BUSINESS SEGMENTS

6 Months Ended

Jun. 30, 2020

Segment Reporting Disclosure [Text Block]

17. 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. We allocate corporate support costs (administrative functions such as finance, human resources, and legal) to our operating segments based on their estimated usage and based on how we manage our business. Our Medici business includes two reportable segments, tZERO and the unconsolidated financial information for Medici Ventures ("MVI"). MVI was identified as a reportable segment during 2019. We have recast prior period segment information to conform with current year presentation. MVI consists of the Medici business not associated with tZERO. We use income (loss) before income taxes as the measure to determine our reportable segments. Other consists of MLG, which we deconsolidated MLG's consolidated net assets and noncontrolling interest from our consolidated financial statements beginning on February 22, 2020, the date that control ceased, and our unallocated corporate support costs.

Our Retail segment primarily consists of amounts earned through e-commerce sales through our Website, excluding intercompany transactions eliminated in consolidation.

Our tZERO segment primarily consists of amounts earned through securities transactions through our broker-dealers and costs incurred to execute our tZERO business initiatives, excluding intercompany transactions eliminated in consolidation.

Our MVI segment primarily consists of costs incurred to create or foster a set of products and solutions that leverage blockchain technology to generate efficiencies and increase security and control, excluding intercompany transactions eliminated in consolidation.

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, 2020

and 2019.

The following table summarizes information about reportable segments and a reconciliation to consolidated net income (loss) (in thousands):



	Three months ended June 30,
	Retail			tZERO			MVI			Other			Total
2020
Net revenue	$	766,956		$	12,737		$	2,851		$	—		$	782,544
Cost of goods sold	589,044			10,769			2,849			—			602,662
Gross profit	177,912			1,968			2			—			179,882
Operating expenses	124,991			11,216			2,543			2,089			140,839
Interest and other income (expense), net (1)	(117		)	(1,268		)	(2,760		)	—			(4,145		)
Income (loss) before income taxes	$	52,804		$	(10,516	)	$	(5,301	)	$	(2,089	)	34,898
Provision for income taxes													517
Net income (2)													$	34,381

2019
Net revenue	$	367,475		$	5,551		$	683		$	—		$	373,709
Cost of goods sold	294,984			4,143			683			—			299,810
Gross profit	72,491			1,408			—			—			73,899
Operating expenses	81,596			11,743			2,903			3,435			99,677
Interest and other income (expense), net (1)	40			340			(2,847		)	(3		)	(2,470		)
Loss before income taxes	$	(9,065	)	$	(9,995	)	$	(5,750	)	$	(3,438	)	(28,248		)
Benefit for income taxes													(622		)
Net loss (2)													$	(27,626	)



	Six months ended June 30,
	Retail			tZERO			MVI			Other			Total
2020
Net revenue	$	1,106,554		$	22,976		$	4,425		$	162		$	1,134,117
Cost of goods sold	854,436			19,536			4,423			—			878,395
Gross profit	252,118			3,440			2			162			255,722
Operating expenses	207,826			23,474			5,451			6,072			242,823
Interest and other income (expense), net (1)	(416		)	(3,050		)	6,073			3			2,610
Income (loss) before income taxes	$	43,876		$	(23,084	)	$	624		$	(5,907	)	15,509
Provision for income taxes													693
Net income (2)													$	14,816

2019
Net revenue	$	730,100		$	10,047		$	1,291		$	—		$	741,438
Cost of goods sold	585,624			7,500			1,291			—			594,415
Gross profit	144,476			2,547			—			—			147,023
Operating expenses	166,929			27,297			7,157			7,436			208,819
Interest and other income (expense), net (1)	175			(623		)	(8,011		)	(7		)	(8,466		)
Loss before income taxes	$	(22,278	)	$	(25,373	)	$	(15,168	)	$	(7,443	)	(70,262		)
Provision for income taxes													256
Net loss (2)													$	(70,518	)

__________________________________________


(1)	— Excludes intercompany transactions eliminated in consolidation, which consist primarily of service fees and interest. The net amounts of these intercompany transactions were $1.2 million and $491,000 for the three months ended June 30, 2020 and 2019, and $2.3 million and $907,000 for the six months ended June 30, 2020 and 2019.


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

Upon deconsolidation of MLG, we recognized our retained equity interest in MLG as an equity method security held by our MVI segment which resulted in a $10.7 million gain included in Interest and other income (expense), net in the table above for our MVI segment for the six months ended June 30, 2020. See Note 2—Summary of Significant Accounting Policies, Principles of consolidation, for additional details on the gain recognized.

For the three and six months ended June 30, 2020 and 2019, substantially all of our revenues were attributable to customers in the United States. At June 30, 2020 and December 31, 2019, substantially all our property and equipment were located in the United States.