NOTE 14. - CONSOLIDATION OF VARIABLE INTEREST ENTITY
The Company holds a variable interest in Velocity Storage and Packaging
LLC (Velocity) an entity for which the Company is the primary beneficiary. Velocity performs packaging and shipping
services exclusively for the Company. The Companies variable interest relates to a financing arrangement whereby, all operational
expenses including labor costs, facility costs and other operational expenses are reimbursed by the company at Velocitys
cost. The Company has no equity investment in Velocity and Velocity has no assets, liabilities or equity structure of its own.
Velocity is financially supported by the Company in the form of reimbursement for 100% of the operational costs. Accordingly, the
Company determined that Velocity was a variable interest entity ("VIE") and the Company was the primary beneficiary under
the guidance offered in ASC 810-10 since Velocity does not have sufficient equity at risk for the entity to finance its own activities.
ASC 810-10 requires that an enterprise consolidate a VIE if that enterprise has a variable interest that will absorb a majority
of the entity's expected losses if they occur.