
	Variable Interest Entities

A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:

•the power to direct the activities that most significantly impact the economic performance of the VIE; and

•the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.

Effective September 1, 2015, Voxx acquired a majority voting interest in substantially all of the assets and certain specified liabilities of Eyelock, Inc. and Eyelock Corporation, a market leader of iris-based identity authentication solutions, through a newly-formed entity, Eyelock LLC. The Company has issued EyeLock LLC a promissory note for the purposes of repaying protective advances and funding working capital requirements of the company. The promissory note bears interest at 10% and was due on February 28, 2019. On March 19, 2019, this promissory note was amended and restated to allow EyeLock LLC to borrow up to a maximum of $49,000 and the due date was extended to August 31, 2019. The outstanding principal balance of this promissory note is convertible at the sole option of Voxx into units of EyeLock LLC. If Voxx chooses not to convert into equity, the outstanding loan principal of the amended and restated promissory note will be repaid at a multiple of 1.50 based on the repayment date. The agreement includes customary events of default and is collateralized by all of the property of EyeLock LLC.

We have determined that we hold a variable interest in EyeLock LLC as a result of:

•our majority voting interest and ownership of substantially all of the assets and certain liabilities of the entity; and

•the loan agreement with EyeLock LLC, which has a total outstanding balance of $44,937 as of February 28, 2019.

We concluded that we became the primary beneficiary of EyeLock LLC on September 1, 2015 in conjunction with the acquisition. This was the first date that we had the power to direct the activities of EyeLock LLC that most significantly impact the economic performance of the entity because we acquired a majority interest in substantially all of the assets and certain liabilities of EyeLock Inc. and EyeLock Corporation on this date, as well as obtained a majority voting interest as a result of this transaction. Although we are considered to have control over EyeLock LLC under ASC 810, as a result of our majority ownership interest, the assets of EyeLock LLC can only be used to satisfy the obligations of EyeLock LLC. As a result of our majority ownership interest in the entity and our primary beneficiary conclusion, we consolidated EyeLock LLC in our consolidated financial statements beginning on September 1, 2015. Prior to September 1, 2015, EyeLock Inc. and EyeLock Corporation were not required to be consolidated in our consolidated financial statements, as we concluded that we were not the primary beneficiary of these entities prior to that time.

Assets and Liabilities of EyeLock LLC

The following table sets forth the carrying values of assets and liabilities of EyeLock LLC that were included on our Consolidated Balance Sheet as of February 28, 2019 and February 28, 2018:



	February 28, 2019			February 28, 2018
Assets
Current assets:
Cash and cash equivalents	$	3		$	—
Accounts receivable, net	363			128
Inventory, net	(27		)	(119		)
Prepaid expenses and other current assets	322			117
Total current assets	661			126
Property, plant and equipment, net	120			186
Intangible assets, net	33,064			36,126
Other assets	253			119
Total assets	$	34,098		$	36,557
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,122		$	1,292
Interest payable to VOXX	8,729			4,734
Accrued expenses and other current liabilities	1,030			1,242
Due to VOXX	44,937			33,722
Total current liabilities	55,818			40,990
Other long-term liabilities	1,200			1,200
Total liabilities	57,018			42,190
Commitments and contingencies
Partners' deficit:
Capital	41,416			41,416
Retained losses	(64,336		)	(47,049		)
Total partners' deficit	(22,920		)	(5,633		)
Total liabilities and partners' deficit	$	34,098		$	36,557

The assets of EyeLock LLC can only be used to satisfy the obligations of EyeLock LLC.

Revenue and Expenses of EyeLock LLC

The following table sets forth the revenue and expenses of EyeLock LLC that were included in our Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended February 28, 2019, February 28, 2018, and February 28, 2017:



	Year ended February 28, 2019			Year ended February 28, 2018			Year ended February 28, 2017
Net sales	$	668		$	335		$	243
Cost of sales	309			455			301
Gross profit	359			(120		)	(58		)
Operating expenses:
Selling	1,160			1,893			2,227
General and administrative	4,986			6,792			6,956
Engineering and technical support	7,487			7,159			8,698
Total operating expenses	13,633			15,844			17,881
Operating loss	(13,274		)	(15,964		)	(17,939		)
Interest and bank charges	(4,013		)	(2,869		)	(1,609		)
Other, net	—			—			—
Loss before income taxes	(17,287		)	(18,833		)	(19,548		)
Income tax expense	—			—			—
Net loss	$	(17,287	)	$	(18,833	)	$	(19,548	)