PRINCIPLES OF CONSOLIDATION

All significant intercompany balances and transactions were eliminated in consolidation. The financial statements for the period ended December 31, 2015, have been consolidated to include the Company’s wholly-owned subsidiaries, as well as GreenShift Corporation and its subsidiaries. The financial statements for the periods ended December 31, 2014, have been consolidated to include the Company’s wholly-owned subsidiaries.

Revenue Recognition

REVENUE RECOGNITION

In our lifestyle segment, we recognize revenue when the following conditions are satisfied: (i) delivery of the product has occurred and (ii) collection is reasonably assured. Under each our lifestyle segment, orders are received via national sales representatives, in house wholesale sales departments and various retail platforms. Once the order is received, they are either automatically or manually inputted into our production system. Our production system generates production orders which our production team takes and produces based on the purchase order terms. Revenue is recognized only when the orders have been shipped. Generally, all orders are paid upon shipment via credit card or wire transfer. For a small percentage, the orders are shipped on terms of less than 30 days. Revenue is recognized at the time of shipment and a related receivable is booked. We experience less than 2% of annual sales in returns. For orders where goods are considered damaged, these items are swapped with new merchandise. Under our agriculture segment, GreenShift recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is reasonably assured. GreenShift recognizes revenue from licensing of GreenShift’s corn oil extraction technologies when corn oil sales occur. Licensing royalties are recognized as earned by calculating the royalty as a percentage of gross corn oil sales by the ethanol plants. For the purposes of assessing royalties, the sale of corn oil is deemed to occur when shipped, which is when four basic criteria have been met: (i) persuasive evidence of a customer arrangement; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured, and (iv) product delivery has occurred, which is generally upon shipment to the buyer of the corn oil. To the extent revenues are generated from GreenShift’s licensing support services, GreenShift recognizes such revenues when the services are completed and billed. GreenShift provides process engineering services on fixed price contracts. These services are generally provided over a short period of less than three months. Revenue from fixed price contracts is recognized on a pro rata basis over the life of the contract as they are generally performed evenly over the contract period. GreenShift additionally performs under fixed-price contracts involving design, engineering, procurement, installation, and start-up of oil recovery and other production systems. Revenues and fees on these contracts are recognized using the percentage-of-completion method of accounting. During 2014 and 2015, our percentage-of-completion methods included the efforts-expended percentage-of-completion method and the cost-to-cost method. The efforts-expended method utilizes using measures such as task duration and completion. The efforts-expended approach is used in situations where it is more representative of progress on a contract than the cost-to-cost or the labor-hours method (see below). GreenShift also used the cost-to-cost method which is used to determine the percentage of completion of a project based on the actual costs incurred. Earnings are recognized periodically based upon our estimate of contract revenues and costs in providing the services required under the contract. The percentage of completion method must be used in lieu of the completed contract method when all of the following are present: reasonably reliable estimates can be made of revenue and costs; the construction contract specifies the parties’ rights as to the goods, consideration to be paid and received, and the resulting terms of payment or settlement; the contract purchaser has the ability and expectation to perform all contractual duties; and the contract contractor has the same ability and expectation to perform. Under the completed contract method income is recognized only when a contract is completed or substantially completed. The asset, “costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.

Receivable and Credit Concentration

RECEIVABLES AND CREDIT CONCENTRATION

Accounts receivable are uncollateralized, non-interest-bearing customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer. Accounts receivable in excess of 90 days old are evaluated for delinquency. In addition, we consider historical bad debts and current economic trends in evaluating the allowance for bad debts. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the oldest unpaid invoices. The carrying amount of accounts receivable has been reduced by a valuation allowance that has been set up in the amount $51,000 and $10,000 as of December 31, 2015 and 2014, respectively. Management will continue to review the valuation allowance on a quarterly basis.

Cash and Equivalents

CASH AND EQUIVALENTS

We consider all highly liquid investments with remaining maturities of three months or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents consist primarily of money market funds and other short-term investments with original maturities of not more than three months stated at cost, which approximates market value.

Intangible Assets

INTANGIBLE ASSETS

The Company accounts for its intangible assets pursuant to ASC 350-20-55-24, “Intangibles – Goodwill and Other”. Under ASC 350, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair value with its carrying value, based on cash flow methodology. Intangibles with definite lives are subject to impairment testing in the event of certain indicators. Impairment in the carrying value of an asset is recognized whenever anticipated future cash flows (undiscounted) from an asset are estimated to be less than its carrying value. The amount of the impairment recognized is the difference between the carrying value of the asset and its fair value. At December 31, 2015, the Company’s balance sheet included intangible assets with an aggregate carrying value of $224,589 as compared to $589,044 at December 31, 2014.

Business Acquisitions

BUSINESS ACQUISITIONS

Business acquisitions are accounted for under the purchase method of accounting. During 2015, the Company accounted for its acquisitions of Skipjack, Punkzgear and GreenShift and its subsidiaries on the basis that they were between entities under common control. During 2014, Bitzio accounted for all of its acquisitions under purchase method accounting. Under that method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of the acquisition, with any excess of the cost of the acquisition over the estimated fair value of the net tangible and intangible assets acquired recorded as goodwill. We make significant judgments and assumptions in determining the fair value of acquired assets and assumed liabilities, especially with respect to acquired intangibles. Using different assumptions in determining fair value could materially impact the purchase price allocation and our financial position and results of operations. Results of operations for acquired businesses are included in the financial statements from the date of acquisition.

Income Taxes

INCOME TAXES

Income taxes are accounted for under the asset and liability method, whereby deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax asset will not be realized. All of the subsidiaries are consolidated for state income tax purposes.

Use of Estimates

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities at the date of the financial statements, and (iii) the reported amounts of revenues and expenses during the reporting period. We use estimates and assumptions in accounting for the following significant matters, among others:

-	Allowances for doubtful accounts;

-	Valuation of acquired assets;

-	Inventory valuation and allowances;

-	Fair value of derivative instruments and related hedged items;

-	Useful lives of property and equipment and intangible assets;

-	Asset retirement obligations;

-	Long lived asset impairments, including goodwill;

-	Contingencies;

-	Fair value of options and restricted stock granted under our stock-based compensation plans; and,

-	Tax related items

Actual results may differ from previously estimated amounts, and such differences may be material to our consolidated financial statements. We periodically review estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made. The revisions to estimates or assumptions during the periods presented in the accompanying consolidated financial statements were not considered to be significant.

Financial Instruments

FINANCIAL INSTRUMENTS

The carrying values of accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values due to their short term maturities. The carrying values of the Company’s long-term debt approximate their fair values based upon a comparison of the interest rate and terms of such debt to the rates and terms of debt currently available to the Company. It was not practical to estimate the fair value of the convertible debt. In order to do so, it would be necessary to obtain an independent valuation of these unique instruments. The cost of that valuation would not be justified in light of the materiality of the instruments to the Company.

Fair Value Instruments

FAIR VALUE INSTRUMENTS

Effective July 1 2009, the Company adopted ASC 820, Fair Value Measurements and Disclosures. This topic defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance supersedes all other accounting pronouncements that require or permit fair value measurements. The Company accounted for the convertible debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares.

Effective July 1 2009, the Company adopted ASC 820-10-55-23A, Scope Application to Certain Non-Financial Assets and Certain Non-Financial Liabilities, delaying application for non-financial assets and non-financial liabilities as permitted. ASC 820 establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In January 2010, the FASB issued an update to ASC 820, which requires additional disclosures about inputs into valuation techniques, disclosures about significant transfers into or out of Levels 1 and 2, and disaggregation of purchases, sales, issuances, and settlements in the Level 3 roll forward disclosure. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1	quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives

Level 2	inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges

Level 3	unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models

The fair value of certain of the embedded conversion liabilities was determined using the present value model calculating fair value based on the conversion discount as well as the present value based on term and bond rate. During the year ended December 31, 2014, following assumptions were used: (1) conversion discounts of 10% to 50%; (2) term of less than one year to 8 years and (3) bond rate of 10%. During the year ended December 31, 2015, the following assumptions were used: (1) conversion discounts of 10%; (2) term of less than one year to 7 years and (3) bond rate of 10%. Fluctuations in the conversion discount percentage have the greatest effect on the value of the conversion liabilities valuations during each reporting period. As the conversion discount percentage increases for each of the related conversion liabilities instruments, the change in the value of the conversion liabilities increases, therefore increasing the liabilities on the Company’s balance sheet. The higher the conversion discount percentage, the higher the liability. A 10% change in the conversion discount percentage would result in more than a $2,088,439 change in our Level 3 fair value.

The fair value of embedded conversion feature of 320,000 shares of Series E Preferred Stock determined using a Black-Scholes Simulation. This model requires the input of highly subjective assumptions, including the expected price volatility, which is based on the historical volatility of a peer group of publicly traded companies. Changes in the subjective input assumptions can materially affect the estimate of fair value of the warrants and the Company’s results of operations could be impacted.

The following assumptions were used in calculations of the Black-Scholes model for the year ended December 31, 2015 and 2014:

	For the Year Ended December 31, 2015		For the Year Ended December 31, 2014
Annual dividend yield		-%		-%
Expected life (years)		1.00		-
Risk-free interest rate		0.65%		-%
Expected volatility		334%		-%

The following table presents the embedded derivatives, the Company’s only financial assets or liabilities measured and recorded at fair value on the Company’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy during the year ended December 31, 2015:

Embedded derivative liabilities as of December 31, 2015
Level 1	$	—
Level 2		—
Level 3		11,185,625
Total	$	11,185,625

The following table reconciles, for the period ended December 31, 2015, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements:

Balance of embedded derivative as of December 31, 2013	$	827,158
Additions related to embedded conversion features of convertible debt issued		777,150
Change in fair value of conversion features		2,044,298
Reductions in fair value due to principal conversions		(436,406	)
Balance of embedded derivatives at December 31, 2014		3,212,200
Additions related to embedded conversion features of convertible debt issued		13,343,898
Change in fair value of conversion features		(2,820,677	)
Reductions in fair value due to repayments/redemptions		(1,669,533	)
Change in fair value of conversion features		(368,674	)
Reductions in fair value due to principal conversions		(511,589	)
Balance at December 31, 2015	$	11,185,625

Common Control

COMMON CONTROL

On December 31, 2015, FLUX Carbon Corporation (“FCC”) transferred its ownership interest in Viridis Capital LLC (“Viridis”) to the Company in exchange for an 80% equity interest in Bitzio. Viridis was the owner of 800,115 shares of GreenShift Corporation (“GreenShift”) Series D Preferred Stock at the time of the transfer. On the same date, the Company acquired the beneficial ownership interest in 187,029 shares of GreenShift Series D Preferred Stock from EXO Opportunity Fund LLC (“EXO”) in exchange for 200,000 shares of the Company’s Series E Preferred Stock. On December 31, 2015, the Company acquired 100,000 shares of GreenShift’s Series G Preferred Stock for $2.5 million in cash, plus an additional 700,000 shares of GreenShift’s Series G Preferred Stock in exchange for the surrender of Bitzio’s beneficial ownership interest in 987,144 shares of GreenShift’s Series D Preferred Stock. At the completion of the foregoing transactions, the Company was the beneficial owner of 800,000 shares of GreenShift’s Series G Preferred Stock, and FCC was the beneficial owner of 800,000 shares of the Company’s Series F Preferred Stock. FCC is owned by Kevin Kreisler, our Chairman and Chief Executive Officer, as well as the Chairman and Chief Executive Officer of GreenShift prior to and after closing of the above. Mr. Kreisler was additionally the manager of 112359 Factor Fund LLC (“Factor Fund”), the Company’s lender and collateral agent in respect of the Company’s secured loans at the time these transactions were completed. The Company accordingly accounted for these transactions on the basis that they were between entities under common control.

On February 26, 2015, Lexi –Luu Designs, Inc. entered a Securities Purchase Agreement with Skipjack Dive and Dancewear Inc. where Lexi –Luu Designs, Inc. acquired 100% of the outstanding capital Stock of Skipjack Dive and Dancewear Inc. in exchange for $100,000. This amount was booked as accounts payable to Hubert J.Blanchette.

In addition on March 3, 2015, Lexi –Luu Designs, Inc. entered a securities purchase agreement with Punkz Gear, Inc. where Lexi –Luu Designs, Inc. acquired 100% of the outstanding capital Stock of Punkz Gear Inc. in exchange for a $200,000 Subordinated Secured Convertible Debenture (Note) convertible at the rate of $0.10 per share into 2,000,000 million shares of Buyer common stock. This Note was payable to Hubert J. Blanchette. Hubert J. Blanchette was and is the CEO of Lexi- Luu Designs, Inc at the time of the above transactions and as of December 31, 2015. In both the Skipjack Dive and Dancewear Inc and Punkz Gear acquisitions, the sole selling shareholder of these entities Hubert J. Blanchette was also the CEO of the buying company, Lexi-Luu Designs. Lexi-Luu Designs Inc was the also the issuing entity, and its CEO of Lexi-Luu Designs Inc. and the CEO of Skipjack Dive and Dancewear Inc. and Punkz Gear, Inc. was and is Hubert J. Blanchette, who retained control of the board and management at the time of the acquisition. As a result, both of these acquisitions were deemed between entities under common control.