Quarterly report pursuant to Section 13 or 15(d)

SEGMENT INFORMATION

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SEGMENT INFORMATION
 3 Months Ended
Mar. 31, 2017
Notes to Financial Statements  
Note 14. 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:

 

  · Herbs and Produce Products – Includes herbs and leafy greens that are grown using classic Dutch hydroponic farming methods.
     
  · Cannabis Dispensary, Cultivation and Production – Includes cannabis-focused retail, cultivation and production

 

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 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 2 of the Notes to the Consolidated Financial Statements.

 

Herbs and Produce Products

 

Either independently or in conjunction with third parties, we are a retail seller of locally grown hydroponic herbs, produce, and floral products, which are distributed through major grocery stores throughout the East and Midwest regions of the U.S.

 

Cannabis Dispensary, Cultivation and Production

 

Either independently or in conjunction with third parties, we operate medical marijuana retail dispensaries, medical marijuana cultivation and production facilities in California and Nevada. We own real property in Nevada on which we plan to build a medical marijuana dispensary. All of our retail dispensaries in California and Nevada offer a broad selection of medical cannabis products including flowers, concentrates and edibles. We also produce and sell a line of medical cannabis flowers, as well as a line of medical cannabis-extracted products, which include concentrates, cartridges, vape pens and wax products.

 

Summarized financial information concerning the Company’s reportable segments is shown in the following tables. Total asset amounts at March 31, 2017 and 2016, exclude intercompany receivable balances eliminated in consolidation.

 

    Three Months Ended March 31, 2017  
   

Herbs and

Produce

Products

     Cannabis Dispensary, Cultivation and Production    

Eliminations

and Other

     Total  
                         
Total Revenues   $ 917,143     $ 5,887,038     $ 20,275     $ 6,824,456  
Cost of Goods Sold     969,815       5,495,578       -       6,465,393  
                                 
Gross Profit     (52,672 )     391,460       20,275       359,063  
                                 
Selling, General and Administrative Expenses     659,063       2,627,005       3,100,232       6,386,300  
                                 
Loss from Operations     (711,735 )     (2,235,545 )     (3,079,957 )     (6,027,237 )
                                 
Other Expense:                                
Amortization of Debt Discount     -       -       (610,616 )     (610,616 )
Loss on Extinguishment of Debt     -       -       (1,039,458 )     (1,039,458 )
Loss on Fair Market Valuation of Derivatives     -       -       1,610,750       1,610,750  
Interest Income (Expense)     -       -       (157,833 )     (157,833 )
Loss on Fair Market Valuation of Contingent Consideration     -       (4,348,761 )     -       (4,348,761 )
                                 
Total Other Expense     -       (4,348,761 )     (197,157 )     (4,545,918 )
                                 
Loss Before Provision for Income Taxes   $ (711,735 )   $ (6,584,306 )   $ (3,277,114 )   $ (10,573,155 )
                                 
Total Assets at March 31, 2017   $ 7,133,499     $ 59,367,012     $ 11,077,191     $ 77,572,702  

 

    Three Months Ended March 31, 2016  
    Herbs and
Produce
Products		     Cannabis Dispensary, Cultivation and Production     Eliminations
and
Other		     Total  
                         
Total Revenues   $ 1,401,443     $ 130,203     $ 16,521     $ 1,548,167  
Cost of Goods Sold     1,200,932       213,261       –       1,414,193  
Gross Profit     200,511       (83,058 )     16,521       133,974  
                                 
Selling, General and Administrative Expenses     518,652       202,136       1,325,560       2,046,348  
Loss from Operations     (318,141 )     (285,194 )     (1,309,039 )     (1,912,374 )
                                 
Other Expense:                                
Amortization of Debt Discount     -       -       (94,406 )     (94,406 )
Loss on Extinguishment of Debt     -       -       (920,797 )     (920,797 )
Gain on Fair Market Valuation of Derivatives     -       -       (1,160,700       (1,160,700 )
Interest Expense     -       -       (55,995 )     (55,995 )
                                 
Total Other Expense     -       -       (2,231,898 )     (2,231,898 )
                                 
Loss Before Provision for Income Taxes   $ (318,141 )   $ (285,194 )   $ (3,540,937 )   $ (4,144,272 )
                                 
Total Assets at March 31, 2016   $ 6,667,866     $ 2,734,868     $ 2,750,386     $ 12,153,120