Annual report pursuant to Section 13 and 15(d)

SEGMENT INFORMATION

v3.8.0.1
SEGMENT INFORMATION
 12 Months Ended
Dec. 31, 2016
Notes to Financial Statements  
Note 18. 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 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.

 

Hydroponic Produce

 

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

 

Cannabis Products

 

We operate a medical marijuana retail dispensaries in California and Nevada all of which operate under the name Blüm, which offer a broad selection of medical cannabis products including flowers, concentrates and edibles. Through IVXX, we 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 December 31, 2016, 2015 and 2014 exclude intercompany receivable balances eliminated in consolidation.

 

    Year Ended December 31, 2016  
   

Hydroponic

Produce

    

Cannabis

Products

    

Eliminations

and Other

     Total  
                         
Total Revenues   $ 12,000,423     $ 13,207,327     $ 120,014     $ 25,327,764  
Cost of Goods Sold     11,021,449       11,664,737       68,894       22,755,080  
                                 
Gross Profit     978,974       1,542,590       51,120       2,572,684  
                                 
Selling, General and Administrative Expenses     2,520,061       5,729,884       12,470,590       20,720,535  
                                 
Loss from Operations     (1,541,087 )     (4,187,294 )     (12,419,470 )     (18,147,851 )
                                 
Other Expense:                                
Amortization of Debt Discount     –       –       (1,414,202 )     (1,414,202 )
Loss on Extinguishment of Debt     –       –       (5,382,813 )     (5,382,813 )
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value     –       –       (1,487,500 )     (1,487,500 )
Loss on Fair Market Valuation of Derivatives     –       –       (1,844,500 )     (1,844,500 )
Interest Income (Expense)     –       –       (377,349 )     (377,349 )
Gain on Fair Market Valuation of Contingent Consideration     –       –       668,694       668,694  
                                 
Total Other Expense     –       –       (9,837,670 )     (9,837,670 )
                                 
Loss Before Provision for Income Taxes   $ (1,541,087 )   $ (4,187,294 )   $ (22,257,140 )   $ (27,985,521 )
                                 
Total Assets at December 31, 2016   $ 7,064,697     $ 12,516,441     $ 56,597,592     $ 76,178,730  

 

    Year Ended December 31, 2015  
   

Hydroponic

Produce

    

Cannabis

Products

    

Eliminations

and Other

     Total  
                         
Total Revenues   $ 8,633,538     $ 1,207,424     $ 134,384     $ 9,975,346  
Cost of Goods Sold     7,771,039       1,078,852       108,584       8,958,475  
                                 
Gross Profit     862,499       128,572       25,800       1,016,871  
                                 
Selling, General and Administrative Expenses     1,910,375       763,728       7,159,543       9,833,646  
                                 
Loss from Operations     (1,047,876 )     (635,156 )     (7,133,743 )     (8,816,775 )
                                 
Other Expense:                                
Amortization of Debt Discount     –       –       (696,180 )     (696,180 )
Loss on Extinguishment of Debt     –       –       (619,444 )     (619,444 )
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value     –       –       (561,000 )     (561,000 )
Gain on Fair Market Valuation of Derivatives     –       –       1,800,100       1,800,100  
Interest Expense     –       –       (469,576 )     (469,576 )
                                 
Total Other Expense     –       –       (546,100 )     (546,100 )
                                 
Loss Before Provision for Income Taxes   $ (1,047,876 )   $ (635,156 )   $ (7,679,843 )   $ (9,362,875 )
                                 
Total Assets at December 31, 2015   $ 5,383,659     $ 1,671,966     $ 2,109,414     $ 9,165,039  

 

  

    Year Ended December 31, 2014  
   

Hydroponic

Produce

    

Cannabis

Products

    

Eliminations

and Other

     Total  
                         
Total Revenues   $ 6,627,109     $ –     $ 467,161     $ 7,094,270  
Cost of Goods Sold     6,667,967       –       273,311       6,941,278  
              –                  
Gross Profit (Loss)     (40,858 )     –       193,850       152,992  
                                 
Selling, General and Administrative Expenses     1,506,684       1,115,577       15,718,986       18,341,247  
                                 
Loss from Operations     (1,547,542 )     (1,115,577 )     (15,525,136 )     (18,188,255 )
                                 
Other Income (Expense):                                
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value     –       –       (4,808,000 )     (4,808,000 )
Gain on Fair Market Valuation of Derivatives     –       –       1,912,037       1,912,037  
Interest Income (Expense)     2,232       –       (1,098,556 )     (1,096,324 )
                                 
Total Other Income (Expense)     2,232       –       (3,994,519 )     (3,992,287 )
                                 
Loss Before Provision for Income Taxes   $ (1,545,310 )   $ (1,115,577 )   $ (19,519,655 )   $ (22,180,542 )
                                 
Total Assets at December 31, 2014   $ 5,956,861     $ 858,180     $ 904,185     $ 7,719,226