Variable Interest Entity (VIE)

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Variable Interest Entity (VIE)

NOTE 6. VARIABLE INTEREST ENTITY (“VIE”)

In December 2019, the Company’s executive management learned that prior to the Merger, in December 2017, one of Vivos Shareholders, 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. The lease obligation had not been included in Maslow’s financial statements and was not separately disclosed prior to the Merger. The Company terminated the lease of the property at 22 Baltimore Road effective April 30, 2020.

U.S. GAAP requires the Company to assess whether VREH is a 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 has neither any decision-making authority over VREH, nor financial interest in the operations of VREH, the Company is required to consolidate its financial statements with those of VREH for the reasons mentioned above, as it is considered the primary beneficiary of the VIE. As a result of the Company terminating the lease on April 30, 2020, VREH will no longer be considered a VIE after April 30, 2020.

The assets and liabilities of the consolidated VIE are comprised of the following as of March 31, 2020 and December 31, 2019:

	2020		2019
Building	$	1,856	$	1,856
Office equipment		185		185
Land		510		510
Accumulated depreciation		167		148
Liabilities assumed		1,779		1,790
Total net assets consolidated	$	605	$	613

In addition, the related party note receivable with the VIE of $749 and $772 was eliminated for the period ending March 31, 2020 and December 31, 2019, respectively.

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 $1,779 and $1,790 as of March 31, 2020 and December 31, 2019, respectively with $46 due within the next year. To date, the Company has not been called on for any loan repayment guarantee.

As a result of the consolidation, the notes receivable held between Maslow and VREH was eliminated in consolidation. See Note 10 for details on the related party notes receivable.