RLBY 10-Q
Reliability Inc (RLBY)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the quarterly period ended |
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from ___________to ____________. |
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name each exchange on which registered | ||
| OTC Pink Sheets |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ ☐ NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of Common Stock, no par value, as of June 30, 2023.
RELIABILITY INCORPORATED
Quarterly Report on Form 10-Q
As of and For the Three and Six Months Ended June 30, 2023
INDEX
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RELIABILITY INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | |||||||
| Trade receivables, net of allowance for doubtful accounts | ||||||||
| Retention credit receivable | ||||||||
| Other receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Factoring liability | $ | |||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Accrued payroll | ||||||||
| Deferred revenue | ||||||||
| Income taxes payable | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitment and contingencies (Note 6) | ||||||||
| Subsequent events (Note 10) | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock, without par value, shares authorized, issued and outstanding as of June 30, 2023 and as of December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these statements.
| 3 |
RELIABILITY INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
| For the Three Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue earned | ||||||||
| Service revenue | $ | |||||||
| Cost of revenue | ||||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Selling, general, and administrative expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest income from related parties | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income (expense) | ( | ) | ||||||
| Loss before income tax expense | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ||||||
| Consolidated net loss | $ | ( | ) | ( | ) | |||
| Net loss per share: | ||||||||
| Basic | $ | |||||||
| Diluted | $ | |||||||
| Share used in per share computation: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these statements.
| 4 |
RELIABILITY INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenue earned | ||||||||
| Service revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Selling, general, and administrative expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest income from related parties | ||||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income (expense) | ( | ) | ||||||
| Loss before income tax expense | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Consolidated net loss | $ | ( | ) | ( | ) | |||
| Net loss per share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Shares used in per share computation: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these statements.
| 5 |
RELIABILITY INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY
For the Six Months Ended June 30, 2023 and 2022
(amounts in thousands, except per share data)
| Additional | ||||||||||||||||||||
| Common Stock | Paid-in | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Total Equity | ||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these statements.
| 6 |
RELIABILITY INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | ( | ) | |||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Accrued interest | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | - | |||||||
| Trade receivables | ||||||||
| Retention credit receivable | ||||||||
| Other receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued payroll | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| Income taxes payable | ( | ) | ( | ) | ||||
| Net cash provided by (used in) operating activities | $ | $ | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Net cash used in investing activities | $ | $ | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net borrowing/(repayment) of line-of-credit | ( | ) | ||||||
| Advances to related parties | ||||||||
| Net cash provided by (used in) financing activities | $ | ( | ) | $ | ||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents, end of year | $ | $ | ||||||
The accompanying notes are an integral part of these statements.
| 7 |
RELIABILITY INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(amounts in thousands)
| For the Six Months Ended June 30, | ||||||||
| Supplemental disclosures of cash flow information: | 2023 | 2022 | ||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | |||||||
| Income taxes | $ | |||||||
| 8 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(amounts in thousands, except per share data)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
Reliability, Inc. is a leading provider of employer workforce management solutions that operates, along with its wholly-owned subsidiary, The Maslow Media Group, Inc (“MMG”), (collectively, “Reliability” or the “Company”), primarily within the United States of America in four industry segments: Employer of Record (“EOR”), Recruiting and Staffing, Direct Placements, and Video and Multimedia Production Services, which provides script to screen media talent. Our Staffing segment provides skilled field talent on a nationwide basis for Media, IT, and finance and accounting client partner projects. Video Production involves assembling and providing staff and/or crews with equipment for live or taped programming. This service can be provided within client facilities or on location across the globe and cover pre-production planning to post-production services.
Reliability was incorporated under the laws of the State of Texas in 1953, but the then principal business of the Company started in 1971 was closed down in 2007. The Company completed a reverse merger with MMG (the “Merger”) on October 29, 2019.
Company Background
Linda Maslow founded Maslow Group initially in 1988 and incorporated the firm under the name the Maslow Media Group Inc. (“MMG”) in March 1992.
On November 9, 2016, MMG was sold to Vivos Holdings, LLC (“Vivos Holdings”), owned by Dr. Naveen Doki (“Dr. Doki”) and Silvija Valleru (“Ms. Valleru”).
In 2018, Vivos Holdings and several other Vivos companies engaged an investment banker who approached management of Reliability to discuss a potential reverse merger transaction. The other investors who collaborated on a share swap of MMG for other Vivos companies were Shirisha Janumpally (“Mrs. Janumpally”), wife of Dr. Doki, and Kalyan Pathuri (“Mr. Pathuri”), husband of Silvija Valleru.
These individuals included but were not limited to Dr. Doki, Mrs. Janumpally, Mr. Pathuri, Mrs. Valleru. Igly Trust and Judos Trust also have common ownership combinations in a number of other entities [Vivos Holdings, LLC, Vivos Real Estate Holdings, LLC (“VREH”), Vivos Holdings, Inc., Vivos Group, Vivos Acquisitions, LLC, and Federal Systems, LLC], (collectively referred to herein as “Vivos Group”).
The reverse merger was consummated on October 29, 2019. As a result of the Merger, the Vivos Group (Vivos Holdings LLC, officially) acquired approximately of the issued and outstanding shares of Reliability which were distributed by Vivos Holdings, LLC.
On October 29, 2019, MMG became a wholly-owned subsidiary of Reliability by merging R-M Merger Sub, Inc., a Virginia corporation and a wholly-owned subsidiary of Reliability, with and into Maslow, with MMG being the surviving corporation.
The Company ceased to be a “shell” company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) by virtue of its ownership of MMG following the Merger. The acquisition of MMG also resulted in a “change in control” of Reliability.
| 9 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(amounts in thousands, except per share data)
Upon
purchasing MMG and thereafter, the “Vivos Group”) began borrowing
monies from MMG starting with $
The attempted collection of the guarantee and debt from the Vivos Group set off a chain of legal events culminating in an arbitration hearing and award in 2022. (See below and Item 3 for complete summary). We refer below to the disputes between Reliability and the Vivos Group as the “Vivos Matter.”
A series of legal actions and hearings took place starting in March of 2020 through September of 2021. At that time, arbitration was agreed by both the Vivos Group and MMG, The proceedings began in February 2022 and were completed in March 2022.
On August 31, 2022, the Arbitrator issued an award (the “Award”) with the Company and MMG prevailing on their claims. The Company and MMG were awarded the following:
| ● | an
award in favor of MMG against Vivos Holdings LLC under Note I (as defined in the Award) in the amount of $ | |
| ● | no award as to Note II (as defined in the Award) until and at such time as the automatic stay imposed by the United States Bankruptcy Court as a result of the filing of a petition in bankruptcy by VREH is lifted or the bankruptcy proceeding is terminated; | |
| ● | an
award in favor of MMG against Vivos Holdings, LLC under Note III (as defined in the Award) in the amount of $ | |
| ● | an award in favor of MMG against Naveen under the Personal Guaranty (as defined in the Award) in the amount of $, plus interest thereon at the rate of per year from the date of the Award; | |
| ● | an award in favor of the Company against Naveen, Valleru, Janumpally, individually and as Trustee of Judos Trust, and Pathuri, as Trustee of Igly Trust, jointly and severally, for contract damages of $, to be satisfied by the transfer of their shares of the Company common stock to the Company equal in value to $, valued as of the date of the Award, in accordance with the provisions of Section 9.06(d) of the Merger Agreement; | |
| ● | an award in favor of the Company against Naveen, Valleru, Janumpally, individually and as Trustee of Judos Trust, and Pathuri, as Trustee of Igly Trust, jointly and severally, for fraud damages in the amount of $, plus interest thereon at the rate of per year from the date of the Award, together with any out-of-pocket fees and expenses, including attorneys’ and accountants’ fees; | |
| ● | an award appointing a rehabilitative receiver for the Company under the deadlock situation provisions of Section 11.404(a)(1)(B) of the Texas Business Organizations Code, the primary function of which is to collect the contract and fraud damages, including costs, expenses and fees provided in the Award, due to the Company, with matters regarding such receivership to be set forth in a supplemental award; and | |
| ● | declaratory relief in favor of the Company and its officers and directors. |
Section 11.404(a)(1)(B) of the Texas Business Organizations Code provides for the appointment of a rehabilitative receiver when “the governing persons of the entity are deadlocked in the management of the entity’s affairs, the owners or members of the entity are unable to break the deadlock, and irreparable injury to the entity is being suffered or is threatened because of the deadlock.” With respect to the receivership, the owners or holders of all of the shares of common stock of the Company received as a result of the conversion of shares of common stock of MMG owed by Naveen and Valleru under the Merger Agreement shall not be entitled to vote any of those shares at any annual or special meeting of the shareholders of the Company during the period of the receivership. Upon the completion of the receiver’s primary function of collecting damages due to the Company, the receivership shall terminate and the restrictions on the rights of the shareholders of the Company imposed by the Award shall be lifted.
| 10 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(amounts in thousands, except per share data)
On May 17, 2023, the Arbitrator issued an Amended and Supplemental Arbitration Award (the “Amended Award”) which included the following:
| ● | the Arbitrator will appoint a rehabilitative receiver under Maryland law in a Supplemental Award Appointing Rehabilitative Receiver; | |
| ● | an
award in favor of MMG and against VREH under Note II in the amount of $ | |
| ● | because the loss sustained by Reliability, Inc. in fraud damages (Award 6) is the same as the loss sustained by Reliability, Inc.’s wholly-owned subsidiary, Maslow Media Group, Inc., in the nonpayment of Notes I, II, and the Personal Guaranty (Awards 1, 2, and 4), there can be only one recovery. |
On May 31, 2023, the Arbitrator appointed a Rehabilitative Receiver in the above case, an assignment which the appointee accepted. We now await the Supplemental Order Appointing the Rehabilitative Receiver.
On June 16, 2023, we learned that the principal amount due on 22 Baltimore Road had been satisfied via sale and thus the Fairfax, Virginia court released the VREH confessed judgement; meaning MMG was no longer listed as a guarantor.
On July 21, 2023, MMG filed a petition for attorneys’ fees, as requested by the Arbitrator. The Arbitrator set the following remaining schedule for submitting petitions for attorneys’ fees: Vivos Holdings, LLC response on August 21, 2023 and our reply on September 6, 2023.
Upon a final resolution as to the underlying ownership and rights of certain shareholders, the Company intends to hold an annual meeting of shareholders within a reasonable time thereafter.
As
of June 30, 2023, the Vivos Debtor (“Vivos Debtor”) balance was $
Basis of presentation
The
unaudited condensed consolidated interim financial statements include the accounts of the Company and all wholly-owned divisions, including
its
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the SEC, and should be read in conjunction with the audited financial statements and notes thereto contained in our Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented herein are not necessarily indicative of the results to be expected for the full year.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2022.
Concentration of Credit Risk
For
the six months ended June 30, 2023,
| 11 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(amounts in thousands, except per share data)
NOTE 2. MANAGEMENT’S PLAN
Although the Company continues to experience net operating losses, management believes it has the ability to continue as a going concern and meet its financial obligation as they become due in 2023 and beyond. The factors impacting this view include, but are not limited to, the following:
| ● | cash flow forecasts showing sufficient cash and working capital for at least 12 months from July 23, 2023; | |
| ● | the
prospect of receiving the amounts awarded in the arbitration hearing in 2023, which include the $ | |
| ● | the
reduction in legal fees associated with Vivos Matter year to date at $ | |
| ● | new sales plan implementation by our recently hired Vice President of Sales who has experience and success in managing contingent and direct hire staffing organizations; and | |
| ● | the
Company has additional availability to use its factoring line to extend borrowings of up to |
As a result of the foregoing, the Company believes that it has sufficient cash to meet its financial obligations for the next 12 months and beyond as they become due.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adopted Accounting Pronouncements
The Company does not believe any other recently issued but not yet effective accounting pronouncement, if adopted, would have a material effect on its present or future consolidated financial statements.
NOTE 4. ACCOUNTS RECEIVABLE
Accounts receivable can be broken down as follows:
| June 30, 2023 | December 31, 2022 | |||||||
| Accounts receivable, unfactored | $ | |||||||
| Unbilled receivables | ||||||||
| Accounts receivable, factored | ||||||||
| Total Accounts Receivable | ||||||||
NOTE 5. DEBT
Tax Liabilities
As
of June 30, 2023, the Company’s overall tax liability was $
Factoring Facility
The Company is in a factoring and security agreement with Gulf Coast Bank and Trust (“Gulf”), which enables the Company to receive advances on its accounts receivable (i.e., invoices) through Gulf to fund growth and operations. The proceeds of this agreement are most frequently used to pay operating costs of the business, which include employee salaries, vendor payments, and overhead expenses.
Our
arrangement calls for interest at prime plus
| 12 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(amounts in thousands, except per share data)
In
accordance with the agreement, a reserve amount is required for the total unpaid balance of all purchased accounts multiplied by a percentage
equal to the difference between one hundred percent and the advanced rate percentage. As of August 1, 2023, the required amount was
Accounts
receivables were sold with full recourse. Proceeds from the sale of receivables were $
The
factoring facility is collateralized by substantially all the assets of the Company. In the event of a default, the Factor may demand
that the Company repurchase the receivable or debit the reserve account. Total finance line fees for the six months ended June 30, 2023
and 2022 totaled $
NOTE 6. COMMITMENTS AND CONTINGENCIES
There are a number of debts and confessions of judgement (“COJ”) related to the Vivos Group that included Maslow as a co-signer or guarantor at some stage in the Vivos Group debt process from November 2016 through October 29, 2019, when Vivos Holdings LLC owned Maslow. All known debts disclosed to Maslow management and Reliability prior to the Merger were addressed by various safeguards such as the Liquidation Agreement, and the Naveen Doki personal guarantee described in Item 1. However, there were certain non-disclosures by Vivos Holdings, LLC that are included below which are completely covered in Note 8 and Item 3 Legal Proceedings.
In December 2019, the Company’s executive management learned that prior to the Merger, in January 2018, 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 consolidated financial statements and was not separately disclosed prior to the Merger.
Maslow challenged this obligation and included the lack of disclosure in its arbitration complaint. This matter was finally resolved on June 16, 2023 with the sale of the building by VREH, which relieved MMG of any further obligation in regard to the building’s mortgage.
In
September 2022, MMG learned that Vivos IT, LLC filed a lawsuit against Second Wind Consultants (“SWC”) in May 2019
included MMG as a plaintiff. The lawsuit included claims of fraud in inducement and unjust enrichment against SWC. The five parties
suing SWC, included Vivos LLC, The Maslow Media Group, Suresh Venkat Doki, Naveen Doki, and Silvija Valleru. The lawsuit related to
a debt restructuring services agreement secured by Suresh Doki, Naveen Doki and Silvija Valleru to assist the following then owned
Vivos entities: Maslow Media Group, Inc., Health Care Resources Network, Inc., Mettler & Michael, Inc., 360 IT Professionals,
Inc., and US IT Solutions, Inc. SWC countersued all plaintiffs on September 30, 2019, seeking to collect the balance of $
At the present time, the Company is uncertain as to whether any of the above items will have a material impact on their consolidated financial statements.
NOTE 7. EQUITY
The
Company’s authorized capital stock consists of shares of common stock, with
| 13 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(amounts in thousands, except per share data)
NOTE 8. RELATED PARTY TRANSACTIONS
Stock Purchase Agreement
On
November 9, 2016, Vivos Holdings, LLC, the former owner of MMG, acquired
As
of June 30, 2023 and December 31, 2022, the receivable totaled $
Notes Receivable
The
Company has notes receivable from Vivos Holdings, LLC and VREH, a member of Vivos Group, both related party affiliates due to their
ownership percentage in the Company. Per Code of Virginia the legal rate of interest shall be implied when there is an obligation to
pay interest and no express contract to pay interest at a specified rate. However, it was determined in 2021 that the two notes had
clauses capping the default interest at
In
connection with the Vivos/MMG Purchase Agreement, on November 15, 2016, MMG executed a promissory note receivable with Vivos Holdings,
LLC in the amount of $
On
November 15, 2017, MMG executed an intercompany promissory note receivable with VREH in the amount of $
On June 12, 2019, MMG entered into a Personal Guaranty agreement with Dr. Doki, pursuant to which Dr. Naveen Doki personally guaranteed to MMG repayment of $ of the balance of the Promissory Note issued to Vivos Debtors on November 15, 2017, within the 2019 calendar year via cash, stock, or other business assets acceptable to the Company. Dr. Doki is a or greater beneficial holder of Company Common Stock, and therefore is a related party.
As of February 2020, the Company filed a lawsuit against the majority shareholder, pursuant to the personal guaranty agreement for defaulting on the outstanding notes receivable.
Between November 2016 and June 30, 2023, the Vivos Group borrowed an additional $
| 14 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(amounts in thousands, except per share data)
On
September 5, 2019, MMG entered into a Secured Promissory Note agreement with Vivos, pursuant to which MMG issued a secured promissory
note to the Vivos Group in the principal amount of $
Debt Settlement Agreements
On
July 21, 2022, Maslow settled the obligation which Vivos Holdings, LLC had obligated Maslow to in July 2018, with Libertas Funding, LLC
and Kinetic for $
Related Party Relationships
On
October 29, 2019, prior to the Merger, pursuant to the Merger Agreement, Naveen Doki and Silvija Valleru became beneficial owners of
and shares of RLBY Common Stock, respectively, equal to and
In
2019, the Company entered into transactions with two executive officers, Nick Tsahalis and Mark Speck, of the Company, resulting in the
issuance of warrants to purchase
The
term “warrant” herein refers to warrants issued by MMG and assumed by the Company as a result of the Merger. The terms
of all warrants are the same other than as to the number of shares covered thereby. The warrant may be exercised at any time or from
time to time during the period commencing at 10:00 a.m. Eastern time on first business day following the completion of the Qualified
Financing (as defined below) and expiring at 5:00 p.m. Eastern time on the fifth annual anniversary thereof (the “Exercise
Period”). For purposes herein, a “Qualified Financing” means the issuance by the Company, other than certain
excluded issuances of shares of Common Stock, in one transaction or series of related transactions, which transaction(s) result in
aggregate gross proceeds actually received by the Company of at least $
| 15 |
RELIABILITY INCORPORATED AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023
(amounts in thousands, except per share data)
NOTE 9. BUSINESS SEGMENTS
The
Company operates within
The following table provides a reconciliation of revenue by reportable segment to consolidated results for the three months ended June 30, 2023 and 2022, respectively:
| 2023 | 2022 | |||||||
| Revenue: | ||||||||
| EOR | $ | |||||||
| Recruiting and Staffing | ||||||||
| Direct Hire | ||||||||
| Video and Multimedia Production | ||||||||
| Total | $ | |||||||
NOTE 10. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through August 14, 2023, the date on which the unaudited condensed consolidated financial statements were available to be issued. Based upon this evaluation, management has determined that no material subsequent events have occurred that would require recognition in or disclosures in the accompanying unaudited condensed consolidated financial statements, except as follows:
On July 21, 2023, MMG filed a petition for attorneys’ fees, as requested by the Arbitrator. The Arbitrator set the following remaining schedule for submitting petitions for attorneys’ fees: Vivos Holdings, LLC response on August 21, 2023 and our reply on September 6, 2023.
| 16 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This section includes several forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current views with respect to future events and financial performance. All statements that address expectations or projections about the future, including, but not limited to, statements about our plans, strategies, adequacy of resources and future financial results (such as revenue, gross profit, operating profit, cash flow), are forward-looking statements. Some of the forward-looking statements can be identified by words like “anticipates,” “believes,” “expects,” “may,” “will,” “can,” “could,” “should,” “intends,” “project,” “predict,” “plans,” “estimates,” “goal,” “target,” “possible,” “potential,” “would,” “seek,” and similar references to future periods. These statements are not a guarantee of future performance and involve a number of risks, uncertainties and assumptions that are difficult to predict. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Important factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to: the impact of the COVID-19 pandemic on us and our clients; our ability to access the capital markets by pursuing additional debt and equity financing to fund our business plan and expenses on terms acceptable to the Vivos Group or at all; negative outcome of pending and future claims and litigation and our ability to comply with our contractual covenants, including in respect of our debt; potential loss of clients and possible rejection of our business model and/or sales methods; weakness in general economic conditions and levels of capital spending by customers in the industries we serve; weakness or volatility in the financial and capital markets, which may result in the postponement or cancellation of our customers’ projects or the inability of our customers to pay our fees; delays or reductions in U.S. government spending; credit risks associated with our customers; competitive market pressures; the availability and cost of qualified labor; our level of success in attracting, training and retaining qualified management personnel and other staff employees; changes in tax laws and other government regulations, including the impact of health care reform laws and regulations; the possibility of incurring liability for our business activities, including, but not limited to, the activities of our temporary employees; our performance on customer contracts; and government policies, legislation or judicial decisions adverse to our businesses. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We assume no obligation to update such statements, whether as a result of new information, future events or otherwise, except as required by law. We recommend readers to carefully review the entirety of this Quarterly Report, the “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and the other reports and documents we file from time to time with the Securities and Exchange Commission (“SEC”), particularly our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.
The following discussion and analysis of our financial condition and results of operations, our expectations regarding the future performance of our business and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors including those described in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, with the SEC. Our actual results may differ materially from those contained in any forward-looking statements. You should read the following discussion together with our financial statements and related notes thereto and other financial information included in this Quarterly Report on Form 10-Q.
CRITICAL ACCOUNTING POLICIES AND COMMENTS RELATED TO OPERATIONS
This discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these unaudited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
| 17 |
There have been no material changes or developments in the Company’s evaluation of the accounting estimates and the underlying assumptions or methodologies that it believes to be Critical Accounting Policies and Estimates as disclosed in its Form 10-K for the year ended December 31, 2022.
Management’s Discussion included in the Form 10-K for the year ended December 31, 2022, includes discussion of various factors and items related to the Company’s results of operations and liquidity. There have been no other significant changes in most of the factors discussed in the Form 10-K and many of the items discussed in the Form 10-K are relevant to 2023 operations; thus, the reader of this report should read Management’s Discussion included in Form 10-K for the year ended December 31, 2022.
RESULTS OF OPERATIONS
Revenues
Revenues for the three months ended June 30, 2023 were $5,452, which was $1,029 or 15.9% less than for the same period in 2022 with revenue at $6,481. 18.4% or $1,017 of the drop can be attributed to the EOR business segment as second quarter revenues dropped to $4,499 from $5,516. The primary reasons for the EOR second-quarter downturn were that one large client converted more than ten of our employees from our payroll to theirs, another client has had declines in programming.
Recruiting and Staffing revenues dipped by $35 from $898 in the period ending June 30, 2022 to $863 comparatively in 2023, while Direct Hire revenues were up $22 in the quarter ending June 30, 2023 to the comparable period a year ago when that business segment did not complete any placements. Media Staffing would have increased revenues if not for the loss of a client for which we acted as a subcontractor (explained below in Gross Profit section).
Video Production produced the same revenue, $68 in the second quarter 2023, that it did a year ago in in the second quarter ending June 30, 2022.
For the six-month period ending June 30, 2023, revenues at $10,651 in 2023 are $1,613 or 13.2% off of 2022’s $12,264 performance. The paradigm is the same as in the second quarter in that $1,344 of the $1,613 decline or 83% was based on the lower revenue performance of the same three aforementioned clients.
Cost of Revenue / Gross Profit
Gross profit for the three-month period ending June 30, 2023 was $740 representing 13.6% of revenues, which was $147 lower than the $887 in gross profit MMG earned in 2022’s second quarter when the gross margin was at 13.7%.
The slight margin dip can be attributed to a resource that we added last year in the third quarter to support a client directly and the other the loss of a client with whom we acted in a subcontractor capacity. The client failed to win a renewal bid by the end customer. This had a 20-basis impact on the overall gross profit margin in the second quarter 2023.
Year to date through June 30, 2023, our gross profit margins exceed those of 2022 over the same period 13.6% to 13.2%. The catalyst of the gross margin percentage improvement is EOR - up close to 1% at 12.1%.
EOR margins tend to be lower at the beginning of the year as variable costs, such as federal and state unemployment taxes, reset at the beginning of the year. EOR margins tend to increase throughout the year as these variable costs are exhausted. In late 2022 and early 2023, several EOR contracts were extended, resulting in a slight improvement in margins. Overall, our customer mix continues to be more weighted to clients that have more favorable pricing terms than those that previously dominated sales.
General and Administrative (“G&A”)
General and administrative expenses for the three months ended June 30, 2023 were $911 compared to $1,097 in the same period in 2022, representing a $186 or 17% decrease. $139 of the $186 is from the reduction in arbitration related costs, while employee salaries and benefits were comparatively down $36 as commissions were cut by $22, and business insurance costs trimmed by $10 when comparing the second quarter 2023 to 2022.
| 18 |
In the six months ended June 30, 2023, SG&A costs of $1,844 were $558 (23.2%) lower than they were in the same period in 2022 when they landed on $2,402. A savings of $460 was derived as a result of the reduction in arbitration related costs. Other major favorable variances were loaded wages $165, with $135 coming from a lower bonus accrual and offset of over accrued 2022 bonuses, and $27 derived from our business insurance package. Conversely, there were cost increases of $75 for a combination of contract services and marketing costs, $36 for staff events and development, when comparing the period ending June 30, 2023 with the same period in 2022.
We expect increases in payroll as certain roles have been contracted and sales and sales support continue to evolve.
Interest Expense
The Company incurred $22 in interest charges for financing and factoring its invoices in the second quarter 2023 compared with $36 in the same period a year ago, as average borrowing was at $605 for the quarter as compared with $2,500 in 2022. Buyer Initiated Payment Agreement (“BIP”) with American Express (“Amex”) interest totaled approximately $16.
Other Income (Expense)
Other Income/Expense in the second quarter was ($119) compared with $0 in the second quarter 2022. Other expenses were split as approximately half was to cover legal fees for the Second Wind matter (see Note 6 above) and half to address another non-operating related legal matter.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital requirements are driven predominantly by EOR field talent payments, G&A salaries, public company costs, interest associated with factoring, and client accounts receivable receipts. Since receipts from client payments are on average 70 days behind payments to field talent, working capital requirements can be periodically challenged. We have a Factoring Facility with Gulf, whereas Gulf advances 93% of our eligible receivables at an advance rate of 15 basis points, an interest rate of prime plus 2%., and our prime floor rate at 4%. Our Days Outstanding (DSO) for the trailing 12 months ending June 30, 2023 is at 57 comparable to 64 DSO for the trailing twelve months ending March 31, 2022.
Our 12-month DSO has averaged 64 since January 2020 as some of our largest clients have 60 to 90-day terms. Delays in receipt of purchase orders also has had an adverse impact on DSO. However, in April 2023, we entered into a BIP with Amex which enables MMG to be advanced 100% of purchase order approved invoices minus a flat interest rate percentage that is based on that day’s submitted invoice volume. The greater the volume the lower the interest rate charged. This has a profound impact on DSO as this arrangement enables bank debits and credits to A/R as opposed to credits to factoring short term debt with impact to A/R only once the client pays the invoice.
The BIP program has also lowered our cost of capital in that our effective APR for the period ending June 30, 2023 was 5.9% versus the 10.33% Gulf charges on annualized basis.
Alternatively, we have had an increase over the past 12 months in client advances which averaged approximately $211 a month.
When looking at A/R aging in relation to payments to due date, as of June 30, 2023, 89.2% of our $1,631 in total trade A/R was current and 99% was < 31 days aged, compared to 64.1% and 77.6% a year ago, respectively. Our > 60 days aged invoices represent $16 or 1% of our total A/R. This improvement mostly can be attributed to our use of the Amex BIP program as described above.
Our federal and state tax liability is $5 compared to $6 as of December 31, 2022.
Our primary sources of liquidity are cash generated from operations via accounts receivable and borrowings under our BIP agreement with Amex and our Factoring Facility with Gulf enabling access to the 7% unfactored portion. The BIP agreement enables MMG to accelerate cash on accounts with 90-day terms.
| 19 |
Our primary uses of cash are for payments to field talent, corporate and staff employees, related payroll liabilities, operating expenses, public company costs, including but not limited to, general and professional liability and directors and officer’s liability insurance premiums, legal fees, filing fees, auditor and accounting fees, stock transfer services, and board compensation; followed by cash factoring and other borrowing interest; cash taxes; and debt payments.
Since we are an Employer of Record with the majority of contracted talent paid as W-2 employees who are paid known amounts, but on inconsistent schedules; our cash inflows do not typically align with these required payments, resulting in temporary cash challenges, which is why we employ factoring.
Vivos Debtors as of June 30, 2023 had notes receivable totaling $5,348, including default on a $3,000 promissory note and on a $750 tax obligation in December 2019.
It was also anticipated that following the Merger, the Company would both access the capital markets by selling additional shares of Company Common Stock and use shares of Company Common Stock as currency to acquire other business revenues. However, all 300 million authorized shares of Company Common Stock were issued in connection with the Merger. No shares are expected to become available to the Company until the legal dispute with the Vivos Debtors and Vivos Group is resolved. At that point, the Board and/or the shareholders can decide whether to amend the Company’s Certificate of Formation to increase the number of authorized shares of Company Common Stock or approve a reverse-split of the outstanding shares of Company Common Stock to provide additional shares for these purposes. Under the Arbitration Award, it is possible that shares may be returned to treasury which may give the Board greater flexibility in selling shares or using shares to acquire other businesses. No timetable has been set as to when any of these events might take place.
Over the past three years MMG received eligible forgiven PPP Loan totaling $5,216, ERC cash of $4,676, which has bolstered working capital enabling us to invest in software and hire needed resources for operations. On April 29, 2023, we received our final ERC check from the IRS for $1,203 which was for our second quarter 2021’s eligible ERC 941X submission and eligible interest.
Overall, these programs bolstered our working capital and enabled us to bring back employees and continue to serve our clients.
As of June 30, 2023, our working capital was $8,220, compared to $8,645 at the end of December 2022. Our adjusted working capital at the end of June 2023, excluding the notes receivable related to the Vivos Debtors totals $2,871 compared to 3,394 at the end of 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Risk Controls and Procedures
| (a) | Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the President and Chief Financial Officer concluded that the disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. |
| (b) | Changes in Internal Control over Financial Reporting. There were no changes in the Company’s internal controls over financial reporting, known to the Chief Executive Officer and Chief Financial Officer that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. |
| 20 |
RELIABILITY INC.
OTHER INFORMATION
June 30, 2023
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
On or about February 25, 2020, the Company, as plaintiff, filed a complaint with the Circuit Court of Montgomery County, Maryland against Vivos Holdings, LLC, Vivos Real Estate Holdings, LLC, and Dr. Doki, to enforce Maslow’s rights under certain promissory notes and a personal guarantee made by the defendants.
On August 9, 2021, Reliability filed an additional claim in the Debt Collection Suit and Vivos Default Counterclaim in the Circuit Court of Montgomery County, Maryland against Doki, Valleru, Pathuri, Janumpally, Igly, and Judos, that the Respondents breached the Merger Agreement in a number of significant respects and committed fraud in connection with the Merger.
On September 7, 2021, the Company entered in Arbitration and Tolling Agreements with alleged shareholder Naveen Doki, M.D., and his affiliates and all other persons who were parties to the pending litigation previously reported in the Texas, New York and Maryland courts and before the American Arbitration Association. The Agreements call for the stay or dismissal of the pending litigation, with the parties agreeing to resolve their disputes before a single arbitrator in Maryland. The parties also agreed to maintain the status quo in corporate governance and related matters pending a final non-appealable judgment confirming any award in arbitration. The parties also signed a Tolling Agreement to toll the statute of limitations following the dismissal of a pending litigation.
On August 2, 2022, VREH filed for Chapter 11 Bankruptcy Protection in the District Court of Maryland. This action prevented the Arbitrator from providing any ruling relating to Note II in the arbitration case at the time of his award.
On August 24, 2022, the Company filed a motion to stay the VREH Bankruptcy filing to allow the Arbitrator to rule on the claims against VREH. The motion to lift the stay was granted by the court on September 16, 2022 after the initial award by the Arbitrator.
On August 31, 2022, the Arbitrator issued an award (the “Award”) with the Company with MMG prevailing on their claims. The Company and MMG were awarded the following:
| ● | an award in favor of MMG against Vivos under Note I (as defined in the Award) in the amount of $3,458, with interest thereon from June 30, 2022, at the rate of 4.5% per year; | |
| ● | no award as to Note II (as defined in the Award) until and at such time as the automatic stay imposed by the United States Bankruptcy Court as a result of the filing of a petition in bankruptcy by VREH is lifted or the bankruptcy proceeding is terminated; | |
| ● | an award in favor of MMG against Vivos under Note III (as defined in the Award) in the amount of $800, with interest thereon from June 30, 2022, at the rate of 2.5% per year, plus collection costs, including reasonable attorneys’ fees, incurred in the effort to collect Note III; | |
| ● | an award in favor of MMG against Naveen under the Personal Guaranty (as defined in the Award) in the amount of $2,309, plus interest thereon at the rate of 6% per year from the date of the Award; | |
| ● | an award in favor of the Company against Naveen, Valleru, Janumpally, individually and as Trustee of Judos Trust, and Pathuri, as Trustee of Igly Trust, jointly and severally, for contract damages of $1,000, to be satisfied by the transfer of their shares of the Company common stock to the Company equal in value to $1,000, valued as of the date of the Award, in accordance with the provisions of Section 9.06(d) of the Merger Agreement; | |
| ● | an award in favor of the Company against Naveen, Valleru, Janumpally, individually and as Trustee of Judos Trust, and Pathuri, as Trustee of Igly Trust, jointly and severally, for fraud damages in the amount of $4,327, plus interest thereon at the rate of 6% per year from the date of the Award, together with any out-of-pocket fees and expenses, including attorneys’ and accountants’ fees; | |
| ● | an award appointing a rehabilitative receiver for the Company under the deadlock situation provisions of Section 11.404(a)(1)(B) of the Texas Business Organizations Code, the primary function of which is to collect the contract and fraud damages, including costs, expenses and fees provided in the Award, due to the Company, with matters regarding such receivership to be set forth in a supplemental award; and | |
| ● | declaratory relief in favor of the Company and its officers and directors. |
| 21 |
Section 11.404(a)(1)(B) of the Texas Business Organizations Code provides for the appointment of a rehabilitative receiver when “the governing persons of the entity are deadlocked in the management of the entity’s affairs, the owners or members of the entity are unable to break the deadlock, and irreparable injury to the entity is being suffered or is threatened because of the deadlock.” With respect to the receivership, the owners or holders of all of the shares of common stock of the Company received as a result of the conversion of 1,600 shares of common stock of MMG owed by Naveen and Valleru under the Merger Agreement shall not be entitled to vote any of those shares at any annual or special meeting of the shareholders of the Company during the period of the receivership. Upon the completion of the receiver’s primary function of collecting damages due to the Company, the receivership shall terminate and the restrictions on the rights of the shareholders of the Company imposed by the Award shall be lifted.
On May 17, 2023, the Arbitrator issued an Amended and Supplemental Arbitration Award (the “Amended Award”) in which included the following:
| ● | the arbitrator will appoint a rehabilitative receiver under Maryland law in a Supplemental Award Appointing Rehabilitative Receiver; | |
| ● | an award in favor of MMG and against VREH under Note II in the amount of $835,156 as of June 30, 2022, with interest thereafter at the rate of 5.5% per year; and | |
| ● | because the loss sustained by Reliability, Inc. in fraud damages (Award 6) is the same as the loss sustained by Reliability, Inc.’s wholly-owned subsidiary, Maslow Media Group, Inc., in the nonpayment of Notes I, II, and the Personal Guaranty (Awards 1, 2, and 4), there can be only one recovery. |
On May 31, 2023, the arbitrator appointed a Rehabilitative Receiver in the above case, an assignment which the appointee accepted. We now await the Supplemental Order Appointing the Rehabilitative Receiver.
On June 16, 2023, we learned that the principal amount due on 22 Baltimore Road had been satisfied via sale and thus the Fairfax, Virginia court released the VREH confessed judgement; meaning MMG no longer was no longer listed as a guarantor.
On July 21, 2023, MMG filed a petition for attorney’s fees, as requested by the arbitrator. The arbitrator set the following remaining schedule for submitting petitions for attorney’s fees: Vivos Holdings LLC response on August 21, 2023 and our reply on September 6, 2023.
The following legal proceedings where Vivos Group borrowings impact MMG:
In September 2022, MMG learned that Vivos IT, LLC lawsuit against Second Wind Consultants (“SWC”) in May 2019 included MMG as a plaintiff. The lawsuit brought claims of Fraud in the inducement, unjust enrichment and other monetary claims against SWC. The 5 parties suing SWC, included Vivos IT, LLC, Maslow Media Group, Suresh Venkat Doki, Naveen Doki and Silvija Valleru The lawsuit related to a debt restructuring services agreement secured by Suresh Doki, Naveen Doki, and Silvija Valleru to assist the following then owned Vivos entities: Maslow Media Group, Inc., Health Care Resources Network, Inc., Mettler & Michael, Inc., 360 IT Professionals, Inc. and US IT Solutions, Inc., SWC countersued all plaintiffs on September 30, 2019 seeking to collect the balance of $403 not paid by the Vivos Group. This was not disclosed to Maslow Management or to Reliability before the Merger closed on October 29, 2019.
Maslow has retained Counsel and has filed a motion to include all original parties to the SWC agreement, as two of the original parties were not in the original filings (HCRN & Media Solutions). Counsel for SWC requested an extension to the deadline to respond to this motion but has failed to respond before the extension deadline received. The motion is currently being considered by the court. To date MMG has spent $59 on legal fees related to this matter.
Item 1a. Risk Factors
In addition to the other information set forth in this Quarterly Report, shareholders should carefully consider the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
| 22 |
We are currently engaged in substantial and complex litigation and arbitration with the Vivos Group, the outcome of which could materially harm our business and financial results.
As more fully described in Note 6 (Commitments and Contingencies) of the Notes to Unaudited Consolidated Financial Statements, we are currently engaged in litigation and arbitration with the Vivos Group. The arbitration was brought by the Company to enforce its rights under the Merger Agreement.
The litigation and arbitration are substantial and complex, and they have caused and could continue to cause us to incur significant costs, as well as distract our management over an extended period. The arbitration process may continue to substantially disrupt our business and we cannot assure you that we will be able to resolve the litigation on terms favorable to us in any definitive time frame.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits:
The following exhibits are filed as part of this report:
| 31.1 | CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. | |
| 31.2 | CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. | |
| 32.1 | CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL). | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| 23 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RELIABILITY INCORPORATED | |
| (Registrant) | |
| August 14, 2023 | /s/ Nick Tsahalis |
| Reliability President and Chief Executive Officer | |
| /s/ Mark Speck | |
| Secretary and Chief Financial Officer |
| 24 |
Index to Exhibits
| Exhibit No. | Description | |
| 31.1 | CEO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. | |
| 31.2 | CFO Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. | |
| 32.1 | CEO and CFO Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail (XBRL). | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections
| 25 |