BUSINESS SEGMENTS

Segment information has been prepared in accordance with ASC Topic 280 Segment Reporting. We determined our segments based on how we manage our business, which, in our view, consists primarily of our Retail and Medici businesses. Our Retail business consists of our Direct and Partner reportable segments. We use gross profit as the measure to determine our reportable segments because there is not discrete financial information available below gross profit for our Direct and Partner segments. As a result, our Medici business is not significant as compared to our Direct and Partner segments and is included in Other. Our Other segment consists of Medici Ventures and its subsidiaries, including tZERO. Although our Direct and Partner segments both relate to our Retail business, we do not combine these segments because they have dissimilar economic characteristics, such as gross profit margins. We do not allocate assets between our segments for our internal management purposes, and as such, they are not presented here. There were no significant inter-segment sales or transfers during the three and six months ended June 30, 2018 and 2017.

The following table summarizes information about reportable segments for three and six months ended June 30, 2018 and 2017 (in thousands):



	Three months ended June 30,
	Direct		Partner		Retail Total			Other			Total
2018
Revenue, net	$	14,715	$	462,968	$	477,683		$	5,450		$	483,133
Cost of goods sold	14,672		372,580		387,252			4,138			391,390
Gross profit	$	43	$	90,388	$	90,431		$	1,312		$	91,743
Operating expenses					149,437			8,842			158,279
Interest and other income (expense), net (1)					1,624			(1,031		)	593
Pre-tax loss					(57,382		)	(8,561		)	(65,943		)
Provision for (benefit from) income taxes					(40		)	13			(27		)
Net loss (2)					$	(57,342	)	$	(8,574	)	$	(65,916	)

2017
Revenue, net	$	22,099	$	405,856	$	427,955		$	4,069		$	432,024
Cost of goods sold	21,147		323,892		345,039			2,814			347,853
Gross profit	$	952	$	81,964	$	82,916		$	1,255		$	84,171
Operating expenses					89,325			4,577			93,902
Interest and other income, net (1)					13			—			13
Pre-tax loss					(6,396		)	(3,322		)	(9,718		)
Benefit from income taxes					(176		)	(1,799		)	(1,975		)
Net loss (2)					$	(6,220	)	$	(1,523	)	$	(7,743	)



	Six months ended June 30,
	Direct		Partner		Retail Total			Other			Total
2018
Revenue, net	$	30,985	$	886,694	$	917,679		$	10,785		$	928,464
Cost of goods sold	29,444		705,388		734,832			8,020			742,852
Gross profit	$	1,541	$	181,306	$	182,847		$	2,765		$	185,612
Operating expenses					274,969			31,573			306,542
Interest and other income (expense), net (1)					1,169			(915		)	254
Pre-tax loss					(90,953		)	(29,723		)	(120,676		)
Benefit from income taxes					(128		)	(176		)	(304		)
Net loss (2)					$	(90,825	)	$	(29,547	)	$	(120,372	)

2017
Revenue, net	$	44,927	$	811,117	$	856,044		$	8,415		$	864,459
Cost of goods sold	42,110		645,189		687,299			6,082			693,381
Gross profit	$	2,817	$	165,928	$	168,745		$	2,333		$	171,078
Operating expenses					173,863			9,259			183,122
Interest and other income (expense), net (1)					115			(4,411		)	(4,296		)
Pre-tax loss					(5,003		)	(11,337		)	(16,340		)
Provision for (benefit from) income taxes					713			(3,028		)	(2,315		)
Net loss (2)					$	(5,716	)	$	(8,309	)	$	(14,025	)

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(1)	— Excludes intercompany transactions eliminated in consolidation, which consist primarily of service fees and interest. The net amounts of these intercompany transactions were $504,000 and $359,000 for the three months ended June 30, 2018 and 2017, respectively, and $2.5 million and $665,000 for the six months ended June 30, 2018 and 2017, respectively.


(2)	— Net income (loss) presented for segment reporting purposes is before any adjustments attributable to noncontrolling interests.

Our Direct segment includes revenues, direct costs, and cost allocations associated with sales of inventory we own. Costs for this segment include product costs, freight, warehousing and fulfillment costs, credit card fees and customer service costs.

Our Partner segment includes revenues, direct costs and cost allocations associated with sales of inventory owned by our partners. Costs for this segment include product costs, outbound freight and fulfillment costs, credit card fees and customer service costs.

For the three and six months ended June 30, 2018 and 2017, substantially all of our sales revenues were attributable to customers in the United States. At June 30, 2018 and December 31, 2017, substantially all our fixed assets were located in the United States.