Quarterly report pursuant to Section 13 or 15(d)

VARIABLE INTEREST ENTITIES

v3.20.2
VARIABLE INTEREST ENTITIES
6 Months Ended
Jun. 30, 2020
VARIABLE INTEREST ENTITIES  
NOTE 4. VARIABLE INTEREST ENTITIES

NOTE 4 - VARIABLE INTEREST ENTITIES

 

NuLeaf, Inc.

 

On October 26, 2017, the Company entered into operating agreements with NuLeaf, Inc. and formed NuLeaf Sparks Cultivation, LLC and NuLeaf Reno Production, LLC (collectively “NuLeaf”) to build and operate cultivation and production facilities for our IVXX brand of cannabis products in Nevada. The agreements were subject to approval by the State of Nevada, the City of Sparks and the City of Reno in Nevada. Under the terms of the agreements, the Company remitted to NuLeaf an upfront investment of $4.50 million in the form of convertible loans bearing an interest rate of6% per annum. On June 28, 2018, the Company received approval from the State of Nevada. The remaining required approvals from local authorities were received in July 2018. As a result, the notes receivable balance was converted into a 50% ownership interest in NuLeaf. The investment in NuLeaf was recorded at cost and accounted for using the equity method as of December 31, 2019.

 

In February 2019, we amended and restated the NuLeaf agreements and obtained control of the operations of NuLeaf. The Company has determined these entities are variable interest entities in which the Company is the primary beneficiary by reference to the power and benefits criterion under ASC 810, “Consolidation.” The provisions within the amended agreement grant the Company the power to manage and make decisions that affect the operation of these entities. As the primary beneficiary of NuLeaf Sparks Cultivation, LLC and NuLeaf Reno Production, LLC, the Company began consolidating the accounts and operations of these entities as of March 1, 2019. All intercompany transactions are eliminated in the unaudited consolidated financial statements. On March 1, 2019, we remeasured our equity method investment in NuLeaf to fair value and consolidated the results of NuLeaf in our consolidated financial statements and report its results in our cannabis segment.

Year to date revenue and net loss attributed to NuLeaf is $2.66 million and $0.98 million, respectively. The aggregate carrying values of Sparks Cultivation, LLC and NuLeaf Reno Production, LLC assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheets were as follows:

  

 

 

(in thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 271

 

 

$ 243

 

Accounts receivable, net

 

 

-

 

 

 

16

 

Inventory

 

 

3,777

 

 

 

2,910

 

Prepaid expenses and other current assets

 

 

146

 

 

 

35

 

Total current assets

 

 

4,194

 

 

 

3,204

 

 

 

 

 

 

 

 

 

 

Property, equipment and leasehold improvements, net

 

 

8,402

 

 

 

9,543

 

Other assets

 

 

442

 

 

 

598

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 13,038

 

 

$ 13,344

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Total current liabilities

 

$ 378

 

 

$ 213

 

Total long-term liabilities

 

 

367

 

 

 

415

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

$ 745

 

 

$ 628