Variable Interest Entity (VIE)

12 Months Ended

Dec. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Variable Interest Entity (VIE)

NOTE 11 – VARIABLE INTEREST ENTITY (VIE)

In December 2019, the Company’s executive management learned that prior to the Merger, in January 2017, one of the Company’s related parties, on behalf of Maslow, executed a guarantee of obligations of Vivos Real Estate Holdings, LLC (“VREH”), under a mortgage loan for the purchase of the property at 22 Baltimore Rd., Rockville, Maryland. Maslow leased this space on market terms. This obligation had not been included in Maslow’s financial statements and were not separately disclosed prior to the Merger.

U.S. GAAP requires the Company to assess whether VREH is a variable interest entity (“VIE”) because Maslow (i) share common shareholders who may or may not have significant influence or control, (ii) is a guarantor of the mortgage loan, (iii) is the sole lessee under a lease where the landlord is an affiliate of the Company, and (iv) has no other business in VREH.

A VIE is a legal business structure (such as a corporation, partnership, or trust) that:

● does not provide equity investors with voting rights; or

● the equity investors do not have sufficient financial resources to meet the ongoing operating needs of the business. This is referred to as a thinly capitalized structure.

Although the Company had neither any decision-making authority over VREH, nor financial interest in the operations of VREH, the Company was required to consolidate its financial statements with those of VREH for the reasons mentioned above, as it was considered the primary beneficiary of the VIE.

Due to a lack of cooperation from VREH, the Company had not been able to acquire financial information about this entity for consolidation purposes prior to 2019. As a result, the Company has consolidated this entity for 2019.

The assets and liability of the consolidated VIE were comprised of the following:

	2019
Building	$	1,856
Office equipment		185
Land		510
Accumulated depreciation		148
Liabilities assumed		1,790
Total net assets consolidated	$	613

In addition, the related party note receivable with the VIE in the amount of $772 was eliminated in 2019.

The potential financial exposure to loss as a guarantor could equal all the book value of the related party mortgage loan payable, a total of approximately $1,745 as of December 31, 2020, with $126 due within the next year. VREH is currently three months behind on payments. To date, the Company has not been called on for any loan repayment guarantee. The Company believes there is adequate equity in the property should the bank decide to foreclose, and the Company decides not to make past due payments.

The Company terminated the lease of the property at 22 Baltimore Road effective April 30, 2020. As a result, VREH was considered a VIE for only four months of the 2020 fiscal year.

See Note 14 for details on the related party notes receivable.