BUSINESS SEGMENTS

9 Months Ended

Sep. 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. We use income (loss) before income taxes as the measure to determine our reportable segments.

Our Retail segment primarily consists of amounts earned through e-commerce product 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 through our Medici Ventures business initiatives, excluding intercompany transactions eliminated in consolidation.

Other consists of our unallocated corporate support costs and Medici Land Governance. We deconsolidated Medici Land Governance consolidated net assets and noncontrolling interest from our consolidated financial statements beginning on February 22, 2020, the date that control ceased.

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 nine months ended September 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 September 30,
	Retail			tZERO			MVI			Other			Total
2020
Net revenue	$	717,695		$	11,151		$	2,805		$	—		$	731,651
Cost of goods sold	548,982			9,098			2,803			—			560,883
Gross profit	168,713			2,053			2			—			170,768
Operating expenses	125,458			10,613			2,923			2,225			141,219
Interest and other expense, net (1)	(205		)	(3,848		)	(3,650		)	—			(7,703		)
Income (loss) before income taxes	$	43,050		$	(12,408	)	$	(6,571	)	$	(2,225	)	21,846
Provision for income taxes													620
Net income (2)													$	21,226

2019
Net revenue	$	340,798		$	5,662		$	639		$	—		$	347,099
Cost of goods sold	272,545			4,367			639			—			277,551
Gross profit	68,253			1,295			—			—			69,548
Operating expenses	77,641			14,114			4,427			3,496			99,678
Interest and other income (expense), net (1)	137			(475		)	(4,057		)	6			(4,389		)
Loss before income taxes	$	(9,251	)	$	(13,294	)	$	(8,484	)	$	(3,490	)	(34,519		)
Provision for income taxes													23
Net loss (2)													$	(34,542	)



	Nine months ended September 30,
	Retail			tZERO			MVI			Other			Total
2020
Net revenue	$	1,824,249		$	34,127		$	7,230		$	162		$	1,865,768
Cost of goods sold	1,403,418			28,634			7,226			—			1,439,278
Gross profit	420,831			5,493			4			162			426,490
Operating expenses	333,284			34,087			8,374			8,297			384,042
Interest and other income (expense), net (1)	(621		)	(6,898		)	2,423			3			(5,093		)
Income (loss) before income taxes	$	86,926		$	(35,492	)	$	(5,947	)	$	(8,132	)	37,355
Provision for income taxes													1,313
Net income (2)													$	36,042

2019
Net revenue	$	1,070,898		$	15,709		$	1,930		$	—		$	1,088,537
Cost of goods sold	858,169			11,867			1,930			—			871,966
Gross profit	212,729			3,842			—			—			216,571
Operating expenses	244,571			41,410			11,583			10,933			308,497
Interest and other income (expense), net (1)	312			(1,098		)	(12,068		)	(1		)	(12,855		)
Loss before income taxes	$	(31,530	)	$	(38,666	)	$	(23,651	)	$	(10,934	)	(104,781		)
Provision for income taxes													279
Net loss (2)													$	(105,060	)

__________________________________________


(1)	— Excludes intercompany transactions eliminated in consolidation, which consist primarily of service fees and interest. The net amounts of these intercompany transactions were $1.3 million and $739,000 for the three months ended September 30, 2020 and 2019, and $3.6 million and $1.7 million for the nine months ended September 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 nine months ended September 30, 2020. See Note 2—Summary of Significant Accounting Policies and Supplemental Disclosures, Principles of consolidation, for additional details on the gain recognized.

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