Quarterly report pursuant to Section 13 or 15(d)

SEGMENT INFORMATION

v3.5.0.2
SEGMENT INFORMATION
 9 Months Ended
Sep. 30, 2016
Notes to Financial Statements  
Note 17. SEGMENT INFORMATION

The Company’s operating and reportable segments are currently organized around the following products that it offers as part of its core business strategy:

 

  · Hydroponic Produce
  · Cannabis Products

 

These two reportable segments, which are described in greater detail below, had previously been reported on a combined basis as they had been operated and evaluated as one operating segment. The Company experienced significant growth over the last year in most of our product areas. As the Company has grown organically, and as the Company previously added to its capabilities through acquisitions, its products have increased in scale and become more strategically important and distinctly organized and managed under these two groupings. In addition, Derek Peterson, the Company’s chief operating decision maker (“CODM”) has begun reviewing results and managing and allocating resources between these two strategic business groupings, and has begun budgeting using these business segments. The Company’s segment information for the nine months ended September 30, 2016 has been reclassified to conform to its current presentation.

 

The Company’s CODM reviews revenues including intersegment revenues, gross profit and operating income (loss) before income taxes when evaluating segment performance and allocating resources to each segment. Accordingly, intersegment revenue is included in the segment revenues presented in the tables below and is eliminated from revenues and cost of sales in the “Eliminations and Other” column. The “Eliminations and Other” column also includes various income and expense items that the Company does not allocate to its operating segments. These income and expense amounts include the results of the Company’s hydroponic equipment, which are not material, interest income, interest expense, corporate overhead, and corporate-wide expense items such as legal and professional fees as well as expense items for which we have not identified a reasonable basis for allocation. The accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to the Consolidated Financial Statements.

 

Hydroponic Produce

 

The Company’s locally grown hydroponic produce, which include produce, herbs, and floral products, are started from seed and are grown in environmentally controlled greenhouses. When harvested, the products are sold through retailers targeted to customers seeking produce, herbs, or floral products locally grown using environmentally sustainable methods.

 

Cannabis Products

 

The Company currently operates or plans to operate medical marijuana cultivation, production, and dispensary facilities in California and Nevada through its subsidiaries, Black Oak Gallery, MediFarm, MediFarm I, and MediFarm II. The Company was granted eight provisional permits in Nevada and have received approval from the local authorities with respect to all of the permits. IVXX’s cannabis products are currently produced in the Company’s lab in California and are sold in select dispensaries throughout California. 

 

Summarized financial information concerning the Company’s reportable segments is shown in the following tables. Total asset amounts at September 30, 2016 and 2015 exclude intercompany receivable balances eliminated in consolidation.

 

    Three Months Ended September 30, 2016  
    Hydroponic     Cannabis     Eliminations        
    Produce     Products     and Other     Total  
Total Revenues   $ 2,138,260     $ 4,769,912     $ 42,193     $ 6,950,365  
Cost of Goods Sold     1,857,783       3,747,841       25,355       5,630,979  
Gross Margin     280,477       1,022,071       16,838       1,319,386  
Selling, general and administrative expenses     705,751       1,920,468       3,379,727       6,005,946  
Loss from operations     (425,274 )     (898,397 )     (3,362,889 )     (4,686,560 )
                                 
Other Income (Expenses)                                
Amortization of debt discount     -       -       (610,089 )     (610,089 )
Loss on extinguishment of debt     -       -       -       -  
Loss from derivatives issued with debt greater than debt carrying value     -       -       (867,000 )     (867,000 )
Gain (Loss) on fair market valuation of derivatives     -       -       771,000       771,000  
Interest Income (Expense)     -       (250 )     (159,383 )     (159,633 )
Total Other Income (Expense)     -       (250 )     (865,472 )     (865,722 )
Loss before Provision of Income Taxes   $ (425,274 )   $ (898,647 )   $ (4,228,361 )   $ (5,552,282 )

 

    Three Months Ended September 30, 2015  
    Hydroponic     Cannabis     Eliminations        
    Produce     Products     and Other     Total  
Total Revenues   $ 1,597,378     $ 420,973     $ -     $ 2,018,351  
Cost of Goods Sold     1,370,804       290,256       (12,515 )     1,648,545  
Gross Margin     226,574       130,717       12,515       369,806  
Selling, general and administrative expenses     441,177       164,970       1,493,167       2,099,314  
Loss from operations     (214,603 )     (34,253 )     (1,480,652 )     (1,729,508 )
                                 
Other Income (Expenses)                                
Amortization of debt discount     -       -       (258,306 )     (258,306 )
Loss on extinguishment of debt     -       -       (263,950 )     (263,950 )
Loss from derivatives issued with debt greater than debt carrying value     -       -       -       -  
Gain (Loss) on fair market valuation of derivatives     -       -       372,400       372,400  
Interest Income (Expense)     -       -       (108,563 )     (108,563 )
Total Other Income (Expense)     -       -       (258,419 )     (258,419 )
Loss before Provision of Income Taxes   $ (214,603 )   $ (34,253 )   $ (1,739,071 )   $ (1,987,927 )

 

    Nine Months Ended September 30, 2016  
    Hydroponic     Cannabis     Eliminations        
    Produce     Products     and Other     Total  
Total Revenues   $ 9,413,121     $ 8,669,092     $ 116,228     $ 18,198,441  
Cost of Goods Sold     8,472,797       6,557,137       65,203       15,095,137  
Gross Margin     940,324       2,111,955       51,025       3,103,304  
Selling, general and administrative expenses     2,083,778       3,772,056       7,663,781       13,519,615  
Loss from operations     (1,143,454 )     (1,660,101 )     (7,612,756 )     (10,416,311 )
                                 
Other Income (Expenses)                                
Amortization of debt discount     -       -       (922,621 )     (922,621 )
Loss on extinguishment of debt     -       -       (920,797 )     (920,797 )
Loss from derivatives issued with debt greater than debt carrying value     -       -       (1,355,000 )     (1,355,000 )
Gain (Loss) on fair market valuation of derivatives     -       -       (595,700 )     (595,700 )
Interest Income (Expense)     -       -       (276,193 )     (276,193 )
Total Other Income (Expense)     -       -       (4,070,311 )     (4,070,311 )
Loss before Provision of Income Taxes   $ (1,143,454 )   $ (1,660,101 )   $ (11,683,067 )   $ (14,486,622 )
                                 
Total assets at September 30, 2016   $ 6,725,967     $ 2,390,233     $ 60,849,033     $ 69,965,233  

 

    Nine Months Ended September 30, 2015  
    Hydroponic     Cannabis     Eliminations        
    Produce     Products     and Other     Total  
Total Revenues   $ 6,832,805     $ 852,745     $ 120,444     $ 7,805,994  
Cost of Goods Sold     6,266,858       569,417       108,584       6,944,859  
Gross Margin     565,947       283,328       11,860       861,135  
Selling, general and administrative expenses     1,373,976       721,104       5,697,365       7,792,445  
Loss from operations     (808,029 )     (437,776 )     (5,685,505 )     (6,931,310 )
                                 
Other Income (Expenses)                                
Amortization of debt discount     -       -       (524,161 )     (524,161 )
Loss on extinguishment of debt     -       -       (263,950 )     (263,950 )
Loss from derivatives issued with debt greater than debt carrying value     -       -       (561,000 )     (561,000 )
Gain (Loss) on fair market valuation of derivatives     -       -       1,779,600       1,779,600  
Interest Income (Expense)     -       -       (426,793 )     (426,793 )
Total Other Income (Expense)     -       -       3,696       3,696  
Loss before Provision of Income Taxes   $ (808,029 )   $ (437,776 )   $ (5,681,809 )   $ (6,927,614 )
                                 
Total assets at September 30, 2015   $ 5,645,677     $ 1,105,796     $ 1,887,156     $ 8,638,629