Chief Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Description
2.1	Asset Purchase Agreement, effective March 4, 2016, by and among Yanbal USA, Inc., Charles & Colvard, Ltd., and Charles & Colvard Direct, LLC (incorporated herein by reference to Exhibit 2.1 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2016)

2.2	List of Schedules Omitted from Asset Purchase Agreement included as Exhibit 2.1 above (incorporated herein by reference to Exhibit 2.2 to our Current Report on Form 8-K, as filed with the SEC on March 8, 2016)

10.1	Charles & Colvard, Ltd. 2016 Senior Management Equity Incentive Program, effective January 1, 2016 (incorporated herein by reference to Exhibit 10.42 to our Annual Report on Form 10-K for the year ended December 31, 2015)

10.2	First Amendment to Employment Agreement, dated March 8, 2016, by and between Charles & Colvard, Ltd. and Steve Larkin (incorporated herein by reference to Exhibit 10.46 to our Annual Report on Form 10-K for the year ended December 31, 2015)

31.1	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101	The following materials from Charles & Colvard, Ltd.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements.

Document and Entity Information - shares

3 Months Ended

Mar. 31, 2016

Apr. 25, 2016

Document and Entity Information [Abstract]

Entity Registrant Name

CHARLES & COLVARD LTD

Entity Central Index Key

0001015155

Current Fiscal Year End Date

--12-31

Entity Well-known Seasoned Issuer

Entity Voluntary Filers

Entity Current Reporting Status

Yes

Entity Filer Category

Smaller Reporting Company

Entity Common Stock, Shares Outstanding

21,504,735

Document Fiscal Year Focus

2016

Document Fiscal Period Focus

Document Type

10-Q

Amendment Flag

false

Document Period End Date

Mar. 31, 2016

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) - USD ($)

Mar. 31, 2016

Dec. 31, 2015

Current assets:

Cash and cash equivalents

$ 11,580,162

$ 5,274,305

Accounts receivable, net

2,639,594

3,852,651

Inventory, net

10,449,743

10,739,798

Prepaid expenses and other assets

660,088

701,105

72,000

83,000

Total current assets

25,401,587

20,650,859

Long-term assets:

Inventory, net

14,563,790

21,588,622

Property and equipment, net

1,501,524

1,615,683

Intangible assets, net

55,138

71,086

Other assets

246,907

214,588

Total long-term assets

16,367,359

23,489,979

TOTAL ASSETS

41,768,946

44,140,838

Current liabilities:

Accounts payable

2,012,549

3,323,148

Accrued cooperative advertising

65,000

58,000

Accrued expenses and other liabilities

718,570

891,187

450,000

349,000

Total current liabilities

3,246,119

4,621,335

Long-term liabilities:

Accrued expenses and other liabilities

683,704

710,223

Accrued income taxes

423,746

420,503

Total long-term liabilities

1,107,450

1,130,726

Total liabilities

$ 4,353,569

$ 5,752,061

Commitments and contingencies

Shareholders' equity:

Common stock, no par value

$ 54,240,247

Additional paid-in capital - stock-based compensation

13,614,942

13,280,920

Accumulated deficit

(30,439,812)

(29,132,390)

Total shareholders' equity

37,415,377

38,388,777

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$ 41,768,946

$ 44,140,838

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Parenthetical) - $ / shares

Mar. 31, 2016

Dec. 31, 2015

Shareholders' equity

Common stock, par value (in dollars per share)

$ 0

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($)

3 Months Ended

Mar. 31, 2016

Mar. 31, 2015

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) [Abstract]

Net sales

$ 11,393,271

$ 7,016,086

Costs and expenses:

Cost of goods sold

9,163,888

4,428,623

Sales and marketing

1,528,585

1,357,944

General and administrative

1,442,695

1,865,363

Research and development

1,868

2,061

Total costs and expenses

12,137,036

7,653,991

Loss from operations

(743,765)

(637,905)

Other (expense) income:

Interest income

Interest expense

(1,507)

(17)

Gain on sale of long-term assets

125

Total other (expense) income, net

(1,507)

119

Loss before income taxes from continuing operations

(745,272)

(637,786)

Income tax net expense from continuing operations

(3,243)

(3,093)

Net loss from continuing operations

(748,515)

(640,879)

Discontinued operations

Loss from discontinued operations

(574,370)

(1,038,572)

Gain on sale of assets from discontinued operations

15,463

Income tax benefit from discontinued operations

Net loss from discontinued operations

(558,907)

(1,038,572)

Net loss

$ (1,307,422)

$ (1,679,451)

Net loss per common share:

Basic - continuing operations (in dollars per share)

$ (0.04)

$ (0.03)

Basic - discontinued operations (in dollars per share)

(0.02)

(0.05)

Basic - total (in dollars per share)

(0.06)

(0.08)

Diluted - continuing operations (in dollars per share)

(0.04)

(0.03)

Diluted - discontinued operations (in dollars per share)

(0.02)

(0.05)

Diluted - total (in dollars per share)

$ (0.06)

$ (0.08)

Weighted average number of shares used in computing net loss income per common share:

Basic (in shares)

20,730,419

20,107,504

Diluted (in shares)

20,730,419

20,107,504

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) - USD ($)

3 Months Ended

Mar. 31, 2016

Mar. 31, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$ (748,515)

$ (640,879)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

146,491

192,347

Stock-based compensation

285,076

357,834

Provision for uncollectible accounts

(93,558)

1,000

Provision for sales returns

(34,000)

(579,000)

Provision for inventory reserves

55,000

204,000

Gain on sale of long-term assets

(125)

Changes in operating assets and liabilities:

Accounts receivable

1,340,615

963,744

Inventory

7,259,887

1,210,313

Prepaid expenses and other assets, net

8,698

(186,912)

Accounts payable

(1,310,599)

199,277

Accrued cooperative advertising

7,000

(163,000)

Accrued income taxes

3,243

3,093

Other accrued liabilities

(199,136)

313,904

Net cash provided by operating activities of continuing operations

6,720,202

1,875,596

Net cash used in operating activities of discontinued operations

(744,511)

(584,786)

Net cash provided by operating activities

5,975,691

1,290,810

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(38,505)

(110,097)

Patent, license rights, and trademark costs

(6,539)

Proceeds from sale of long-term assets

175

Net cash used in investing activities of continuing operations

(38,505)

(116,461)

Net cash provided by (used in) investing activities of discontinued operations

368,671

(7,007)

Net cash provided by (used in) investing activities

330,166

(123,468)

CASH FLOWS FROM FINANCING ACTIVITIES:

Stock option exercises

60,000

Net cash provided by financing activities of continuing operations

60,000

NET INCREASE IN CASH AND CASH EQUIVALENTS

6,305,857

1,227,342

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

5,274,305

4,007,341

CASH AND CASH EQUIVALENTS, END OF PERIOD

11,580,162

5,234,683

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

1,507

Cash paid during the period for income taxes

$ 0

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2016

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation - The accompanying unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. However, certain information or footnote disclosures normally included in complete financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, the unaudited statements in this Quarterly Report on Form 10-Q include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2016.

The condensed consolidated financial statements as of and for the three months ended March 31, 2016 and 2015 included in this Quarterly Report on Form 10-Q are unaudited. The balance sheet as of December 31, 2015 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, 2015 filed with the SEC on March 8, 2016 (the “2015 Annual Report”).

The accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2016 and 2015 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 - In the opinion of the Company’s management, the significant accounting policies used for the three months ended March 31, 2016 are consistent with those used for the year ended December 31, 2015. Accordingly, please refer to the 2015 Annual Report for the Company’s significant accounting policies.

Use of Estimates

Use of Estimates - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates impacting the Company’s condensed consolidated financial statements relate to valuation and classification of inventories, accounts receivable reserves, depreciable lives of property and equipment, deferred tax assets, uncertain tax positions, stock compensation expense, and cooperative advertising. Actual results could differ materially from those estimates.

Reclassifications

Reclassifications - Certain amounts in the prior year’s condensed consolidated financial statements have been reclassified to conform to the current year presentation, primarily amounts described in Note 3, “Segment Information and Geographic Data” and Note 12, “Discontinued Operations” related to changes in the Company’s reportable segments.

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. The Company does not anticipate early adoption at this time and is currently evaluating the impact of this guidance on its consolidated financial statements.

In November 2015, the FASB issued new accounting guidance that requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual report period. The amendments in this guidance may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company adopted this standard as of December 31, 2015 with prospective application. As a result, the Company reclassified its deferred tax assets classified as current to noncurrent and its deferred tax liabilities classified as current to noncurrent in its December 31, 2015 consolidated balance sheet. Prior balance sheets presented were retrospectively adjusted.

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 is currently evaluating the impact of its pending adoption of the new standard on its consolidated financial statements.

In March 2016, the FASB issued updated guidance that changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as the classification of related matters in the statement of cash flows. The update is effective for the Company in the first quarter of 2017. The Company is currently evaluating this guidance and the impact it will have on its consolidated financial statements.

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.

DESCRIPTION OF BUSINESS (Details)

Mar. 04, 2016

USD ($)

Yanbal USA Inc. [Member]

Business Acquisition [Line Items]

Purchase price for transferred assets

$ 500,000

SEGMENT INFORMATION AND GEOGRAPHIC DATA (Details)

2 Months Ended

3 Months Ended

Mar. 03, 2016

Segment

Mar. 31, 2016

USD ($)

Segment

Mar. 31, 2015

USD ($)

Dec. 31, 2015

USD ($)

SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract]

Number of operating segments | Segment

Number of reportable segments | Segment

Summary information by segment [Abstract]

Net sales

$ 11,393,271

$ 7,016,086

Operating loss

(743,765)

(637,905)

Depreciation and amortization

146,491

192,347

Capital expenditures

38,505

110,097

Total assets

41,768,946

$ 44,140,838

Cost of goods sold

9,163,888

4,428,623

Inventories, net [Abstract]

Raw materials

5,809,580

6,932,139

Work-in-process

7,799,482

6,031,745

Supplies inventories

32,000

38,000

Continuing Operations [Member]

Summary information by segment [Abstract]

Net sales

11,393,271

7,016,086

Product line cost of goods sold

8,579,167

3,929,344

Product line gross profit

2,814,104

3,086,742

Operating loss

(743,765)

(637,905)

Depreciation and amortization

146,491

192,347

Capital expenditures

38,505

110,097

Total assets

41,696,946

44,057,838

Cost of goods sold

9,163,888

4,428,623

Continuing Operations [Member] | Product Line Cost of Goods Sold [Member]

Summary information by segment [Abstract]

Product line cost of goods sold

8,579,167

3,929,344

Continuing Operations [Member] | Loose Jewels [Member]

Summary information by segment [Abstract]

Net sales

9,640,598

3,821,159

Product line cost of goods sold

7,814,060

2,221,174

Product line gross profit

1,826,538

1,599,985

Inventories, net [Abstract]

Raw materials

5,575,942

6,741,712

Work-in-process

7,357,908

5,516,799

Finished goods

9,355,892

15,877,436

Finished goods on consignment

40,554

55,388

Total

22,330,296

28,191,335

Continuing Operations [Member] | Finished Jewelry [Member]

Summary information by segment [Abstract]

Net sales

1,752,673

3,194,927

Product line cost of goods sold

765,107

1,708,170

Product line gross profit

987,566

1,486,757

Inventories, net [Abstract]

Raw materials

233,638

190,427

Work-in-process

441,574

514,946

Finished goods

1,799,918

3,193,569

Finished goods on consignment

176,382

200,613

Total

2,651,512

4,099,555

Operating and Reporting Segments [Member] | Continuing Operations [Member] | Wholesale [Member]

Summary information by segment [Abstract]

Net sales

10,060,823

5,912,160

Product line cost of goods sold

8,051,467

3,429,913

Product line gross profit

2,009,356

2,482,247

Operating loss

(534,016)

(234,485)

Depreciation and amortization

132,048

160,640

Capital expenditures

36,903

109,564

Total assets

41,534,717

43,882,939

Operating and Reporting Segments [Member] | Continuing Operations [Member] | Wholesale [Member] | Loose Jewels [Member]

Summary information by segment [Abstract]

Net sales

9,524,174

3,687,893

Product line cost of goods sold

7,807,255

2,202,103

Product line gross profit

1,716,919

1,485,790

Operating and Reporting Segments [Member] | Continuing Operations [Member] | Wholesale [Member] | Finished Jewelry [Member]

Summary information by segment [Abstract]

Net sales

536,649

2,224,267

Product line cost of goods sold

244,212

1,227,810

Product line gross profit

292,437

996,457

Operating and Reporting Segments [Member] | Continuing Operations [Member] | Moissanite.com [Member]

Summary information by segment [Abstract]

Net sales

1,332,448

1,103,926

Product line cost of goods sold

527,700

499,431

Product line gross profit

804,748

604,495

Operating loss

(209,749)

(403,420)

Depreciation and amortization

14,443

31,707

Capital expenditures

1,602

533

Total assets

162,229

$ 174,899

Operating and Reporting Segments [Member] | Continuing Operations [Member] | Moissanite.com [Member] | Loose Jewels [Member]

Summary information by segment [Abstract]

Net sales

116,424

133,266

Product line cost of goods sold

6,805

19,071

Product line gross profit

109,619

114,195

Operating and Reporting Segments [Member] | Continuing Operations [Member] | Moissanite.com [Member] | Finished Jewelry [Member]

Summary information by segment [Abstract]

Net sales

1,216,024

970,660

Product line cost of goods sold

520,895

480,360

Product line gross profit

695,129

490,300

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

410,750

147,112

Segment Reconciling Items [Member] | Continuing Operations [Member] | Freight Out [Member]

Summary information by segment [Abstract]

Product line cost of goods sold

72,058

68,464

Segment Reconciling Items [Member] | Continuing Operations [Member] | Inventory Valuation allowances [Member]

Summary information by segment [Abstract]

Product line cost of goods sold

55,000

204,000

Segment Reconciling Items [Member] | Continuing Operations [Member] | Other Inventory Adjustments [Member]

Summary information by segment [Abstract]

Product line cost of goods sold

$ 46,913

$ 79,703

SEGMENT INFORMATION AND GEOGRAPHIC DATA, Data by Geographic Area (Details) - USD ($)

3 Months Ended

Mar. 31, 2016

Mar. 31, 2015

Dec. 31, 2015

Net sales [Abstract]

Net sales

$ 11,393,271

$ 7,016,086

Continuing Operations [Member]

Net sales [Abstract]

Net sales

11,393,271

7,016,086

Continuing Operations [Member] | Property and Equipment, Net [Member]

Assets by geographical area [Abstract]

Total

1,501,524

$ 1,615,683

Continuing Operations [Member] | Intangible Assets, Net [Member]

Assets by geographical area [Abstract]

Total

55,138

71,086

Reportable Geographical Components [Member] | Continuing Operations [Member] | United States [Member]

Net sales [Abstract]

Net sales

10,641,982

6,401,368

Reportable Geographical Components [Member] | Continuing Operations [Member] | United States [Member] | Property and Equipment, Net [Member]

Assets by geographical area [Abstract]

Total

1,501,524

1,615,683

Reportable Geographical Components [Member] | Continuing Operations [Member] | United States [Member] | Intangible Assets, Net [Member]

Assets by geographical area [Abstract]

Total

13,195

15,362

Reportable Geographical Components [Member] | Continuing Operations [Member] | International [Member]

Net sales [Abstract]

Net sales

751,289

$ 614,718

Reportable Geographical Components [Member] | Continuing Operations [Member] | International [Member] | Property and Equipment, Net [Member]

Assets by geographical area [Abstract]

Total

Reportable Geographical Components [Member] | Continuing Operations [Member] | International [Member] | Intangible Assets, Net [Member]

Assets by geographical area [Abstract]

Total

$ 41,943

$ 55,724

INVENTORIES (Details) - USD ($)

3 Months Ended

Mar. 31, 2016

Dec. 31, 2015

Total inventories, net of reserves [Abstract]

Raw materials

$ 5,809,580

$ 6,932,139

Work-in-process

7,799,482

6,031,745

Finished goods

12,569,535

20,441,535

Finished goods on consignment

259,936

293,001

Less inventory reserves

(1,425,000)

(1,370,000)

Total

25,013,533

32,328,420

Current portion

10,449,743

10,739,798

Long-term portion

$ 14,563,790

21,588,622

Period considered for classification of long term inventory

12 months

Work-in-process inventories issued to active production jobs

$ 3,730,000

3,020,000

Sale of slow moving loose jewel inventory of less desirable quality

2,280,000

Lower of cost or market reserve

546,000

352,000

Inventory reserve for obsolescence

193,000

164,000

Carrying value of inventory reserve for obsolescence of moissanite

59,000

225,000

Shrinkage reserve for finished goods on consignment

43,000

37,000

Inventory of net loose jewels

22,330,000

28,190,000

Inventory reserve for shrinkage of loose jewels

52,000

50,000

Inventory reserve for shrinkage of loose jewels on consignment

11,000

10,000

Inventory reserve for recuts

457,000

449,000

Inventory of net jewelry

2,650,000

4,100,000

Inventory reserve for shrinkage of finished jewelry

102,000

95,000

Inventory reserve for shrinkage of finished jewelry on consignment

32,000

27,000

Inventory reserve for shrinkage of finished jewelry on repairs

$ 16,000

$ 31,000

INCOME TAXES (Details) - USD ($)

3 Months Ended

Mar. 31, 2016

Mar. 31, 2015

INCOME TAXES [Abstract]

Income tax expense (benefit)

$ 3,243

$ 3,093

Income tax expense for estimated tax, penalties, and interest for other uncertain tax positions

$ 3,000

COMMITMENTS AND CONTINGENCIES (Details)

3 Months Ended

Dec. 12, 2014

USD ($)

Option

Dec. 09, 2013

ft²

Mar. 31, 2016

USD ($)

Mar. 31, 2015

USD ($)

May. 23, 2014

USD ($)

Lease Commitments [Abstract]

Land subject to leases | ft²

36,350

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

Future minimum payments under operating lease [Abstract]

$ 429,100

584,789

600,871

617,395

634,373

541,957

3,408,485

142,000

$ 128,000

Purchase Commitments [Abstract]

Period of exclusive supply agreement

2 years

Percentage committed to be purchased

100.00%

Number of option to unilaterally extend the term | Option

Minimum purchase commitment in initial new order

$ 29,600,000

Maximum purchase commitment in initial new order

$ 31,500,000

Actual purchases under purchase amendment

$ 1,910,000

$ 1,440,000

LINE OF CREDIT (Details) - Wells Fargo [Member] - Line of Credit [Member] - USD ($)

3 Months Ended

Jun. 25, 2014

Mar. 31, 2016

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

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

LIBOR [Member]

Line of Credit Facility [Line Items]

Line of credit, spread on variable rate

2.50%

STOCK-BASED COMPENSATION (Details) - USD ($)

3 Months Ended

Mar. 31, 2016

Mar. 31, 2015

Mar. 31, 2016

Components of the Company's stock based compensation included in net income [Abstract]

Totals

$ 334,022

$ 379,239

Employee Stock Options [Member]

Components of the Company's stock based compensation included in net income [Abstract]

Allocated share-based compensation expense

$ 139,183

186,471

Shares [Roll Forward]

Outstanding, beginning balance (in shares)

2,441,077

Granted (in shares)

174,643

Exercised (in shares)

Forfeited (in shares)

(141,497)

Expired (in shares)

(103,040)

Outstanding, ending balance (in shares)

2,371,183

Weighted Average Exercise Price [Roll Forward]

Outstanding, beginning balance (in dollars per share)

$ 2.11

Granted (in dollars per share)

1.12

Exercised (in dollars per share)

Forfeited (in dollars per share)

1.43

Expired (in dollars per share)

1.26

Outstanding, ending balance (in dollars per share)

$ 2.11

Weighted average assumptions for stock options [Abstract]

Dividend yield

0.00%

Expected volatility

62.40%

Risk-free interest rate

1.54%

Expected lives

5 years 6 months 29 days

Options Outstanding [Abstract]

Balance as of 3/31/2016 (in shares)

2,441,077

2,371,183

Weighted average remaining contractual life

7 years 9 months 18 days

Weighted average exercise price (in dollars per share)

$ 2.11

Options Exercisable [Abstract]

Balance as of 3/31/2016 (in shares)

1,261,390

Weighted average remaining contractual life

6 years 7 months 6 days

Weighted average exercise price (in dollars per share)

$ 2.53

Options Vested or Expected to Vest [Abstract]

Balance as of 3/31/2016 (in shares)

2,285,268

Weighted average remaining contractual life

7 years 8 months 26 days

Weighted average exercise price (in dollars per share)

$ 2.14

Stock-based compensation capitalized as a cost of inventory

$ 0

Allocated share-based compensation expense, discontinued operations

$ 49,000

21,000

Fair value of stock options (in dollars per share)

$ 0.63

Fair value of stock options vested

$ 147,000

Unrecognized stock-based compensation expense related to unvested awards

$ 683,000

Total compensation cost not yet recognized, period for recognition

19 months

Aggregate intrinsic value of stock options outstanding

30,000

Aggregate intrinsic value of stock options exercisable

30,000

Aggregate intrinsic value of stock options vested and expected to vest

30,000

Aggregate intrinsic value of stock options exercised

$ 0

Restricted Stock [Member]

Components of the Company's stock based compensation included in net income [Abstract]

Allocated share-based compensation expense

$ 144,591

176,523

Options Vested or Expected to Vest [Abstract]

Unrecognized stock-based compensation expense related to unvested awards

$ 517,000

Total compensation cost not yet recognized, period for recognition

10 months

Shares [Roll Forward]

Unvested, beginning balance (in shares)

425,000

Granted (in shares)

509,250

Vested (in shares)

(254,523)

Canceled (in shares)

(116,100)

Unvested, ending balance (in shares)

563,627

Weighted Average Grant Date Fair Value [Roll Forward]

Unvested, beginning balance (in dollars per share)

$ 1.87

Granted (in dollars per share)

0.93

Vested (in dollars per share)

1.42

Canceled (in dollars per share)

1.42

Unvested, ending balance (in dollars per share)

$ 1.32

Consultant Stock Options [Member]

Components of the Company's stock based compensation included in net income [Abstract]

Allocated share-based compensation expense

$ 50,248

$ 16,245

NET LOSS PER COMMON SHARE (Details) - USD ($)

3 Months Ended

Mar. 31, 2016

Mar. 31, 2015

Numerator [Abstract]

Net loss from continuing operations

$ (748,515)

$ (640,879)

Net loss from discontinued operations

(558,907)

(1,038,572)

Net loss

$ (1,307,422)

$ (1,679,451)

Weighted average common shares outstanding [Abstract]

Basic (in shares)

20,730,419

20,107,504

Stock options (in shares)

Diluted (in shares)

20,730,419

20,107,504

Net loss per common share [Abstract]

Basic - continuing operations (in dollars per share)

$ (0.04)

$ (0.03)

Basic - discontinued operations (in dollars per share)

(0.02)

(0.05)

Basic - total (in dollars per share)

(0.06)

(0.08)

Diluted - continuing operations (in dollars per share)

(0.04)

(0.03)

Diluted - discontinued operations (in dollars per share)

(0.02)

(0.05)

Diluted - total (in dollars per share)

$ (0.06)

$ (0.08)

Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]

Stock options to purchase shares and non vested restricted shares (in shares)

564,000

347,000

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)

2,370,000

1,950,000

DISCONTINUED OPERATIONS (Details) - USD ($)

3 Months Ended

Mar. 04, 2016

Mar. 31, 2016

Mar. 31, 2015

Dec. 31, 2015

Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]

Inventory credit

$ 193,000

$ 164,000

Total assets

72,000

83,000

Total liabilities

450,000

349,000

Other (expense) income [Abstract]

Gain on sale of long-term assets

15,463

$ 0

Pretax loss from discontinued operations

(574,370)

(1,038,572)

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

Prepaid expenses and other assets

72,000

83,000

Total assets

72,000

83,000

Accounts payable

143,000

140,000

Accrued expenses and other liabilities

307,000

209,000

Total liabilities

450,000

$ 349,000

Disposal Group, Including Discontinued Operation, Income Statement Disclosures [Abstract]

Net sales

717,073

1,360,978

Costs and expenses [Abstract]

Cost of goods sold

259,089

415,280

Sales and marketing

863,808

1,615,420

General and administrative

168,535

368,850

Interest expense

Total costs and expenses

1,291,443

2,399,550

Loss from discontinued operations

(574,370)

(1,038,572)

Other (expense) income [Abstract]

Gain on sale of long-term assets

15,463

Total other (expense) income, net

15,463

Pretax loss from discontinued operations

$ (558,907)

$ (1,038,572)

North Carolina		56-1928817
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

170 Southport Drive Morrisville, North Carolina		27560
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒

	PART I – FINANCIAL INFORMATION	Page Number
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015	3
	Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2016 and 2015	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2016 and 2015	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	33
	Signatures	34

	March 31, 2016 (unaudited)			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	11,580,162		$	5,274,305
Accounts receivable, net		2,639,594			3,852,651
Inventory, net		10,449,743			10,739,798
Prepaid expenses and other assets		660,088			701,105
Assets related to discontinued operations		72,000			83,000
Total current assets		25,401,587			20,650,859
Long-term assets:
Inventory, net		14,563,790			21,588,622
Property and equipment, net		1,501,524			1,615,683
Intangible assets, net		55,138			71,086
Other assets		246,907			214,588
Total long-term assets		16,367,359			23,489,979
TOTAL ASSETS	$	41,768,946		$	44,140,838

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,012,549		$	3,323,148
Accrued cooperative advertising		65,000			58,000
Accrued expenses and other liabilities		718,570			891,187
Liabilities related to discontinued operations		450,000			349,000
Total current liabilities		3,246,119			4,621,335
Long-term liabilities:
Accrued expenses and other liabilities		683,704			710,223
Accrued income taxes		423,746			420,503
Total long-term liabilities		1,107,450			1,130,726
Total liabilities		4,353,569			5,752,061
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value		54,240,247			54,240,247
Additional paid-in capital – stock-based compensation		13,614,942			13,280,920
Accumulated deficit		(30,439,812	)		(29,132,390	)
Total shareholders’ equity		37,415,377			38,388,777
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	41,768,946		$	44,140,838

	Three Months Ended March 31, 2016
	Wholesale			Moissanite.com			Total
Net sales
Loose jewels	$	9,524,174		$	116,424		$	9,640,598
Finished jewelry		536,649			1,216,024			1,752,673
Total	$	10,060,823		$	1,332,448		$	11,393,271

Product line cost of goods sold
Loose jewels	$	7,807,255		$	6,805		$	7,814,060
Finished jewelry		244,212			520,895			765,107
Total	$	8,051,467		$	527,700		$	8,579,167

Product line gross profit
Loose jewels	$	1,716,919		$	109,619		$	1,826,538
Finished jewelry		292,437			695,129			987,566
Total	$	2,009,356		$	804,748		$	2,814,104

Operating loss	$	(534,016	)		(209,749	)	$	(743,765	)

Depreciation and amortization	$	132,048			14,443		$	146,491

Capital expenditures	$	36,903			1,602		$	38,505

	Three Months Ended March 31, 2015
	Wholesale			Moissanite.com			Total
Net sales
Loose jewels	$	3,687,893		$	133,266		$	3,821,159
Finished jewelry		2,224,267			970,660			3,194,927
Total	$	5,912,160		$	1,103,926			7,016,086

Product line cost of goods sold
Loose jewels	$	2,202,103		$	19,071		$	2,221,174
Finished jewelry		1,227,810			480,360			1,708,170
Total	$	3,429,913		$	499,431		$	3,929,344

Product line gross profit
Loose jewels	$	1,485,790		$	114,195		$	1,599,985
Finished jewelry		996,457			490,300			1,486,757
Total	$	2,482,247		$	604,495		$	3,086,742

Operating loss	$	(234,485	)		(403,420	)	$	(637,905	)

Depreciation and amortization	$	160,640			31,707		$	192,347

Capital expenditures	$	109,564			533		$	110,097

	March 31, 2016
	Wholesale		Moissanite.com		Total

Total assets	$	41,534,717		162,229	$	41,696,946

	December 31, 2015
	Wholesale		Moissanite.com		Total

Total assets	$	43,882,939		174,899	$	44,057,838

2016	$	429,100
2017		584,789
2018		600,871
2019		617,395
2020		634,373
Thereafter		541,957
Total	$	3,408,485

	Shares			Weighted Average Exercise Price
Outstanding, December 31, 2015		2,441,077		$	2.11
Granted		174,643		$	1.12
Exercised		-		$	-
Forfeited		(141,497	)	$	1.43
Expired		(103,040	)	$	1.26
Outstanding, March 31, 2016		2,371,183		$	2.11

Dividend yield	0.0	%
Expected volatility	62.4	%
Risk-free interest rate	1.54	%
Expected lives (years)	5.58

SEGMENT INFORMATION AND GEOGRAPHIC DATA (Details)	2 Months Ended	3 Months Ended
SEGMENT INFORMATION AND GEOGRAPHIC DATA (Details)	Mar. 03, 2016 Segment	Mar. 31, 2016 USD ($) Segment	Mar. 31, 2015 USD ($)	Dec. 31, 2015 USD ($)
SEGMENT INFORMATION AND GEOGRAPHIC DATA [Abstract]
Number of operating segments \| Segment	3	2
Number of reportable segments \| Segment	3	2
Summary information by segment [Abstract]
Net sales		$ 11,393,271	$ 7,016,086
Operating loss		(743,765)	(637,905)
Depreciation and amortization		146,491	192,347
Capital expenditures		38,505	110,097
Total assets		41,768,946		$ 44,140,838
Cost of goods sold		9,163,888	4,428,623
Inventories, net [Abstract]
Raw materials		5,809,580		6,932,139
Work-in-process		7,799,482		6,031,745
Supplies inventories		32,000		38,000
Continuing Operations [Member]
Summary information by segment [Abstract]
Net sales		11,393,271	7,016,086
Product line cost of goods sold		8,579,167	3,929,344
Product line gross profit		2,814,104	3,086,742
Operating loss		(743,765)	(637,905)
Depreciation and amortization		146,491	192,347
Capital expenditures		38,505	110,097
Total assets		41,696,946		44,057,838
Cost of goods sold		9,163,888	4,428,623
Continuing Operations [Member] \| Product Line Cost of Goods Sold [Member]
Summary information by segment [Abstract]
Product line cost of goods sold		8,579,167	3,929,344
Continuing Operations [Member] \| Loose Jewels [Member]
Summary information by segment [Abstract]
Net sales		9,640,598	3,821,159
Product line cost of goods sold		7,814,060	2,221,174
Product line gross profit		1,826,538	1,599,985
Inventories, net [Abstract]
Raw materials		5,575,942		6,741,712
Work-in-process		7,357,908		5,516,799
Finished goods		9,355,892		15,877,436
Finished goods on consignment		40,554		55,388
Total		22,330,296		28,191,335
Continuing Operations [Member] \| Finished Jewelry [Member]
Summary information by segment [Abstract]
Net sales		1,752,673	3,194,927
Product line cost of goods sold		765,107	1,708,170
Product line gross profit		987,566	1,486,757
Inventories, net [Abstract]
Raw materials		233,638		190,427
Work-in-process		441,574		514,946
Finished goods		1,799,918		3,193,569
Finished goods on consignment		176,382		200,613
Total		2,651,512		4,099,555
Operating and Reporting Segments [Member] \| Continuing Operations [Member] \| Wholesale [Member]
Summary information by segment [Abstract]
Net sales		10,060,823	5,912,160
Product line cost of goods sold		8,051,467	3,429,913
Product line gross profit		2,009,356	2,482,247
Operating loss		(534,016)	(234,485)
Depreciation and amortization		132,048	160,640
Capital expenditures		36,903	109,564
Total assets		41,534,717		43,882,939
Operating and Reporting Segments [Member] \| Continuing Operations [Member] \| Wholesale [Member] \| Loose Jewels [Member]
Summary information by segment [Abstract]
Net sales		9,524,174	3,687,893
Product line cost of goods sold		7,807,255	2,202,103
Product line gross profit		1,716,919	1,485,790
Operating and Reporting Segments [Member] \| Continuing Operations [Member] \| Wholesale [Member] \| Finished Jewelry [Member]
Summary information by segment [Abstract]
Net sales		536,649	2,224,267
Product line cost of goods sold		244,212	1,227,810
Product line gross profit		292,437	996,457
Operating and Reporting Segments [Member] \| Continuing Operations [Member] \| Moissanite.com [Member]
Summary information by segment [Abstract]
Net sales		1,332,448	1,103,926
Product line cost of goods sold		527,700	499,431
Product line gross profit		804,748	604,495
Operating loss		(209,749)	(403,420)
Depreciation and amortization		14,443	31,707
Capital expenditures		1,602	533
Total assets		162,229		$ 174,899
Operating and Reporting Segments [Member] \| Continuing Operations [Member] \| Moissanite.com [Member] \| Loose Jewels [Member]
Summary information by segment [Abstract]
Net sales		116,424	133,266
Product line cost of goods sold		6,805	19,071
Product line gross profit		109,619	114,195
Operating and Reporting Segments [Member] \| Continuing Operations [Member] \| Moissanite.com [Member] \| Finished Jewelry [Member]
Summary information by segment [Abstract]
Net sales		1,216,024	970,660
Product line cost of goods sold		520,895	480,360
Product line gross profit		695,129	490,300
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		410,750	147,112
Segment Reconciling Items [Member] \| Continuing Operations [Member] \| Freight Out [Member]
Summary information by segment [Abstract]
Product line cost of goods sold		72,058	68,464
Segment Reconciling Items [Member] \| Continuing Operations [Member] \| Inventory Valuation allowances [Member]
Summary information by segment [Abstract]
Product line cost of goods sold		55,000	204,000
Segment Reconciling Items [Member] \| Continuing Operations [Member] \| Other Inventory Adjustments [Member]
Summary information by segment [Abstract]
Product line cost of goods sold		$ 46,913	$ 79,703

COMMITMENTS AND CONTINGENCIES (Details)			3 Months Ended
COMMITMENTS AND CONTINGENCIES (Details)	Dec. 12, 2014 USD ($) Option	Dec. 09, 2013 ft²	Mar. 31, 2016 USD ($)	Mar. 31, 2015 USD ($)	May. 23, 2014 USD ($)
Lease Commitments [Abstract]
Land subject to leases \| ft²		36,350
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
Future minimum payments under operating lease [Abstract]
2016			$ 429,100
2017			584,789
2018			600,871
2019			617,395
2020			634,373
Thereafter			541,957
Total			3,408,485
Rent expense			142,000	$ 128,000
Purchase Commitments [Abstract]
Period of exclusive supply agreement	2 years
Percentage committed to be purchased	100.00%
Number of option to unilaterally extend the term \| Option	1
Minimum purchase commitment in initial new order	$ 29,600,000
Maximum purchase commitment in initial new order	$ 31,500,000
Actual purchases under purchase amendment			$ 1,910,000	$ 1,440,000